SHIFT101 INSIGHTS

Vol.1, #1- Late Summer 2009

Drew Jones & Todd Sundsted

Managing Talent Now!

We now live in an era of Barbell Economics, a world defined by the unprecedented proliferation of small businesses on one side of the bar and a few extremely large firms at the other. Increasingly, the most creative and entrepreneurial talent is opting for careers on the small business side of the bar.

The Challenge

The scope of the credit crunch over the past year has obscured fundamental shifts occurring in the evolution of the talent market. This is even more pressing as the current recession eases. A genuine war for talent, which seemed unthinkable only a few months ago, is now looming.

Not only is there a demographic tsunami building on the horizon (with Boomers set to retire as the 70 million strong Gen-Y generation enters the work force), a small business/entrepreneurial revolution is also taking place in all age groups: un-retired Boomers, Mompreneurs, immigrant entrepreneurs, and Gen-Y entrepreneurs.  What does this revolution mean for employers, and how can they position themselves to best take advantage of it? What talent management strategies will enable smart companies to emerge from the recession as innovators rather than just as survivors?

The Trend: The Decentralizing Organization

“The old employment contract will not return; large corporations simply cannot afford it. This will continue to make personal businesses attractive—and necessary—to workers set loose by large companies.”

(Intuit Future of Small Business Series)

The data outlining the relative growth and importance of small firms are compelling.  The data are often overlooked because small businesses (and no-employee businesses) receive scant attention in business schools and in the business press. The data also underscores a dramatic re-defining of the employer-employee contract (both legally and psychologically), which we address in the second research report, due out in June.

• “Less than 40% of Americans work for companies with more than 1,000 employees.” (Intuit Future of Small Business Series, #1, p.11)

• From 1985 to 2005, the percentage of “full-time” employees in medium and large companies with defined-benefit pension plans dropped from 80% to 25%. (Intuit Future of Small Business Series, #1, p.11)

• There were 20.7 no-employee (i.e. solo) small businesses in the US in 2006. From 1997 to 2006, approximately 500,000 no-employee businesses were formed annually. (US 2006 Census figures, cited at SmallBizTrends.com)

• In February 2009, over 700,000 people lost their jobs in the US, following roughly 600,000 per month from September through January. The ranks of the unemployed grew to over 12 million, cresting at an unemployment rate of 8.2% by end of February. (“Current Population Survey,” Bureau of labor Statistics, Jan. 9, 2009, and Wall Street Journal, Thursday, March 5, 2009)

• Over 70 coworking spaces (shared offices for freelancers and corporate telecommuters) have opened in the past 3 years (I’m Outta Here: How coworking is making the office obsolete, Jones, Sundsted and Bacigalupo- NotanMBA Press, 2009).

In the US, small non-farm businesses have always contributed significantly to both the GDP (50% of the private, non-farm GDP comes from small businesses) and employment (50% of all private sector jobs are in small businesses).  Historically, this hasn’t been a problem for large organizations because the two labor pools did not overlap significantly, and career trajectories and expectations kept workers and business people in one pool or the other.  In addition, the skills and experiences did not translate well from one domain to the other.

Current data recognize the trend toward the decentralizing organization, in which the barriers between the two labor pools dissolve, creating the potential for all employees, regardless of generation, to move back and forth between the corporate world and private practice/small business.  Indeed this is exactly what is happening already in some markets in the wake of the current financial crisis.

Consequences: The War for Talent

Competition for the characteristics that employers want is going to become more intense. Some of the most important competition will come from the employees themselves.

Not only do large organizations compete with each other for top talent, in the coming years they will increasingly have to compete with workers themselves, who will “vote with their feet” by going solo or by joining small companies that offer more challenge, excitement, creativity and greater work/life balance.

Many of those forming small businesses and foregoing traditional corporate employment are Gen Y/Millennials. A 2005 CNN/USA Gallop poll showed that over 75% of Millennials surveyed said they wanted to form their own businesses and work for themselves, while less than 25% said they wanted to work for someone else.

75% of Millennials surveyed said they wanted to form their own businesses and work for themselves

At the same time, many entrepreneurs are women with children who are starting their own businesses (rather than going back to the company) in order to maintain more control over their family lives.

And still today, as has been the case for over a generation, the age group 55-64 is still the most likely group to walk away from corporate employment to start their own businesses.

The key point here is that while Gen Y is increasingly represented in the data with respect to the formation of small businesses, they are by no means the only group opting in to the entrepreneurial way.  The circumstances and structures for going independent in small business have never been so obvious, accessible, and straightforward.

How companies plan to compete with these forces, as well as with each other, will determine who wins the next war for talent!

Bold Moves: Managing for Flexibility and Engagement

The best employees focus on tangible results, measurable in real-time, in ways that directly add value to the company. Building in practices to attract and retain this group of employees will be a strategic differentiator in the coming years.

Almost by definition, employees who aspire to climb up a corporate ladder for tenure, security, and seniority are not the types of workers who provide kinetic, innovative, can-do energy to an organization.  These types of spark-plug workers are, increasingly, taking their energies elsewhere.  This is the challenge that the shift to entrepreneurship, coupled with the decentralizing corporate organization, poses.

Employees who aspire to climb up a corporate ladder for tenure, security and seniority are not the types of workers who provide kinetic, innovative, can-do energy.

Going forward, effective systems of recruitment and retention will depend on creating workplace environments that provide the ‘best and brightest’ with an environment that mimics the values they pursue in independence, or in the small, creative firms to which they are increasingly moving.

Shift101’s research points very clearly in the direction of flexibility.  Flexibility will be central to effective talent management in 2009-2010.  Many of the old assumptions about jobs, job security, and even the reliability of what until recently were “blue-chip companies,” have been deeply challenged. Companies and individuals are now engaged in a generation defining re-set with respect to how jobs and work are being defined and managed.

At the center of this redefinition is a renegotiation of the employer-employee relationship around the theme of flexibility.  This will mean different things for companies in different industries, but few industries will be exempt from these broad and sweeping changes in the management of human capital.

Shift101 suggests four bold moves that companies should consider now:

Bold Move #1: Allow employees to work when and where they choose. Flexibility and autonomy increase engagement, loyalty and productivity.

Bold Move #2: Rethink your workplace design so that when employees are on campus your workspace is conducive to generating the kinds of collaboration and value-creation you desire.

Bold Move #3: Make performance expectations and evaluation extremely clear and transparent, because this is what high-performers want the most. This will expose your underperformers and ‘good ole boy managers’ alike.

Bold Move #4: Recruit for innovation. Innovation is always about people. If you are drawing the best talent, your chances of winning through innovation increase.