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Hire or Train

They’re bad, and they’re only going to get worse. The big question is: What can employers actually do about them? We’re speaking of talent shortages, of course.

A new i4cp survey found that over half (57%) of respondents said “talent and skills shortages” are already major drivers of talent management (TM) initiatives in their companies. Although important, these shortages are given about the same organizational weight as other crucial TM-related factors, such as the need to execute strategies and the need to keep up with business competition.

Looking 10 years into the future, however, things shift fairly dramatically. A staggering 82% predicted that talent and skill shortages will drive TM, far overshadowing other factors.

Given these findings, today’s managers are left with a serious workforce-planning question. Assuming it’s true that talent shortages are only going to worsen, how are organizations going to ensure they have the talent needed to compete at the highest levels?

Historically, there have been two primary choices when it comes to talent: make or buy. That is, companies can hire or contract with people with the necessary skill sets or they can develop people internally. There are strong schools of thought on both sides of the issue.

On the “just buy it” side are those who argue that expending the resources to hire people with the right talents saves organizations tons of money and trouble. Bad hires lead to higher turnover, for example, and the costs of unwanted turnover can be as much as 400% of annual salaries for top-level workers, 150% of salaries for midlevel employees, and 50% for entry-level workers (Blake 2006).

Bad hires can also lead to major productivity hits. Richard Davis, who leads the HR department at Barnes Healthcare, notes in HME News, “One study showed the difference in productivity between below-average performers and superior performers is 70%. There are real dollar effects of not having top performers” (Keirn 2007).

The usual response to such problems is to try to improve the recruitment process. But this falls into the category of “easier said than done.” It requires making some serious investments—in training highly qualified interviewers, in new recruitment technologies, in top-notch assessment tools, in recruiting time spent by top managers, and in compensation programs capable of wooing skilled workers. Such investments could turn out to be stumbling blocks for many companies. One recent survey showed, for example, that 43% of surveyed recruitment experts expressed doubts that their organizations were willing to fully fund recruiting in 2006 (Booz Allen Hamilton 2006).

Problems with the “just buy it” strategy extend beyond the costs. Some research shows that the strategy isn’t as effective in organizations that rely heavily on social capital, that is, the workplace networks on which workers often rely to get their jobs done. Prof. Peter Cappelli, director of Wharton’s Center for Human Resources, describes workers in such networks: “They know what to ask each other. They know each other’s strengths” (“Why,” 2003). In such organizations, it often makes more sense to choose the “make” option, using training and development programs to boost the skill levels of existing employees rather than replacing them with people who have more up-to-date skill sets. This keeps the all-important social networks in place.

Another important factor is technological speed of change. Research from Wharton management professor Benjamin Campbell and colleagues suggests that the “buy” decision tends to make more sense for companies in industries where the speed of technological and marketplace changes is rapid. “When product generations are short, there is not necessarily time to develop the necessary skills for the next generation in-house, so these companies benefit from hiring skills from the external labor market,” notes Campbell (“The Hiring,” 2005). For slower-moving industries, however, the training and development option makes sense because they can take a longer-term approach.

Another reason to choose the training and development option is that, as talent shortages grow more intense, more organizations will be forced to make do with the labor available to them. Those workers might have lots of potential, but they won’t always have the specific skill sets some employers require. Syndicated columnist Michael Kinsman (2007) writes, “I’ve come to realize that sometimes employers sabotage their hiring flexibility by becoming too rigid in the list of requirements they demand of job candidates.” He suggests that employers should lower certain standards—such as expertise in long lists of specific software packages—and beef up their training programs to give new hires the specific skills they need. Expecting society to always provide “turnkey employees” is simply unrealistic, he argues.

In some ways, of course, the whole “make vs. buy” conundrum is oversimplified. Inevitably, every organization does both, and so companies will likely benefit from boosting both the quality of their training and their recruitment processes. Yet, as companies prepare for the future, many will need to forge a stronger vision of what their needs will be. Are they high-tech in a fast-paced industry? Then recruitment should be a priority. Are they unusually dependent on strong social networks? Then perhaps T&D should be the priority. Either way, it’s better to start planning now for the predicted talent shortages of tomorrow.

Documents referenced in this article include the following:

Blake, Ross. “Employee Retention: What Employee Turnover Really Costs Your Company.” Webpronews.com. July 24, 2006.

Booz Allen Hamilton. 2006 Direct Employers Association Recruiting Trends Survey. February 2006.

“The Hiring Dilemma for High-Tech Firms: ‘Make vs. Buy.’” Knowledge@Wharton. November 2, 2005.

Keirn, Jennifer. “Richard Davis: Find First-Rate Employees.” HME News. ProQuest. May 2007.

Kinsman, Michael. “CAREER PROS: Are Firms Too Picky?” California Job Journal, February 18, 2007.

“Why Some Companies Retrain Workers, and Others Lay Them Off.” Knowledge@Wharton. January 29, 2003.

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