The Search for Talent
The world’s most valuable commodity is getting harder to find
THESE are heady days for most companies. Profits are up. Capital is footloose and fancy-free. Trade unions are getting weaker. India and China are adding billions of new cheap workers and consumers to the world economy. This week the Dow Jones Industrial Average hit a new high.
But talk to bosses and you discover a gnawing worry—about the supply of talent. “Talent” is one of those irritating words that has been hijacked by management gurus. It used to mean innate ability, but in modern business it has become a synonym for brainpower (both natural and trained) and especially the ability to think creatively. That may sound waffly; but look around the business world and two things stand out: the modern economy places an enormous premium on brainpower; and there is not enough to go round.
The best evidence of a “talent shortage” can be seen in high-tech firms. The likes of Yahoo! and Microsoft are battling for the world’s best computer scientists. Google, founded by two brainboxes, uses billboards bearing a mathematical problem: solve it for the telephone number to call. And once you have been lured in, they fight like hell to keep you: hence the growing number of Silicon Valley lawsuits.
As our survey this week shows, such worries are common in just about every business nowadays. Companies of all sorts are taking longer to fill jobs—and say they are having to make do with substandard employees. Ever more money is being thrown at the problem—last year 2,300 firms adopted some form of talent-management technology—and the status and size of human-resource departments have risen accordingly. These days Goldman Sachs has a “university”, McKinsey has a “people committee” and Singapore‘s Ministry of Manpower has an international talent division.
Trespassers will be recruited
Some of this panic is overdone—and linked to the business cycle: there was much ado about “a war for talent” in America in the 1990s, until the dotcom bubble burst. People often talk about shortages when they should really be discussing price. Eventually, supply will rise to meet demand and the market will adjust. But, while you wait, your firm might go bust. For the evidence is that the talent shortage is likely to get worse.
Nobody really disputes the idea that the demand for talent-intensive skills is rising. The value of “intangible” assets—everything from skilled workers to patents to know-how—has ballooned from 20% of the value of companies in the S&P 500 to 70% today. The proportion of American workers doing jobs that call for complex skills has grown three times as fast as employment in general. As other economies move in the same direction, the global demand is rising quickly.
As for supply, the picture in much of the developed world is haunted by demography. By 2025 the number of people aged 15-64 is projected to fall by 7% in Germany, 9% in Italy and 14% in Japan. Even in still growing America, the imminent retirement of the baby-boomers means that companies will lose large numbers of experienced workers in a short space of time (by one count half the top people at America’s 500 leading companies will go in the next five years). Meanwhile, two things are making it much harder for companies to adjust.
The first is the collapse of loyalty. Companies happily chopped out layers of managers during the 1990s; now people are likely to repay them by moving to the highest bidder. The second is the mismatch between what schools are producing and what companies need. In most Western countries schools are churning out too few scientists and engineers—and far too many people who lack the skills to work in a modern economy (that’s why there are talent shortages at the top alongside structural unemployment for the low-skilled).
What about all those billions of people in the developing world? Alas, adding willing hands to the global economy is not the same as adding trained brains. Both India and China are suffering from acute skills shortages at the more sophisticated end of their economies. Wage inflation in Bangalore is close to 20%, and job turnover is double that (“Trespassers will be recruited” reads a sign in one office). The few elite institutions, such as India‘s Institutes of Technology, cannot meet demand. And there are also cultural legacies to deal with: India‘s Licence Raj destroyed management skills, while China‘s Confucian tradition still emphasises “face” over innovation.
A problem for all of us
This poses different challenges for companies, governments and individuals. For companies the main task is simply to end up with more talented people than their competitors. Firms will surely have to cast their net wider, employing more part-time workers and more older workers, and spending yet more on training, even in places where workers seem cheap: the training budget at Infosys, an Indian tech giant, is now well above $100m. Human-resource managers, once second-tier figures, now often rank among the highest-paid people at American firms; they will have to justify that status.
But governments too need to act. Removing barriers is a priority: even America still rations the number of highly skilled immigrants it lets in, and Japan and many European countries do far worse. But education inevitably matters most. How can India talk about its IT economy lifting the country out of poverty when 40% of its population cannot read? As for the richer world, it is hard to say which throw more talent away—America‘s dire public schools or Europe‘s dire universities. Both suffer from too little competition and what George Bush has called “the soft bigotry of low expectations”.
And the talented would do well to intervene in this debate on the side of the disadvantaged. For one last thing is sure to flow from the hunt for talent: even greater inequality. Most societies will tolerate the idea of well-rewarded winners, as long as there is equality of opportunity and the losers also clearly gain something from the system. If those conditions are not met, populist politicians from Toledo to Tokyo will clamp down—and everyone will be poorer for it. A global meritocracy is in all our interests. Be prepared to fight for it.