Companies must come to grips with an aging, changing workforce

JON GLESINGER, Expert Alumni

Do you recall the first time that the words, “in five to 10 years, the effects of the Great Crew Change will be upon us,” were uttered? Well, that was more than 10 years ago. So, by my calculation, that is now. Plenty has happened since then, of course, and some of the factors have, indeed, changed. Recession has taken its toll, and things may never be the same again. Disturbingly, though, most companies became completely consumed with the here-and-now of survival and right-sizing, casting aside the effects of an aging workforce. Focus on survival is understandable, necessary even. That is not the issue.

The problem is that short-sightedness gave way to blindness very often. Planning for future growth, at least where it comes to talent, was the baby that went out with the bath water. Net result—many companies are ill-prepared for the realities of the demographic shift that is now a reality.

Economic prosperity and the boom years may have stopped for a while. The economy may have come to a grinding halt, but the clock went on ticking. I know this sounds rather trite, but this quite simply means that the sheer volume of Baby Boomer retirements is on the increase (6,000 per day in North America, alone). The lure of cash as a retention mechanism is losing its ugly grip, and “times (as the Bob Dylan song goes), they are a-changin.”

I have happily hosted many a lunch with senior executives from a wide variety of industries and, not surprisingly, the conversation at some stage usually moves to people. Two of the major concerns often expressed revolve around the potentially catastrophic effects of the loss of experienced people, and of highly talented people being given too much responsibility too soon. I have also read opinion that suggests that the cost of lost knowledge is hidden. Well, it really shouldn’t be, and if we were only to read the reports and stop thinking that it always happens to someone else, maybe it would become less hidden.

The fact of the matter is that the increasing rate of Baby Boomer retirements is going to put a severe strain on the depth of expertise that companies have to draw upon. Too much comfort is being taken from the expectation that people will stay on or will easily be persuaded to re-engage in an organization. Leaders often won’t invest resources to reduce the impacts of lost knowledge, because they don’t understand the true costs of failing to act. Making the costs of lost knowledge more visible is the best way to create a sense of urgency that will lead to executive action. Expert Alumni is continually building its database of examples to help organizations understand this serious threat to future performance.

We don't need to be reminded of recent events in the world of oil, so what follows is a couple of examples from other industries. Aircraft production delays. When Boeing offered early retirement to 9,000 senior employees during a business downturn, an unexpected rush of new commercial airplane orders left the company critically short of skilled production workers. The knowledge lost with the departure of the veteran employees, combined with the inexperience of their replacements, threw the firm’s 737 and 747 assembly lines into chaos. Overtime skyrocketed, and workers were chasing planes along the line to finish their assembly. Management finally had to shut down production for more than three weeks, to straighten out the assembly process. This forced Boeing to take a $1.6-billion charge against earnings and contributed to an eventual management shake-up.

Errors at NASA. One of NASA’s multi-million-dollar space probes was lost on Mars in 1999. In evaluating the accident, a flight safety director concluded that the loss was caused by an obviously flawed design that would have been readily detected and corrected, if more experienced engineers had been overseeing the project. It also seems that NASA would today struggle to repeat its 1969 achievement of putting a man on the moon. In an article in Knowledge Management Magazine, Geoff Petch writes that, astonishingly, the blueprints for the Saturn rocket have been lost, and much of the knowledge of the 400,000 engineers that made the first moon landing possible lies in documents that are devoid of meaning without the contextual and personal knowledge of those who generated them. NASA now has a program of “knowledge archaeology” to excavate and add meaning to its repositories of information, in order to prepare for any future manned landing.

Knowledge and experience retention. The importance of retaining knowledge and experience must not be overlooked. Some companies deal with it seriously, but most are saying a lot more than they are doing, hoping that it will be OK. Can we learn from recent history and hard-earned experience? That remains to be seen.

In the changing workplace, companies may flourish or perish, based on whether their older professionals are able to transfer knowledge and experience to younger recruits. Photo courtesy of BP.

More than 10 years ago, I began to look into the effects of an aging workforce. Initially, this was focused on the effects upon leadership, and, in particular, with reference to the energy sector. Following a significant—now published—study conducted in conjunction with The Energy Institute and Deloitte, the scope has broadened to all sectors. It soon became clear that the wave of retirements that has now started will have a significant effect on a wide range of industries, and that the momentum will pick up quickly, particularly in areas where there are already serious problems attracting and retaining talent.

The loss of experience to retirement will create major problems over a range of industries, not only in the Western world but globally. This includes energy, construction, healthcare, IT, insurance, banking, legal, financial and consulting organizations. Indeed, there will be few sectors without casualties. So, if half of the working population is about to retire, how will companies cope without their experience?

In recent years, a preoccupation in the energy sector has been the skills shortage, as the sector grew again following the downsizing associated with the oil price collapse of the late 1980s and then again in the late 1990s. This was combined with the effects of significant consolidation that created the super-major oil companies. Additionally, there has been a significant worldwide shortage of graduates in engineering and science disciplines, creating a generation gap.

The Baby Boomer factor. Clearly, much is needed in the area of education, training, cross-industry development and up-skilling. However, my thoughts were more along the lines of “what do we do about the demographic reality of more than 40% of the working population reaching eligibility for retirement?” I think 40% is optimistic; it is higher than this.

Thus, we are left in a precarious situation, which is not just headcount. The loss of more than 40% of the workforce is a real issue. Driving the average age of a company down by employing increasing numbers of graduates does not alleviate the key issue—the loss represents at least 70% of a company’s experience.

Regardless of how much graduate recruitment is carried out, and no matter how many people are up-skilled or cross-trained; there is a gap that cannot be filled. This is manifest in two ways. First, the Baby Boomers will retire. Second, they take with them the invaluable experience that the graduates so desperately need.

Simply attempting to retain older workers is not a solution. It may work for a while, but the effectiveness will gradually decrease. Aside from being accommodated in their changing mind-set, the more experienced people need to be transferring knowledge, mentoring as well as managing. There are other issues, too, such as the unrest caused in the succession plan, if senior people are retained too long.

Of course, many companies have elected to let their employees closest to retirement go. This may make sense, when the pressure of a recession is dictating survival tactics. It also means that there are large numbers of highly experienced people not in full-time employment. Some go back to their former companies on a full- or part-time basis, but very often people do not feel particularly loyal to the companies that readily let them go.

As exemplified by this wellsite crew in the Granite Wash portion of Oklahoma’s Anadarko basin, there is an impending wave of retirements that could generate an experience/knowledge gap among field personnel that is just as severe as that among the professional disciplines. Photo courtesy of Apache Corp.

As we see it, all of the elements of the frequently-quoted “War For Talent” are applicable. However, the bigger issue may well be the Battle For Experience. The suggestion of considerable research is that we are seeing a reversal of the trends of hierarchy and interchangeable, general skills, as seen in the second industrial revolution, in favor of reinstatement of horizontal collaboration and more specialized mastery. This time, the transformation will not take a few hundred years.

In this changing world, the major business constraint is not capital. The real issue is what we see as the new global currency—experience. This concentrates again on the more senior end of the employment supply chain, the people with the most experience. These are the ones, who know the most about how things get done and, importantly, what to watch out for when things start to go wrong. They are, in many cases, the leaders, managers, senior contributors, mentors and coaches. By and large, they are the Baby Boomers.

These are the folks, who are eligible for retirement. They have the option to leave, and, increasingly, money is not a retention factor. Many are on mandatory retirement programs; need to slow down, as health issues catch up—not just their own, but those of their aging parents.

A new mindset. Not only this, but as will be seen in other parts of the workforce, there is an increasing trend toward a working consciousness. Simply put, people are not only working for money, goods, consumables and property. In a survey of our membership, it was very clear that fulfillment of purpose and volunteering is a primary objective for a significant number of people. For Baby Boomers, there has always been a desire, but the work vs. life balance has never really been achieved. For gen X, Y and millenials, giving time is an expectation. For them, purpose is a much higher driver than cash. I subscribe to the view that life is not so much about work vs. life balance, but much more to do with priorities that vary over time. More on the subject of when is enough, enough, at http://www.expertalumni.com/blog/

As wonderful as this may be, all of these factors combine to create real challenges for employers. The War for Talent says that companies should adopt a talent mindset—attract, develop and retain. Having experienced people is a critical factor. Schlumberger’s report, “Surviving the skills crisis,” is clear that leveraging senior people is crucial.

Another outcome of the big change drivers—demographic trends, competition for the right skills and experience, social and economic challenges, and advances in information technology—is what we call Portfolio Life. We see this as becoming more prevalent and desirable for individuals, and for companies, to embrace—not only necessary, but beneficial. The three elements of the Portfolio Life are “Pay, Purpose and Play.” People will work for more than one company and spend a meaningful amount of time giving back.

In this new world, the order of the day will be, as Lynda Gratton says (in her book, The Shift), horizontal collaboration and more specialized mastery. Roughly translated, there will be a trend away from the traditional job and a move to work. Competencies will be the key issue, and people will break down their whole into components. They will be able to charge varying rates for the components or competencies that are most sought after.

In this respect, companies will take an agile project view of the competence and experience required to get the job done, and can view things from a component level, rather than assemblies. For individuals, this means a new personal awareness; for companies, it means a new way to determine how things get done. Those who do it best will, of course, be the winners. Many companies refuse to believe, or at least have difficulty believing, that this will be a reality, but then automation had its opponents! As many commentators would have it, “the future of work is here.”

We believe that Experience Networks are the way forward. Ten years ago, social networks were virtually unheard of. Now, they are a part of everyday life. Unfortunately, business is not taking too well to them. This is not surprising, as they were not built for business. Experience Networks are built for business, and they concentrate on experience, competence, preference and availability.