In the beginning there were three risks. Or at least that is how the pre-1970s corporate observers and academics saw it. Like many fields of science, the initial elegant simplicity was to prove deeper and more profound than those early pioneers of the field could first imagine.
The historical view of risk
* Market risk observed that markets could fail without warning.
* Contingency risk revealed that risk lay in not having a robust and thorough enough strategic plan to engage in these markets regardless of their climate.
* Agency risk was, in days gone by, focused on the risk of a company’s management failing in its capability to deliver plans and steer a company to success.
That was the old model. More than 30 years later, it is time for a major rethink.
Leadership risk is now emerging as the most significant future management issue. The quality of a company’s leadership determines how well the company performs and how it is able to differentiate itself from the competition.
Yet, companies all over the world are finding it increasingly difficult to find good leadership talents. The types of challenges business leaders face have multiplied, the complexity of the issues has grown and broad global trends are adding variables to the equation.
In the next decade, three key “storms” are likely to come together to make the job of finding the right leadership talent tougher than ever before.
Storm 1: Population
The population of the planet has tripled in the last century to around 6.5 billion and is still growing. Projections suggest that it could hit 11 billion this century. Over 95 percent of this surge will, from now on, come from the developing world — particularly China and India.
It is expected that by 2050 the population of today’s ‘developed world’ will fall from 1.2 billion to less than a billion. The developing nations’ populations will double in this time, as will the global migration of temporary workers.
Today, China and India together account for a sixth of the global economy. By 2017 this will be a quarter, with India’s growth fuelled by education, languages and technology.
China’s growth will be spurred by industry, resources and supply of labor. To meet their commercial needs for the next 10 years, they will together require more oil per year than Organization of Petroleum Exporting Countries has currently been able to produce each year-to-date. This level of growth requires vast resources, technical talent and knowledge.
But the real demand concern is executive talent.
China has said that to meet its business industrial needs for the next 10 years in the telecommunications and technology sectors, it must fill a deficit of nearly 70,000 executives, who will be drawn from abroad. Germany is declaring a 48,000 deficit in engineers and will also seek them from outside its borders.
This draw on talent is just one small influence on the next major source of concern: the aging population. In 2006 in the United States, two workers left the workforce for every one that entered. In short, the populations of the western world are becoming both smaller and older.
A recent Harvard Business review survey said that by 2011, 50 percent of the workforce of the western world will be over 50 years of age, rising to 80 percent by 2018.
Japan claims that by 2020, 65 percent of its financial services workers alone will be over 50. China expects that by 2050, 31 percent of workforce will be over 60 years old.
The European Union expects a work-force deficit ranging between 42 and 70 million people. The US estimates range from 32 million to 48 million. The peak will strike as the last of the baby-boomers hit 65 — the current legal retirement age in many countries.
Both regions cite solutions that include the ongoing employment of an otherwise retiring workforce, as well as significant sourcing of talent and leadership from fast developing nations. But developing nations, with their rapidly growing populations, are also in need of executive talent and will therefore have to take measures to retain domestic talent or look to the developed world to fill their requirements, thus compounding the issue.
With populations shrinking in the developed world, the work force of these nations will have to include employees above today’s accepted retirement age if there is to be sufficient support for the senior generations, which will outnumber the young.
Resetting the balance
Labor, talent and leadership will also need to come from more diverse sources. The mix of genders, ages, races, nationalities and languages is about to surge in the workplaces of developed nations.
The male-female balance is also likely to go up, and at older ages than before. A study by the International Labor Organization this year reported that 63 percent of women in the developed world are in employment today; 40 percent of them are in the global frontline workforce, while 34 percent are in management.
It also found that 25 percent of women in their 20s in Britain do not intend to have children until their 40s and 12 percent do not intend to have children at all. In Italy, a third of women in their 30s are in full-time work, but the birth-rate there fell from 2.6 in 1985 to 1.2 in 2005. Indeed, in the last 20 years, birth-rates in developed nations fell from 2.4 to 1.6, a trend that looks likely to continue.
Storm 2: Mobilization
Today, 200 million people live in countries they did not grow up in, as the laws that previously kept talent at home have become more relaxed. Fifty percent of Saudi Arabia’s 13 million citizens are under 18 and 65 percent of Iranians are under 25 — workforces in nations with declining oil reserves and, in Iran’s case, employment droughts. They will likely have to migrate.
It isn’t just international migration but intra-national as well: 120 million people have mobilized from rural to urban areas in China in the last 10 years. China is encouraging talent migration to enable learning and knowledge. In 2007, 50 percent of the planet was living in urban regions.
Storm 3: Multi-generation
So as the veterans hang on and the new generation becomes employed, we could see five generations in the workforce by 2013 of all races, genders, abilities, languages and wealth.
In October 2006, the World at Work consortium surveyed 487 organizations and over 3,000 workers around the world: 88 percent of respondents stated that the ongoing management of the multigenerational workforce was a major factor in a company’s growth and success.
A work force of diverse beliefs, cultures, skills and generations needs to be provided with the conditions in which it can succeed. We need to go back to the basics. We need to again talk to, listen to and engage with our people, like we used to.
The needs of multiple generations must be catered to, to sustain the number of employees required to service the much larger retiring population. We won’t be able to throw cash at this problem. With so few people to fill so many jobs, good wages for talent will be a given.
Thus, today’s system of cash reward will have to be bolstered by intrinsic incentives: in good times and bad, the most powerful means of attracting, engaging, developing and retaining top talent is to provide it with the conditions for it to succeed and feel successful, rewarded, valuable and influential.
It is this mindset we need to now understand again. Employee branding and employee equity is at its peak when well-led. Word of mouth spreads, and through this well-led organizations attract talent and earn loyalty.