The Idea in Brief
Around the globe, workforces are steadily aging, thanks to declining birth rates and the graying of the baby boom generation. Soon, boomers will be retiring in droves, taking critical knowledge and skills with them. And older employees who remain may become less productive.
These demographic risks could damage your company. You can manage them, say Strack, Baier, and Fahlander. But start now—your solutions will take years to produce results.
First, assess your capacity risk (the impact of mass retirement on your firm’s ability to make a product or provide a service) and productivity risk (the effect of aging on job performance). Analyze these risks for each location, unit, and job type. Then develop a portfolio of measures to mitigate anticipated labor shortages. For example, combine cross-training and outsourcing with sophisticated recruitment and retention programs.
Manage demographic risk proactively, and you retain essential talent while also getting a leg up on your competition.
The Idea in Practice
Assessing the Risks
To assess capacity risk:
- For every location, business unit, and job function, estimate how many available workers you will have over the next 5–15 years, based on anticipated retirement and attrition rates.
- Estimate your future workforce needs, taking into account factors such as your company’s growth strategy and industry changes that might require new types of jobs.
- Calculate the difference between estimated workforce supply and demand to determine whether and where you will face a talent shortfall.
- Assess the difficulty of closing any gaps in needed skills, taking into account factors such as lengthy training times for specialized jobs and availability of skilled workers in the external labor market.
Example:
RWE Power’s capacity risk analysis showed it would face a shortage of certain kinds of highly specialized engineers, that few of these engineers would be entering the job market in coming years, and that competition to hire them would be fierce among the few large utility companies—creating a capacity challenge for this job.
To assess productivity risk:
Determine which jobs are at risk because of employees’ ages and the nature of the work. Productivity risk arises when older workers:
- Lose the robustness needed for physically demanding jobs
- Lack up-to-date skills owing to technological changes
- Lose motivation because they see fewer career opportunities ahead
- Become susceptible to health problems
Managing the Risks
To manage capacity risk, consider approaches including:
- Productivity improvements. Process enhancements and technical innovations can reduce your need for new workers in particular jobs.
- Outsourcing. This strategy can be especially effective in jobs for which a temporary labor shortage is looming or that involve work of limited strategic importance.
- Job transfers. Tap a surplus of workers in a particular job type at one location or business unit to fill a gap in the same job at another site or unit.
- Cross-training. For example, at RWE Power, high-voltage electricians working on large mining equipment can (after a short learning period) undertake high-voltage tasks at a power plant.
To manage productivity risk, consider strategies including:
- Training. Provide training that helps older employees stay current on operational technology and job-specific knowledge.
- Health care management. Reward workers who regularly engage in exercise and apply other healthy practices; for example, by offering additional vacation days.
- Performance incentives. Recharge older employees’ interest in their work by encouraging them to mentor new workers or participate in special projects on a freelance basis after they’ve retired.
Most executives in developed nations are vaguely aware that a major demographic shift is about to transform their societies and their companies—and assume there is little they can do about such a monumental change. They’re right in the first instance, wrong in the second.