Business Intelligence

Published October 2009

The Upcoming Crisis in Talent Management

David Semb

A crisis of shortages and gaps in talent at U.S. companies is gathering on the horizon. The coming wave of retiring business executives at companies in the developed world, extreme shortages in the numbers of their replacements, looming gaps in the talent and skills of these replacements, global competition for talent and falling birthrates in the developed world are some of the key forces acting together. This crisis is powerful; it will radically change companies and the effects will be felt for a very long time.

The looming gap in business talent is not simply an issue of the talent disciplines — talent management, HR, succession planning and training — but is a fundamental, far-reaching strategic business challenge. Companies that respond quickly in the short term and intelligently over the long term as they manage their knowledge workers will enjoy a substantial competitive advantage. Companies that don’t respond may not even realize their misstep until it’s too late, as sales, margins, efficiencies and other competitive advantages quickly erode due to the inadequate decision making of poorly prepared managers and leaders.
Leadership at companies has always eventually changed, and retirement is not a new phenomenon. However, understanding the roots of the crisis in talent lies in understanding that while in the past this process occurred over a manageable period of time, allowing for planning and smooth transitions between leaders, the current crisis involves an unusually large number of leaders retiring in a wave over a short period of time.

A Surge of Retirements of Current Leaders
Consider these alarming statistics: 40 percent of the U.S. labor force is currently made up of baby boomers (born between 1946 and 1964), according to the U.S. Bureau of Labor Statistics and “Business Executives’ Attitudes Toward the Aging Workforce: Aware But Not Prepared?” — a survey conducted by BusinessWeek Research Services for AARP. However, by 2010, there will be a 52 percent increase in workers in the 55-to-64 age bracket compared with 2005, and 40 percent of the U.S. workforce will be considering retirement, according to “Talent Management: The New Business Imperative” by BusinessWeek Research Services. The first wave of executive retirements will begin in the next four years, according to “Workforce Analytics: Driving Talent Management Strategies Through Workforce Data.”

Clearly, not all baby boomers will retire exactly when expected. In a 2007 McKinsey & Co. study titled “Serving Aging Baby Boomers,” roughly half of boomers surveyed were anxious about their financial preparedness for retirement, a sentiment further aggravated by the current financial crisis and by an unemployment rate of 9.5 percent in July 2009, according to the U.S. Bureau of Labor Statistics.

While current leaders may work a few extra years before retirement due to the financial crisis, this will not significantly lessen the impact of the near-term surge in leadership vacancies at U.S. companies.

Short Supply of Emerging Leaders to Replace Retiring Leaders
Retirees will take with them millions of years of on-the-job experience. Yet there are far too few emerging leaders to replace them.

The U.S. Bureau of Labor Statistics projects a shortfall of 10 million qualified employees beginning in 2010, with a gulf likely to increase in following years.

According to Deloitte Consulting LLP, by 2012, the U.S. labor force will be short 6 million college graduates to fill new jobs and to replace retired workers. By then, according to The Conference Board, workers from ages 35 to 44 — the subset of the workforce that fills the majority of senior management ranks — will decline by 19 percent.

Seventy-four percent of U.S. business executives surveyed agreed the U.S. will experience a shortage of skilled workers over the next decade, according to BusinessWeek Research Services for AARP.

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