HR Managers need to think like economists

June 17, 201510:00 am1347 views

Deloitte just released its Human Capital Trends 2013, a year-long research effort which looks at talent and leadership trends around the world. The research explains why talent and leadership gaps have become the top business challenge this year.

We are now in a world of uneven economic growth with lagging skills and the need to build new leaders in many countries around the world. Different sources of research often point this out. Human capital is the main challenge on the minds of CEOs, more than 10% higher than “operational excellence.

Mature markets like Singapore, Hong Kong and Japan are face demographic challenges. It brings with it all the challenges of high spending on social welfare and pensions, reduced economic growth and the need to more rapidly improve immigration policy.

At a national level these issues are being discussed every day. There is now a national debate about immigration, the role of women in the workforce and the need to redesign Singapore’s education system. But to the point, what do HR and business managers do?

The answer mentioned in the Deloitte study: HR managers have to think like economists.

Common Problems

Many HR leaders believe their company’s ability to innovate is driven primarily by the technical skills and capabilities of its workforce (i.e. technical competencies). Older companies possess many engineers who are of an older generation, with a skills foundation coming from legacy telecom architecture.

With mobile and internet technologies driving business transformation, there is a critical need to reskill amongst corporations. In the outside market, there’s a talent competition for new engineers with startup ventures, software companies and well known MNC brands like Apple, Nokia, Google and others.

There’s simply in insufficient engineeering talent, so there is a need to build, buy and other recruit and retain engineering talent in the company. How would an economist approach this problem?  This is a “supply and demand” problem.  Our demand exceeds market supply. Workforce planning remains a major weakness in most HR teams.

Approach of an Economist

How would an economist deal with the skills gap? Should we bid up the price? That is, raise our wages? Research shows that money is a “hygiene” factor in employment. Upon meeting the competitive market benchmark for salaries, other incentives to attract talent must be provided.

Amongst there are career opportunities, culture, benefits, work environment, and a mission that people believe in. What else would an economist do? They would try to find more supply. That is they would start “harvesting” new technical talent by planting new seeds and growing new crops.

In the case of HR this is called “talent harvesting” or “candidate relationship management.” This company should build a compelling talent acquisition brand and start to farm new candidates who are in their second and third year of engineering school.  Most consulting firms have done this for years, and it really works.

Economists understand that labour markets are local. Applying that principle, this organization could open a new R&D facilities in cities close to growing universities or an influx of highly educated people. Today many US tech companies are moving their R&D clusters to places where the cost of living is lower than the US and education levels are high. This takes some workforce planning and economic analysis, which is not the typical work of most HR teams.

Economists would look at retention rate, internal talent migration and cross training opportunities within the company. In a corporation with a large workforce, programmes that keep engineers working a few years longer, improve retention and facilitate career development will have a huge effect.

HR is now one of the most rapidly growing disciplines in business. Corporations need HR professionals who think about the whole “market” for people around them. Our internal organisations are “economies” just like the outside world, and the better we understand their dynamics the better we can meet our business needs.

See: Leadership vs Management: Understanding the Difference

Source: Forbes

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