The Global Skills Gap: the Biggest, Most Obscure(d) Risk

A cartoon in the Oct. 24 New Yorker made me laugh and wince.

The panel featured a pick-up truck collecting day laborers -- in the parking lot of an Office Depot. And the clipboard-toting foreman was not seeking roofers or dry-wallers. "OK, I'm good for IT," the caption reads. "How about spreadsheets, anybody here good at spreadsheets?" The unemployed laborers, wearing slacks and ties, raised their hands, eager to hop into the pickup bed en route to paying work.

Funny and sharp (excellent work, Emily Flake). Yet, also misleading -- just like the current unemployment picture in the U.S., which masks a more worrisome issue that far too few of our companies, public institutions and schools get: a growing global skills gap.

Forget the latest unemployment figures for a moment: U.S. companies are unable to fill as many as 5 million jobs right now.

The skills supply-demand analysis in "Global Talent Risk—Seven Responses," a report produced by The World Economic Forum and Boston Consulting Group, provides ample evidence that the talent crisis will affect every region of the world in the coming years. In 10 years, there could be at least 20 million vacant U.S. jobs unless the current education-to-employment system undergoes significant changes, predicts Anthony Carnevale of the Georgetown University Center on Education and the Workforce.

"Although economic conditions have improved and hiring rates have increased modestly since 2009, companies are experiencing difficulties finding and recruiting employees with critical skills," reports Laura Sejen, global head of rewards consulting at Towers Watson. "Companies are taking longer to fill these positions, and more of them are open. There is clearly a greater-than-normal mismatch between the skills employers seek and those that are available in the marketplace. In short, despite the overall weakness in the job market, companies need a more appealing offering to attract critical-skill employees."

An October Towers Watson survey of 316 North American companies (218 of which are based in the U.S.) finds that roughly six out of 10 U.S. companies (59 percent) reported problems attracting critical-skill employees this year. That is an increase from 52 percent last year and 28 percent in 2009. Forty-two percent also reported difficulty attracting top-performing employees. Additionally, more than one-third (36 percent) reported difficulty retaining critical-skill employees, an increase from 31 percent last year and 16 percent in 2009.

What are these critical skills? The short answer is STEM -- science, technology, engineering and math proficiency. The longer answer is, of course, more complex and nuanced. The National Association of Colleges and Employers identifies the following as the top 10 most important skills organizations seek:

1. Verbal and written communication skills
2. Honesty and integrity
3. Interpersonal skills
4. Teamwork skills
5. Strong work ethic
6. Motivation and initiative
7. Flexibility and adaptability
8. Computer skills
9. Analytical skills
10. Organizational skills

If you have a high school graduate (or any student over the age of six) in your family you shouldn't whisper "plastics" into his ear; instead, your sage career advice should be more along the lines of, "STEM steeped in liberal arts and the humanities."

U.S. companies are clamoring for employees who can do more with less while doing it all. And they're hardly alone. Chinese, Indian, Russian and Brazilian companies -- among many, many others -- are clamoring for the same super-skill sets.

This helps explains why the debate over immigration in the U.S. is much less simplistic than it seems on the surface. As a blurb of a recent editorial in The New York Times points out, "The flurry of visa-related bills making the rounds on Capitol Hill offers further proof that the country cannot live without immigrant labor." In that column, the editors write:

"Here's a Capitol riddle for you: Representative Lamar Smith [R-TX], one of the most reflexively anti-immigrant hard-liners in Congress, is sponsoring a bill to flood the agriculture sector with up to half-a-million visas for guest workers. Understand why and you're well on your way to unpacking the nation's dysfunctional relationship with undocumented immigrants."

This is the nature of the global skills gap: contradictory, heated, dysfunctional, and fiercely competitive.

So what are U.S. companies to do? They can start by considering the following steps:

1. Get Scared: A longtime human capital consultant -- and one who is extremely frustrated by the glacial response to the skills gap so far exhibited by most U.S. companies, educational institutions and public agencies -- share the following in a candid moment. "Too many CEOs don't get it yet, but they will," the consultant warned. "In a few years, they'll drop off their Cadillac to get serviced and the dealer simply won't have enough skilled employees to do the work." The worst-case scenario looks like something out of the brilliant (in parts) Mike Judge movie, "Idiocracy," in which skill sets have deteriorated so intensely in the future, that U.S. hospitals become indistinguishable from grimy fast food joints. For a less entertaining, more sobering scare, scan Manpower's global talent heat map.
2. Visit North Dakota: The North Dakota jobs miracle was recently profiled on Brian Williams' new program "Rock Center," but there is much more to that story than an oil boom. As Ed Gordon points out here, North Dakota's approach to the skills gap represents a useful blueprint for several reasons, nearly all of which extend well beyond the discovery of a new oil field. The state's effort began in the 1980s as farm consolidation and growing agricultural automation started sending residents to other states in search of work. The effort involves collaboration among "business leaders, community and educational institutions and political leaders on both sides of the aisle," Gordon reports, who formed the Committee of 100 to develop a strategic economic-change plan." Over the last 20 years they have continued this collaboration for the transformation of North Dakota's economy and workforce," Gordon adds. "A concerted statewide effort has diversified and expanded this state's well-educated, high-skill workforce from its agricultural base into a talent pool supporting a wide range of business sectors, including information technology, green industries, bio-technology, unmanned aerial systems, and energy." These efforts have attracted Microsoft, Aldevron, Northup Grumman and more than 2,400 IT-related businesses across the state.
3. Collaborate. Industry, education and government must work in concert if the global skills gap is to be addressed in time, as North Dakota's success (as well as initiatives in Chicago and elsewhere demonstrate). This collaboration can also extend to partnerships among different companies. For example, a "talent trellis" represents a leading practice identified in the "Global Talent Risk" report. This approach describes training people so that they are prepared for multiple vertical and horizontal career paths. Although the trellis approach represents an internal training and development strategy, external partnerships and collaboration have also been used. SAP America's "Manager on Loan" consists of an "exchange program" for emerging leaders. High-potential managers switch places with emerging leaders from another company for six-month assignments. For example, SAP America's director of the enterprise information management center of excellence, worked on Procter & Gamble's global data management team for six months in 2010.
4. Manage Human Capital Appropriately. "Human capital is replacing financial capital as the engine of economic prosperity," proclaim the authors of "Global Talent Risk." Most corporate finance executives would agree with this statement, yet many of them let their staffs continue to treat human capital as an Industrial Age line item. Gordon reports that training and development spending by U.S. businesses declined 10 percent from 1999 to 2008. He notes that U.S. companies spend roughly 10 times more per employee on information technology than they spend on employee training. Gordon complains that too many executive view training as an expense—and one that should be quickly reduced when economic conditions worsen—rather than as an investment. Here's a thoughtful article that sheds light on the pitfalls of applying outdated investment and accounting principles to human capital.

Yes, these steps are only a start. Yet, the sooner companies get started the better their odds of managing a risk whose magnitude is no laughing matter.

Contributing editor Eric Krell reports on governance, risk management and compliance for Business Finance.