It’s 2011: Will your company survive the exodus of the baby boomers?
2011 marks the start of the exit of the baby boomers: the generation born in the years following World War II turns 65 and will retire. It is the beginning of the largest workforce exodus that we have ever seen. 2011 is a pivotal year and signals a profound change that companies, and specifically HR, will be forced to cope with over the coming years. The effect of this so-called ‘knowledge crunch’ is set to hit just as companies recover from the credit crunch, and will augment the impact of the recession if not handled well.
Since the onset of the financial crisis, companies focus more on survival strategies and cost efficiencies than on expansion and growth. As a consequence, HR has been working on redundancies, social plans and exit strategies, while talent retention programs and training budgets have been slashed. Though the main theme of 2010 has been cost reduction, the importance of strategic workforce planning, succession planning and knowledge transfer is rapidly increasing. The baby boomer exodus has begun and the influx of the younger generations will be insufficient to offset shortages in knowledge and experience.
If you are under the impression that the ‘knowledge crunch’ will bypass your company, think again. The numbers tell a different story: Demographic trends show a steady increase of life expectancy in many parts of the world, while birth-rates are rapidly declining. By 2050, the number of older persons globally will exceed the number of young (under 15) for the first time in history. These shifts in age distribution will lead to an unprecedented shortage of younger workers and introduce the need to keep employees in the workforce until well past current retirement ages. Companies are starting to realize that they need to retain their older workers in some form or capacity as these developments can lead to a substantial loss of knowledge and experience in the working population.
The optimistic belief that companies will be able to source talent from an unlimited supply of workers from developing countries cannot be supported in the long run. Talent shortages are happening everywhere, even in countries like China, India, Eastern Europe and South America, in fact, it is a worldwide phenomenon.
Of course, it is not all bad news. As people grow older and enjoy better health at a higher age, they remain in the workforce longer than workers of previous generations. There is a tendency among baby boomers to retire “part-time” and spend the remaining hours to contribute to a worthy cause, be it society or their previous employer. Some people do this voluntary, others because they need the money in order to live comfortably. The number of people in the labor force aged 65 and older is expected to grow about 10 times faster than the total labor force.
We also observe a changing attitude around the idea of the corporate lifespan. It used to be that people worked between the ages of 25 and 65. This lifespan is changing: young students are starting their own businesses on the side, or are participating in corporate projects through social networks. Retired people take up work whenever it suits them – temp agencies for those over 65 are booming. We expect that in future the corporate lifespan will loosely cover the ages of 18 to 75. As a consequence, for the first time in history, four generations will participate in the workplace. And although the integration of these generations can happen smoothly, for many companies this poses challenges and adjustments. There is one common denominator between these widely varied groups: they all demand flexibility at work.
HR must prepare for this by identifying the knowledge that is needed to support the company in the future. That means HR must have a very good understanding of company strategy, and what the required skill sets are going forward. HR must assess the risks of losing baby boomers: who is retiring, which departments will have gaps, which core areas of expertise are leaving the company? Hiring will not be easy, as talent shortages remain. The new role of HR will be that of a ‘talent broker’ – have a thorough understanding of what skills are needed, where they can be found and how the company can access and use them best. HR must determine how to find crucial skills: educate, offshore, outsource or hire? HR’s ability to accurately predict company needs and base strategic workforce decisions on reliable HR information provided by sound HR Analytics will leverage any past talent management investment.
In the service economy you rely on people for knowledge and given on-going demand and reduced supply, organizations must not only retain the knowledge held by the aging workforce, but ensure that the new generations benefit from the years of expertise and skills acquired by these employees. We believe that the financial and competitive advantage risks of not building a strategy for knowledge transfer into talent management plans will have a debilitating impact on companies, which in some cases may never be fully recovered. This requires active participation of all involved, not in the least the baby boomers themselves.
Ultimately, the success of dealing with the ‘knowledge crunch’ will be determined by the extent in which you can make baby boomers responsible, keep them involved and give them a formal role in this process (if needed after retirement). This will make the transition to the future workforce for your company much smoother. When HR prepares itself in a successful way, and starts acting as talent broker, your company will be fully prepared to face the ‘knowledge crunch’ and overcome its challenges.
For a more indepth look, here’s my latest white paper: Hybrid HR Generations.