by Dr. John Sullivan and Master Burnett
The U.S. economy is like a sprinter trying his best to run a long-distance race. It takes off at full speed until it burns up its resources and has to slow down while it recovers, only to take off again shortly thereafter. Time and time again, companies in the U.S. have weathered periods of economic expansion and contraction, but for the first time in recent history (since the Romans ruled civilization), the circumstances are a little different. The conditions are so different, in fact, that the recruiting profession may avoid being decimated this time around.
While many economists agree that the U.S. will likely avoid a recession despite the collapse of the housing market (which is leading to widespread layoffs in construction, mortgage financing, and supporting industries), macroeconomic growth rates are going to be much lower than we have become accustomed to, but they will still be positive.
In January, layoffs by U.S. employers surged 69% to 74,986 according to Challenger, Gray, & Christmas. Despite that gloomy news, more than 58,000 of those cut from their organizations found other employment by the month’s end, resulting in a net increase among the jobless of just 17,000. These numbers are pretty good when you consider that natural attrition associated with the aging workforce should already be leading to a significant reduction in the available labor pool. But, the housing crisis isn’t over. Some say we have only experienced the tip of the iceberg, so the volume and size of layoff announcements are likely to grow in coming months.
So what’s the good news? From a recruiting perspective, this period of economic contraction is different than ones we previously endured for a number of reasons, including:
- The Weak Dollar. While many Americans bemoan the dollar’s current value, its relative weakness is doing something very important for the U.S. economy: It is making goods and services produced in the U.S. more affordable to consumers in other nations, which is bringing money back to the United States. This trend is contributing to a growing number of U.S. companies achieving record revenue growth based primary on sales in Europe, Asia, and Latin America. Whirlpool, for instance, reported record results despite a dramatic decline in demand among U.S. consumers. Sales in Europe were up 12%, Latin America 30%, and Asia 26%. Growth abroad creates new jobs here as corporate functions grow to support operations.
- The Aging Workforce. We know this topic has been beaten to death, but 2008 is only the first year of the projected contraction in the U.S. labor force. It’s possible that we talked about it too much before it actually got here, leading people to believe it was a non-issue because they were not feeling the pain. While it is likely that older workers will remain in the workforce longer due to a decline in the value of their retirement funds, not every older worker will have that as an option as medical conditions, skill obsolescence, and declines in physical capability play out.
- Reduced Product Development Life Cycles. Product life cycles are not often talked about in recruiting, but they should be. Over the course of the last decade, advancements in technology and growing competition from abroad have forced product development life cycles (the time required to take a product from conception through delivery) to become significantly shorter. Cell phones, which once took 18-36 months to develop, today start flying off store shelves in as little as 90 days. It’s all about innovation. In the last decade, brands kept customers loyal and, before that, it was proximity to customer and customer service. But today, keeping customers loyal requires innovation and price control. Rapid innovation requires talent capable of producing it, and with life cycles as compressed as they are, it requires a constant stream of such talent.
- Global Competition. Would you travel to India for surgery, or would you carry a credit card issued by a financial institution in Indonesia? More and more U.S. consumers are. Nearly every industry in the U.S. is facing competition from a foreign competitor, if not for customers then for material resources. It used to be that the U.S. could win every battle simply because the dollar was so strong, but that isn’t true anymore. Foreign upstarts that U.S. companies once outsourced to are now leveraging their store of U.S. dollars and starting to compete head to head with these companies they once serviced. It is a phenomenon happening around the world.
- Global Labor Demographics. When HR practitioners in the U.S. think about the aging workforce, they think about the U.S., but they should be thinking much larger. With the exception of South America and a handful of small countries elsewhere, the aging of the Baby Boom generation is a global phenomenon. Japan, China, India, Germany, and Italy are all in much worse shape than the U.S. This fact will drive the value of available labor up in these nations, further reducing the economic viability of outsourcing provided by wage labor arbitrage.
The long and short of the story is that your organization will continue to need a significant influx of talent despite a contraction in the U.S. economy.
It’s All about Capability and Capacity
To survive, grow, and best the competition, organizations need to have both the capability to produce innovative products at a price point consumers will accept and the capacity to produce enough units at the right time in the right place. While capacity is a function involving talent, equipment, and material resources, capability is almost entirely derived from talent. When it comes down to manipulating the capability of an organization, corporate leaders have but two options: either build capability by training and developing talent or acquire talent through recruiting, be it for employees, consultants, contractors, strategic partnerships, or outsourcing agreements.
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For most corporate leaders, the desired option is clear: Both CEOs and CFOs have ranked their organizations’ ability to recruit top talent among their top concerns for a number of years. Despite the growing visibility of their unhappiness with their organizations’ capability in this area, a number of HR leaders continue to adopt development over recruitment as a method to mitigate the potential impact of the aging workforce.
This critical “make” versus “buy” decision is one that organizations make without nearly enough insight. Skill sets and employees, for that matter, face obsolescence just like any other resource that organizations consume to produce goods and services. It’s kind of harsh to think of it that way, but organizations often keep obsolete talent around for way too long.
When making the critical decision about how to manage the capability and capacity of the organization to achieve its objectives, organizations really need to answer the following questions:
- Realistically, what percentage of the workforce will need to be replaced in the coming years either due to attrition, natural obsolescence, or business change?
- What percentage of headcount growth will be needed to fuel growth initiatives?
- Historically, what has been the cycle time associated with developing talent into the roles that will most likely be vacant?
- What percentage of talent developed fails post-attainment of the role?
- What percentage of talent developed separates from the organization prior to attainment of the role?
- Does a significant supply of talent exist inside the organization that can be developed into the role by the projected time needed, accounting for failure rate and turnover?
- What would be the cost associated with the development initiative compared to that of an acquisition initiative?
- What would be the cost of an extended vacancy in a key role should either initiative fail?
In some cases, development makes sense, but in the vast majority of cases related to professional talent, the economics involved point to talent acquisition as the more viable option.
It’s All About Who You Are As a Company
For organizations that depend upon operational efficiencies to maintain small profit margins, such as computer component manufacturers and grocery stores, pursuing a “promote from within” strategy makes sense. There is a lot of operational knowledge that needs to be imparted from generation to generation in order to drive sustainability. But for organizations that depend upon innovation and have extremely compressed product development life cycles, “promote from within” strategies can be disastrous if they permeate the organization. The sole reason stems from a famous quote that basically says organizations that focus solely on building leaders within the organization will never know what they don’t know. It’s a lesson that Shell Oil had to learn the hard way, and one that UPS is probably learning now.
Step Up and Reposition Recruiting as the Strategic Activity It Is
The economic points are clear: The skies are going to be partly cloudy with areas of sunshine. Organizations need to become more adept at routinely releasing obsolete talent and replacing it either through recruiting or development, whichever makes the most economic sense. But, the decision must be made based on data and not on personal interests or beliefs. Recruiters need to step up; understand the business strategy; figure out the impact of top talent, average talent, poor talent, and no talent; and advise corporate leaders where talent opportunities exist. No one understands the labor market better than recruiters; unfortunately, way too many accept the transactional part of their job as the job. To “build” versus “buy” is a decision that could make all the difference in an organization, but it is one that too few organizations ever research. Since no one else is doing it, step up and preserve your job. No one else will!