War for talent

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The war for talent is a term coined by Steven Hankin of McKinsey & Company in 1997, and a book by Ed Michaels, Helen Handfield-Jones, and Beth Axelrod, Harvard Business Press, 2001 ISBN   978-1-57851-459-5. The war for talent refers to an increasingly competitive landscape for recruiting and retaining talented employees. In the book, Michaels, et al., describe not a set of superior Human Resources processes, but a mindset that emphasizes the importance of talent to the success of organizations.

Contents

Demographic

The war for talent is intensified by demographic shifts (primarily in the United States and Europe). This is characterized by increasing demand along with decreasing supply (demographically). There are simply fewer post-baby-boom workers to replace the baby-boom retirement in the US and Europe (though this is not the case in most of East Asia, Southeast Asia, Central Asia, Central America, South America, or the Middle East; Eastern Europe also tends to have similar demographics, namely an aging and/or shrinking labor force).

Knowledge work

While talent is vague or ill-defined, the underlying assumption is that for knowledge-intensive industries, the knowledge worker (a term coined by Peter Drucker) is the key competitive resource (see the Resource-based view of the firm). Knowledge-based theories of organizations consistently place knowledge workers as a primary, competitive resource.

Definition of talent

Talent is never explicitly defined in the book, though the Preface notes, "A certain part of talent elude description: You simply know it when you see it." (p. xii) After several further caveats, the authors go on: "We can say, however, that managerial talent is some combination of a sharp strategic mind, leadership ability, emotional maturity, communications skills, the ability to attract and inspire other talented people, entrepreneurial instincts, functional skills, and the ability to deliver results." (p. xiii) The authors offer no outside support for this assertion.

A 2006 article in The Economist , which mentions the book, notes that, "companies do not even know how to define “talent”, let alone how to manage it. Some use it to mean people like Aldous Huxley's alphas in “Brave New World”—those at the top of the bell curve. Others employ it as a synonym for the entire workforce, a definition so broad as to be meaningless." [1]

Talent management and retention of top talent

Talent management has various definitions [2] but common elements include that it is a strategy that enhances the advancement of talented employees, a tool that aides career progression, and the implementation of processes and procedures to support recruitment, development, and retention. [3] Talent management is positively associated with employee retention. [2]

Talent retention is the ability of an organisation to retain its high performing staff and is a key component of most talent management strategies and frameworks. [4]

Retention is key to winning the war for talent. The struggle to retain top performers is one of the four major characteristics of the talent war (the others are: competition to hire top talent from other companies, participation of big and small organisations on an increasingly levelled playing field, and unexpected and unanticipated effects). [5] Retention has been identified as a key issue in several studies. [2] Top performers are more likely to leave than average performing employees, across all levels of an organisation. [5]

Not retaining top performing staff is costly. Financial costs associated with recruiting and training new employees range for 1.5 to 2.5 times an employees’ annual salary. [5] There are also social costs like remaining employees having to pick up the workload where there is a vacancy, reducing efficiency and effectiveness [5] decreasing productivity [2] and having a negative impact on morale. [4] The turnover costs may be higher when the most talented employees leave. [2]

The war for talent can take organisations by surprise, as top management focuses on attrition rate of high-ranking employees, not necessarily the highest performing employees. [5] It can be difficult for large companies to monitor the retention of middle-management as they are often highly decentralised, so they may not be aware of the talent war. [5]

Talent management strategies to retain top performers

Human resource departments have traditionally focused on the retention of all employees, but in light of the talent war it is necessary to identify and implement policies to retain top talent. [5] Top performers are responsible for a large portion of productivity. [6] Better talent management can aid in the identification and retention of top performers. [7] This can include:

Talent management practices used alongside employee engagement initiatives leads to improved talent retention. [10]

Global relevance 2023

A talent war happens when there is a limited supply of workers with in-demand skills so employers have to battle it out to gain access to the most highly sought-after employees. It’s a dynamic that used to be a temporary market condition, but it’s become the new normal. A growing number of experts are sounding the alarm that this will be exacerbated in the future as the global population is headed for a steep decline—and in many countries, that decline has already begun. The international context shows that the demand for talent is global in nature and this competition will increase in the future with ageing populations across the developed world [11] [12]

Current estimates predict that the global talent shortage could reach 85 million people by 2030. In today's tech-based global economy, where digital transformation is reshaping industries and job markets, companies that have access to the best talent could have a significant advantage over those that do not. Talented employees are not only more productive and innovative, but they also bring fresh perspectives and diverse experiences that can help businesses stay competitive and adapt to changing market conditions [13] [14]

Labour markets have tightened in many countries since the onset of the pandemic, especially in the Anglophone countries, where vacancy-to-unemployed ratios have been trending upwards. For example, in the United States, labour markets were already tight before the pandemic and have become even tighter since then: there were 1.2 vacancies per unemployed in 2019 Q4, and 1.5 two years later. Record employment levels in countries are putting upward pressure on wages and salaries, as labour demand rises relative to supply [15] [16]

Impact of COVID 19 on the talent war

The COVID-19 crisis may have triggered a change in workers’ preferences. Workers, including those that have been on the front line during the pandemic, are no longer accepting low-quality jobs that are characterised by low-pay, and poor working conditions e.g. shift hours, health risks and strenuous tasks, as well as poor social benefits. Retail trade, food and hospitality, as well as manufacturing exhibit the highest rises in attrition. As the labour market tightens post pandemic workers quitting their employer may not necessarily switch industry or occupations; rather, as vacancies are on the rise, they may be offered better pay and working conditions for the same activity by another employer [17]

Strategy considerations

One of the most critical issues is finding the right people, something many organisations appear to be struggling with. A 2016 digital business study found that the ability for ministries to attract and retain talent was one of the most serious, and most overlooked, digital threats governments faced.

There are four main streams of research on Talent Management which both the public and private sector can consider when they are developing a way to win the war for talent [18] [19]

First, Talent Management is viewed as a rebranded human resource practice that highlights the importance of external hiring from the labour market. This talks to grounding talent management in a strategic decision framework that clearly defines talent, guides talent decisions, and develops systems-level models that illustrate talent choices. Bringing talent in externally is seen as a competitive advantage by having fresh perspectives, market knowledge and insights, and bringing in new networks [20] [21]

The second stream shifts the emphasis toward internal development of talent which involves cultivating particular roles and skills, and human resources (HR) practices such as succession planning. This is a very common practise in militaries around the world, where personnel are brought in with the intent to grow and develop them over many years through specific training and promotion requirements, and clearly defined pathways with multiple job options within the same organisation [22] [23]

The third views Talent Management as the generic management of talents to fill talent gaps by focusing on top/star performers [24]

And the fourth stream focuses on key positions that can impact outcomes and actively adopts workforce differentiation by dividing jobs into two categories: those that are strategic and those that are nonstrategic.

While options and priorities will vary depending on country-specific context, a number of these options can be considered to make jobs more attractive to talented workers where labour shortages are most acute and workplaces are trying to attract and retain the best talent.

Public Sector organisational culture

Organisational culture plays an important role in the war for talent in both attracting new talent and retaining existing talent in the Public Sector. In recent years, public services agencies, health, and the educational sector have been struggling to fill their roles. People no longer consider monetary compensation as the key driver for joining an organisation, they are increasingly looking for a positive and supportive organisational culture that aligns with their values, empowers them to innovate, and provides a good work-life balance.

Organisational culture is often defined as a set of shared assumptions in the organisation that guides behaviors, thinking, and even feelings (Ravasi and Schultz, 2006). It is the set of values, beliefs, attitudes, systems, and rules that outline and influence employee behaviour within an organization (Wong, 2023). Public sector organisational culture is also reflected in people’s willingness to collaborate within the agencies, the quality and the effectiveness of services provided to the public, and the engagement with other government agencies and their international counterparts.

Culture cannot be created through organisational policies or statements. It is built by the consistent and authentic behaviours of its leaders and employees in value alignment, communication, and workplace practices. When the culture is aligned with the people working in the organisation, they will feel supported, valued, and empowered. They are likely to stay longer in the organisation, motivated to perform in their roles, and promote the organisation to other people. There are important practices that builds a great culture in the organisation in the public sector:

Value alignment

An organisation must be able to articulate clearly why it exists and the value they contribute to the public. When the organisational value, goals and objectives are clearly aligned with the employees, people are motivated to put in their best effort into job performance because they feel the sense of purpose and belonging. If people know “the why”, they can work out “the how”. It is particularly important when it comes to crisis and dealing with unexpected work demand, such as the pandemic. Agencies with great cultures often put in the effort to build continuous value alignment with their employees through regular webinars and organisational newsletter and updates.

Leadership communication

Clear, transparent, and timely communication provided by leaders in the organisation is another important practice to create trust and build a strong organisational culture. It includes communication on organisational value and purpose, updates about organisational operating environment, and the awareness of key projects happening in the team. It also includes leaders providing clear guidance and expectation on how the team and people should performance their jobs, regular catch ups to check in how they are doing and providing timely appreciation and feedback on their performance (LMA, 2023).

Employees’ autonomy and innovation

Giving employees the autonomy to perform their work and encourage innovation is also very important to foster an engaged organisational culture. People often perform better when they have autonomy over their work because they feel they own the process and the product delivered, and they also feel trusted by their leaders. It is important to make sure they have the freedom to operate in their work and the ability to use technology and resources to apply their creative thinking to all aspects of the organisation (Wong, 2023). Through autonomy and innovation, people will feel valued and recognised, and a sense of ownership and belonging to the organisation.

Workplace practices

Promoting flexible working, diversity and inclusion in the workplace are also great practices for creating positive culture. Employees are putting an increasing focus on how an organisation supports their work-life balance. Flexible working provides people with choices of their work locations and hours. It gives people the flexibility to choose what is the best for them and their family. Family-friendly culture in the organisation creates a healthy work environment (Feeney & Stritch, 2019). When the organisation has a culture of family support, it can help organizations attract, recruit, and retain employees (Carless & Wintle, 2007; Lee & Hong, 2011). 

Diversity and inclusion are also important practices to enhance organisational culture. This means that people of different gender, ethnicity, culture, background, and beliefs are treated equally at their work in performance recognition and career progression. People are supported to bring their whole self to work and are empowered to be the best of themselves.

Although organisational culture is intangible, it can be assessed through employee surveys, the percent of presentism and absenteeism in the organisation, it can also reflect in its organisational recruitment success rate and staff turnover rate. This information can send signals to the leaders on the current state of its organisational culture.

Due to the clear linkage between the organisational culture in relation to attracting and retaining talents in the organisation, public sector organisations have been putting strong emphasis on culture building more than ever before. When the organisation is focused on its value alignment, leadership communication, employees’ autonomy and innovation, and workplace practices, it will have a greater success in creating and maintaining a strong organisation culture. When the organisation culture is positive and supportive, it places itself in a good position to win this war of talent.

Relevance during economic downturn

The 'War for talent is seen by various sources as becoming irrelevant during economic downturns. However, there have been highly visible talent poaching [25] [26] by solvent firms of others who have economic hardship (e.g., JP Morgan was raided by a European firm in March, 2009).

See also

Related Research Articles

Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms include manpower, labor, or personnel.

<span class="mw-page-title-main">Career</span> Individuals journey through learning, work, and other aspects of life

The career is an individual's metaphorical "journey" through learning, work and other aspects of life. There are a number of ways to define career and the term is used in a variety of ways.

Succession planning is a process and strategy for replacement planning or passing on leadership roles. It is used to identify and develop new, potential leaders who can move into leadership roles when they become vacant. Succession planning in dictatorships, monarchies, politics, and international relations is used to ensure continuity and prevention of power struggle. Within monarchies succession is settled by the order of succession. In business, succession planning entails developing internal people with managing or leadership potential to fill key hierarchical positions in the company. It is a process of identifying critical roles in a company and the core skills associated with those roles, and then identifying possible internal candidates to assume those roles when they become vacant. Succession planning also applies to small and family businesses where it is the process used to transition the ownership and management of a business to the next generation.

Career development refers to the process an individual may undergo to evolve their occupational status. It is the process of making decisions for long term learning, to align personal needs of physical or psychological fulfillment with career advancement opportunities. Career Development can also refer to the total encompassment of an individual's work-related experiences, leading up to the occupational role they may hold within an organization.

Staffing is the process of finding the right worker with appropriate qualifications or experience and recruiting them to fill a job position or role. Through this process, organizations acquire, deploy, and retain a workforce of sufficient quantity and quality to create positive impacts on the organization's effectiveness. In management, staffing is an operation of recruiting the employees by evaluating their skills and knowledge before offering them specific job roles accordingly.

<span class="mw-page-title-main">Recruitment</span> Process of attracting, selecting and appointing candidates to a job or other organization

Recruitment is the overall process of identifying, sourcing, screening, shortlisting, and interviewing candidates for jobs within an organization. Recruitment also is the process involved in choosing people for unpaid roles. Managers, human resource generalists, and recruitment specialists may be tasked with carrying out recruitment, but in some cases, public-sector employment, commercial recruitment agencies, or specialist search consultancies such as Executive search in the case of more senior roles, are used to undertake parts of the process. Internet-based recruitment is now widespread, including the use of artificial intelligence (AI).

Human resource management is the strategic and coherent approach to the effective and efficient management of people in a company or organization such that they help their business gain a competitive advantage. It is designed to maximize employee performance in service of an employer's strategic objectives. Human resource management is primarily concerned with the management of people within organizations, focusing on policies and systems. HR departments are responsible for overseeing employee-benefits design, employee recruitment, training and development, performance appraisal, and reward management, such as managing pay and employee benefits systems. HR also concerns itself with organizational change and industrial relations, or the balancing of organizational practices with requirements arising from collective bargaining and governmental laws.

Organizational behavior or organisational behaviour is the: "study of human behavior in organizational settings, the interface between human behavior and the organization, and the organization itself". Organizational behavioral research can be categorized in at least three ways:

Personnel economics has been defined as "the application of economic and mathematical approaches and econometric and statistical methods to traditional questions in human resources management". It is an area of applied micro labor economics, but there are a few key distinctions. One distinction, not always clearcut, is that studies in personnel economics deal with the personnel management within firms, and thus internal labor markets, while those in labor economics deal with labor markets as such, whether external or internal. In addition, personnel economics deals with issues related to both managerial-supervisory and non-supervisory workers.

Competence is the set of demonstrable characteristics and skills that enable and improve the efficiency or performance of a job. Competency is a series of knowledge, abilities, skills, experiences and behaviors, which leads to effective performance in an individual's activities. Competency is measurable and can be developed through training.

<span class="mw-page-title-main">Workforce productivity</span> Concept in economics

Workforce productivity is the amount of goods and services that a group of workers produce in a given amount of time. It is one of several types of productivity that economists measure. Workforce productivity, often referred to as labor productivity, is a measure for an organisation or company, a process, an industry, or a country.

<span class="mw-page-title-main">Employee engagement</span> Relationship between an organization and its employees

Employee engagement is a fundamental concept in the effort to understand and describe, both qualitatively and quantitatively, the nature of the relationship between an organization and its employees. An "engaged employee" is defined as one who is fully absorbed by and enthusiastic about their work and so takes positive action to further the organization's reputation and interests. An engaged employee has a positive attitude towards the organization and its values. In contrast, a disengaged employee may range from someone doing the bare minimum at work, up to an employee who is actively damaging the company's work output and reputation.

Talent management (TM) is the anticipation of required human capital for an organization and the planning to meet those needs. The field has been growing in significance and gaining interest among practitioners as well as in the scholarly debate over the past 10 years, particularly after McKinsey's 1997 research and the 2001 book on The War for Talent. Michaels, Ed; Handfield-Jones, Helen; Axelrod, Beth (2001). The War for Talent. Harvard Business Press. ISBN 9781578514595. Talent management in this context does not refer to the management of entertainers. Talent management is the science of using strategic human resource planning to improve business value and to make it possible for companies and organizations to reach their goals. Everything done to recruit, retain, develop, reward and make people perform forms a part of talent management as well as strategic workforce planning. A talent-management strategy should link to business strategy and to local context to function more appropriately

Training and development involve improving the effectiveness of organizations and the individuals and teams within them. Training may be viewed as related to immediate changes in organizational effectiveness via organized instruction, while development is related to the progress of longer-term organizational and employee goals. While training and development technically have differing definitions, the two are oftentimes used interchangeably and/or together. Training and development have historically been topics within adult education and applied psychology but have within the last two decades become closely associated with human resources management, talent management, human resources development, instructional design, human factors, and knowledge management.

E-HRM is the planning, implementation and application of information technology for both networking and supporting at least two individual or collective actors in their shared performing of HR activities.

Employee retention is the ability of an organization to retain its employees and ensure sustainability. Employee retention can be represented by a simple statistic. Employee retention is also the strategies employers use to try to retain the employees in their workforce.

Employer brand is branding and marketing the entirety of the employment experience. It describes an employer's reputation as a place to work, and their employee value proposition, as opposed to the more general corporate brand reputation and value proposition to customers. The term was first used in the early 1990s, and has since become widely adopted by the global management community. Minchington describes employer brand as "the image of your organization as a 'great place to work' in the mind of current employees and key stakeholders in the external market. The art and science of employer branding is therefore concerned with the attraction, engagement and retention initiatives targeted at enhancing your company's employer brand."

Human resource planning is a process that identifies current and future human resources needs for an organization to achieve its goals. Human resource planning should serve as a link between human resource management and the overall strategic plan of an organization. Ageing workers population in most western countries and growing demands for qualified workers in developing economies have underscored the importance of effective human resource planning.

Human Resource (HR) metrics are measurements used to determine the value and effectiveness of HR initiatives, typically including such areas as turnover, training, return on human capital, costs of labor, and expenses per employee.

Compensation and benefits (C&B) is a sub-discipline of human resources, focused on employee compensation and benefits policy-making. While compensation and benefits are tangible, there are intangible rewards such as recognition, work-life and development. Combined, these are referred to as total rewards. The term "compensation and benefits" refers to the discipline as well as the rewards themselves.

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