Tightening Labor Supply Driving Competition for Talent

November 2, 2016 – Although most companies prefer to groom existing employees as a way to fill open positions, high turnover and a lack of clear strategy are driving employers to hire external candidates, according to a new study by the ADP Research Institute and The Economist Intelligence Unit (EIU). For executive recruiters, this likely signals more business ahead in 2017, especially with the presidential elections done and over with next week.

The report, ‘Strategic Drift: How HR Plans for Change,’ finds that while employers understand the importance of strategic workforce planning, they do not agree on how to turn planning into tangible action. In addition, the combination of older employees staying in the workforce longer coupled with fewer corporate training programs being offered by employers is causing Millennials to switch jobs as a way to advance their careers.

A New Landscape

With the U.S. economy nearing full employment capacity, companies are facing a confluence of staffing and talent management issues that reflect the changing nature of the labor market. Seventy six percent of HR professionals, according to this survey, expect the market for skilled workers will continue to tighten and 75 percent anticipate turnover in the next three years. This new landscape stands to drive competition for talent.

Employers understand that this is shifting how they will do business and manage their employees, the report shows, and companies are divided on whether to focus on internal development or external recruitment.

Finding and Keeping Top Talent

Twenty eight percent of respondents cite recruiting highly-skilled employees as their top concern, while 25 percent say it is retaining experienced employees and 24 percent say their top concern is managing employee turnover. Executives predict that developing current employees will be a challenge, and despite a clear preference to advance internal candidates, hiring external applicants is often a more viable option. Companies see that training is important to retaining their talent, but there is no evidence that they are investing to realize that need.

“This situation sets up an interesting paradox where companies want to manage employee churn, but decreased investment in training is leading to employees seeking upward opportunities through switching jobs,” said Dermot O’Brien, chief human resources officer (CHRO) of ADP. “As a result, organizations must take this into consideration when they engage in strategic workforce planning.”

Companies Know They Must Do More

Companies recognize that they must do more to develop — and retain — internal talent. A large majority (76 percent) of respondents say they will do more to find internal opportunities for employees to prevent job-hopping, with 72 percent saying they will invest significantly in improving their culture, working environment, training and benefits to retain staff.

Companies will also pay more to attract and keep skilled talent: some 69 percent say their company is changing its pay and benefits policies to fill critical skills gaps, with 72 percent increasing existing employees’ pay and benefits to discourage job-hopping.

Strategic Workforce Planning 

Although companies share concern about the present situation, there is little consensus on a path forward. More than three quarters of respondents consider strategic workforce planning the greatest strategic challenge for their company, but there is a nearly even split as to what this term actually means.

Thirty six percent say that strategic workforce planning is about retaining key people to avoid skills gaps, 33 percent say it is understanding what talent will be required in the future and how to find it, and another 33 percent believe it is recruiting new qualified people to plug existing skills gaps.

Not only is there little consensus over what strategic workforce planning means, there is disagreement over who actually owns this effort — with 42 percent saying it lies with the CEO and board of directors, while 28 percent believe it is the responsibility of HR.

The results of a recent Marlin Hawk / Hunt Scanlon Media survey of close to 400 CHROs and talent acquisition leaders strongly suggests that retention strategies need to figure more strongly in the CHRO’s agenda, not anywhere else. The scope of the CHRO’ role is vast and many have now recruited heads of talent acquisition to handle the talent management aspect of HR. “It stands to reason that talent acquisition should also embrace talent retention,” said Scott A. Scanlon, founding chairman and CEO Hunt Scanlon and one of the report’s co-authors. “We have already seen this happen in recent years with an increase in employee engagement activities. Retention is effectively an extension of that drive to create the perfect working environment for staff at all levels.”

According to Mr. Scanlon, nearly half of the talent raid survey respondents (41 percent) said they lacked formal retention strategies. One participant, Brian Heger, an HR advisor and former head of talent management for the parent company of Saks Fifth Avenue, found that key finding disturbing.

“It is concerning that half of the companies surveyed feel unprepared to identify retention risks of key executives and that even fewer don’t have formal strategies in place to retain these individuals,” said Mr. Heger. Effective talent management, he added, “requires an organization to keep a finger on the pulse of the retention risk of key executives and that it is intentional in its efforts to retain these individuals.” These efforts, he noted, should be taken well in advance of when key executives even consider leaving the organization in order to be effective.

Without additional employee training budgets, companies continue to retain older employees who have the skills developed from a lifetime of work. Thirty seven percent of respondents say their companies mitigate turnover by employing people past their normal retirement age. Older workers who would have benefitted from corporate training in the 1980s and 1990s are staying in the workforce longer, while Millennials are facing a bottleneck in management roles.

“Employers are faced with the difficult decision of developing talent internally or shopping externally for needed skills. Right now, it appears many are opting to looking externally,” said Mr. O’Brien, the ADP CHRO. “As we continue to transition to a digitally-savvy, networked recruitment system, where job seekers can easily find new opportunities, we also need to understand the value of retaining and developing talent.”

Conclusion

Some skill shortages are inevitable. Many companies will have little choice but to look for experienced specialists in areas that are new to them or that they need to use more heavily. That will certainly force wages up in some sectors and is going to require HR departments to become flexible and able to react rapidly to market shifts.

However, this explains only a part of skills shortages. There are also strong signs that existing skills are being lost, encouraging companies to keep people on beyond retirement age to retain skills their younger employees have failed to develop.

Senior leadership needs to rebuild training and HR budgets to the levels seen before the 1980s. A change in corporate culture is also critical to satisfy workers’ demands for career advancement and more flexible working conditions. The ADP/EIU survey shows that companies are only now beginning to confront these bigger challenges as their staff and skills gaps become acute.

Inadequate Talent Supply

Numerous reports continue to come out citing that lack of quality talent is an issue among companies despite a large amount of people seeking new employment opportunities.

Forty percent of employers are experiencing difficulties filling roles, marking the highest level since 2007, according to the latest ‘Talent Shortage Survey’ released by ManpowerGroup.

The report noted that as skills needs change rapidly, employers are looking inside their organizations for solutions, with more than half choosing to develop and train their own people. This represents a significant jump from ManpowerGroup’s 2015 survey, when just 20 percent prioritized training and development to fill roles or find new skills. In the U.S. IT sector, businesses are reporting the most marked talent shortage in a number of years. IT roles jumped from ninth to second place this year, the most marked demand for IT in a decade.

The inadequate supply of qualified and skilled talent is the second-biggest threat to U.S. companies’ ability to meet revenue or business performance targets, second only to “increased competitive pressures,” concluded a recent Randstad ‘U.S. Workplace Trends’ report. Nearly eight-in-10 hiring decision makers (79 percent) agree that when positions become available at their organization, they struggle to find people whose skills match the job requirements.

Ninety five percent of recruiters expect finding new talent to be as or more challenging in 2017 as this year, according to the latest ‘Recruiter Nation Survey’ conducted by Jobvite. Corporate recruiters cited a lack of skilled candidates (65 percent) and dealing with hiring managers moving candidates through the hiring process (48 percent) as their biggest challenges. Recruiters expect competition for talent to be in the most demand within hospitality (87 percent), manufacturing (79 percent) and healthcare (78 percent).

Job creation has been “steadily increasing” ever since the recession, “forcing corporate recruiters to double up their efforts to fill positions with quality candidates,” said Dan Finnigan, chief executive officer of Jobvite. “But there simply aren’t enough educated, talented and qualified candidates to keep up with the demand.” As a result, he says, “these recruiters must now go above and beyond by helping to create compelling employer brands and an exceptional candidate experience to keep their clients happy.”

According to a recent Right Management report, companies are struggling to find people with the precise skills or combination of skills they need. Over one third of employers worldwide said they were having trouble filling positions due to lack of suitable talent.

As the global demand for highly skilled labor continues to grow, the Right Management report suggests that leaders will need to align their talent strategies with their business strategies to ensure that they have the right people in place, and rethink old assumptions about work models, people practices and talent sources.

“Low unemployment paired with shorter skills cycles due to the speed of technological change means employers across the U.S. are struggling to fill positions. We see this particularly in industries like manufacturing, construction, transportation and education,” said Kip Wright, senior vice president of Manpower North America. ”When the talent isn’t available, organizations need to turn to training and developing their own people – and in many cases this means first identifying the skills that will be required in increasingly digital industries, like manufacturing.”

Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media