| Financial services industry needs to focus on talent management |
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| A combination of impending baby boomer retirements, a widening skills gap and outdated approaches to talent management is threatening the long-term business performance of organisations, writes Cormac Hughes. As such, managing talent retention and recruitment should now be a major priority for management and no longer seen as the sole purview of the HR department, he says. |
‘Our people are our greatest asset’ has become a well-worn clich? used by owners and managers of businesses in all industries. Like most well worn phrases there is a significant amount of truth to it. The expert knowledge of your products, the lasting relationships with customers, the desire to go the extra mile and get the job done – these are the things that define success for an organisation, and they all come down to the quality and attitude of people.
However, it has never been more important for Irish businesses to ensure that this sentiment is followed through on. This is because the combination of impending baby boomer retirements, a widening skills gap and outdated approaches to talent management is threatening the long-term business performance of organisations. As such, managing talent retention and recruitment should now be a major priority for management and no longer seen as the sole purview of the HR department.
According to a global survey by Deloitte of human resources practitioners, attracting new talent poses the greatest threat to competitiveness, followed by the inability to retain key talent (66 per cent) and incoming workers with inadequate skills (34 per cent).
Over 70 per cent of respondents surveyed by Deloitte confirmed they were experiencing, or expected to experience, a shortage of white-collar workers. Global demographic changes show that the number of 15-29 year olds entering the job market is steadily contracting, while growing life expectancy is further contributing to the problem.
Worryingly, only 13 per cent of respondents identified approaching baby boomer retirement as a concern, despite overwhelming evidence indicating a large exodus of experienced staff from the labour market in the next three to five years.
The inescapable conclusion from this is that the widening skills gap is a global phenomenon, particularly among the categories of key workers who disproportionately drive an organisation’s performance. This trend will leave behind companies that do not begin to rethink their approach to talent management.
Companies in the financial sector are not immune from these global trends and as their industries change and evolve, then managers needs to rethink how they recruit, develop and compensate their employees.
Asset managers, for instance, are seeing an increased need for portfolio managers, marketing people and – in today’s regulatory environment, employees with compliance expertise.
Asset managers have been seeing high performers leave for some time. Turnover at the top 15 investment management firms in the United States has increased by 120 percent in five years, while forty percent of the top 15 German equity funds have changed managers in the last three years and in Luxembourg one-third of fund managers are switching jobs each year. | | Taking the first steps in talent management |
To keep up with the growing demand for good people, asset managers need to take a more comprehensive approach to recruiting and retention. Some firms are exploring new ground in the hunt for talent by ‘lifting out’ portfolio management teams away from competitors.
Other firms have found success by focusing on developing and retaining in-house talent, rather than raiding other firms. In rethinking their approach to HR, some firms are looking to rely less on individual stars and more on teams – a shift that can enhance continuity and embed key knowledge in the organisation.
American Funds, for instance, consciously pursues a ‘no-stars’ approach, with groups of managers working together on a given fund. The firm had the five best-selling US mutual funds in 2004 to October, taking in 40 percent of all US mutual fund inflows, excluding money market funds, according to Financial Research Corp.
A number of asset managers are also re-vamping their compensation plans. To encourage teamwork, firms can base compensation on factors such as company-wide results and a supervisor’s assessment of employees’ collaborative efforts. For instance, at US-based MFS Investment Management, about one-third of managers’ variable pay is based on a 360-degree assessment by colleagues, including the firm’s analysts and traders. While more firms are offering compensation packages that emphasise revenue sharing over time, rather than up-front bonuses and guarantees.
The banking sector, which has traditionally not performed well at talent management, has also recognised looming talent shortages and the need to introduce initiatives designed to build talent.
Deutsche Bank, for example, has a programme for its operations and technology functions that identifies about three percent of employees as especially talented and invites them to join this programme where they have additional access to senior management, participate in networking events and are given special training and development.
At ABN Amro, line managers nominate candidates for their talent management programme, which assess their leadership abilities and provides additional training including the opportunity to attend courses at Harvard and other colleges.
As banks develop their talent management strategies, they will need to take into account the impact that outsourcing is having on executive skill requirements. With cheque processing, call centres and other functions increasingly performed by outside vendors, banks are finding that they have fewer executives with hands-on experience in these operational areas.
More importantly, development of potential leaders will need to place a greater emphasis on managing vendor relationships, rather than actually managing these operations.
In this regard, training, particularly for customer-facing employees, is crucial. Today, branch employees are focused less on processing transactions and more on selling sophisticated financial products.
Training will need to be an on-going activity to keep pace with the escalating demands of more complex products, compliance requirements, and increased sales responsibilities.
In general, training staff and encouraging them to progress within the organisation is crucial as this aligns the organisation with employees’ interests. Surveys have shown that what employees care most about is interesting, challenging work; open, two-way communication; and opportunities for growth and development. Interestingly, money appears way down the list.
Aligning talent management with the interests and priorities of employees and with the needs of your company’s strategy will require a significant change of approach for most organisations.
Firstly, it means developing a HR strategy, where none may have existed, and also providing a HR voice in the strategy of the business. It also requires organisations to identify those groups and individuals within their organisations that drive business performance and to develop specific plans to develop and retain these staff.
Reacting to talent shortages by engaging in knee-jerk measures such as offering more money, perks and new challenges is often ineffective when there is inadequate medium and long term resource planning.
Rather than fight a futile ‘war for talent’, business leaders should ‘build talent’ by looking within their organisations for the critical skills, knowledge and attributes required to execute their company’s most important roles, while continuing to seek to attract the best people.
Irish companies can avoid sustaining a direct hit from the looming talent crisis by rethinking and reinventing their talent management processes into a well-designed talent strategy that drives productivity and differentiates a company from its competitors. |
Cormac Hughes is a partner in Deloitte.
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| Article appeared in the October 2005 issue.
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