May 1st 2019

CRFCast – HR Insights from the Corporate Research Forum: Tackling the Workforce Crisis with Julia Howes

Julia Howes discusses Mercer’s Workforce Monitor research, which shows that in all major markets, organisations face an impending workforce crisis driven by an ageing workforce, significant reductions in the working population, and high demand for new skills. We explore five lines of defence organisations can adopt to deal with the challenge.

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Gillian Pillans [00:00:03] You're listening to the CRF cast where we explore research we've been working on here at the Corporate Research Forum and we discuss the latest thinking and strategic HR topics with academics, practitioners and leading experts in the field. I'm Julie Impotence research director at CRF. And you can find out more about CRF and listen to our podcast archive at www.crforum.co.uk.

My guest on today's CRF cast is Julia Howes, who's a principal at Mercer. We're going to talk about Mercer's workforce monitor research, which has found that both in the UK and most other major economies around the world, organisations are facing a growing and unprecedented workforce crisis. This means our organisations will increasingly struggle to hire the talent they need to execute their business strategies, and we'll have to adopt radical new approaches to filling those talent gaps. And spoiler alert here. Contrary to what you might think, automation is not the answer.

We will look at some practical strategies for managing the limited talent supply and also look at how we might open up new sources of talent that we're currently missing out on.

Gillian Pillans [00:01:24] Julia, thanks for being with us today.

Julia Howes [00:01:26] Thank you.

Gillian Pillans [00:01:27] So we're going to talk about John Mercer's research on the workforce and specifically around the demographic research that you've been doing over the last couple of years. I understand your research started in the UK. So talk a little bit about the U.K. findings and then we'll expand that into implications for other parts of the world. So can you maybe start with a little bit of background to this research and then perhaps summarise the key trends?

Julia Howes [00:01:56] Yeah, absolutely. So our research began about 18 months ago just after the referendum on Brexit. And I think what we wanted to really understand initially was what is the impact on Brexit for our clients in particular around their ability to access workers. So that's what we looked into. And what we found when we went through that research is that we had to, first of all, start with just getting a really good understanding of what the population and the workforce looked like in the UK today. So we spent a lot of time understanding the current demographics by age band and looking at the population through things like whether they work on UK born, non-EU born or EU born. So you just got a sense of how the workforce broke down. And we also looked at that by population and then we looked at demographics like the age bands and and the different flows of labour into the UK and back. And even actually looking at the current state of the UK and what the workforce and the population looked, stay showed us a lot of very interesting pictures that I don't think we were fully aware of in terms of the age profile of the UK population and how it's quite different to the not being the EU born population. So we've got a good sense of of that current state and then the basis of our research was really to project forward and we chose up to 2030 to look at what the impact of different net migration scenarios would be on both the workforce and the population. And we chose four very different scenarios and they're outlined in our research in a lot of detail, if people are interested. But what was really interesting for us when we went through that research is that in the end, the outcome of all four scenarios was quite similar. So even though the net migration figures were very different, the outcome was the same. And the outcome is this over the next 10 to 15 years, we see that the overall population in the UK will grow at a faster rate than the workforce in every single scenario. So what that means is that regardless of the net migration going forward, when we have more people in the country, however, the workforce growth will be less and in a more extreme version of net migration being very constrained, the workforce may even decline. To put that in a little bit of context, we compared that historically when compared to the last 15 years and we found that in the last 15 years that the population actually grew by 10 percent, whereas the workforce grew by 14 percent. So it's a complete opposite of what we were projecting. And so we thought, okay, let's go back further. And we looked historically to see if we'd ever been in a situation where the overall population was going to grow at a faster rate than the workforce. And we found one instance of it, and that was in the baby boomer era. So post-war. And the reason for that growth was because of more babies. And so what we realised is that this future state that we have over the next 10 to 15 years in the UK, where our increasing population, which is occurring because of older people, is the first time the UK has ever faced this type of dynamic.

Gillian Pillans [00:05:18] So the explanation behind the growth in the population being ahead of figures in the working population is to do with this. Is it just to do with ageing or are there other factors that are leading to that?

Julia Howes [00:05:32] It's predominately to do with ageing. That is absolutely the number one, driving force two, obviously, as we have seen in a number of our scenarios, we looked at positive net migration. So that would also increase both the population and the workforce. But the the UK demographics, the UK born demographics of the ageing, it is the element that has the biggest impact both on the workforce growth and population growth. And because it's got such a large older workforce at the moment that we anticipate a huge amount of that will retire. That is what's really causing the outcomes of our projection.

Gillian Pillans [00:06:11] So demographically speaking, we are really in a unique position looking forward for the next 15, 20 years.

Julia Howes [00:06:17] Yeah, unique compared to historically and is interesting because I think we've been talking about this for a number of years in the UK that the concept of an ageing workforce is not new. But I think we're only just starting to get the tip of the impact of Sue. When we looked at the UK born workforce, what we found is that it peaked in 2013 and it's been declining since. We haven't really noticed it because obviously we've had quite high net migration in that time. So the overall workforce increased. But going forward, that decline will become even much sharper and there's not the younger population that will come in to replace it. So I think it is unique because we've never faced it before.

Gillian Pillans [00:07:00] OK. So what about other countries? Well, we've talked about the UK. Is it a similar pattern elsewhere or are we in a unique position in the UK?

Julia Howes [00:07:11] Great question. I mean, when we looked at this, obviously, we were looking through the lens of Brexit, which was quite unique. But in the same way that we concluded that actually Brexit doesn't really have the impact on a directional change where we're going. We have found that as we look at other countries, the exact same dynamic applies. Now, obviously, there's a couple of countries that were already very aware of. You know, countries like Germany and Japan, we've been talking about their ageing workforce and ageing population for a while now. What's really interesting, though, is that we did another study this year where we looked at the impacts of ageing across a number of different countries over that same time periods up to 2030. And that pattern that I talked about, where the workforce will grow at a smaller rate than the population is actually very consistent across most countries in the world, including countries that we think of as being young. So actually, in countries that will be most impacted by the ageing workforce and ageing population and countries like China and Vietnam and Singapore and countries that we we typically think of as being unaffected by this. But there are really starting to enter the era where they too will be affected by ageing workforces.

Gillian Pillans [00:08:23] So so simply moving operations to another part of the world is not necessarily going to solve this workforce crisis.

Julia Howes [00:08:28] Exactly. And I think that sometimes can be part of our initial thinking. Whether it's migration or movement of work. But I think what we haven't fully appreciated is how much this will impact many, many economies globally.

Gillian Pillans [00:08:42] OK. So immigration has been a hot topic in the UK over the last few years and it underpins the whole Brexit situation. But it's not unique to the UK. This is an issue across Europe, in the US and in many parts of the world. So one of the things that's interesting about your research is that you're not finding the immigration is a solution to the demographic challenge that we're facing in different countries across the world.

Julia Howes [00:09:09] Yeah, I think our research shows that immigration is not the core cause and it's probably therefore not the core solution either. I think that what we what we're facing is very constrained labour market and immigration constraint will make that situation worse. But in in Cali to that, if you just you can't look at immigration as being the only solution to this.

Gillian Pillans [00:09:35] Okay. So if you were to summarise the the impact that you expect all of these different trends to have on organisations and looking to recruit the talent that they will need for the next 15 or 20 years, how would you summarise the impact on the working population?

Julia Howes [00:09:54] I would summarise it quite dramatically. And when we put out our first report, we actually called it the emerging crisis. And as an analytical person, I don't use that word. HEADLEE So I think for me, when you start to pull together some of these themes, ageing, the constrained migration, but also the changing skill set that a number of organisations are needed, whether that's around digital or innovation, I think what we're really looking to face is the true war for talent. And we've been talking about that concept for over 20 years now. And I think in the past, a lot of the time, the war for talent has really been about particular skill sets that have been hard to attract. I think now. This is going to be a skill set issue. I think it's going to be a people and bodies issue. I think it's going to be a leadership and experience issue. So I think it's going to hit organisations a lot harder than they actually realise. And at the moment, with there being so much discussion around automation, we're really not focusing on these supply dynamics at all.

Gillian Pillans [00:10:56] Okay. So we really need to be shifting our focus to think about the supply side of the talent equation and much more.

Julia Howes [00:11:04] Absolutely.

Gillian Pillans [00:11:10] Coming up in the second part of this series cast, we will discuss practical solutions and actions we can take within our organisations to get a better understanding of the potential impact of demographic changes. We'll also talk through some strategies that can help us open up new sources of talent. We'll explore the implications of failing to address this coming workforce crisis.

If you'd like to find out more, listen to the CRF webinar on the future of jobs. Work I'm working or download our reports. They're both available at www.crforum.co.uk.

If you're enjoying the CRF cast, please subscribe to our channel to get the latest editions automatically and leave us a review and to share with your colleagues to.

Okay so, we talked about the crisis. We know we can get a picture of what we're facing and potentially in our organisations. Let's talk about some of the solutions and actions that we can take to avert this coming crisis. So what what sort of conversations you think we should be having in our organisations around this and what should we be doing for a practical perspective?

Julia Howes [00:12:27] Yeah. Look, I think at a business level, at an organisational level, it is incredibly important at the moment that each organisation work out what their own specific needs are. So, you know, we often see that, hey, might look at doing elements of that. I think this needs to be really elevated discussion between hate crime and business. And so a lot of organisations are starting to put this as part of their business strategy planning process, where they really look at their business plans and their ideas and areas for growth and have a much better translation of what that means into their people requirements. And it kind cannot be left as a ancillary side note. It needs to be core to the planning process because for some organisations, they simply won't be able to achieve their business goals because of the lack of resources that they'll be able to access. And so in the same way that we would look at financial capital or consumer analytics as part of business planning process, I think we need to start taking that same seriousness when it comes to our people needs.

Gillian Pillans [00:13:36] OK. So there may be business opportunities out there, but you've got to be able to realise them because of talent shortages potentially. Absolutely. So that needs to be a core part of the strategy discussion.

Julia Howes [00:13:48] Exactly. And I think what organisations therefore need to do is build their own capability of how they translate their business strategy into what that means for workforce needs. And I actually I do recall good piece of a CRM research on this where a lot of business leaders and our leaders pointed to their inability to really be able to do that translation. And so I think that's going to become increasingly important. And whether we think about in terms of translating that into organisational capabilities, translating it into job families and job skills and safety requirements and things like that. I think that translation is going to be more and more important.

Gillian Pillans [00:14:29] I mean, we're talking about strategic workforce planning in order to get an understanding of the scale of the problem. So I guess there's two parts to this. One is understanding what you're up against and then part two is doing something about it. So maybe let's focus on the first part to start with. And so I'm looking at the whole concept of workforce planning. What's that look like? How should we be tackling that in our organisation status? Perhaps a concept that some may think is a little bit old fashioned and can be heavily bureaucratic burps. What is the modern day workforce planning look like to help us address this challenge?

Julia Howes [00:15:07] Yeah, absolutely. Look, I think there has been problems with workforce planning in the past. I don't think that means we should ignore it as something that's really useful. I think it's about modernising it. And so I guess some of the criteria for good workforce planning process for me is one that is as absolutely linked to the business strategy. So that needs to be the first connection point. It is about taking that business strategy and the external environment and then translating it into workforce needs. I think we need to be very careful that that process balances both a medium to long term view as well as a short term view. Again, a lot of push back at first from organisations that say what's the point in trying to predict the future when everything's changing so much and they focus, therefore, just on the short term. The the challenge to me is that if we want to build capability and really think about how we staff build staffing strategies that are unique and different, you have to take a long term view. Just absolutely not about predicting the future. It is about getting a directional view of where your workforce needs might be so that you can make these few very kind of strategic initiatives around capability and capability build that will really set you up for success. And I think the other criteria that I would see a more modern workforce planning is definitely getting away from those very detailed spreadsheet, bureaucratic, as you mentioned, forecasts. We need to kick direction, but we do use analytics. It's important to use data and analysis as part of it. But that for the it needs to be as a means, not as an end. So it's not just about creating data. It's about using data to drive better decisions around those staffing strategies. And I think one thing that we're seeing, huge trend is making it more holistic. So not just about FTE forecasts, but looking at what does that mean for our skills? What does that mean? For our shape. What does that mean for our leadership and culture? And just taking that slightly broader view.

Gillian Pillans [00:17:08] A lot of the conversations we have with Charlie Jones, I think one of the frustrations this is around that point about decision making. So view any point in investing in workforce planning is that has to lead to different decisions being taken in the business.

Julia Howes [00:17:25] Absolutely. And I think when people get lost in in workforce planning, which is typically in the demand forecasting phase, is that they don't keep their eye to the outcome. And so I think if you constantly remind yourself what's the purpose of this process, what are the types of staffing strategies and decisions that we're trying to influence with this process? And then what's the analysis that we need to support that decision making is a much better approach.

Gillian Pillans [00:17:50] Okay. So do you have examples that you can share of organisations who are doing this well?

Julia Howes [00:17:57] Yes. I mean, piecemeal in terms of workforce planning overall. But I think in terms of some of the staffing strategies that are coming from people strategy processes at the moment, we are starting to see in particularly in the UK, some very kind of innovative approaches coming out. And I think what what that what's very good about that is that organisations are not assuming that they can just go and hire the talent that they need when they need it. Some of the examples that we've seen around this, we've seen a lot in engineering organisations on how to take long term build strategy. So lots of investment in things like training academies and apprenticeships. So we've seen things from like B.A. Systems and Dyson where they're really actually creating the apprenticeship and graduate programs that they want in order to basically create the skills that they need. We've seen a lot of organisations think about how they tap into diverse talent and different talent pools and they haven't in the past. So you're both you and I used to be lawyers. They're an interesting example for me as Fresh Fields, which actually started a apprenticeship scheme for lawyers. So not taking graduates from a uni course, they're going young go. And part of the reason they did that is so that they could access a why the talent pool we've seen in other organisations as well. I know BBC has moved away from a focus on qualifications, a why has removed degree classifications. And all of this is to really open up the talent pool. We've seen some organisations do some great work in trying to attract older workers like Barclays and National Express. For example, in this in this country have really put apprenticeship programs in place that are really focused on older workers, which I think is a really interesting area. So lots of good examples of, I think, some innovative solutions. I think we probably have a while to go yet, too. We have great examples of workforce planning that is done organisationally wide in a very effective way.

Gillian Pillans [00:20:04] So in your research you came up with five lines, depends to respond to the workforce crisis that we're potentially facing. Can you talk us through what those lines of defence are and perhaps focus on the ones that are more unusual that maybe organisations wouldn't necessarily first think of?

Julia Howes [00:20:22] Yeah, absolutely. So this for me plays out when when organisations have conducted the workforce planning and they have a better understanding of what they need, where they've identified the job roles or the skill sets, where they're going to have large shortages. And yet those job roles are going to be very critical for success. That is where we would look through the five lines of defence to consider how we're going to tackle that problem. So I think the first line of defence to me is really enhancing your employee value proposition. So what this line of defence means is that you are looking to attract and hire and retain similar workers and you have in the past, you need to ensure that your proposition is as effective as possible. And we're seeing some very interesting work from organisations there around a very holistic approach. So obviously there is the reward dimensions, but there's also the work environment, supporting flexibility, supporting accelerated careers acceptable in order to become the employer of choice. However, for a lot of organisations, the talent simply won't be there in the in the traditional pools. So the second line of defence and one that I think is absolutely fascinating is what we call diversify the talent pool. And so that's where we think quite differently about the types of workers that we may want to go out and attract and in the UK at the moment. There's some interesting inactive labour pools that become front of mind. So that can be women that are not in the workforce at the moment to be older workers that are looking to leave the workforce or have already left. It could be people that have never entered the workforce through means like forms of disability, acceptance and. We as I mentioned before, some of the examples we're seeing organisations really think about how to attract those groups of people. Why do you think this is so interesting is that it really forces organisations to rethink the role and the minimum requirements of the role. And there's a lot of organisations when they do that, they realise that actually the minimum requirements that they have really historical hang up rather than an absolute need. And so and so that's why I think it's such an interesting line of defence to look at the third line of defence. Is this actually automation?

Gillian Pillans [00:22:38] So you said in your research that automation isn't going to save us. And that's, quote, this assumption at the moment that automation is the answer to everything but some. Do you beg to differ?

Julia Howes [00:22:49] Exactly. And so I think where we run the risk of just assuming that the supply issues won't happen because of automation. And at the moment, when we look a lot at the types of automation that is coming in, it produces almost as much work as it does remove. So obviously automation, particularly cognitive automation, means that tasks disappear, but it means that we need humans brains to implement the automation and do the hiring tasks that are left. So at this point, I don't see that automation is going to solve the crisis. But at the same time, for particular organisations, there may be some roles where automation will help them as a line of defence. So we've seen organisations that up until now, the business case hasn't been that, you know, this could be that the technology was too expensive. They were worried about the cost or outcomes and excess and then all they needed to invest further in the technologies for it to become available. And now I think the shortages will actually mean that some of those investments will accelerate. So we actually see it as part of the solution. But on itself, it won't solve the issue. A fourth line of defence is actually moving work. So this might be actually moving back to veto. Geographically, you say within the U.K., two pools of talent, you know, rather than assuming that they'll come to you. I also think it's about kind of tapping into the kind of virtual labour pools and again, like line of defence to you that might be having to think about work and how it's done in a very different way. And I'll find a line of defence is actually you're really looking at regrouping. So it's not great life. It's up to lightweight, but in a way. So, I mean, I do think that if you've gone through those other four lines of defence, you really are at a point where you have to rethink your business strategy. And as I mentioned, some of that often growth targets or new products or solutions being kind of invested in or put as part of a strategy without thinking through the workforce implications. And I do think more and more going forward that some organisations will actually rethink how much they can execute that strategy because they can't get people. And it's better to do that strategically and proactively then to let it fail.

Gillian Pillans [00:25:17] Okay. One of the things you looked hot in your research is just how realistic organisations are about this and how well prepared they are. What's your judgement of the situation at the moment or are organisations ready?

Julia Howes [00:25:33] No, I don't. So I think what we've found in the research is that there's been so much focus on what I call the demand side drivers of what does digital mean for our business. And as I mentioned before, the automation assumption that people are not appreciating to the extent that the supply side issues will face them. So, for example, we have seen some organisations who are struggling to recruit people even today start to say things like, well, we'll we'll invest more heavily in our apprenticeship programs and and our graduate programs and we'll recruit more heavily. But I don't think they fully appreciated yet that if you look at the younger demographics of the UK, they simply will not be enough younger people coming through apprenticeship and graduate programs to even begin to cover the increasing need. And when we look at organisations who are starting to look at the five lines of defence, things like reskilling, attracting older workers, being more flexible, the readiness and the appetite there is much lower. So I think we started to appreciate that we're been hit by a talent shortage, but because we're not appreciating the extent of it, we're not necessarily looking at the right solutions.

Gillian Pillans [00:26:51] Okay. Right. So we need to be really refocusing on different solutions rather than taking the kind of historical approaches that have always worked in the past two to. This kind of talent shortages.

Julia Howes [00:27:04] Exactly. If you thought I was a business leader, you know, I would be thinking, well, in the past if I haven't got my people strategy or staffing. Right. What it's caused me is a little bit of pain in the short term and then a little bit of cost in terms of maybe pay premiums or recruiting costs, etc. But in the end, I've been able to get the people that I need. And it's probably less risky to take that approach because I'm waiting until I need them to go out and do those types of things that simply won't be good enough going forward. Yes, I think we're still in the kind of assumption that at worst pace, I'll just pay a premium and I'll get these people. So we need radical new approaches to how we'll deal with this.

Gillian Pillans [00:27:47] Okay. Julia, thank you very much. Very welcome. Thank you.

Gillian Pillans [00:27:57] Before we close, let's take a moment to recap the key takeaways from my conversation with Julia. First of all, Mercer's analysis shows that in all major markets across the globe, organisations are facing impending workforce skills and talent gaps. This is driven by an ageing workforce. Significant reductions in the working population and high demand for new skills. We need to face up to the prospect that these changes will be a major constraint on our organisation's ability to sustain growth and successfully execute new strategies. Second, while on the one hand, it's bad news. This also gives her an opportunity to support our businesses by building deep skills and workforce planning. We need to be helping our executive teams to assess the feasibility of different strategic options, to develop alternative business scenarios and to implement innovative ways of bridging talent gaps. Business plans will need to pay a similar degree of attention to people requirements as customer demands or financial capital allocation. Finally, we need to move away from the presumption that we can always simply hire the people we need. Julia Torches through five lines of defence. We should be considering enhancing your employee value proposition to give you a competitive advantage in attracting and retaining the people you need. Opening up non-traditional talent pools such as retraining older workers or targeting returning mothers. Investing in automation and relocation work. Or hiring remote workers in the worst case scenario where it's unrealistic to execute a particular strategy just for lack of talent. It may be necessary to regroup or rethink your strategic options. My thanks again to Julia Hayes. If you'd like to find out more about Mercer's research, you can Google Mercer Workforce Crisis, which will take you to the full report.

You've been listening to the CRF cast with me, Gillian Pillans, research director at CRF. You can find out more on our website at www.crforum.co.uk. Follow us on Twitter @C_R_Forum  or join the CRF group on LinkedIn. Bye for now and thanks for listening.

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