2014 global human capital trends

The quest for workforce capability

Create a global skills supply chain

March 7, 2014

Organizations now compete globally for scarce technical and professional skills. How can they locate and develop this talent when it takes years to develop expertise?

Organizations around the world are experiencing disruptive change in the demand for critical skills. Not only are specialized skills increasingly scarce, but they are also unevenly distributed across the global economy.

As a result, companies are often looking in the wrong places when it comes to building workforce capabilities—and coming up short. In fact, according to our global survey, executives rank building workforce capability as one of the top three challenges facing their organization over the next 18 months.

This trend helps explain the “talent paradox” that has emerged in recent years: High unemployment rates point to a surplus of labor, yet companies report great difficulty finding and keeping the skills most important for their growth.

The global competition for skills is even tougher in fast-growing new business areas. The supply of skills in software engineering, mobile computing, big data analytics, life sciences, advanced manufacturing, and new energy technologies is struggling to keep up with demand. Engineers, life scientists, statisticians, geophysicists, and others with technical skills are in short supply.

At the same time, these skills are in demand over a broader range of industries. Auto manufacturers now compete with Silicon Valley for software talent; retailers battle manufacturers for IT skills; and large pharmaceutical companies recruit against fast-growing startups for life scientists.

Moreover, the capabilities gap is actually far broader than a lack of engineers and scientists. In addition to the need for technical skills, companies are also facing shortages in first-line supervisors throughout sales, customer service, manufacturing, finance, and other business functions. Retailers, hospitality companies, software firms, and all manner of service providers need people who understand how to sell, communicate, serve customers, and solve problems.

The expected shortage of 38 to 40 million college-educated workers by 2020 further fuels this challenge.1

Deep capabilities drive performance—and take years to build

One of the ways to assess a company’s competitiveness is to understand its talent and workforce capabilities.2 Companies that can attract, retain, and develop deep, specialized technical skills are generally well positioned to outperform their peers—in nearly every industry.

Apple and Samsung succeed by attracting leading skills in engineering, innovation, and marketing. Amazon drives performance by constantly building its capabilities to leverage technology, the user experience, and data. Google has become a market leader by turning itself into a destination employer for talented people with scarce innovation, technology, and business model skills.

As the environment in which businesses operate becomes more complex, skills evolve and become obsolete more rapidly.

Our global Human Capital Trends 2014 survey suggests that respondents clearly understand this challenge, with 75 percent rating workforce capabilities as “urgent” or “important.” However, only 15 percent believe their companies are “ready” to address the challenge. This gap is particularly wide in many major economies, including Japan, Brazil, the United Kingdom, South Africa, and the United States (figure 1).

Figure 1

Why the capability gap?

First, many organizations are looking in the wrong place, believing they can fill their capability gaps by “hiring the right person” in their current markets. Yet this traditional approach is increasingly a zero-sum game with as many losers as winners. Even if companies can identify the right people, they must then attract them, compete with others to hire them, and train them further once they are on the job. The reported backlog of skills gaps appears to suggest the old way is no longer working.

Second, it takes many years to develop deep skills within the workforce. One major oil company explained that, because of its long-standing investment in proprietary processes and technologies, a new engineer requires five to seven years on the job to become fully autonomous and productive.3

Third, many companies have not built development programs that create capabilities in a continuous way. Traditional learning and development programs, which typically sprinkle training across the organization, are simply not dynamic enough. Robust capabilities are not built through episodic training, but through continuous education, experience, exposure, and the right environment.4 Companies have the opportunity to build more integrated development strategies that include formal and informal training, expertise sharing, apprenticeship, management support of learning, and ongoing performance support and coaching.

Traditional learning and development programs, which typically sprinkle training across the organization, are simply not dynamic enough.

Succession planning: Beyond the C-suite

Given the competitive challenges of finding talent in the marketplace, coupled with the long lead times needed to build deep skills, succession management should expand well beyond the C-suite.

Traditionally, succession planning has concentrated on identifying high-potential leaders and developing them for senior roles in the organization. Rather than just focusing on these managerial positions, this process should be expanded to include other key roles as well—including key technical specialists, people in critical customer-facing roles, and expert operations and project managers. Oil companies, utilities, and manufacturers, for example, now regularly develop succession plans across a range of technical professions.

Creating a global skills supply chain

Given the scarcity of skills and the high level of demand, the annual training and development planning cycle is being replaced with a “supply chain” approach to developing workforce capabilities. This involves a systematic, continuous process rather than a “once and done” annual event.

Under a supply chain approach, companies examine their capabilities at all levels and project gaps into the coming years. Once these gaps are visible, companies can focus on which skills they will need and where they might need them.

As figure 2 shows, executives in our global survey generally believe their companies are doing an adequate job of identifying skills gaps and understanding where skilled workers are located. However, they are struggling to access those skills, particularly when it comes to moving talent to the work and redesigning work to access skills in new places.

Figure 2

To overcome this challenge, organizations can search internally and externally for capabilities by exploring new approaches for accessing talent, building continuous learning programs, and turning leaders into “capability development champions” with a responsibility for producing deeper levels of talent on their own teams.

Lessons from the front lines

German apprenticeship model champions early workforce training

The German apprenticeship model has become a standard for workforce training programs. Seen as a driver of Germany’s impressive export growth, the apprenticeship model relies on a close working relationship between secondary schools and local businesses and factories. Now, some elements of that model are expanding abroad, including to the United States,5 as German companies such as Siemens and Volkswagen seek to ensure a strong school-to-workplace link in US regions where they have built factories.

Oil and gas industry takes charge of workforce development

The rapid evolution of the oil and gas industry creates a constant pressure to develop new workforce capabilities and skills. As mentioned above, one industry executive told us that training an already-experienced petroleum engineer to its company’s specific standards takes five to seven years—nearly the equivalent of earning a second doctorate.

In order to address a chronic shortage of skills, the oil and gas industry has pioneered efforts to extend workforce training back into the classroom. Starting in secondary school—and even at the elementary school level—companies are dedicating resources to spur broader interest in math and science.

The idea is to build a broader potential talent pool of people with the scientific background and technical skills the industry requires for future growth.6 Some companies are targeting these programs at local markets where oil and gas is extracted in order to develop talent locally, rather than relying on expatriates to fill capability needs.

Where companies can start

Businesses react in a variety of ways when building their supply chain for talent.

Here are a few starting points:

  • Understand skills gaps today and into the future: Begin by identifying key talent segments, then project needs and expected supply into the future. Factor in company growth, retirement, and attrition.
  • Bring the work to the skills: Conduct a broader global scan of technical and specialist skills around the world and in your own country. Investigate new skill pools, such as part-time or retired workers. Explore relationships with colleges and schools to build a deeper pipeline and help educational institutions prepare workers for the business’s evolving requirements.
  • Extend the global supply chain: Study the extended supply chain: Identify where key skills are located, where they are going, and where and how to source or locate work to tap into talent hubs. Develop new talent centers in emerging markets. Partner with local colleges, institutes, or global universities to build a pipeline of candidates. Consider “acqui-hire” strategies that enable companies to acquire talent by purchasing specialized firms.
  • Extend the time horizon: Recognize how long it will take to fully develop key skill sets—the “time to proficiency”—and model the education, experience, and exposure necessary to build these capabilities.
  • Foster continuous skill development: Build an environment and a culture of continuous learning. Encourage everyone in the organization to become a talent manager and their own “chief skills officer.” Measure leaders and employees by their ability to produce rather than merely to “consume” skills and talent.7

Originally published at Deloitte Insights

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