Solving the skills gap: Who’s got talent?

Women talking at deskFaced with accelerated technological change and fluctuating workforce needs, it’s a work in progress for American businesses to resolve a skills gap problem that can impede performance, growth and the ability to remain competitive. It will take much more than an educated guess to resolve the complex issues associated with attracting, developing, training and retaining top talent.  Indeed, closing this skills gap requires a true culture shift in how U.S. businesses and workers view education.

An organization’s capacity for agility and its ability to adapt includes the way it fills its present and future pipeline of employees. Today’s new world of work, one which is defined by increasing technological change and customer needs, demands that businesses can no longer be tethered to traditional expectations for how workers acquire skills.  Instead, they must embrace alternative learning models or put their businesses at risk of falling behind.

According to the report, “Help Wanted”, released by the National Center for the Middle Market (NCMM) in conjunction with the Brooking’s Institution’s Metropolitan Policy Program, nearly four out of 10 mid-sized companies indicate a shortage of talent constrains their ability to grow.  That number jumps to 49% for healthcare companies while 44% of manufacturing executives maintain they could grow faster if they had better-skilled employees.  Indeed, a Manufacturing Institute report found that nearly 3.5 million U.S. manufacturing jobs will open over the next decade, but the skills gap will leave 2 million of those jobs vacant.  In the United States alone, reduced productivity stemming from open positions accounted for $160 billion of lost revenue in 2014.

In its report, "2017 Skills Gap Report," Udemy, an online learning and teaching marketplace, revealed that the majority (79%) of U.S. workers believe there is a skills shortage and about 35% feel personally affected. Indeed, the survey found further that while anxious about the changing demands of their jobs, workers are trying to figure out the best way to keep their skills up to date.

Skillsets most in demand
Where is the skills gap the deepest?  Increasingly, executives indicate their biggest recruitment challenge is finding candidates with the right mix of soft skills. According to the Harvard Business School study, “Bridge the gap: Rebuilding America’s Middle Skills,” foundation skills such as work ethic, critial thinking, communication, teaming and leadership are high in demand.

“Every day, you hear about the need for businesses to be more innovative, to think outside the box, to bring in more ideas that are non-conformist.  You’ve got to really break the mold and bring people in whom you would normally never think about hiring.”

Steve Coman, director, Human Capital Management, Grant Thornton

Steve Coman, director, Human Capital Management, Grant Thornton LLP, suggested that the growing demand for soft skills can be tied, in part, to the emerging global workforce and the need for employees to collaborate with each other remotely across the globe which includes differences in time zones, cultures and language.

“I don’t believe there’s anything in a college program that deals with these types of issues,” Coman said.  “When you have leaders who are soft skill-oriented but can be taught the technical skills, you can see gains being made by organizations to build a more complete leadership skill set.”

In an attempt to identify the key components of a high-performing team, Google’s Project Oxygen experiment determined they centered on soft skills.  “It was around this whole concept of making people feel like they worked in an emotionally safe environment,” Coman explained. “Am I going to be respected? Is my input going to be sought out?  Are my ideas going to be acted upon? Am I going to be viewed as a go-to resource?”

Coman suggested that empathy is the number one skillset that workers will need not just for today but in the future.  “There’s a great need to have the sense that you can walk in someone else’s shoes, feel their pain points, their need for recognition and understand how to make them feel as if they are an inclusive part of the organization,” he said.

During a recent panel discussion on bridging the skills gap, Donna Shalala, former U.S. secretary of Health and Human Services and current president of the Clinton Foundation, noted that efforts need to go beyond just teaching new functional skill sets.  “The skills we’re teaching have to include empathy and working in teams and adaptability,” she said.  “If the training is too narrow and workers are not picking up on skills to adjust to the next job, we’re going to hold people up.”

A second critical skillset relates to diversity and inclusion, especially as organizations continue to focus on innovation. “Every day, you hear about the need for businesses to be more innovative, to think outside the box, to bring in more ideas that are non-conformist,” Coman said.  “You’ve got to really break the mold and bring people in whom you would normally never think about hiring.  When you recruit candidates with a divergence of backgrounds, education and thought processes, you get the salad bowl, and not just the melting pot, where you can begin to respect everyone for their uniqueness which will generate the innovation and ideas needed for breakthrough thinking that will help you explore and exploit markets down the road.”

Moreover, a diversity-centric workforce makes good business sense.  A 2015 McKinsey & Company research study found that ethnically diverse companies were 35 percent more likely to outperform companies in the bottom quartile of diversity while gender-diverse companies performed 15 percent better than those same companies.

A third skillset that middle market businesses are seeking relates to the ability to work in teams. “If you can learn to deal with conflict, learn to respect and embrace it, you can really use it to your advantage,” Grant Thornton’s Coman suggested.  “That’s all part of forming that cohesive team that you’re going to need, whether locally or globally.”

Solving the skills gap: Lack of talent constraining ability to grow
Source: “Help Wanted How Middle Market Companies Can Address Workforce Challenges to Find and Develop the Talent They Need to Grow”, NCMM

Overcoming the hurdles Viewed through the lens of competiveness, failing to address the skills gap issue can have costly and long-term consequences for businesses.  A recent CareerBuilder survey found that nearly 60 percent of U.S. employers have job openings that stay vacant for 12 weeks or longer and the average cost of extended job vacancies is more than $800,000 annually. If those positions go unfilled, employers may be obliged to turn to alternative solutuions such as moving operations elsewhere, turning to foreign vendors or opting to invest in labor-replacing technology.
While U.S. businesses of all sizes and industries face workforce challenges, mid-size companies face skills shortages up and down the skills ladder due to circumstances unique to the middle market. According to the NCMM report, four in 10 middle market executives indicate their workforce needs and challenges are different from those of smaller or larger companies.  These unique challenges are a function of size and brand awareness, as well as a lack of internal human resource capabilities and underdeveloped external partnerships.

Key middle market workforce challenges include:

  • Insufficient human resource capabilities
    According to the NCMM report, mid-sized companies report that their HR capabilities are insufficient to address recruitment and retention issues.  Nearly half (46%) report that HR is primarily an operational department, will little or no strategic role.  To address this challenge, middle market companies will need to transition to the “new HR” model, in which recruiting, learning and development and performance are executed jointly rather than in silos.  
  • Competition from bigger firms
    It’s an unfortunate reality that middle market companies face intense competition for workers from bigger firms, particularly in the retail, financial services and healthcare sectors.  Mid-sized companies often do not have the brand strength, advancement opportunities or salary to compete with larger employers.  However, their size can sometimes be an advantage as employees can be offered more flexibility and opportunities to make an impact.  As one NCMM study focus group participant explained, “We try to brand ourselves as Goldilocks.  We’re small enough that you’re not going to be employer number 22,342. But we’re big enough that we have some stability and pretty mature processes and structures in place, but you can still be creative and very agile and responsive to your customers, too.”
  • Smaller pool of candidates
    Without a national prominent brand and reach, middle market companies are less able to recruit nationally than those with offices in many destinations.  It’s also more challenging to recruit top candidates in less desirable locations. Location matters so many mid-sized companies find they must turn away quality candidates due to a lack of public transportation.
  • Insufficient investment in talent planning
    Middle market companies tend to be adopt a more operational rather than strategic approach to talent planning.  As such, they are not always proactive in identifying current and future skills gaps.  The NCMM report revealed that since only about a third (35%) of middle market vacancies are filled via promotion from within, mid-sized companies rely on the external labor market rather than develop talent internally.  Moreover, 59% of mid-market executives report that they wait to recruit until there is a specific position to be filled, rather than implementing an ongoing outreach effort to fill the workforce pipeline.
  • Inadequate training and development resources
    Overall, middle market companies fail to provide regular, ongoing training, except in the area of company policies, guidelines or requirements.  According to the NCMM study, 45% of companies indicate they wait until there is a specific need to address training.

    Solving the skills gap: Training regularly provided
    Source: “Help Wanted How Middle Market Companies Can Address Workforce Challenges to Find and Develop the Talent They Need to Grow”, NCMM

  • Lack of career advancement programs
    When it comes to career advancement opportunities in middle market companies, programs are few and far between.  Three-fifths (61%) of middle market firms lack a process for career advancement and fewer than a quarter provide regular training to prepare employees for another job within the organization. Without advancement programs, mid-sized companies may be missing out on the opportunity to leverage their existing workforce to fill new roles.
  • Misalignment of workforce initiatives
    Due to a fragmented and complex workforce training system, resources are not always adapted to middle market companies. Indeed, middle-market companies are often clumped together with small business. Yet their needs are distinct: the median age of middle market companies is 31 and they have a more complex mix of workforce skill requirements. Moreover, companies and organizations that offer certification programs don’t typically target middle market companies, with only 13% of mid-sized firms using these types of programs to address their workforce needs.

    “Community colleges are rewarded from a tax revenue perspective based upon the number of students they admit and the degrees they produce,” explained Grant Thornton’s Coman.  “There’s not an alignment between community colleges and what the middle market needs.”
Degrees are overrated While these challenges are critical to overcome in order to solve the skills gap issue, perhaps the most important obstacle is one that is in the direct control of middle market firms.  Employers’ reliance on college degrees as a proxy for experience may be causing them to overlook highly qualified candidates with the specific skills they need. Hiring managers may not be thoughtful enough about developing job descriptions that identify the appropriate skills or may lack the confidence in the firm’s ability to successfully develop talent.  As a result, many firms are dependent on boilerplate job descriptions or using a Bachelor’s degree as essential criteria for positions that may not warrant it.
One hiring manager from a middle market logistics company puts it this way: “You are too busy to deal with the details of what you really want in terms of talent. And so what we do is follow the rules that the corporation has in terms of how that requisition needs to be built. But unfortunately, when you do it that way, you really don’t give yourself the opportunity to do the real investigation, the real digging down and finding that person who has the transferrable skills.”

Coman recommends that middle market companies think beyond the boilerplate job description that automatically calls for a Bachelor’s degree to take into account practical experience.  “Organizations must do a better job of identifying exactly what they need,” Coman said.  “They need to look at the experience requirement rather than just the education requirement because a lot of roles these organizations need to fill could be filled by candidates who are not fully vetted by an undergraduate degree.”

Joseph Fuller, a Harvard Business School professor of management practice, co-led a study that found that credentialism is “a substantive and widespread phenomenon that is making the U.S. labor market more inefficient.”  This practice is harming employers who miss out on a deep pool of talent.  In many human resources departments, “Everyone’s strategy is to row as close as they can to the other boats and fish here,” Fuller explained.

The Harvard Business School study, “Dismissed by Degrees: How degree inflation is undermining U.S. competitiveness and hurting America’s middle class,” revealed that 70 percent of postings for supervisors of office workers asked for a bachelor’s degree, even though only 34 percent of people doing the job have one.  Too often, companies attempt to address a shortage of soft skills among their applicant pool by “upskilling” the position to add credential requirements, such as a degree or more work experience.
Instead, middle market companies need to expand their view of recruitment and job qualifications to include alternative post-secondary education and career pathways. These options connect students with employers by providing job-specific technical training on both middle- and high-skill jobs.
One example is the emergence of tech boot camps that offer training in coding, design, data analytics and digital marketing that can be completed in three to six months. Similar “sector-based” training models are evolving in the areas of health care and advanced manufacturing.  

Other models such as Match Beyond, Caila and Year Up, combine higher education coursework with job-specific training. Match Beyond, for example, enrolls cohorts of high school graduates in low-cost, online associate’s and bachelor’s degree programs at Southern New Hampshire University, while also giving students with personal coaching, tutoring and job placement services.

Last year, as part of the launch of President Obama’s #First Job Compact, nearly 40 major companies pledged to hire and support non-college-going young adults pursuing alternative education routes. And two national economic and workforce development nonprofits, Innovate+Educate and the Hope Street Group, launched Innovative Business Hiring Council 2020, an initiative that is trying to fuel adoption of hiring processes based on workers' skills, rather than their resumes.

Solving the skills gap issue is not just an HR challenge; rather, the entire enterprise must be involved in solutions to attract, develop, train and retain top talent in order to generate innovative thinking, remain competitive and expand markets.  The solution is multi-faceted and requires collaboration between employer and a variety of stakeholders including educational providers, public and private organizations and government agencies.  In order to ensure they have a pipeline of current and future talent to help move the organization forward, middle market firms will need to approach talent planning through the lens of competitiveness, one that defines the issue in terms of value to the business and career opportuniites for workers. In short, today’s businesses need to think beyond the walls of traditional job descriptions and qualifications and, instead, explore alternative pathways to training and talent.

Gain more insights:

Steve Coman
Director, Human Capital Management
T +1 214 561 2374