Despite the doom and gloom of recent economic news, the middle market continues to outpace large-cap companies and global corporations in business growth, M&A and workforce expansion.
Most middle-market business leaders are well aware of the “war for talent” that exists today. Attracting and developing talent has been and will continue to be the No. 1 constraint on growth for midsize companies. The bad news is that this war is expected to intensify over the next five to 10 years due to significant changes in the workforce. On the bright side, however, small and midsize companies have an opportunity to compete—and win—against large corporations.
Where the Workforce Is Headed
Members of the baby boomer generation, which accounts for 46 million workers in the United states, are retiring in droves and taking critical skills and knowledge with them. Every year, more than four million baby boomers leave the workforce, according to the Bureau of Labor Statistics. This trend is expected to continue well into 2020.
As the boomers retire, Gen Xers will become company leaders. They will shape the vision, attitudes, beliefs and corporate culture over the next 10-plus years, until they too begin to age out of the workforce.
While Generation X comprises fewer workers than its predecessor, the next generation—the millennials—makes up the largest generational U.S. workforce in history. Born between the early 1980s and the early 2000s, this group has already surpassed the two older generations in workforce size. According to the Pew Research Center, millennials accounted for more than 53.5 million employees in 2015.
By 2020, most boomers will have retired, Gen Xers will most likely occupy the majority of leadership roles and millennials will make up over half of the total projected labor force, according to the BLS. At that point, older millennials will begin assuming leadership positions and influencing the business world.
In five years, women will eclipse men in the labor pool for the first time. Meanwhile, the workforce will become increasingly ethnically diverse. The number of Hispanics in the labor force has doubled over the past 20 years and will continue to grow at a rapid pace, while the increase in nonwhite workers will soon outpace that of Caucasians.
In addition to generational and demographic changes, the Kauffman Index recently reported that the number of new business owners and entrepreneurs is increasing by 530,000 every month. From 2014 to 2015, the United States saw the highest year-over-year growth in newly established entrepreneur-led businesses in the last 20 years. Employees are becoming weary of working for big companies only to lose their jobs during a recession and are opting to start their own businesses.
The Midsize Advantage
Thanks to a low unemployment rate, jobs are plentiful and the number of active job seekers is down, resulting in an ever-expanding employment gap. Workers today have more choices than in the past; they’re becoming free agents, in a sense, shifting their competencies and interests toward more innovative, consultative and entrepreneurial skills.
The robust job market, combined with generational and demographic changes, is driving a shift in employees’ workplace expectations. The new generation of workers expects greater flexibility, less-structured career paths, more opportunities to express individuality at work and a healthy work-life balance. Younger employees desire more access to technology, rapid learning opportunities and a closer relationship with managers. Feeling inspired is more important than pay.
The workforce revolution will have more of an impact on large corporate firms than their small and midsize counterparts. While compensation and benefits are often an advantage to working for a large company, the perks may end there from the perspective of an employee four years from now. The emerging workforce is beginning to view large corporations as too bureaucratic and overly structured, with limited opportunities for decision-making and flexibility. Millennials want to be involved, exposed to all parts of the business and accountable immediately—they’re less likely to see the value or allure of “paying your dues” before climbing the corporate ladder.
Small and midsize companies may be better positioned to take advantage of the impending workforce changes. Typically more nimble, innovative and less structured than larger organizations, these companies are more likely to adapt to the emerging social changes. Offering hands-on learning opportunities, less-structured job roles, more collaborative environments and a stronger reliance on technology to drive results will help these firms take a significant lead in attracting and retaining future talent. Larger corporations with comprehensive management development programs will no longer be appealing to the 2020 workforce. The emerging employee wants more involvement and a clear tie to the company’s mission, regular interactions with senior leaders and a faster-paced work environment. She wants to wear many hats and to be evaluated on results, not length of tenure.
To attract and retain the best talent, middle-market companies must leverage their agility, flat organizational structure and entrepreneurial roots. Some practical suggestions for business leaders include:
- Assess (or develop) your talent needs and create plans to address future talent gaps. Balance this with the workforce shifts expected over the next five to 10 years.
- Focus on creating challenging job experiences rather than wasting time on devising elaborate career paths for younger workers—employees no longer place much value on planned, structured development programs.
- When planning for development, focus on opportunities where an employee can expand his or her skills and interact with senior employees and leaders. Place more value on breadth over depth.
- Tap into the knowledge base of baby boomers before they retire. Facilitate mentorship between older and younger employees to capture and transfer skills and experience.
- Create a work environment that allows for individuality, inclusion and flexibility to balance work and life demands.
- Have succession plans not only for your leadership roles but also for your most critical positions. Identify the jobs that have the greatest impact on your mission or strategy, and look at how and where you can develop or hire talent.
- Find ways to tie your firm’s purpose, vision and mission to something bigger in society. Corporate and social responsibility initiatives are highly valued by millennials.
- Finally, ensure that all leaders in your company understand and are accountable for being talent managers—they must feel responsible for the development, exposure and engagement of their people. This is not HR’s job.
Companies that are more nimble, less bureaucratic, and more accessible have a strategic advantage to attract, train and retain the talent of the future. As structured employee development programs lose their appeal, proactive companies that focus on creating a culture responsive to evolving generational and demographic trends are poised to win the war for talent.
Dan Hawkins, a seasoned business executive and former chief human resources officer, founded Summit Leadership Partners after 25 years in the corporate world. The firm helps business leaders implement strategy, develop leaders and improve organization performance.