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The largest segment of the working population will retire in the next five to 10 years and the potential remaining talent pool is smaller, less experienced and likely to be more expensive.
Efforts to respond to this challenge have provided some temporary relief. Yet few, if any, industries have addressed the problem in a way that will yield lasting benefits. This must change if companies hope to achieve high performance in the future. Without fully addressing the aging workforce challenge, companies will find themselves unable to meet the needs, expectations and perceptions of their customers.
Accenture believes that companies must take a more comprehensive approach to the aging workforce—rather than continuing to address the problem in a piecemeal fashion. The Achieving High Performance in a Rapidly Aging World report details such an approach, one that will let your organization fully understand the impacts of workforce aging and other related trends on your operations; assess preparedness to address the issue; develop a detailed road map to eliminate key human capital shortcomings in your organization; and implement the capabilities critical to successfully compete in the challenging decades to come.
The world is getting older.
The workforce in many countries is aging, and some industry sectors and geographies will begin to feel the impact of this aging in as little as five to 10 years. Even more critical, this is not a short-term problem that will abate anytime soon. In fact, the population of developed countries is expected to only get older over the next several decades because, quite simply, people live longer and produce fewer offspring.
If workforce aging and early retirement were not troubling enough, companies also face the sobering reality that many well-educated and highly skilled people in younger generations do not view a career in some industries as particularly attractive. This mind-set, if not altered, will further shrink the talent pool available to companies in these sectors.
With the first wave of baby-boomer retirements imminent, and fewer new workers coming into the pipeline, it is critical for executives to understand the impacts of this potential workforce challenge. If they do not act now, companies—especially those already at the leading edge of boomer retirement—will lose a significant amount of institutional knowledge as their most experienced employees leave the workforce. They also will find themselves locked in a battle with each other for a shrinking pool of talent and confronting the escalating salaries that will accompany a limited supply of workers.
The reality is that companies in most industry sectors face the prospect of having to do the same amount of work (possibly more) with fewer employees. If companies are not proactive in addressing this issue, there is a very real chance that they will no longer be able to compete, much less achieve high performance. It is more likely that they will have to shrink considerably just to survive.
Responses do not fully address the problem.
The population trends are no surprise to company executives. Yet the extent to which the potential problem is recognized—and is being addressed—varies by geography.
In the United States, for instance, some research suggests that many companies are not well positioned to handle the effects of an aging workforce. Similarly, in the United Kingdom, a survey of 500 human resource professionals found that 69 percent of UK companies are unprepared to deal with a rapidly aging workforce. A recent Accenture survey found that many US organizations are failing to capture critical workforce knowledge and experience from older employees facing retirement, and few organizations are transferring that knowledge to newer employees.
When they are taking steps to address the issue, companies most commonly are trying to entice older workers to stay on the job longer—using programs such as flexible work schedules, "load-lightening" and perks including extra time off.
A comprehensive approach to the challenge is needed.
The efforts made by companies have made life better for older workers and their employers alike. Many companies report that turnover and absences are lower, employee satisfaction is higher and employees are more productive. Yet, as wonderful as those benefits are, the simple fact is that these older employees still will have to be replaced; no amount of perks and training will keep them on the job forever.
Furthermore, the programs used to entice older workers to stay on the job longer are what could be called "easy hits." More substantive changes—those that are more difficult to implement but could have a longer-term impact—are not nearly as prevalent.
What is really needed is avoiding short-term fixes in favor of a more holistic, comprehensive approach to the challenge.
Accenture has developed such an approach that can help companies fully understand the impacts of workforce aging and other related trends on their operations and missions; identify how well prepared they are to address the issue; develop a detailed road map to eliminate key human capital shortcomings in their organizations; and build and implement the capabilities critical to achieving high performance.
This approach encompasses three broad steps:
1. Diagnose the Breadth of the Problem
To effectively address the workforce challenge, an organization must first understand the extent of the problem and how well the organization is positioned to alleviate it. Therefore, the first step in Accenture's approach is to conduct a short but valuable diagnostic.
The diagnostic, which can be conducted in as little as 10 weeks, enables the organization to evaluate the potential magnitude of aging workforce impacts by assessing the financial impact of lost productivity; lost customer knowledge and relationships; lost product, service and process knowledge; and increased risks of making suboptimal business decisions when experienced employees retire. These impacts of not solving an aging workforce problem can be weighed against the costs of replacing retiring workers, training new or incumbent workers in critical skill areas, and other interventions to fix the problem. The results can highlight the potential cumulative cost of the mismanagement of, or failure to anticipate, aging workforce trends on overall operating costs.
The diagnostic also helps benchmark the effectiveness of the human capital processes needed to address aging workforce issues and improve the overall workforce experience. And it validates existing human capital investments to redirect investments for greater impact.
A tool such as the Accenture Human Capital Development Framework plays a critical role in this effort. This framework, which emerged from Accenture's ongoing research into high-performance businesses, is a diagnostic approach to assessing human capital capabilities and the processes that drive them, and then linking human capital assets and approaches to business performance outcomes. The framework draws on best practices and Accenture experience in human resource development, learning and knowledge management alongside state-of-the-art measurement techniques. The framework is unique in that it helps organizations do more than look at levels of spending to get a sense of their human capital development strengths; it also highlights the underlying practices' completeness and alignment with the organization's competitive strategy and mission. With the framework—which uses qualitative information from executive and employee surveys and interviews, as well as quantitative human resource and financial data—an organization can better assess its core human capital capabilities (such as leadership and employee engagement), identify specific human capital needs and then prescribe the right interventions to improve overall business performance.
2. Develop a Human Capital Management Strategy for Addressing the Problem
After completing the diagnostic, an organization then must develop an overall strategy for, in the short term, retaining employees eligible for retirement who possess critical skills and, for the longer term, capturing the knowledge of these people and transferring it to remaining employees. The organization also must define how it will replace, develop and manage these skills once these employees retire. This includes identifying the changes required in the organization's recruiting, hiring and knowledge management practices, as well as how new workforce models, processes and technologies will be adopted to support these changes. The two principal actions in this phase include:
A comprehensive human capital management strategy is absolutely essential to proactively identify and address the major workforce challenges an organization will face in the coming years.
3. Implement a Broad-based Solution
With the human capital strategy defined, the organization then reaches the third step in the approach. Here, the organization must begin enacting the changes necessary to close the gaps identified in the previous stage. Accenture recognizes that every organization is different and each company's specific challenges will vary in magnitude and imminence. Yet we also know that most organizations will find their efforts centering on addressing three overarching needs: capturing and transferring knowledge to minimize knowledge loss; attracting, developing and retaining critical capabilities (including older workers); and doing more with less (people and money). Meeting those needs will require a variety of innovative approaches and solutions, some of which are outlined in the full report, a PDF copy of which can be downloaded from the Summary page.
While a company may not necessarily implement the entire aging workforce–human performance transformation approach at once, it is important for executives to understand the issue thoroughly and create a comprehensive transformation agenda.
Rajan Srikanth is an executive partner who leads the Organization Change Strategy area within the Accenture Talent & Organization Performance group.
James Benton is a partner with the Accenture Talent & Organization group.
Yvonne Herrera is a partner with the Accenture Government group who specializes in Talent & Organization performance solutions for government organizations.
November 14, 2005
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