The Verit View – January 2016
Verit Advisors’ view is that, facing increasingly difficult long-term labor markets, American companies big and small will be forced to invest in sustainable talent programs to ensure a stable, productive workforce.
Firms that get ahead of this trend – some already have — will realize an enormous competitive advantage. Those who lag put their businesses at risk.
We’re all familiar with the difficult reality that is the U.S. labor market: an education system that produces far too few job-ready graduates at both the high school and college levels; chronic shortages of key skill sets only marginally offset by immigration; a job-hopping mentality among many workers that makes employers reluctant to invest in training, lest they become suppliers of skilled workers to their competitors.
These are long-term forces expected to intensify in coming years as the Baby Boom retires. Nearer term, unemployment at 5% means there are fewer job seekers to choose from.
Many business owners have chosen to view the talent shortage as a short-term problem, or at least to apply only short-term fixes: signing bonuses to attract workers; increasing use of external fee-based recruiters; imprecise advertising to create a large funnel of applicants even though it yields a low number of hires; matching of competitors’ wages.
Capital Investments, People Investments
These moves might get you through this quarter’s labor needs, but they contribute to the disloyal labor market that’s already bedeviling employers. A CEO friend, ahead of the curve, explained to us recently that she took to viewing employee turnover as a quality control problem. If manufactured goods produced at her plant failed at such a high rate, she’d be out of business. So why tolerate a workforce that so underperforms?
Her business had eagerly made investments in plant and equipment over the years to boost productivity and improve quality. And so she began investing in talent development with the same zeal. Turnover fell, as did absenteeism. Output increased. A workforce with greater tenure is itself a training organization, she discovered, and a self-policing management squad as well.
Still need convincing? Ask yourself, what’s the true cost to your business to hire a single worker? Make sure you include all the costs. Lost production – or overtime expense — from an unfilled opening. Recruiting and HR costs in hiring. The ramp-up time before a worker earns his or her keep.
Once you have that number – it’s in the thousands of dollars for most companies – you can begin to calculate how an investment in training or other sustainable workforce moves would yield a positive return.
In-house training isn’t the only option, of course. If you haven’t made the acquaintance of those at your local community college, you’re leaving money on the table. Many of them will train your workers for you. Within your four walls, you might be surprised at how good your own, longer-tenured workers will be at designing a program that covers the actuals skills they’ve seen lacking in their short-timer co-workers.
A List Of Surprising Successes In Hiring and Retention
And it’s almost pointless to become better at hiring and training workers if you don’t have an active, effective retention program. You ask your customers quite regularly, don’t you, if they’re pleased with the relationship; asking – and listening to – employees how they’re doing at regular intervals can a.) make them feel valued, and b.) enable you to make adjustments to keep them from bolting.
These big-picture observations have come together as we’ve visited clients and other smart companies in recent years, and written about a handful of them on Mary Josephs’ blog on Forbes.com. Below we share some of the startling labor market successes we’ve witnessed.
A common element among these companies is employee ownership, which is the ultimate retention program. But they’re doing things day-to-day that a company operating under any ownership format can adopt. For most of them, the shift to employee ownership was part of a long process of understanding the value – competitive advantage, really – of an engaged workforce.
–The long haul trucking industry suffers 100%+ annual turnover among drivers, and it costs $3,000-to-$5,000, or more, to hire a driver, a multi-billion tax on businesses. Paladin Capital, Big G Express and others have vastly reduced their turnover with strategic HR moves and employee ownership.
–Being the preferred employer can also make your business the preferred supplier. Faced with a marketplace that regarded its building products as a commodity, Central States Manufacturing invested in its employees and became the on-time, high-quality supplier with a loyal group of customers.
Competing Against Silicon Valley For Engineers – And Winning
–Wal-Mart made life miserable for the competition when it entered the grocery business. Weak emulations of Wal-Mart’s low-cost HR strategy only made things worse for some incumbents. Others, like H-E-B and WinCo Foods, saw a motivated workforce as the driver of their differentiation, be it at the high or lower end of the market. Making customers happy is possible when grocery clerks are excited to go to work.
–Schweitzer Engineering and S&C Electric have shared lineage in the market for power-system components, and they’ve also learned to compete successfully against the largest tech companies for talent and to use a devoted workforce to develop ever-more-sophisticated products.
–In an industry with low barriers to entry, retention of key employees is essential to avoiding the syndrome of training your future competition. SmithBucklin, the dominant association management company in the U.S., prevents that with employee ownership and a comprehensive approach to nurturing talent.
–Not all skilled workers reside at the top of the wage scale. Artisanal beverage and food makers have used enlightened workplace policies alongside employee ownership to retain the skilled craftsmen required to produce their products.
Winning in the labor markets will be ever more crucial to the success of your business. It deserves the same management intensity you bring to sales, sourcing, cost control and finance.