Warning: Talent Cliff Ahead – Part 1

The looming technology workforce shortage
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, Service Performance Insight

tal cliffThis article is the first of a two-part series on the pending “talent cliff,” an important topic to professional services leaders. We discuss why this critical situation exists and provide some related insights from the newly published 2013 PS Maturity Benchmark for professional services.

By now, most professional services executives realize it is increasingly difficult to find, hire and retain an exceptional consulting workforce in a tight global race for talent. The bad news is that it will only get worse in developed countries as workforce demographics change, the educational system continues in disarray and immigration policies remain rigid.

To understand the growing human capital challenges, one must look at the trifecta of external forces that are creating the talent cliff.

It’s the baby boomers!

This year, the average baby boomer (people born between 1946 and 1964, as defined by the United States Census Bureau) will be 58 years old. The graph in Figure 1 shows the impact that aging baby boomers are having on the U.S. workforce. In 2000, the number of older workers was 49.2 million. In 2012, this number increased to 63.1 million. While the number of workers older than 45 has exploded, the number of U.S. workers age 25 to 44 has fallen by 6.8 million. Every day, 10,000 U.S. baby boomers retire, meaning 3.65 million experienced workers exit the workforce every year.

Figure 1. Growth of U.S. workers aged 45 or older

USWHistorically, retirement begins to accelerate when people are in their late 50s. Analysts project that by 2018, there may be more than 5 million unfilled jobs in the U.S. And the number of unfilled jobs requiring STEM skills is projected to be more than 200,000. Unfilled jobs coupled with the loss of baby boomer knowledge, skills and experience could severely impact workforce productivity and the U.S. economy. Furthermore, the shortage of qualified replacement workers makes filling those jobs more difficult.

It’s the schools!

One of the most important and hotly debated topics is the state of the U.S. educational system. Regardless of political perspective, the facts are sobering. On the 2009 Program for International Student Assessment exam, the U.S. ranked 25th in math, 17th in science and 14th in reading among 34 OECD member countries. When the 37 partner countries (including China, Singapore and Taiwan) are incorporated into the list, the U.S. dropped to 31st in math, 23rd in science and 17th in reading. Clearly U.S. K-12 schools lag behind those in other developed countries.

Further, an insufficient number of students who go to college are pursuing STEM disciplines to meet market demands for these skills. Microsoft recently published a report underscoring this labor shortage by citing that the company has 3,400 unfilled research, development and engineering positions in the U.S. And this workforce deficit is not just a U.S. issue, as recent headlines declare a worldwide labor shortage of critical IT skills.

Multiple think tanks and nonprofit organizations have published extensively on this topic. While their proposed solutions for education system reform may differ, they all appear to agree on the future STEM-skilled workforce shortage.

It’s the immigration policies!

Immigration has been a powerful economic engine for the U.S. More than 40 percent of the U.S. Fortune 500 companies were founded by an immigrant or a child of an immigrant. The current immigration policy doesn’t provide the requisite number of visas needed to allow companies to recruit internationally to fill open jobs, specifically those requiring technology skills. Moreover, the worldwide shortage for these skills means U.S. companies hiring for domestic positions are competing against firms in other countries. The immigration policy in many other countries is strategically aligned to the urgent need to globally source these highly skilled workers.

Ironically, many of these foreign workers may have been educated in American colleges and universities. Right now, no targeted immigration program exists to keep foreign students in the U.S. after they earn advanced degrees.

The challenge for 2013

In professional services with IT, software as a service, hardware, networking services and management consultancies depending on individuals with strong technology backgrounds, the talent cliff becomes the most important issue facing the market.

As evidenced in our 2013 PS Maturity Benchmark, talent management is the most important challenge according to 234 companies that completed the survey in the 4th quarter of 2012. The No. 1 challenge in 2011 of “supporting rapid growth and expansion” has been surpassed in 2012 by “talent management,” as outlined in Table 1.

YOY TMTwo years ago, PS executives were mainly concerned with sales, given the prior three years of the economic downturn. Last year, with improved sales and record year-over-year revenue growth of 13.5 percent, the focus turned to service execution. That meant efficiently delivering more projects, which led to higher revenue growth. In 2012, because of the success of the previous two years, the foremost challenge shifted to talent management. The ability to find, hire and engage a high-quality consulting workforce has become the primary concern.

The second-most critical challenge found in this benchmark is improving quality and consistency. Higher-quality services require high-caliber consultants, and generally required skills are based on problem-solving abilities, typically found in individuals with a STEM background.

Populations in the U.S. and other developed nations continue to grow. Educational systems continue to graduate students, and thousands of people immigrate to the U.S. and other developed countries every day. Unfortunately, the balance of supply and demand for individuals with the skills necessary to succeed in technical disciplines is lacking, and without a major commitment from federal, state and local agencies, developed countries, especially the U.S., will suffer over the long-term.

Stay tuned …

This article provides context for the looming talent shortage. Next time, we’ll present some of the innovative methods that PS executives should consider to effectively lead their firms away from the talent cliff.