The aging workforce – many of us have seen the news time and time again of the looming crisis. We hear of the magnitude of the issue…companies on average will see 29 percent of their workforce eligible to retire by 2025. The crisis is even worse outside the U.S. Companies in many countries will see, on average, 36 percent of their population reach retirement eligibility even earlier – by 2020. Yet little is being done to effectively handle its impact. The most likely reason is that companies have been forced to shift their strategic planning priorities to address the ever increasing short-term expectations of investors. As a result, many will delay investing in a potential solution until the crisis is close at hand. Even these numbers don’t tell the whole story.
In a November 2009 study conducted by Price Waterhouse Coopers called the Saratoga Review, two sets of statistics were evaluated regarding workforce demographics. The first graph replicates study data that evaluated the percentage of the workforce population becoming eligible to retire in the next five years in both 2007 and 2008. These statistics were further dissected by demographic segments of the workforce; Baby Boomers (Boomers), Generation X (Gen X) and Generation Y (Gen Y) employees. The results are shown on the following graph:
In 2007, while the percentage of the workforce eligible for retirement in 5 years was 17 percent, the percentages were higher – at 19 percent and 29 percent respectively – for executives and managers. In 2008 the percent of the total population eligible for retirement increased 2 percent, and those becoming eligible in the executive and managerial ranks reached 27 percent and 36 percent respectively. These statistics demonstrate that the knowledge erosion occurring in a company’s leadership positions will probably exceed 40 percent for many companies by 2025.
These trends clearly indicate a need for effective knowledge transfer and retention for organizations. In addition, companies will need to increase focus on knowledge growth and retention at lower levels to maximize effective succession for many of the vacated leadership jobs. Even here demographic pressures will increase the degree of difficulty to accomplish this.
This next graph replicates data from the same study and displays statistics on voluntary turnover, broken down by the Boomer, Gen X and Gen Y workforce segments. The numbers were lower in 2008 due to the recession’s peak period. However, we still see a significantly higher percentage of turnovers among the Gen X and especially the Gen Y populations. While this might partly be explained by the broader range of opportunities available to young people, the fact that the Gen Y voluntary turnover rate approached 15 percent during the height of a recession underscores a generational shift in attitudes and values toward work, company tenure and career progression that will further inhibit effective succession planning for vacated leadership positions.
Are Companies Prepared?This epic workforce exodus could significantly reshape the competitive positioning of unprepared companies. Over the past decade, many have tried to plan for this, focusing on innovative sourcing alternatives and technology advances to increase external talent identification while curtailing cost-per-hire. But these activities fall far short in their ability to address the looming knowledge loss. In a 2008 study conducted by the Institute for Corporate Productivity (i4CP), 30 percent of companies admitted they retained knowledge either poorly or not at all, 49 percent said they did just a fair job, and 78 percent admitted they had not even designated anyone responsible for organization knowledge retention.
There have been a number of companies, Caterpillar, Monsanto, Accenture and ConocoPhillips to name a few, that have transformed their work environments to learning communities, with process education, knowledge sharing and document management comprehensively woven into their cultural fabric. But while these and other organizations have experienced significant benefits from these efforts, the majority of companies are still sitting on the sidelines, remaining inactive from investing is what will likely be the most significant workforce event of the next two decades.
The extensive learning cultures mentioned above is an approach that we call Transformational Knowledge Management™ (TCM). It requires an extensive investment of time and capital, and takes years to accomplish. And while benefits can begin in the initial stages of deployment, many CEO’s rightfully worry about investment returns. Developing sophisticated learning communities can cost tens of millions of dollars for large organizations. Some CEOs and senior leaders whose organizations rely heavily on effective scientific, technical and other unique knowledge sharing unequivocally believe in the process’s returns on investment (ROI). However, most companies just can’t afford this, especially in our current economic climate.
One of the primary drivers of the ROI dilemma is performance management. Program designs may vary from vertical to 360 assessments and the types of rating scales used, but the key tenets of the process are consistent. Where companies often fall short in program implementation effectiveness is with the requirement that each individual’s key objective must link at least indirectly to a strategic goal; otherwise it is a wasted activity eroding productivity and profitability. Ensuring linkages for all employees is difficult in and of itself; adding Transformational Knowledge Management™ (TKM) into the equation increases the complexity.
With TCM, companies are now required not only to justify each objective’s higher level strategic correlation but also to identify how knowledge management efforts enhance that activity and ultimately productivity, leading to a positive ROI. And it is exactly this complexity that ends up being one of the main reasons, other than the initial capital outlay, that companies either decide not to try TKM or fail in its implementation.
Fundamental Knowledge Management™
So what other option is there for companies to prepare for the aging workforce dilemma? The answer is through the introduction of Fundamental Knowledge Management™. Unlike TKM which focuses on organizational processes, projects and related technical expertise, Fundamental Knowledge Management effectively implements job-based knowledge identification, capture and transfer. It is comprised of two areas of focus:
- Tactical Knowledge Retention
- Strategic Knowledge Planning
Tactical Knowledge Retention involves developing a daily ability to manage knowledge loss created by voluntary turnover and the involuntary turnover workforce restructurings or acquisition integrations can create. In each of these scenarios the window for knowledge capture is short, and especially with restructurings and integrations the volume will significantly compound the knowledge retention efforts. Capturing knowledge loss from the above scenarios will typically be done by deploying interviewers trained in the art of knowledge extraction who are also skilled enough to distribute the information to those transitioning into the vacated positions; very important for ensuring cross-functional consistency in knowledge capture.
Knowledge extraction interviews are time-consuming, so evaluation of available technology solutions designed for such knowledge capture can pay significant dividends in both time and expense. This process does not address the aging workforce dilemma, but it is a vital first step in minimizing knowledge erosion.
The more comprehensive approach for maximizing baby boomer knowledge retention is Strategic Knowledge Planning. Strategic Knowledge Planning integrates critical knowledge erosion forecasting with long-term strategic planning to maximize knowledge retention and utilization for achieving strategic business goals.™ It involves the development of effective data mining and trend projections with critical knowledge identification to significantly enhance workforce planning efforts for achieving the organization’s strategic goals. Let’s examine more closely how the process works.
Here the human resources team compiles data analyses on two key employment events – projected retirees and voluntary turnover. The data identifies those individuals eligible for retirement within 12 months, 1 to 3 years or 3 years plus. Voluntary turnover history from the preceding 3 years can offer a snapshot of projected knowledge erosion. These statistics must be evaluated not only by function or department but also by job groups critical to the company’s objective achievement (sales force segments, particular product development teams, etc.).
In tandem with this data gathering, the organization also needs to embark on an equally important effort of developing critical knowledge holder identification skills throughout its management team. When asked who these are, managers tend to site their top performers or top performers who are their direct reports. Remaining under the radar, however, are many steady, solid performers whose detailed knowledge of undocumented processes, legacy systems and/or historical company practices are invaluable to sustaining productivity levels. All managers need to be trained to implement necessary assessment tools for identifying critical knowledge in a consistent fashion across the organization’s landscape.
Once a database of critical knowledge holder (CKH) employees is identified, managers can then use the projections on both retirees and voluntary turnover to identify critical knowledge the organization is at risk of losing and what the overall knowledge loss ramifications may be. These assessments are accomplished at the department level, and can easily be rolled up for both functional and organization-wide knowledge loss ramifications.
It’s critical that these activities coincide with the completion of the company’s strategic planning process. One of the outcomes of every strategic plan is a comprehensive workforce planning strategy to ensure the acquisition and retention of workforce capabilities necessary to achieve corporate goals. Up until now, most companies would identify the “people” required to deliver on the strategic plan, compare that to the existing people and skill sets of the organization, determine the “gap” of current versus future needs and develop a strategy to acquire necessary talent. Strategic Knowledge Planning makes this process both more effective and more efficient.
Once the critical knowledge holders are identified and the potential losses assessed, the focus shifts from headcount requirements to knowledge requirements. Understanding both the knowledge gap that needs to be filled and the impact projected knowledge loss will have, human resource leaders can develop a more precise workforce planning strategy to mitigate both current and future gaps. Expanding the breadth and depth of knowledge transfer holds workforce expansion to targeted goals and, at the same time, enhances career growth for employees whose advancement has been significantly inhibited over the years due to management de-layering.
The Power of Mentoring!
The most common, cost effective knowledge transfer approach for job-based knowledge is mentoring. This can be accomplished one-on-one sessions or in group mentoring where knowledge transfer to multiple incumbents is required. The critical first step is the effective pairing of the critical knowledge holder with the knowledge learner(s). The knowledge holder can educate through a combination of the following:
- Formal, scheduled training sessions
- More informal discussion sessions on scheduled topics
- Lessons-learned discussions post project or process completion
- Job shadowing for hands-on visual experience (not typically utilized for group mentoring)
The key to each of the techniques is the sharing of experiences and thought processes driving both strategic and tactical decision-making of the CKH.
Prior to the start of any mentorship process there should be knowledge documentation provided by interviewers or by an effective technology solution. This will substantially enhance the learning curve by developing a knowledge foundation from which the learner can better assimilate information through mentorship interaction.
Ensuring the success of knowledge transfer requires consistent, targeted follow-up as well. Realistic time frames should be set for completion with intermediate milestones and accountabilities. This allows for effective process assessment and course correction to ensure timely and effective knowledge transfer completion.
The current economic crisis is forcing all organizations to critically manage expenses and investments until such time that workforce expansion can once again become an integral part of economic growth. Unfortunately, however, the crisis of the aging workforce looms, and baby boomers will begin retiring in large numbers in a few short years. Combine this dilemma with post-recovery growth through acquisitions which will create additional workforce reductions through integration synergies, and the problem of management of knowledge erosion will overwhelm those organizations not initiating the necessary knowledge retention process early on.
Fundamental Knowledge Management provides organizations with a simple, cost-effective, yet comprehensive approach to knowledge transfer and retention that will not only enable firms to weather workforce reductions caused by retirements, but also create a knowledge-value culture that will produce significant strategic benefits long-term. For those firms staying on the sidelines, the clock is ticking…