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The Global Talent Mismatch

Get ready for a worldwide skills deficit. Talent shortages could stall nearly every business.




April Cover

New Research producedby The World Economic Forum and the Boston Consulting Group provides compelling evidence that the talent crisis will affect every region of the world in the coming years.

The supply-and-demand analysis in Global Talent Risk—Seven Responses shows that "widespread talent scarcity will persist for decades. That scarcity will redefine human capital practices and ways of doing business for a long time to come."

This challenge will force HR professionals in organizations of all sizes to recast talent management into "talent creation." Despite high unemployment, at least 3 million U.S. positions currently remain unfilled. In 10 years, there could be at least 20 million vacant U.S. jobs unless the current education-to-employment system undergoes significant changes, says Anthony Carnevale, director of the Georgetown University Center on Education and the Workforce. Edward Gordon describes the imbalance between talent supply and job requirements as an "HR talent tsunami," which will strike globally and create intense competition for people with science, technology, engineering and math skills and for other educated professionals in most industries. Gordon is the author of Winning the Global Talent Showdown: How Businesses and Communities Can Partner to Rebuild the Jobs Pipeline (Berrett-Koehler Publishers, 2009).

"We have hired 60,000 people, but at the same time we have 12,000 open positions," says Peter Löscher, chief executive officer of Siemens AG, the Germany-based electronics giant. "We have to tackle the mismatch between the demographic gap and the skills gap."

Siemens is hardly alone. Before the skills gap reaches a tipping point—sometime in the next decade—HR professionals as well as C-suite leaders, current employees, students and representatives of governments, nongovernmental organizations, community organizations and educational institutions must understand and address this complex issue.

Strategy vs. Reality

The workforce strategies of most U.S. companies need dramatic improvement. Human capital experts say few companies have plans offering realistic assessments of workers’ skills and demographics. Further, many "lack a comprehensive workforce strategy that maps to a clearly articulated business strategy," reports Jeffrey A. Joerres, chairman and CEO of Manpower Inc., an employment services company with headquarters in Milwaukee.

HR managers need to obtain and interpret information about their employees’ skills, identify gaps and map those against what’s needed in the future, says Lisa Calicchio, SPHR, vice president of corporate human resources for Princeton, N.J.-based drug development services company Covance.

Calicchio, a member of the Society for Human Resource Management’s Organizational Development Special Expertise Panel, outlines this HR agenda:

  • Revamp workforce strategy.
  • Improve existing recruiting, training and development.
  • Develop relationships with educational institutions, government agencies and other training organizations.

To develop solutions, HR professionals can start by gaining high-level understanding of the problem.

'Devastating' Forecast

The Boston Consulting Group simulated workforce demand and supply in 25 countries, 13 industries and 10 occupational clusters for Global Talent Risk.

"The overall picture is devastating," says Rainer Strack, a senior partner based in Germany and co-author of the report. He says the United States, Europe and Russia face "huge" shortages. China’s one-child policy contributes to the deficit there: By 2050, the country’s declining birthrate will reduce from 10 to 2.5 the number of workers supporting each senior citizen.

According to Manpower’s annual Talent Shortage Survey conducted in 2010, 76 percent of Japan’s employers said they had difficulty finding the right people to fill jobs. In contrast, only 14 percent of U.S. companies reported having trouble finding staff.However, experts say U.S. recruiters can expect much greater difficulty filling positions as the global economy gains steam and Baby Boomers leave the workforce.

The same survey found that the world’s most difficult jobs to fill are skilled trades, sales representatives, technicians and engineers.

Drivers of these skills shortages are well-known:

  • Aging populations.
  • Education-to-employment systems that are not producing enough graduates and employees with the skills necessary to fill important jobs.
  • Underinvestment in organizational training.
  • The shift to a knowledge economy fueled by skilled, well-trained knowledge workers.

Although science, technology, engineering and math deficits cut across multiple global industries, some sectors will be hard hit by 2020. These sectors include the business services, communication, health care, information technology, and transportation and trade industries.

While skills gaps affect the entire world, developed-economy countries and developing-economy countries will be affected in different ways.

For example, talent shortages in developed economies will continue to plague recruiters in a range of U.S. industries, from transportation and communication to IT, trade and health care. By 2020, just finding enoughworkers will be the pressing issue for employers in Western Europe and the United States, due to declining birthrates. By 2030, the United States will need to add more than 25 million workers while Europe will need to add at least 24 million, according to Global Talent Risk. In particular, professionals with college and graduate degrees will be in urgent demand.

Yet the plight of U.S. and Western European employers pales in comparison to the challenges facing their peers in developing economies. In developing economies with high economic growth and stable birthrates, like India, employers now report surpluses of workers. But large numbers of workers come from educational systems that vary in quality.

For example, only 30 percent of the populations in developing economies qualify as potential managerial talent, according to Global Talent Risk. The same reportindicates that only 25 percent of Indian professionals and only 20 percent of Russian professionals are considered employable by multinational corporations because of the "uneven quality" of those countries’ educational systems.

And, employers in developing economies face migration issues. Skilled workers from India and other developing countries have left home for higher-paying positions in Canada, Australia, the United States and Western Europe. Canada—where 10 percent of the labor market consists of foreign-born workers with degrees—and other countries have established more business-friendly migration policies than others: Foreign-born workers with degrees make up only 2 percent of the European labor market, according to Global Talent Risk.

Competition for employable, educated migrant workers is intensifying. Many foreign-born professionals from developing-economy countries, especially those from India, recently have begun returning home in higher numbers. The reasons for reverse migration include the loss of opportunities in developed economies as a result of the recession as well as more job opportunities at home. India recently created a Ministry of Overseas Indian Affairs to strengthen relationships with the 25 million Indians who live and work abroad and to lure skilled workers back.

This shift could greatly hamper innovation in the United States, where foreign-born workers with degrees make up only 8 percent of the labor market yet author more than 50 percent of patent applications filed by U.S. companies.

Education Flaws

Many human capital experts argue that educational systems throughout the world require overhauls to better prepare students to acquire science, technology, engineering, math and cross-cultural learning skills. These experts say the same holds true for the United States, where the educational system has been criticized for failing to develop workers with the right skills for 21st century jobs, such as those in health care technology. "Education reform is essential for rebuilding the U.S. talent pipeline," Gordon writes.

That assessment is difficult to counter: Carnevale’s research indicates that the United States will need 22 million new college graduates to enter the national workforce by 2018 but is on target to produce, at most, only 19 million. Currently, while 67 percent of high school students begin working on a college degree, only half finish undergraduate degrees in six years, according to Manpower research. The figures are much lower for lower-income and some minority-group students.

Spurred by federal agencies, private-public partnerships and other organizations, significant reforms are already under way. President Barack Obama has called for the United States to reclaim its previous title as the country with the highest proportion of college graduates in the world by 2020, an objective that requires an additional 8.2 million graduates in nine years. A proposed 2012 National Science Foundation program is designed to increase the quantity and quality of college graduates. And organizations, such as the National Academy Foundation in New York City, have been addressing underserved high school students by providing access to industry-specific curricula, work-based learning and relationships with business professionals.

Education reform is just a first step in closing the growing skills gap. Other solutions, led by members of the business community, also serve as models.

Overpowering a Utility Skills Crunch

Holistic Solutions Required

For companies with headquarters in the United States, Gordon advocates revisiting Internal Revenue Service (IRS) laws that require accountants to treat spending on training as costs rather than investments. Current tax laws, for example, permit employers to capitalize investments in fixed assets such as equipment over time.But the majority of training costs must be recognized as immediate expenses, making them attractive targets for cost-cutting when revenue falls short and employers try to maintain profits. While a current IRS rule allows training costs to be capitalized in "unusual circumstances," Gordon advocates loosening that rule, via changes in accounting rules put forth by the Financial Accounting Standards Board. Such changes would give accountants greater flexibility while making training a less attractive short-term cost-reduction target.

Experts cite the tax rules in several Western European countries, including Finland, as favorable from the standpoint of funding organizational (and individual) investments in professional training and development.

Fixing skills deficits need not require vast outlays of time or money.The five types of solutions presented throughout this article represent some exemplary approaches.

"We can do this," Gordon emphasizes. "It’s a question of whether we have the cultural will to do so because we are at a tipping point. If we don’t do something soon, you will see the quality of products and services in our country steadily decline because we simply will not have the people necessary to do the work."

There is still time to respond, but not much: Gordon and others point to 2020 as a crucial deadline for reversing current trends.

SOLUTION 1

A Workforce Strategy, Not Just a Plan

According to a 2010 survey report co-produced by the Boston Consulting Group and the World Federation of People Management Associations, only 9 percent of global companies indicated that they have sufficiently analyzed future workforce supply and demand, and only 6 percent have started developing strategies for confronting skills gaps. The 5,561 survey respondents were from 109 countries.

HR professionals must foster a culture where all employees constantly think long-term and develop talent, asserts Terry Laudal, senior vice president of human resources for Palo Alto, Calif.-based SAP America, the U.S. business of Germany-based business software giant SAP AG.

The strategy at Deloitte LLP was produced after senior leaders of the global accounting and consulting firm took a look at current talent and skills and compared them to future needs. Future supplies of certified public accountants will be lower, so Deloitte intensified recruiting.

In 2001, “If you told me that in 10 years we would need to go in high schools to start positioning business careers so that we would have the right talent pool, I would have said, ‘No way,’ ” says William Pelster, managing principal of Deloitte’s internal talent development function. “We have to do that today.”

SOLUTION 2

Treat Training as an Investment

“Human capital is replacing financial capital as the engine of economic prosperity,” according to the authors of Global Talent Risk—Seven Responses. Despite this shift, leaders of many U.S. companies favor Industrial Age human capital management. Edward Gordon, author of Winning the Global Talent Showdown: How Businesses and Communities Can Partner to Rebuild the Jobs Pipeline, reports that training and development spending by U.S. businesses declined 10 percent from 1999 to 2008. He notes that U.S. companies spend roughly 10 times more per employee on information technology than they spend on training.

In 2010, India’s Infosys Technologies invested $184 million in educating and training its workforce. This investment funds three programs focused on building competencies in new and veteran employees, reports Tan Moorthy, senior vice president and group head of Infosys’ education and research function.

Infosys’ Campus Connect program, begun in 2004, strives to increase the employability of university students by aligning their previous engineering and technical instruction with industry demands. Faculty Enablement Programs have been conducted for more than 5,000 educators at more than 400 colleges throughout India. As a result of these efforts, Moorthy indicates that more than 100,000 students have been made “more industry-ready.”

A second program takes place on the company’s Mysore, India, campus. In 1.5 million square feet of space, educators can train roughly 15,500 Infosys employees each year—and the sheer size of the facility will allow educators to train far more each year. Newly hired employees attend the “foundation program” for 20 to 23 weeks to prepare them to work with Infosys clients.

The company’s third major initiative, continuous education, keeps “the competencies of our experienced people current and relevant,” Moorthy explains. The company provides veteran employees opportunities to prepare for more than 1,500 different certification exams that increase their value to the company as well as their long-term employability.

SOLUTION 3

Collaborate With Industry and Business Partners

A “talent trellis” represents a leading practice identified in Global Talent Risk—Seven Responses. This approach describes training people for multiple vertical and horizontal career paths. Although the trellis approach represents an internal training strategy, external partners and collaboration often support execution.

SAP America offers an “exchange program” for emerging leaders, notes Terry Laudal, senior vice president of human resources. High-potential managers switch places with emerging leaders from another company for six-month assignments. For example, John McDonnell, SAP America’s director of the enterprise information management center of excellence, worked on Procter & Gamble’s global data management team for six months in 2010.

This program results in valuable learning and leadership development, Laudal adds.

Other forms of collaboration also strengthen talent pipelines. For example, the Center for Energy Workforce Development, a nonprofit consortium of electric, natural gas and nuclear utilities and their associations based in Washington, D.C., helps utilities build the alliances, processes and tools necessary to develop the future energy workforce. The center runs career awareness programs in high schools and the military. Its specialists create road maps that show educators at community and technical colleges ways to align competencies, learning objectives and curricula with specific industry career paths. They also promote industry awareness among women and other underrepresented population segments.

SOLUTION 4

Establish Relationships With Education Institutions

When Kristen Weirick, North American talent recruiting leader for Cargill, discusses her agricultural company’s U.S. internships, she sounds less like an HR professional and more like a marketing officer.

“Every intern returns to school after their summer internship and shares and compares what the experience was like with their fellow students,” Weirick says. “Poor internship experiences limit your future pipeline. Great internship experiences, where students gain real experience, receive relevant feedback and develop skills that prepare them for future success, grow the pipeline.”

Hundreds of Cargill’s summer interns work at locations throughout the United States. Cargill flies them to headquarters for two days of orientation where they train and network with other interns and senior leaders.

HR professionals “have a liaison responsibility” with educational institutions, notes Eric Winegardner, vice president of client adoption for online employment solution company Monster. “Sometimes, we take it upon ourselves to maintain relationships when really we should be brokering them.” Winegardner suggests that HR professionals put managers in touch with professors so that they can discuss ways to address skills gaps.

SOLUTION 5

Strengthen Community-Based Organizations

More community-based organizations, created via partnerships among businesses, government agencies and educational institutions, are cropping up to address skills gaps.

Chicago Career Tech operates out of the city’s economic development office and taps area businesses for training, internships and curriculum development. Judy Williams, a former outplacement counselor and director of a college-level training program, says she signed on “because my position was eliminated due to lack of work.” She has an MBA, a glowing 20-plus-year record and strong project management knowledge. That experience made her an ideal candidate for retraining that retools unemployed workers for high-demand technology careers.

Students must possess high school diplomas, be Chicago residents, have previously earned salaries of $25,000 to $75,000, and have exhausted unemployment benefits. They attend training and on-the-job internships six days a week for six months.

Participants “hit the ground running when they enter a new organization,” reports Rachel Arquines, senior HR consultant with Harris NA, a bank that hosts interns and now employs some.

Accretive Health recently hired five graduates. “The program acts as a bridge,” notes Alicia Coughlin, an HR generalist at the health care company.

Christopher Grant, president and CEO of Grant-Tech LLC, raves about the intern program. His professional services firm provided Williams with an internship and later hired her.

Williams’ story and other inspirational accounts of how people have retooled themselves sound a note of optimism among the gloomy projections of skills shortfalls.

— Eric Krell

The author is a business writer based in Austin, Texas, who covers human resource and finance issues.

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