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HUMAN RESOURCES

An Internal War For Talent

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The disappointing job numbers released last Friday for March will leave many in doubt about the resurgence of the economy and the labor market. Less than half the forecast 225,000 jobs were created, the fewest in nine months.

More than 2 million new jobs have been created in the past 12 months though -- the best one year period since 1999. In that year, however, over 3 million new jobs were created, and there were about 3 million fewer people looking for work.

Yet a renewed war for talent is upon us, and it's intensifying. Unlike the broad shortages we faced in the late 1990s, when employers scrambled to bring on anyone even remotely qualified, today's talent war is internal. Employers are only now waking up to the true costs of losing good people.

Instead of focusing on new hires while ignoring the fact that as many or more people are leaving, organizations have to get a lot smarter about retention -- it's a matter of survival.

In the most advanced knowledge economies, like the U.S., almost 80% of workers are information workers. Yet, while the industrial economy is just a memory, old school HR practices and mindsets persist. Organizations have to adjust their thinking to the new realities of talent management in knowledge economies. An enormous part of that is in identifying and keeping critical talent.

What's relevant is the availability of those you consider talent -- people who will help you reach your business objectives. If you employ mainly knowledge workers, it doesn't help you that there are over 8 million unemployed workers looking for a job in the United States, because only one in eight have a degree. Throughout the worst of the recession between 2001-2004, even when 1.8 million jobs were lost in 2001, the unemployment rate for college graduates remained under 3% (and lower still for certified tradespersons). Whether your version of talent is a PhD or a skilled welder, the pickings are slim, especially if you're hoping to hire 'A' players.

Even in its most liberal interpretation, talent describes only a subset of workers. The competition for above average and top performers is already vicious and will only get worse as demographic realities begin to take effect later this decade.

Winning the internal war for talent is critical on several fronts. First, the true cost of an average performer leaving is 1.5 times salary. That translates to millions of dollars each year for a mid-size company with average turnover. Where top performers are concerned, the costs are incalculable. A famous software pioneer once estimated that the loss of a top engineer to a key competitor could easily cost his company more than one billion dollars over the course of that employee's career.

Second, employee dissatisfaction is on a steep rise. In recent polls by Spherion, Gantz-Wiley and others, up to 55% of staff and managers said they intend to leave their employers within one year. Among executives it's worse. ExecuNet's 2005 survey found that 77% are "looking to make a change" in the next six months.

Top performers will find it easy to leave while many average and most under performing employees will stay because they have no choice. This means some organizations will be left with a disengaged and poorly performing workforce while others, those that have figured out how to expel poor performers, keep top performers and attract the best from their competitors will reap enormous competitive advantage.

Successful talent management inside an organization sets in motion a virtuous cycle. Through word of mouth it becomes known as a great place to work. This reduces the external war for talent to mere skirmishes in which talent will almost always choose the top employer. This is proven to be the case even when a competitor with a poor reputation offers a better salary. Before long, the "industrial age" employer finds itself having to offer a significant wage premium to attract talent as it spirals through a vicious cycle of high turnover and poor morale. In the process, it loses customers and, in a knowledge economy where talent is king, it ultimately fails.

The "War for Talent" is indeed back, if it ever left us at all. As Jan Pieters, VP of global recruitment for Phillips Electronics warns: "The labor markets we operate in are extremely aggressive and competitive. We have to retain our existing talent because once they step outside, there are 100 competitors waiting to get that talent from you, absorb the knowledge from those people, and use it against you."

There is little time left for organizations to move from an industrial age "labor mindset" to a knowledge economy "talent mindset". Those that transition will thrive; those that don't will perish.

Last updated: Apr 1, 2005




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