At the Web Summit in Dublin in November, Minister for Jobs, Enterprise and Innovation Richard Bruton declared that the war for talent had resumed. But is it one that we can easily win? BARRY MCCALL reports.
Often forgotten in discussion on Ireland’s economic crash of 2008 is the contribution played by the loss in domestic competitiveness which had been witnessed in early years of the new century. Wage costs had risen to unsustainable levels driven partly by the irresponsible benchmarking awards in the public sector and even more emphatically by the war for talent which had erupted across almost every sector in the economy.
Wage inflation reached extraordinary levels with pay in sectors such as retail, hospitality and construction almost doubling inside five years. The high tech sectors of ICT and life sciences saw an even more intense battle for talent. Stories abounded of graduates with little or no experience almost naming their price to employers and then leaving after a few months for a better offer.
Most commentators we spoke to agreed that the situation would have been far worse were it not for the influx of labour from Eastern Europe following the accession of Poland, the Baltics, and others in 2004. At one point the Polish population in Ireland numbered more than 200,000 and included many highly skilled tradespeople who filled gaps in the burgeoning construction sector.
There is also a reasonable consensus around the effectiveness of the response to labour and skills shortages at the time; it was lamentably poor. The crude instrument of pay and fringe benefits was almost the only response. This may have helped attract and retain staff in the short term but did almost nothing to foster loyalty and simply established a crude bidding war and an attendant pay spiral in the longer term.
The onset of the economic crisis and the near collapse in employment which followed marked an end to the war for talent. Many employers, most notably the government, took the opportunity to cut pay while others slashed costly benefits and demanded increased productivity in return for maintaining existing pay levels.
With unemployment levels topping 14 percent at one point and emigration both of recent migrants and Irish people serving to keep it at that level there appeared little prospect of labour or skills shortages ever again becoming a feature of the economy.
Certainly, no one could have predicted them returning as soon as 2014. Yet, at the Web Summit in Dublin in November 2014, Minister for Jobs, Enterprise and Innovation Richard Bruton declared that the war for talent had resumed. “There is a war for talent”, he told the media. “I think we are number one in the world in terms of availability for talent so a lot of what we are doing is right. Big data, data analytics is going to be a driver of a lot of activity. We have to drive those sectors in our education system. So you have to plan. But a couple of years ago, three years ago, we were only supplying 45 percent of our ICT needs from our own colleges. Our target to 2018 is 75 percent and we are well over 60 percent already, so we are definitely hitting our targets and indeed exceeding them.”
While this all sounds realistic and comforting the ICT sector is only one relatively small element of the economy and the emerging labour shortages in construction and other areas should also be of concern. “We are back to labour shortages but it’s the same old, same old”, laments Chartered Institute of Personnel and Development (CIPD), chief executive Michael McDonnell. Part of the cause of his despond is the recently announced apprenticeship scheme.
“Apprenticeship should offer opportunities to open up new ways of getting people into skilled work”, he argues. “It’s an accident of birth whether you go to university or not in this country. If you are born outside of certain areas you have no chance. And the vested interests in the craft unions and other organisations have set up the apprenticeship system to suit themselves. The craft unions get to control the labour supply in their sector and the employers get cheap labour for the final year of the apprenticeship which is meant to be training. It’s a cosy relationship which goes back to the AnCO days.”
He believes that the new proposals will not help address the re-emerging labour and talent shortage. “When I see what’s proposed for the future, it’s just more of the same. The whole thing needs to be reimagined to get people into the areas of business and entrepreneurship that the country will need in the future. We also have to address areas like construction which are beginning to take off again, particularly in the Dublin area where there is already a shortage of office space for larger firms. Many construction professionals and workers have gone to Australia, New Zealand and Canada and it’s going to be difficult to get them back.”
The anecdotal evidence of an impending shortage is borne out by the global skills index produced by specialist recruitment company Hays. It warns of skills shortages across a number of sectors including IT, engineering and construction. Ireland's score on the index has increased to 5.8 out of 10 this year, up from 5.5 last year. The higher the score the fewer skilled workers there are. More worryingly, Ireland ranked 10 out of 10 for talent mismatch, which the report says is an acute concern.
There is cause for optimism this time around, however. For a start the incipient problem has been identified well in advance and has not yet begun to translate into pay inflation. Moreover, the vast majority of organisations have yet to experience the impact of any shortage. Staff are still slow to move out of a secure job into one which offers less certainty as a result of recent experiences keeping churn levels relatively low.
That situation can’t last very much longer, however. And the way in which organisations respond to the changed environment and the strategies they adopt to retain and attract staff will be crucial factors in our national competiveness in the coming years.
The problem is by no means confined to Ireland. In a global survey of over 350 human resources consultants with KPMG member firms around the world carried out earlier this year most respondents said that addressing skills shortages is a higher priority now than two years ago – and will become critical in the next two years. “Skill shortages appear likely to increase as globalisation and competitive pressures take hold across sectors and industries and improving economic conditions spur employees to seek new jobs”, the survey report states.
Another interesting result of the KPMG survey is that this new war for talent is different than in the past with generational and other factors coming into play. Younger skilled workers seem less interested in traditional roles and see themselves as free agents, and management has been slow to respond to this. In addition, the scarcity of people with skills required for new emerging roles is perceived as the most critical market shortage.
Traditional responses will have little effect in the new war, according to the KPMG report. It claims there is little evidence that typical “war for talent” practices that focus on high performers actually contribute to improved business performance. An analysis of the 106 original adopters of such practices indicates that 15 years later they have not helped corporate survival and performance. Only 25 percent of those organisations can be said to be performing well in their market place while a third have disappeared entirely.
The report also argues that it is time to turn to new, more holistic strategies for managing talent. Two-thirds of respondents say it is more important to address the talent needs of all employees in the context of the business and its strategy. Just over half agree or strongly agree that pursuing high potential talent at the team’s expense puts the business at risk.
But it doesn’t just point to the problems, KPMG report also identifies ways for organisations to address talent shortages. The first is to enlist and empower management in talent management – don’t just leave it to HR; the second is to focus on developing clear career paths, and the final one is to take a holistic approach to talent management across the entire employee population. Also suggested is the use of analytics to guide thinking and gauge success.
This would see organisations develop distinct talent strategies tailored to their products, markets and business goals and engaging in more comprehensively planned approaches that measure the impact of their effort. Data analysis capabilities can be used to gauge performance and fine-tune people practices while talent strategies can be monitored and measured to improve results, meet future needs and create opportunities for employees to contribute more value.
PwC director Ger McDonough agrees that things have to change. “We believe that new ways of formulating and delivering talent strategies will be needed to keep pace with the accelerating changes in business models and markets”, he says.
Looking at the financial services sector in specific McDonough says that the kind of talent organisations need, where they recruit them from and how they organise, manage and reward them are going to be very different from the last significant upsurge in recruitment and growth. Simply hiring the same people to do the same jobs in the same way could leave organisations off the pace in a marketplace being reshaped by technology, regulation and changing customer expectations. “We’re not only seeing shifts in what businesses need from their people, but also what they want in return”, he says.
McDonough suggests a number of different actions which HR departments can take to deal with the changed nature of the talent war. The first is the development of a coherent workforce plan which would see them moving away from department-by-department hiring and career development to create a more proactive, systematic and centralised workforce plan capable of anticipating what people are needed and where they should be deployed to meet business objectives.
Databases of people to meet specific needs should be create. “To support the workforce plan, HR should develop a comprehensive database of people who can meet particular needs, both from within the organisation and outside. Within this more flexible model, HR would oversee more bidding for jobs and resources in an approach akin to tendering in government.”
A hybrid human and virtual resource model will also help. “As analytics, automation and new forms of artificial intelligence become core elements of the operation, it will be important for HR to manage both human and virtual resource capabilities side by side”, he contends.
“Effective workforce plans use both internal and external data to inform scenario, capacity and capability planning throughout the organisation”, McDonough continues. “It’s important to develop real-time response to data feeds, with HR evolving into part of a wider performance team. A further priority is developing ways to measure performance across omni-channel operations.”
Branding is also important. “As organisations seek to recruit more people from government, industry and technology companies, it will be important to gauge their attractiveness to people in these new areas and how to strengthen the employer brand. The people to be retained also need to be identified. Younger generations are going to be more mobile. It’s therefore important to develop clear ways to identify and concentrate resources on the people that it’s vital to retain.
Consideration should also be given to reshaping an organisation’s culture. “Culture is influenced by a series of levers including purpose, vision, values, behaviours and reinforcing mechanisms”, says McDonough. “HR should be at the forefront of developing the necessary reinforcing mechanisms in areas such as performance reward, and tracking behaviour and other measurable elements of culture.”
Finally, he suggests working with colleges to reshape curriculums and attract more people into the industry. “High skills shortages can’t be tackled by individual organisations or the industry alone. The partnership with government should include investment in education, advice on appropriate curriculums and a renewed focus on graduate recruitment and training.”
CIPD’s McDonnell believes that Irish based multinationals will not be as badly impacted as indigenous firms partly as a result of their greater level of HR sophistication and partly due to their deeper pockets. “When you look at companies like Microsoft of Facebook labour is a relatively low proportion of their cost base so they can afford to loosen the purse strings and offer a bit more to attract and retain staff. I think that will happen. But this could impact on the competitiveness of indigenous firms. If global demand for good people is growing companies have to respond. There is also a huge pent up expectation on the part of Irish people which has been growing over the past few years. They haven’t given up on expecting pay rises, they have just put it off and many of them are saying they want their money back. In the run-up to the next election the government might be tempted to give a pay rise to the public service and this could cause problems in the private sector.”
He believes this means companies will have to give additional focus to non-financial retention measures. “The surveys all show that employee engagement is at an all-time low with many respondents saying they would get out of their jobs now if they could. This needs to be addressed as a matter of urgency before companies start to see their best people leaving for the new opportunities which will come their way.”
Jennifer Ward of Sigmar Recruitment agrees, “Attraction, retention and motivation are the three most common words used by our clients when discussing employees. And given that the war for talent is back on, this comes as no surprise. Employers now need to think outside of basic salary when attracting, motivating and retaining staff.”
Earlier this year, Sigmar conducted a survey of 2,657 employees in Ireland on their attitude towards benefits. The research indicates that the most significant benefits to employees are private health insurance (84%), pension (82%), paid sick days (81%), educational support (79%) and flexi-time (75%).
“This is a particularly interesting time to examine the subject of employee benefits in Ireland,” says Ward. “The need to keep costs low in recent years resulted in many companies reducing the number of employee benefits offered. However with the recent economic recovery many companies, particularly in the areas of multilingual, IT, pharmaceuticals and finance now face talent shortages and struggle to attract, motivate and retain staff.”
While employee benefits programmes are a significant investment for employers, Ward believes they also provide an opportunity to establish a competitive advantage for their brand as an employer. “The challenge is to balance the goal of controlling costs, while at the same time providing a benefits package attractive enough to help attract and retain the highest calibre employees over the long-term.”
Ward is not surprised at some of the results. “There has been a palpable shift in employee expectations over the last number of years, and while a company car may have been of much higher significance during the boom, we are now returning to the staples of health care and pension, both of which many employees see as basics rather than benefits. What is surprising though, it that these benefits were important across all ages and not just for the older employees.”
Perhaps most welcome from an employer’s point of view is the desirability of flexible working. “Cash is not the number one priority any more”, says Ward. “Flexible working and the ability to work from home is very important now. This is particularly relevant for people with childcare issues or who might have to commute a long way. You can work from almost anywhere now in many jobs and companies who can offer that will be able to attract and hold onto talent.”
She also points to other elements of the incentive package which are of growing importance. “Things like gym benefits and the social side of work like nights out and so on are very attractive to younger workers. CSR is another interesting ones. Companies with strong ethical values and that are involved with charities will attract people. Companies that don’t engage in CSR may find that people are not that interested in working for them. For the past few years security was the number one priority but this has changed.”
The message is clear. A new war for talent has been declared but this one will be different. Organisations which adopt the smartest rather than the most expensive strategies will be the ultimate winners and this should be good news for competitiveness in the coming years.