Most Face Shortage of Talented Workers in Tight Labor Market

Rapid technological change has created a new business environment where innovation has become a top competitive strategy and, in turn, has created sharp demand for human capital as a key business asset. At the same time, demographic pressures point to a growing shortage of key talent. The convergence of these forces presents a critical challenge to companies today.

These issues are among the key findings of a new study, Business, People and Rewards: Surviving and Thriving in the New Economy, by the Economist Intelligence Unit and Towers Perrin.

"Most companies today feel overwhelmed by the extent of change confronting them. While many recognize the impact on their business and people strategies, most are still, at best, cobbling together solutions and relying too heavily on traditional thinking and programs in an effort to meet their new economy needs," said Emmett Seaborn, principal and leader of the Towers Perrin global Total Rewards consulting group.

"High-performing companies focus more attention on people - an asset critical to delivering on key new-economy success factors such as superior customer value propositions, innovation, new products and growth," said Seaborn.


High Performers Are Different

High-performing companies -- those in the 90th percentile of the study group based on total shareholder return over the past five years -- are already living the new model. The research findings show that they share a vision of the future and certain key characteristics. Their strategies consistently emphasize innovation, growth, product customization and technological leverage, rather than cost management, operating efficiency and consolidation. They do the following:

Outperform competitors in offering a meaningful proposition to customers;

Recognize the critical role leaders play in engaging employees in the business;

Believe their employees have a superior understanding of how their day-to-day decisions and actions affect business results;

See the ability to innovate as a critical workforce attribute;

Unanimously favor differentiating reward packages based on individual and business performance, and plan to do so within the next few years; and

Place greater emphasis on career-enhancement opportunities, challenging work and company brand as ways to focus employees on delivering business results


Business Transformation in the New Economy

Few companies feel adequately positioned to adapt to the e-business revolution. Only 13% said they outperform their competitors in terms of competing in the e-world, 50% said they match their competitors and 34% said they underperform.

However, high performing companies are more confident about their ability to adapt to change overall and are already focusing on critical elements of new economy competitive strategy - product and service excellence, customer relationship management, brand and global industry leadership.

The research results show that companies' current focus on improved profitability (which 35% of survey respondents said was a critical or important focus in executing strategy), cost management (26%) and growth by acquisition (21%) will give way by 2003 to an emphasis on innovation (27%), new markets (15%), new products and services (25%), and e-commerce sales solutions (19%).

Interestingly, a traditional approach of growth by acquisition also becomes less important over time as the rise of strategic partnerships becomes a means to gain access to new technologies, markets, customers and branding opportunities.

"This is not to say that companies will ignore profitability and cost management as elements of solid business practice," said Jackie Wiles, Project Director of the Thought Leadership Services Division of the Economist Intelligence Unit. "Rather, they see profits coming from growth as opposed to wringing cost out of the organization or automating work to gain operating efficiencies."


Human Capital and Shortage of Talented Workers
It is clear that employees -- as developers and owners of intellectual capital -- will play a pivotal role as a key driver of business change today. This shift in emphasis has created sharp demand for those with knowledge and skills in any discipline that supports a company's transformation to a new economy model. Moreover, the talents and skills needed for business success are rapidly evolving, particularly in the e-arena, where growth strategies will demand a range of skills that are still evolving.

The findings show that significant gaps exist in people skills with 63% of companies reporting skill sets in the workforce as a challenge today and fully 82% saying skills will be a problem in 2003. For example, 77% consider e-literacy a critical skill in the future while only 18% see it to a great extent in their workforce today.

At the same time, the labor pool is not growing in proportion to demand. During the next decade, for example, companies in financial services, high tech, media and pharmaceuticals are likely to have to replace 65% or more of their current workforce due to retirements and turnover. While these employees need to be replaced from a shrinking supply of new employees, these companies also face challenges in simply attracting and keeping enough people, especially those who have sought-after skills and abilities that align with the organization's business strategy.

This is supported by the findings, which show that companies view people issues as key impediments to executing strategy now and in the future; 74% of the survey respondents see recruiting and retaining key people as a challenge to implementing strategy today and nearly all respondents (93%) said it will be a challenge by 2003.

People and Reward Strategy
The new economy also presents significant repercussions for a company's people strategies and practices. The research shows that it is critical for companies to understand the attributes and changing values of the people they need to hire and keep. The linkage between workforce values and rewards -- pay, benefits, learning and development and work environment -- is critical in motivating employees to apply their skills, time and effort in a way that delivers high performance in the new economy.

"Many organizations, especially traditional ones, need to rethink their entire approach to recruiting, training and rewards design," said Seaborn. "Looking ahead, the focus will be on a much broader and more customized array of rewards that reflects differences in levels of employee performance and contribution."

"For high-performing companies, the approach to people is not `one big happy family'," continued Seaborn. "These companies define which employees create value, build winning strategies to get those people, help employees understand how their actions and decisions affect results and reward them for superior performance.

"In the new economy, it is about redefinition, mass customization, performance orientation and improved understanding of what drives business results. High-performing companies optimize reward investments to motivate desired behaviors and maximize shareholder returns."


Research Methodology
The research findings included 227 responses from senior managers at global, discussions with 35 senior executives in three peer groups held in London, New York and Toronto, and personal interviews with more than 40 senior executives at companies in North America and Europe.