A new report from Taleo explores drivers of talent.
By David Wilkins
The next generation of talent management practices and solutions will be impacted by three most relevant long-term trends: knowledge economy, globalization, and skills gap and structural unemployment. These factors are dramatically influencing the way people work, the way companies are organized, and the way talent is managed. A new report from Taleo, Future of Talent Management: Underlying Drivers of Change, explores the transformation needed in current business and talent management processes and technology to effectively deliver business value in the future. The research for this series is supported by interviews with thought leaders in talent management including practitioners, academics, and technologists from around the globe.
Knowledge is power. The Knowledge Age moved the basis of economic value from goods to intellectual assets, information, and the talent that develops them. It is now widely acknowledged that intangible assets, which largely consist of know-how, unique intellectual property, and patent rights drive more than 80 percent of the valuations of publicly traded companies.
In today’s economy, talent is the most strategic asset and people are the greatest creator of value. While this trend will continue into the future, there is a key extension of this trend that will dramatically impact talent management and future company valuations: The blurring of external and internal talent.
The blurring of internal and external talent started as soon as people could participate in chat rooms and external email exchanges while at work. For the past few decades, these activities were largely ad hoc and employee driven. This is changing.
Leading-edge organizations have formalized and operationalized efforts to tap into the talent and intellectual capital of not only employees, but also of customers, partners, and the public at large into an extended electronic community.
More traditional uses of outside talent are also increasing dramatically. The use of contingent workers is way up and will increase even more in the future. In fact, 35 percent of employers plan to increase their use of contingent workers by 50 percent or more. Labor law firm Littler Mendelson believes that contingency could eventually represent 50 percent of our workforce.
It’s clear that organizations are increasingly deriving value from talent that is outside the company walls. It’s equally true given the early success of these organizations that this trend will continue and accelerate in the future.
The increasing dependence on knowledge workers has put more pressure on organizations to improve their talent management processes and the technology to support them. The blurring of the line between employees within the organization and those without is also driving talent management changes, particularly around sourcing, strategic workforce planning, and employee engagement. Given these changes, executives in leading companies are increasingly focused on talent management issues, recognizing that talent, wherever it comes from, is their only sustainable competitive advantage.
Going global. The economies of countries around the world have become increasingly integrated. Globalization has allowed businesses to expand their operations into new countries and new markets, increasing the diversity of their customer bases and their workforces. To date, the core story of globalization has been the expansion of companies from mature economies into developing economies. This still remains a core aspect of globalization today, but with increasing diversity in the targeted geographies. At the same time, a new chapter is being written, one in which companies from emerging markets are now moving aggressively beyond their borders.
In a recent study, IBM found that China and India are still top targets for headcount expansion; among survey respondents, 40 percent planned to expand in China and 29 percent expected to expand in India. The next significant targets however are a bit more interesting: Russia and Eastern Europe at 23 percent, Latin America at 26 percent, and other Asia (excluding Japan, Australia, South Korea, China) at 25 percent.
The most interesting data point in the list above is the number of companies who plan to expand into Russia and Eastern Europe. Just over twenty years ago, these talent markets were hyper local and literally walled off from the rest of the world. With the fall of the Berlin Wall in 1989, this began to change. Talent that had previously been unavailable became available. Today, we can look to the Arab Spring as a similar inflection point that in five to ten years may result in an expanded talent pool in the Middle East. In certain countries, continued democratic reforms and social equality trends may result in the emerging availability of female workers or minorities. Savvy talent leaders are the ones who will anticipate these changes and have the systemic and strategic capability to be first movers into these emerging talent markets.
According to an IBM study, 34 percent of CHROs in growth markets say they anticipate increasing headcount in North America over the next three years, while 37 percent plan additional investment in Western Europe. This includes companies from India, where 45 percent of respondents indicated they plan to increase headcount in North America and 44 percent in Western Europe. In China, 33 percent of CHROs we interviewed said they plan to increase headcount in North America and 14 percent in Western Europe.
Missing skills. Like any market system, the central attributes of the global economy include balance, flow, and self-correction. While most people think of these issues in terms of capital and other financial instruments, it’s becoming increasingly true of talent as well. Unfortunately, today’s global talent market is largely inefficient and is characterized by a high degree of friction relative to the redistribution of talent.
One of results of this inefficiency are long periods during which companies need to address persistent skill gaps and candidates struggle with the issue of structural unemployment, a particularly difficult scenario where their skills are no longer required, not just within a particular company, but also within an entire sector. Structural unemployment may be the result of cyclical boom and bust cycles, offshoring of particular industries, or the demise of certain sectors in the face of technology or culture change. Whatever the cause, the result in an uneven distribution of talent relative to the available jobs. In periods of structural unemployment, certain kinds of talent can’t find jobs even while companies can’t staff certain kinds of open positions.
The U.S. is clearly facing some of these issues today. Fully loaded unemployment in the U.S. is now more than 16 percent, yet job openings for critical roles in some industries remain unfilled for months at a time. In discussions with survey participants, several hiring managers commented that “time-to-fill” has actually been going up. This was echoed in a recent research paper by The Economist, which noted that some companies aren’t even trying to find perfect candidates anymore and are instead focusing on hiring for potential.
Deloitte findings also support the notion that certain roles, despite high unemployment, are difficult to fill: “nearly three-quarters of executives surveyed (72 percent) anticipate either a severe (34 percent) or a moderate (38 percent) shortage in R&D talent. More than half (56 percent) predict shortages in executive leadership.”
In other words, despite high unemployment, there are persistent shortages in key roles. This echoes recent comments by the president of the Federal Reserve Bank of Minneapolis who said “Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers. But the Fed does not have a means to transform construction workers into manufacturing workers.”
While these issues are not new, the combination of globalization, a rapid shift from manufacturing to knowledge work, and an increasing pace of change for both technology and business is creating a perfect storm of structural unemployment. Skill gaps and talent mismatches are becoming endemic to global business; for multinational companies, the question isn’t whether they will need to combat related skills shortages in a given timeframe, but which countries and how many are facing those issues at any one time. Organizations will need to plan for these sorts of challenges and focus particular attention on talent mobility strategies, rapid reskilling, and strategic hiring practices aimed at tapping into talent surpluses in one geography to offset talent gaps in another.
David Wilkins is vice president of Taleo Research.