organizational dynamics

The Perfect Storm

Posted - 29 March, 2010
Picture of storm

The decline in the economy hit most corporations like a massive earthquake. As we recover, the majority of organizations, especially those that have not handled this economic downturn gracefully, will experience a perfect storm of three potentially massive crises: The Knowledge Transfer Crisis, Corporate Brain Drain, and the Resume Tsunami. As always, the companies that maintained perspective during the economic crisis and were able to plan for the recovery with relation to their human capital will be the ones most able to protect themselves from the storm of the century. So what makes up this perfect storm? The first component, the Knowledge Transfer Crisis, alludes to the fact that more than 1/3 of our population can retire tomorrow and take with them the institutional history and most effective customer relation and business development practices of their organizations. It is estimated that only between 4% and 10% of companies have developed formal knowledge transfer programs to pass down these vital lessons and practices to their legacies. Knowledge transfer programs, soft and hard, need to be a core focus in organizations. However, most companies don’t think of the potential damage of not installing them until it is too late.

Now, in this transitional period, when we need such programs desperately, it’s going to be much harder to siphon that information from the top to transfer to other levels. Boomers and Traditionalists are suffering from job security paranoia more than ever before creating a general feeling of, “If I give this information away, will I become obsolete and replaced by a kid who makes half my salary?” Herein lies the existential workplace crisis of the Boomers and Traditionalists. The second crisis, Corporate Brain Drain, refers to the fact that there is an aging talent pool and a diminishing pipeline of leaders. What is this going to effect? Everything! With limited talent to take over the legacies and leadership of organizations, we are going to experience reduced efficiency, reduced innovation and diminished growth capacity. Traditionally, organizations have spent money developing, coaching and training current leaders while neglecting those that should be filling the leadership pipeline. Why do we invest so much in top leadership and ignore those we have targeted for succession? It’s partially a case of paranoia on behalf of those who make the decision about succession planning in the sense that if money is thrown into development of younger talent, then those at the top become obsolete. It is also due to a bad case of, “this is how we’ve always done things.” Whatever the case may be the combination of the aging workforce and lack of potential leaders in the pipeline is creating a huge global, crisis for organizations spanning all industries. The third crisis is the Resume Tsunami, expected to pound organizations as the economy recovers. According to a Deloitte survey released in September 2009, 49% of employees surveyed have intentions of leaving their current employer, with Generation X representing the greatest turnover risk and Generation Y representing the next greatest turnover risk. Why? Well, there are different reasons for each generation. For the youngest generation, and often our most challenging to retain, research has shown that traditionally 50-70% tend to job hop within 2 years of hire. Many times the job-hopping is simply due to better market opportunities. However, unfortunately it is often, because American companies, despite existing research, refuse to make the investments and structural changes necessary to retain this group. Retaining Generation X is a little more complicated. As the smallest generation in the workplace, Generation X employees are frustrated by the bottlenecking of the Boomers.

Boomers are supposed to be retiring and they are not because they want to work longer and because they are afraid to stop working because of financial concerns. Generation X was promised, at this point, top leadership positions, but they are just not available. As the economy recovers, Generation X-our next group of top leaders-is at greatest risk of leaving for better opportunities and most companies have not even considered how to retain them and provide them with the career advancement they deserve. Regardless of who decides to jump ship, losing a key employee is expensive, 2-3 times their annual salary expensive, depending on the position. How? Well, when you calculate the actual costs of attracting and recruiting someone new to the organization and retaining them and then calculate the costs of the loss of intellectual capital, client relationships and productivity/job skills, you are looking at quite a high ticket price. Yet, according to the Deloitte 2009 survey, 44% of corporate leaders still believe that voluntary turnover increases profitability. Wake up and smell the strong, bitter tasting coffee folks—this mass defection is not going to benefit anyone except the companies who have been prepared all along and have created attractive organizational cultures, benefit packages and market opportunities to attract the cream of these newly unemployed. These same companies also consider generational differences when it comes to retention rather than applying a one strategy fits all solution. What can you do? Well, look at the companies who seem to “get it.” All along, they have prioritized their strategies for managing the demographics of their human capital.

Despite economic turbulence, they have continued to invest in the development of their leadership pipeline and have created ways to retain key employees, via both financial and non-financial incentives. They have systematically figured out what their employees really want (not what they think they want) and then realigned their retention strategies, tactics and priorities to match those goals. In addition, the companies that have build protection for this perfect storm have designed creative retirement strategies for their Boomers while developing soft and hard knowledge transfer programs. They have purposely re-engaged their key Gen Xers, providing career development and incentives to stay on board. They have been more open to adapting to the needs of Generation Y in order to retain and attract top young talent and they have developed and implemented clear and precise succession strategies in order to nurture the leadership pipeline. These are techniques that should be standard in organizations, regardless of the economic climate because a company is only as successful as the talent it retains and nurtures.

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