A Battlefield Revisited
by Joel Strauch

The following is reprinted with permission from the May 2003 issue of The Talent Economy. Copyright New Work Media. All Rights Reserved.

It seems that the concept of war permeates our society these days, but it’s not a skirmish in the Middle East or a worldwide theater of nearly blind swings at terrorism that we’re going to examine, but rather the impending war for talent. War for talent? Aren’t we in an economic downswing? Aren’t companies downsizing (or rightsizing) right now, not worried about a huge demand for, and low supply of, talented workers?

There are still a lot of companies that are looking to keep expenditures down with hiring freezes. But it’s time to start thinking about who you’ll need for your skilled positions and how best to land them – and keep them – when the tide turns.

An Ongoing War

In 1997, the consulting firm McKinsey & Company published "The War for Talent," which explored how to manage your talent in times both hot and cool. 1997 is a world away, in terms of the dot-com boom and the ensuing mad rush of expansion, but the concepts that the book was based around apply, regardless of the economic backdrop. We spoke with Helen Handfield-Jones, one of the authors of "The War for Talent," about how this decidedly cool economic time was impacting the talent war.

"It’s certainly at a lull in certain talent markets, for example, the IT talent market. I’m not sure how long it’ll take in terms of turnaround time," she says.

"Freshly graduating MBAs are also having a tough time, really feeling the pinch. So many companies have cut back on their recruiting. It’s a very tough time to be graduating as an MBA," says Handfield-Jones.

But it’s all part of a cycle – what may be a down time for technology jobs is a positive time for professions in education and medicine. "The dynamics for supply and demand at this time are very different for different types of talent," she says. "For example, the demand for nurses right now is hot. That’s very different for the demand for computer programmers today. The specifics for how loose or how tight it gets on the micro level differ from the macro level."

Regardless of the economic climate, talent has become one of the more critical factors in how competitive a company can be. "Having the right talent gives you a greater advantage than ever before. It’s gotten increasingly difficult to recruit, so we’ve seen companies get more aggressive," she says.

And this is a relatively new development in the corporate world. "Most companies were surprisingly poor at managing talent up until six or seven years ago," says Handfield-Jones. "They didn’t know who their high-level performers were, weren’t sure of their recruiting strategies, and didn’t know how to develop their people."

The changes that have been made in talent recruitment, training and retention aren’t going to disappear just because we’re in an economic downturn, either. "These are long-term structural forces that are driving these conditions. They may get hotter or cooler, but we’re looking at twenty-year structural forces. They’re not going away," she says.

Specifics will always go up and down, but the general trends remain in place much longer. "The ups and downs of the economy will cool off the urgency, but the long-term trends are there. Those aren’t changing," she says.

Supply-Side Demographics

In addition to the forces that keep companies searching for talented employees, it is anticipated that there will be a major shortage of skilled workers in the coming months and years. This holds true especially in IT, where many people have stopped preparing for the job market because of the number of unemployed IT workers in today’s marketplace. But it’s the changing demographics that may cause the greatest void on the supply side.

"There have been enormous demand and supply shifts in IT over the past several years. During the dot-com boom, companies couldn’t hire enough people. That put huge power in the hands of the workers. But right now, there are many companies responding to the economic downshift," says Handfield-Jones.

"But there is always a demand for the best people, and those with specific skill sets. And will the overall demand gradually pick up and reabsorb the supply? Sure, it may take a few years for that to happen, but IT talent will be important for a long time," she says.

The larger concern is the shrinking of the younger talent pool. "It’s estimated that the number of working 25 to 44 year-olds will decline by six percent in the next 10 years. And this is after many years of that population growing because of the baby boomers," she says.

It’s part of the natural process of an aging population, and it will change recruiting strategies. "The overall workforce is growing, but the number between 25 and 44 is declining. This means that companies can and should try and tap that older workforce. But they have to be careful. If they over-rely and overstock with baby boomers, they’ll be exposed ten years from now. It’s only a short-term solution. Companies are going to find themselves competing to attract that age group under 45," she says.

Talent Retention

Companies also have to worry about hanging on to their employees after they’ve managed to land them. "In the old days, you could expect to hold on to your best people for 20 years. People worked for one, maybe two companies in their lifetime," says Handfield-Jones.

That’s not the case anymore. "People are more mobile than ever before. It’s a liquid talent market for many reasons. The Internet and search firms have been a factor, but people are more willing to move even with families. There’s much greater liquidity and transparency in the market. And that trend isn’t going away. Some people have been harmed by too much job-hopping but, in general, there’s just a lot more mobility in the system," she says.

So, what does this mean for companies looking to stay competitive? "Companies that succeed will be the ones that get much better and more sophisticated in terms of talent management," says Handfield-Jones.

"Companies rely more and more on talent and intangibles created by talent than they did years ago. The most important aspects of your company – innovation, creativity, product development – that all stems from talented individuals. This is especially true in knowledge-intensive businesses. The more knowledge-intensive your business is, the more it depends on people," she says.

Time to Hire

Companies can’t afford to wait until the economy swings back upward before stockpiling talent. This is especially clear in talent markets with a structural imbalance, where there’s already not enough supply. "We’ve certainly seen that in the area of business leadership: there’s a clear sense that companies feel that they don’t have a strong enough talent pool. There’s less demand across the board because of the soft economy, but that’s not going to last forever," she says.

This specific talent market is still in a lull and not as hot as it was three years ago, but that means that it’s going to pick up that much more, Handfield-Jones says.

So, there’s the issue of maintaining profitability by reducing or holding spending in the down economy, versus getting caught on the short end of the demand stick when the economy picks back up and there’s a mad rush for limited talent.

"The smartest companies are the ones that can handle this dilemma. At a time when many companies have frozen or have even been downsizing their employee populations, smart companies haven’t completely shut down their recruiting pipelines," she says. "It’s still small numbers, so it’s a great time to be recruiting. You can hire people you might not have gotten your hands on two years ago. Companies should take this time to stock their talent pool with the best people. But not very many have because of across-the-board freezes, which aren’t healthy for companies."

As for employees looking for jobs, it’s a good time to emphasize your best skills. "We’re seeing that people with the best talent, the high performers, and the ones filling talent-intensive jobs, such as leading a business unit, developing software, or other complex roles are having the best time of it," says Handfield-Jones.

"The difference between high performance and average performance right now is huge. The demand for the most talented people is – and always will be – enormous. Even though an overall field may be down, the demand for the very high-end people in those talent-intensive types of careers continues to be intense," she says.

The war may not be in full-blown mode right now, but things are heating up. Those who hope to win will find that balance between maintaining the bottom line today and arming their companies with top talent for tomorrow’s battle.

Joel Strauch
The Talent Economy Magazine, May 2003