18 Oct Winning the War for Talent
By Jim Weaver, COO of The Ōnin Group
As the jobless rate fell to a 16-year low of 4.3% this summer, many of us have ruminated that this current talent shortage is beyond anything we have seen in our lifetimes. It has certainly hit our light industrial business harder than we have seen in 20 years in business.
In the past two cycles of full-employment the economy has had a large South and Central American immigrant workforce to ease the tight supply of workers in entry-level positions. Because of this shift in government policy and sentiment toward the first generation immigrant workforce, as well as a labor participation rate of less than 63%, this talent shortage is no longer limited to select technical or professional positions.
On a macro-level it is hard to see how our economy will hit the 3% GDP growth rate President Trump has projected when we don’t have the employees to fuel this type of growth. The politicians can wrestle with immigration and the labor participation rate; we have businesses to build. Today, the human resource pinch is felt most acutely in the entry-level and mid-skilled ranks of companies that manufacture, move or process things. The war for talent has come right here to the proverbial heartland of the US economy.
In any staffing program there are three significant restrictions constantly at play – cost, speed and quality. The three constraints are interdependent, so none of them can be altered without affecting one or both of the others. For example, if the skill requirements are increased, it is likely to take longer and/or cost more to fill the role. Likewise, an immediate start date is almost certain to either require more money or less ambitious screening requirements. The more competitive the recruiting environment, the more acute constraints become. No one gets what they want in all three of these areas, especially when the unemployment rate is 4.3%. We call this the Staffing Trilemma. It is also referred to in project management circles as the triple constraint, project management triangle or the iron triangle. Regardless of the name we give it, this is a reality we need to content with.
Generally the issue with unfilled openings is that most employers are unwilling to make price and screening requirement (quality) concessions, therefore speed is sacrificed, leaving unfilled openings until there is a shift in the employment market. Unfortunately, the decision to stick to our guns on price and screening standards is the most costly decision of all, as we shell out time-and-a-half in overtime to meet production or simply miss production all together.
After the resourcefulness and dedication of your internal recruiting team and staffing partner has been verified, we need to move onto the scary question, “Why would people want to work here?” It is time to get real – if I have an average environment, average pay, average opportunity and make no unique hiring accommodation, how can I expect to win in this recruiting environment? If I am below average in any of these categories without offsetting that weakness in another category, I’m in big trouble! Most staffing agencies are not helping matters because they are acting as though it is still 2012 and not doing any deep analysis either. “Yes ma’am Mrs. Staffing Customer, we will do the impossible,” is the response given before failing to deliver. We have gotten into this rut ourselves, only realizing the cycle we found ourselves in at the beginning of 2017.
Why would anyone want to work here anyway?
The first step in answering this all-important question is to take a close look at your local employment market and see how our company stacks up. How many people are there actually in our target demographic once we start winnowing down based on screening requirements? What is our local unemployment rate? What is the pay range for positions similar to ours? Who am I going head to head with in the war for talent, and how do we stack up?
We also need to understand how our state and federal social programs work and the incentives and disincentives these programs create. Furthermore, we need to look at turnover and determine the reasons our company loses employees. It is a complex bit of calculus we are dealing with here, and it takes a bunch of honest work to truly understand where we find ourselves. The companies tackling this challenge are the ones who are winning, and the rest are running on a brutal treadmill.
Once we have taken a good hard look at the employment landscape and have taken a hard look at how our opportunity stacks up, we can take the next step of defining our unique hook. There are exceptions, but generally if someone is unemployed for any amount of time in this market, we probably don’t want them. We are not going after the 4.3%; we need to get the 95.7%. Some call it “accessing the passive candidate pool”, others call it “employee extraction”. I’m going to shoot you straight – we need to steal people. Our future employees are working somewhere else right now, and we need an opportunity good enough to get them to quit what they are doing and we need a recruiting plan to get our opportunity in front of the right people.
Back to the Staffing Trilemma – from the employer perspective something has to give. We basically have three levers to pull to deal with this tough employment environment.
1. Increase Compensation
This lever obviously works on the “cost” side of our Trilemma triangle. Increasing pay is a sensitive subject, as many of our business models are built around certain labor price points. I am not someone who believes in just throwing money at problems. Throwing money at problems is many times a shortcut to thinking. But at the end of the day, regardless of how great the work environment or opportunity, a pay rate that is in the lower 35th percentile based on the job requirements is VERY difficult to overcome. Sometimes the solution is, in fact, a matter of coming off the money. Simple economics of supply and demand apply to the workforce too, when supply is low we end up paying more.
In a competitive market – when payrates really need to be increased – the company that goes first wins. Think about it: if you are the first or second employer in your space to raise rates, you will have the pick of the litter as you steal employees from your competitors. If you are one of the last ones to raise rates then you need to go higher than the first movers to steal folks to your facility. Most latecomers will match new rates or barely beat them. So as long as the early movers couple higher pay with a good work environment, they should be able to hang on to most of their team when the latecomers finally start playing ball.
2. Unique Opportunity, Environment or Benefit
Creating unique opportunity and a truly exceptional environment is the most time consuming and complex way to draw talent. Creating such an environment is a long-game and then even when you have a great environment, effectively promoting it to the labor pool is quite challenging. I would however argue that creating a healthy team eco-system gives us the best return on investment long-term. Great things really start happening when our team becomes a tribe of loyal contributors who feel and act like owners. While this lever also impacts the cost side of our Trilemma triangle, it does so in a less direct way. It takes years of planning and innovating to creating a unique career opportunity for our teams and there is indeed a cost to creating great work-environments.
This is also an area where we can easily operate in a state of delusion, thinking our environment and opportunity is something special when it really isn’t. Simply having the opportunity to “temp to perm” and getting consistent hours is really not a unique opportunity. I think a good way to think about the health of your field or floor managers and supervisors is to ask the question, “in an alternate universe could I work for this person?” We do an annual employee satisfaction survey and have facilitated net promoter score surveys for several customers to give leadership an objective view into the state of their corporate environment.
If we take a look at our environment and opportunity and conclude that we do indeed have something special, the next step is to promote it to our labor pool. Building an employment brand and then taking that brand to market takes work and will cost some money, but if we have something special that no one knows about, we are like the tree that falls in the forest with no one around.
3. Unique Exceptions or Flexibility
When we pull this lever we are compromising on the “quality” side of the Trilemma triangle. Some of us have financial constraints leading to below market pay, and/or we don’t have the time or the resources to create the opportunity or environment that will attract people. In the make, move or process sectors we operate in there is immense pressure to get to market fast and cheap. If this is the case, a more flexible approach to screening or scheduling is a way to increase the number of potential candidates without necessarily increasing pay rate or compromising the quality of work done.
Are we willing to hire ex-felons or people on probation? Can we wave drug or loosen our testing requirements? Is there creative scheduling we can introduce to drive new applicants? These are somewhat controversial compromises to consider, but something must give, and if we are unable to pull on the compensation or opportunity levers, this is the one we are left with. As mentioned earlier, during the last two full-employment cycles many employers pulled this lever when they waved the requirement to speak English in order to tap a workforce with fewer options for work. Pockets of immigrant labor are tougher to find this go around so progressive problem solvers are looking for other places to give up something to get the team they need.
If we are expecting people to work at a wage that is below the living wage threshold, we must understand that there is a reason that person is willing to work at that pay rate. Perhaps they are just getting started in the working world and that is the reason their “market value” is below the living wage level, or even at the poverty level, but in most cases folks in the lower strata of the workforce come with some constraints or even “baggage”. Hear me clearly: I am not talking about someone’s value as a human being, rather I am talking about market value – what they can command for their time in the marketplace. If I am going expect to run my operation with a pay-level somewhere between the poverty level and the living wage threshold, I need to take a hard look at my “must-haves” and be willing to compromise on my “wishes” if I want to keep production going.
Staying the Course
Of course, the other option is to change nothing at all and wait this trend out. This option sacrifices the “speed” side of the Trilemma triangle. Speed is so significantly affected in this tough recruiting environment that many employers have perpetual unfilled openings. There certainly is a cost to falling short of required staff-levels – overtime, lost production and burn-out, just to name the most obvious. It is difficult to make the changes outlined above, so most employers have chosen the “wait it out” option, but at what cost?
This labor shortage challenge can certainly be overcome. We have partnered with several of our more progressive customers to objectively face the brutal reality of this recruiting environment and adapted new recruiting strategies based on both the external and internal realities of their businesses. The companies who are willing to do what it takes, are winning the war for talent.
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