Prepare for the ageing workforce

Dennis Turner, chief economist of HSBC, discusses the implications of an ageing workforce on business growth and the need for workforce planning.

The oldest members of the Baby Boom Generation will turn 65 this year – that magic number once associated with retirement. With one in six people in Britain predicted to live to 100, we are not only living longer, but likely to work longer – some of us by necessity, some of us by desire. As the largest and richest generation in the history of humanity, the Baby Boomers are redefining what it means to be older in almost every aspect of life, from health, education, income and retirement.

The knock-on effect of these changes is creating both unique opportunities and specific challenges for employers, as well as employees across the entire spectrum of the workforce. An ageing workforce increases the risk of opening up critical skills gaps. With a visible shortage of new graduates in certain disciplines, such as science and engineering, this represents a significant risk to companies, including a number of established industry giants. For those who have recently retired, many older people are now choosing to supplement their income with part time employment in what was once considered a ‘young person’s job’. McDonald’s, for example, is seeing a marked increase in customer satisfaction levels in those restaurants staffed by older employees.

Deferred retirement also means fewer job openings for those at the other end of the workforce – be it casual labour in a fast food chain or in a white collar entry level position. With fewer people retiring at 65, there are fewer internal promotions, resulting in a trickle down effect of fewer entry level opportunities. Many graduates with ‘generalist’ degrees are struggling to find that first foot on the rung of the career ladder, which is obviously exasperated by the fragile economy. And there are less of them. With a sustained decline in birth rates, there are fewer people aged between 17 and 25 to fill such openings. Delayed retirement is also impacting career experience. As more senior roles are retained by longer tenured employees, the next generation is being denied opportunities at the next level. This in turn poses a risk for employers both in terms of retention, as well as the development of required capabilities.

I’ve always thought tenure in senior positions tends to favour alternate generations – a bit like the royal family. Queen Elizabeth is enjoying a long reign, which means Prince Charles will probably have a comparatively shorter reign. It’s the same for corporate management. For the most part, the current generation of senior managers will have been in their jobs for a long time, and are likely to stay in their roles longer than their predecessors. Consequently, the generation behind them will typically have a much longer career in the same role due to their succession getting deferred. An ageing workforce can be a major obstacle blocking career opportunities for younger employees. Like most things in life, from an employee perspective, your next promotion is somewhat dependent on timing – luck of the draw on when you were born, and waiting for us Boomers to move out of your way.

In addition to lack of opportunities for promotion, other factors are destroying ‘traditional’ careers, such as the flattening structure of organisations. The majority of companies today have less than six levels of management compared to 15 levels a generation ago, largely thanks to the efficiencies of technology. That means you’re likely to stay in a middle job for longer today than your predecessors did.

This is why organisations need to change the paradigm of what they consider to be a ‘career’. Most people think of a career as sequence of promotions that people move through. In today’s labour market, this is not sustainable. In the future, a career will be more characterised by promotions, transfers, secondments, and projects that allow individuals to build portable capabilities in the workplace. Research by business execution software specialists, SuccessFactors, reveals that more than 50 per cent of the workforce is not likely to have more than one promotion for the rest of their career, and 65 per cent will not have more than two promotions. A career today is not about a sequence of promotions over a life time. A career today is about building the employment value proposition of the individual through the mix of experiences individuals are provided.

From an organisational perspective, however, it’s not so much about timing as it is about planning. This is a workforce going through significant and unprecedented change. With a fragile yet recovering economy, planning for growth and executing against business strategy are paramount. Organisations need to make decisions about their workforce with the same rigour, logic and confidence they make about money, clients and policy. The problem is that the majority of companies are trying to do this blind.

We all know that people represent both the largest asset and the single biggest operating expense in a company – typically between 30 per cent and 80 per cent depending on the industry. Organisations usually have a lot of workforce data, but struggle to turn it into actionable insight because it’s locked away somewhere in siloed systems and IT doesn’t have the time, budget or expertise to deliver it. SuccessFactors also points out that the ability to execute on business strategy is now a CEO’s biggest concern. This means having the necessary granular insight for planning and executing against business strategy.

Aldus Huxley famously said, “Words are like X-rays. If you use them properly, they’ll go through anything.” It’s the same with workforce analytics. If you use them properly, they’ll give you all sorts of insight – from knowing who your key talent is, which roles are critical, forecasting future gaps, predicting employment costs for various business scenarios, to how engaged employees are and how they stack up against their peers. The answers are all there. You just need a common workforce language and a single source of truth to deliver insights you can execute against.

Best-in-class firms for workforce analytics experience a 17 per cent improvement in employee performance, an 11 per cent increase in profit/FTE, and a 7 per cent increase in revenue/FTE (The Aberdeen Group). Similar findings by SuccessFactors reveal that best in class analytics has some core foundations. The first is having a single source of the truth for all workforce implementations. No one will have confidence in the system without quality data. The second is segmentation of workforce data, so you don’t have the same HR initiatives across the board, but rather tailor different initiatives for different groups of employees with different requirements.

Most savvy business leaders instinctively know they have a ticking time bomb when it comes to workforce planning. It’s just that most of them don’t know where to start and every department has a different perspective. By creating a common workforce language, and a single version of the truth, organisations can create a reliable data foundation that measures the things that matter to the business – such as developing needed skill sets for the future, reducing turnover of critical roles, and building bench strength in key talent.

The ageing workforce issue is not a blip in labour supply. It reflects growing competition for the available workforce. Companies that fail to address this issue risk future staff and skill shortages, and any competitive edge they now enjoy. It’s not so much the cost of implementing a strategic response to changing workforce dynamics that companies should be focused on, but rather the cost of not implementing one.

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