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Why H.R. Managers Need to Think like Economists

Deloitte just released its Human Capital Trends 2013, a year-long research effort which looks at talent and leadership trends around the world.

The research explains why talent and leadership gaps have become the top business challenge this year. We are now in a world of uneven economic growth with lagging skills and the need to build new leaders in many countries around the world

Consistently research points this out:

The Conference Board survey of CEOs just found that Human Capital is the #1 challenge on the minds of CEOs (more than 10% higher than “operational excellence”)
In the Deloitte study, more than 2/3 of HR leaders cite leadership and technical talent gaps as their top business challenges. Bersin research shows that leadership gaps and lack of career mobility are key problems in HR.

Skills from outside the US are in great demand. Demand for H1-B Visas (highly skilled immigrants) outstripped the entire year’s supply in the first week!
Our education system is not keeping up. McKinsey research shows that 45% of business leaders believe that newly minted college students do not have the entry level skills they need to start work without training.

And the problem in the US could get worse. New research shows that the US birth rate has dropped to 1.93, well below the rate of 2.1 needed to maintain our replacement rate. We in the US are becoming an “older” country, which brings with it all the challenges of high spending on entitlements, reduced economic growth, and the need to more rapidly improve our immigration policy.

At a national level these issues are being discussed every day. There is now a national debate about immigration, the role of women in the workforce, and the need to redesign our education system.

But while all these issues are discussed in Washington, what do we as HR and business managers do?

The answer is mentioned in the Deloitte study: we have to think like economists.

Here is a common problem I discussed with the Chief HR Officer of a large telecommunications provider last week. This HR leader believes that their company’s ability to innovate is driven primarily by the technical skills and capabilities of its workforce. Because this is an older company, many of its engineers are in their 40s and 50s, so their skills foundation come from legacy telecom architecture. Today, with mobile and internet technologies driving the business, they need to reskill their own people.

In the outside market this company competes for new engineers with startups, fast-growing software companies, and well known brands like Apple, Nokia, Google, and many other well known brands. There simply are not enough telecommunications engineers to go around – so they must both buy, build, and harvest new engineering talent in the workforce.

How would an economist think about this problem? This is a “supply and demand” problem. Our demand exceeds market supply. And our research also shows that workforce planning remains a major weakness in most HR teams.

How would an economist deal with the skills gap?

Should we bid up the price? That is, raise our wages? Well research shows that money is a “hygiene” factor in employment, so once you meet the competitive market for salaries, you must provide other incentives to attract top people. These include career opportunities, culture, benefits, work environment, and a mission people believe in.

What else would an economist do? They would try to find more supply. That is they would start “harvesting” new technical talent by planting new seeds and growing new crops. In the case of HR this is called “talent harvesting” or “candidate relationship management.” This company should build a compelling talent acquisition brand and start to farm new candidates who are in their second and third year of engineering school. Most consulting firms have done this for years, and it really works.

Economists understand that labor markets are local. So applying that principle, this organization could open a new R&D facilities in cities close to growing universities or an influx of highly educated people. Today many tech companies are moving their R&D teams to Toronto, for example, where the cost of living is lower than the US and education levels are high. This takes some workforce planning and economic analysis, not the typical work of most HR teams.

And economists would look at retention rate, internal talent migration, and cross training opportunities within the company. This company has more than 100,000 employees, so programs that keep engineers working a few years longer, improve retention, and create career development will have a huge effect. Each of these programs in itself is complex, but this is the kind of work HR loves to do.

There’s good reason that HR is now one of the fastest growing disciplines in business. We need HR professionals who think about the whole “market” for people around them. Our internal organizations are “economies” just like the outside world, and the better we understand their dynamics the better we can meet our business needs.

Yes, Thomas Carlyle called economics the “dismal science,” but for us as HR and business leaders, it is now more important than ever.

You can follow me to stay up to date on trends, research, and news in all areas of HR, leadership, and talent management on twitter at @josh_bersin. For more information on Bersin by Deloitte, please visit http://www.bersin.com .

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Josh Bersin, Contributor
I analyze corporate HR, talent management, and leadership.

http://www.forbes.com/sites/joshbersin/2013/04/05/can-hr-managers-think-like-economists/

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