Help Wanted:  Companies Brace for Exodus of Baby Boomers

With the national unemployment rate nearing historic highs, dire warnings about a looming shortage of skilled workers may appear to be counterintuitive.  But companies that fail to plan for the inevitable brain drain face serious and far-reaching repercussions.

Led by the mass exodus of Baby Boomers – an estimated 76 million of whom will retire by 2020 – the nation will see a 15 percent decline in workers within the next 10 years.  At the same time, the Bureau of Labor Statistics projects a 25 percent increase in demand.  Indeed, according to research from the Economist, about half of the senior managers with U.S. Fortune 500 companies will retire within the next 3 years.

But it is not just retirements that are driving the nation’s workforce to the brink; there will be far fewer qualified professionals to fill those openings than ever before.  After two decades of growth that resulted in 60 percent of the nation’s workforce having attended college, the percentage of prime age workers (ages 25-54) with more than a high school diploma will stagnate.  By 2020, this demographic will have increased by just 7 percent.

Companies without strategic plans to counter both the exodus of management and executive level professionals and the lack of qualified workers to fill openings will quickly find themselves on the losing side of the looming talent war – and at a serious competitive disadvantage to organizations that have taken the warnings seriously.

Loss of Talent, Institutional Knowledge

Perhaps more detrimental than the inability to fill vacant positions will be the loss of institutional knowledge, something with which many companies are already struggling.  According to a recent study by the Institute for Corporate Productivity (i4cp), 30 percent of companies retain knowledge poorly or not at all when workers leave, while half (49 percent) think they're doing only “okay” at preserving institutional knowledge.  Just 2 in 10 think they are doing well or very well.

“This typically isn’t something companies figure out overnight,” said Kevin Oakes, CEO of i4cp, which focuses on improving workforce productivity.  “The problem is that a lot of firms don't see it as a burning platform yet, but, by the time they do, it may be too late to salvage.  When employees walk out the door – for whatever reason – a tremendous amount of valuable knowledge that will never be retained walks out with them.”

The i4cp survey found that more than three-quarters of responding organizations did not have a specific person or team responsible for knowledge retention plans, and 68 percent did not have a specific operating budget for these issues.  Not surprisingly, 61 percent said their companies do not have any formal retention initiatives underway, and those that do are not effectively tracking them.

Among the factors cited as hindering effective retention practices were a lack of time (63 percent) and insufficient financial (49 percent) and management support (49 percent).  However, failure to invest the resources into knowledge and talent retention strategies now will likely result in greater losses in the future, as both are tied closely to market performance.

“Whether they recognize it or not, companies invest a significant amount of money toward building up and improving the knowledge of their workforce each year,” said Oakes.  “The ‘tacit’ knowledge of the workforce – the information in workers’ heads – makes up a significant amount of an enterprise's know-how.  The cost of losing this can be extreme.  What is the cost to a high technology company if an engineer leaves the organization without providing critical information for a patent filing?  Or a consulting company who loses the individual with unique and critical customer information?”

A Potentially Costly Failure to Plan

Despite the serious consequences, many companies have been slow to develop retention and succession strategies to counter the rapidly approaching brain drain.  A survey of more than 2,500 human resource professionals by the consulting firm Novations Group, Inc., found that 36 percent of employers did not expect an unusually large loss of talent with Baby Boomer retirements.  Another 18 percent indicated that while they did expect a serious loss of both talent and institutional knowledge, they did not have any steps in place to mitigate that loss.

“Companies seem to be all over the map in dealing with possibly soon-to-retire boomers.  Since organizations are not able to anticipate how many vacancies they’ll need to fill, in what critical areas or when, they are leaving a great deal to chance.  Succession planning, internal development planning, and recruitment and hiring processes are all compromised as a result,” said Tim Vigue, executive consultant, Novations.

He noted that only 26 percent had plans in place to control the flow of talent into, within or out of their organization – companies that are likely to be the victors in the expected talent wars.

“Well-run companies wouldn’t dream of handling the flow of products and services they sell in such a haphazard way,” said Vigue.  “These 26 percent are probably best-practice organizations that will have a competitive edge over other companies that don’t have plans to address the issue.”

Strategies for Success

The news does not have to be grim, even for those companies that have not yet begun developing strategies for countering the looming brain drain.  The key is to devise a proactive attack focused on both retaining Baby Boomers and the institutional knowledge they hold, and recruiting and grooming younger workers to fill the void they will leave upon their departure.

In terms of keeping Boomers in the workplace longer, performanceAgents notes in its white paper, “The Boomer Exodus: Retaining Knowledge and Experience after Retirement,” that some companies have begun offering defined contribution pension plans that pay out more the longer an individual works or phased retirement programs that encourage later retirement.

While such offerings may be effective, they should be coupled with additional retention strategies that leverage the Boomer’s desire to continue working during retirement, albeit under a different structure.  According to a survey by Merrill Lynch, 76 percent of boomers intend to keep working and earning in retirement, with most planning to leave their current employment at age 64 to launch new jobs or careers.

That survey also found that most Boomers would prefer a work arrangement that repeatedly “cycles” between periods of work and leisure (42 percent), followed by part-time work (16 percent), starting their own business (13 percent) and full-time work (6 percent).  As a result, retaining “retired” Boomers as consultants, and offering flexible work schedules and even telecommuting are good strategies for appealing to this valuable workforce demographic.

While focusing on retaining Baby Boomers is a smart strategy, it cannot stand alone.  As performanceAgents notes, it may “encourage Boomers to stay on a bit longer, but it is still an extension of the impending obvious – encouraging later retirement does not eliminate the fact that at some point, those Boomers will retire and your organization will lose that knowledge and experience.”

As such, organizations must also look at ways to recruit younger workers and prepare them to step into the vacancies left by departing Boomers.  Perhaps the most challenge aspect will be for companies to make themselves attractive to the Generation X and Y workforce now to ensure they are positioned to compete for top talent in a few years, when demand is outstripping supply.

A large part of this is gaining a clear understanding of what drives the members of these key demographic groups, then utilizing that knowledge to craft recruitment programs that appeal to their needs.  For example, both groups place a high value on salary, benefits and opportunities for advancement, but they are also motivated by work that is challenging and meaningful.  They are techno-savvy, value flexibility and work-life balance, and want the freedom to take creative approaches to achieving end results.  As such, flexible schedules, telecommuting and other alternatives to the traditional work-day that leverage technology are appealing, as are opportunities to advance their education and skills.

Finally, succession planning is critical to ensure there are individuals with the skills and knowledge necessary to advance up the corporate ladder and fill the shoes of retiring Baby Boomers.  It serves not only to groom future leaders, but also aids in retention by addressing the value Generations X and Y place on advancement.

Specific strategies for dealing with the looming skill shortage will vary based on the impact the wave of retirements will have on individual companies.  What is important is for organizations to be proactive in analyzing their future talent needs and establishing plans and processes to meet them.

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