Creating people advantage through Talent Management

Macro trends driving talent management The need for talent management is always a difficult challenge as it involves identifying tomorrow’s talents today and ensuring they live up to expectations. Intense macro trends are additional elements that give a sense of urgency to the concept of talent management, including: - New cycles of business growth, often requiring different kinds of talent - Changing workforce demographics with reducing labour pools - More complex economic conditions which require segregated talent and talent management - The emergence of many SME’s that are increasingly targeting the same people sought by large companies, by offering opportunities for impact and wealth that few large companies can match. - Job mobility is increasing, as a result top performers change employers more than twice in their full careers. - A global focus on leadership. As a result of these macro trends workplaces everywhere are facing an increasingly complex and ever- changing landscape in their efforts to acquire, retain, motivate and develop the talent needed to create long-term success for organisations.

Talent and skills scarcities – some numbers The talent gap is a challenge for employers everywhere. To sustain economic growth, by 2030 the United States will need to add more than 25 million workers and Western Europe will need to add more than 45 million employees. There are an estimated 214 million international migrants worldwide. Collectively, they would make up the world’s fifth- largest nation. Migration is not only a South-to-North phenomenon; in fact, 40% of the world’s migrants move from one developing country to another. Foreign nationals are authors of the majority of patent applications filed by many US companies: 65% at Merck and 64% at GE and 60% at Cisco. Foreign-born workers with university or equivalent qualifications make up just 2% of the European labour market, compared with 4.5% in the United States, 8% in Australia and nearly 10% in Canada. Employability will continue to be a huge problem worldwide. Because of the uneven quality of education systems, only 25% of Indian and 20% of Russian professionals are currently considered employable by multinationals. Even China faces long-term talent shortages. The number of those aged 60 and older is expanding rapidly, already forming 12.5% of the nation’s population. The country’s one-child policy and its drop in birth rates means that by 2050 the 10 workers now supporting each senior citizen will fall to 2.5. Source: World Economic Forum and BCG 2011

Talent Management – the business case Why is Talent Management becoming such a critical issue? There is a lot of hype about Talent Management, but why is it increasing in importance? Companies today face formidable talent challenges. The ability to sustain a steady supply of critical talent is a challenge facing all organisations worldwide. Among the issues impacting the “next generation” workforce are impeding skill shortages, an increasingly cross-generational and diverse workforce, the need for knowledge transfer from retiring baby-boomer and significant leadership gaps.

Manage human capital proactively In order to create continuous value for stakeholders and to maintain competitive advantage, organisations must proactively manage their human capital. This includes identification, selection, development, retention of High Potentials, workers who demonstrate superior accomplishments inspire others to high achievement, embody institutional core competencies and values. However, organisations have to include in their program also Keepers, workers who exceed expectations for value creation as well as Solid Contributors, who meet the expectations for value creation. Confluence of different macroeconomic topics In the coming years, the confluence of a substantial number of retirements, demographic shifts, high liquidity in job markets and workforce churn created by M&A will exacerbate shortage in certain employee segments. Talent Management – the business case Source: Manpower, May 2010: Talent Shortage Survey

Talent Management – the business case Workforce Demographics are changing An aging global workforce and a widening “skills gap” in high demand fields such as science and engineering are expected to deliver a severe blow to the labour market in the next few years. - Aging: Since 2008 the first members of the Baby Boomers turn 62, the average retirement age in North America, Europe and Asia. The average age of employees will continue to rise, and the workforce will become more multigenerational. Proportionally, mature workers are the fastest-growing age segment, and large employers can expect to double their percentage of workers over fifty-five during the next five to ten years. Additionally, greater than 25% of the working population reached retirement age by 2010/2011. (“Older Workforce Survey”, Society for HR Management, June 2003) - Tightening labour markets: As the rate of labour force growth drops to 2-3% per decade labour markets will tighten and competition for talented people will intensify. The talent gap is a challenge for employers everywhere. To sustain economic growth, by 2030 the United States will need to add more than 25 million workers and Western Europe will need to add more than 45 million employees. - Shortages of workers: Overall demand for workers is already beginning to exceed supply. In 1950 there were 7 working age people for every elderly person in the US, by 2030 there will be only 3. (acc. Committee for economic Development) - More women and ethic diversity: The proportion of women, which is already high, will continue to rise slowly. Minorities are the Fastest-growing segment. There are an estimated 214 million inter- national migrants worldwide. Collectively, they would make up the world’s fifth-largest nation. Not only lack of talent. It‘s also “talent mismatch”. Source: Manpower, May 2010: Talent Shortage Survey

For the 2011 Talent Shortage Survey, employers in many countries are reporting a slight increase in difficulty, such as Japan’s four percentage point increase to 80% in 2011 compared to 76% in However, in some countries, including some of the largest economies in the world, employers are reporting a dramatic surge in difficulty filling positions. India and the United States report the largest increases in difficulty; in India, difficulty increased to 67% in 2011 from only 16% in a 51 percentage point increase (Figure 4). In the U.S., the difficulty increased to 52% from 14%, a 38 percentage point increase. These difficulties likely stem from increased demand in both countries as the economy rebounds.

Workforce Value Proposition – An opportunity seeking workforce - Workers in general are highly informed about their options - The Internet gives them the ability and access to find job opportunities without risk to their current position. - The combination of mobile employees and a turbulent economy makes an even more challenging situation for HR professionals. - High potential retention is an important topic – the best people are always needed and always have choices, regardless of the financial strength or weakness of the economy. This places more responsibility on a company to be proactive in engaging and keeping it’s key personnel. Talent Management – the business case Source: Manpower, May 2010: Talent Shortage Survey For the 2011 Talent Shortage Survey, employers in many countries are reporting a slight increase in difficulty, such as Japan’s four percentage point increase to 80% in 2011 compared to 76% in However, in some countries, including some of the largest economies in the world, employers are reporting a dramatic surge in difficulty filling positions. India and the United States report the largest increases in difficulty; in India, difficulty increased to 67% in 2011 from only 16% in a 51 percentage point increase (Figure 4). In the U.S., the difficulty increased to 52% from 14%, a 38 percentage point increase. These difficulties likely stem from increased demand in both countries as the economy rebounds.

Business outcomes of talent management 1. Relationship between financial performance, as measured by profit per employee and talent management. (McKinsey quarterly, May 2008) Companies scoring in the top third of the survey (when all ten dimensions were combined) earned significantly higher profit per employee than those in the bottom third The payoff Average profit per employee, 2006, EBITDA per FTE Top third: 168 Bottom third:93 Key success factors:- creation of globally consistent talent evaluation processes - management of cultural diversity - mobility of global leaders 2. Saving in cost for external recruiting; better information about interbal candidates 3. Increased engagement and retention, therefore reduced turnover rates 4. High performance at work