The Dark Side of the Retirement Bubble

The economic downturn has given organizations a short-term reprieve from the looming talent crunch.

The economic downturn has given organizations a short-term reprieve from the looming talent crunch. Learning leaders should take advantage by creating long-term succession plans tied to development goals and business needs.

Another perfect storm is brewing and is due to hit businesses once the economic emergency is over: the loss of irreplaceable knowledge and experience as millions of baby boomers retire.

This impending crisis already was building when the financial disaster struck. For more than 10 years, AARP and the Society for Human Resource Management (SHRM) have been sounding alarms about the baby-boomer retirement bubble, predicting serious leadership vacuums and productivity shortfalls that could undermine the nation’s global competitiveness.

Now, many baby boomers have decided to postpone retirement as they watch their 401(k)s and investment portfolios plunge. In a cruel twist of fate, the economic plight has bought industry additional time to address the looming workforce and management talent shortage. The dire predictions will still come true, just a little later than anticipated.

If companies do not take advantage of this last-minute reprieve to build bench strength now, they will not get a second chance. Without immediate action, organizations devastated by economic setbacks will face another disaster: a brain drain never before seen in the history of this country.

Replacement Planning Is Not Enough
In 2005, SHRM President Susan R. Meisinger warned that evolving demographic changes present major challenges to America’s workplace: “These are serious HR and workforce issues that could undermine the nation’s global competitiveness and HR must determine how to meet these challenges.”

Yet, at the same time, SHRM’s studies showed that only a quarter of HR professionals were convinced the flood of retiring baby boomers would be a problem for their organizations. This lack of concern by HR professionals elicited a warning last fall from AARP’s chief people officer, Ellie Hollander, who said that few employers recognize the effect of the brain drain they will suffer when boomers retire and take their knowledge and experience with them.

According to an article in Human Resource Executive online in December 2008, a lack of leadership already is impeding performance at 56 percent of the 1,100 organizations polled in a 2008 benefits and talent survey. In addition, 31 percent of the organizations expected their performance to be affected by a shortage of leaders in the next one to four years.

Although some HR departments have paid attention to the warnings, their responses have been inadequate. They have developed succession plans, or rather replacement plans, but only in a check-off-the-box fashion. In these exercises, they named names of potential succession candidates for various positions, cleaned up resumes, drew organization charts and created beautifully packaged portfolios of successors. In essence, they put lots of names in boxes. So what is missing? The strategic approach.

Most HR professionals have not taken the trouble to assess the actual leadership skills of those proposed succession candidates, and nothing was done to develop them. There was no partnership between HR and the C-suite to initiate the proactive, long-term development of leadership talent, and it is high time that relationship and dynamic changed.

It is not enough to identify candidates. They need to be assessed, tested in action and developed through education, training, coaching, hands-on work and mentoring. That’s where the rubber meets the road.

“Many companies underestimate the strategic importance of a fundamentally sound and highly structured cyclical process for succession planning,” said Sharon Doyle, a succession planning and talent development expert. “They implement what they call a succession planning process, which is no more than a replacement plan. It lacks depth and is often based only on the limited perspective of managers from their own seats. Succession planning is about balancing the needs of today with a view of the future. Business imperatives can change, and today’s good talent may not fill tomorrow’s needs.

“Begin with a clear definition of talent, a common denominator to identify people who are not only successful in their current job, but demonstrate the performance and potential for future success,” Doyle said. “Make sure the talent you have today can either be groomed for future endeavors, or upgrade the talent pool by employing new people who can take the company into the next chapter of success. Many organizations don’t look beyond the obvious internal candidates within their own business unit. They are missing opportunities to capitalize on the talent they have inherent within the entire organization.”

Doyle said endorsement from the top is essential to drive the succession planning process through the organization. “You can give it teeth by tying it to compensation, measuring people by the results of successful succession planning scenarios,” she said. “If succession planning is done across the company, at an enterprise level, it has a much higher chance of being successful. Intelligent succession planning is done with the same rigor and regularity as a budget planning process.”

Where Have All the Leaders Gone?
Senior executives have been focusing on the business, which is not a bad thing. In putting out daily fires, however, they have taken their eyes off the ball of developing the organization at-large. That includes designing the infrastructure, creating succession plans, being involved in developing bench strength, identifying and grooming leadership talent and testing high potentials to weed out those who are not leadership material.

As a result of this oversight, emerging executives are still unprepared to fill the shoes of retiring baby boomers. Simply put, the replacement candidate pool, chock-full of Generation X and Generation Y, lacks leadership competency.

Another emerging problem is that members of generations X and Y have different value systems and priorities than baby boomers. They lack basic and essential skills, such as a strong work ethic, a sensibility about the need to be grown over time and climb the corporate ladder versus starting at the top, and understanding the need to have experience to do the jobs they are expected to fill.

Traditional education and training have failed to prepare the next generation of leaders. The most often voiced complaint from senior leaders is that the training provided by HR for emerging leaders is too generic. Most training programs are not customized to truly serve the needs of the organization.

No matter how many case studies the trainers build in, no matter how much tailoring they supposedly do, senior leadership consistently states that programs don’t match the organization’s needs and the needs of the trainees.

Drawing a clear distinction between training and education can help resolve this dilemma. Training is designed to impart skills to serve a particular organizational function. For many jobs, it is necessary and a smart thing to do. Training programs can be internally developed or administered by a third-party training organization. The choice depends on the situation.

Sometimes the more generic training provided by training companies is sufficient. For instance, if a company finds that its engineers consistently demonstrate poor project planning skills, it can achieve success with high-quality broad-based training around project planning. No customization may be necessary.

The choice of training type or training content should not be made by a training director or HR specialist in isolation. It should include a range of people across a broad demographic, who will be impacted by that training choice: prospective trainees, their managers and the managers’ managers. Those three levels will ensure a well-rounded view of the actual need of the trainees and the fit of the proposed program.

Emerging leaders also need education, which often is overlooked. That’s not just external education at an institution, such as a degree program or intensive executive development, but also internal education, such as coaching and mentoring and strategically designed stretch assignments. Senior executives — the baby boomers who are about to retire — need to get busy helping the next generation of leaders understand the organization’s culture and complexity so they can become savvy about navigating their way.

Besides being absolutely essential in developing new leaders, coaching and mentoring have much higher retention rates for learners than training programs. That, coupled with stretch assignments, can prove to be a winning combination.

“When developing and motivating generations X and Y, one size does not fit all. And what worked for the baby boomers does not work for these younger individuals,” Doyle said. “Some may want flex time, others just a pat on the back. Don’t assume that everyone is motivated solely by money. Development does not need to have a big sticker price. It can be as simple as providing emerging leaders with continuous feedback.

“If feedback occurs only during the annual performance review, both the manager and the direct report are at a disadvantage because of the potential effect on compensation,” she said. “Rather, feedback should be given in the context of development — for example, through a 360-degree instrument. Although it is commonly assumed that the manager’s feedback is most indicative of future success, actually, a direct report’s perspective can be more meaningful. This has been proven by research.”

It’s a Buyer’s Market
There is insufficient bench strength within most companies to fill the void that will be left by retiring baby boomers. If internal talent appears inadequate to meet the need, don’t hesitate to look outside.

Corporate America is currently running scared, hiding in the corner or at least being cautious when it should be taking advantage of the vast talent pool in the marketplace looking for work. American businesses today are standing still and missing a phenomenal opportunity to significantly upgrade their talent base and deepen their leadership bench strength. There is incredible talent at-large in the streets that has been laid off by the thousands, and not for lack of skill.

This time presents a unique opportunity to hire the cream of the crop while others are tightening their purse strings with a pennywise and pound-foolish mentality. It’s an employer’s market, and great talent often is willing to work for less than they were used to. These people can be developed into the next generation of leaders, using baby-boomer executives as coaches and mentors before they exit.

Doyle recommended analyzing the current talent in key positions, ensuring that the best, most talented leaders are aligned to these positions, correcting the inequities and identifying talent gaps. Then, evaluate the talent requirements for success today and tomorrow to enhance the picture of the leadership pool, its depth and shallow spots, and whether or not there are immediate and planned backups for the most critical positions. In doing so, organizations find where their needs and development opportunities lie.

“Companies that are not skilled at evaluating talent and creating true succession plans might end up with people and plans that look good on paper, but lack the depth to be successful in the long run,” Doyle said. “Start by clearly defining both the skills and attitudes you’re looking for, and also the desire to succeed. Then, provide incremental development opportunities.”

In this short window, organizations have a tremendous opportunity to use the brain trust they still have. As soon as the economy improves, the baby-boomer leaders’ investments will begin to recover, and they will be gone. A hunker-down approach now will lead to disaster when all the leaders suddenly leave. Capture that brainpower now, and begin a rapid deployment process to ramp up new leadership talent to get them to ready-now status.

“Business has to continue, and even if a company lacks the wherewithal to advance, it can create and implement strategic plans,” Doyle said. “Proactive organizations will move ahead of the pack. When this flatline economy regains its pulse, they can sprint out the gate while others are relearning to walk.”

Keep the Pipeline Full
The traditional method of grooming one successor per position is doomed to failure, and not just because of the impending shortage of leadership talent. Executives often ask what would happen if they were to “get hit by a bus” or “win the lottery” tomorrow. That question also applies to their successors.

The problem with having only one succession candidate per position is that many factors can usurp the process. The candidate may leave the organization for a better opportunity, may be forced to move across the country due to a family health crisis or may suddenly be needed elsewhere in the organization to fill a critical vacancy.
The solution is to have multiple candidates in the pipeline for a range of positions. They all have to be brought to about the same level of readiness and all have to understand that they are not competing for a particular job, but rather, they are being tested and prepared for various higher-level positions across the organization. Their performance during this learning and test period will determine the best selection for vacancies.

Do It Yesterday
“Today more than ever, the differentiator in business is finding a way to propel human capital into bottom-line results,” Doyle said.

CLOs will need to reaffirm their importance in the organization and form strategic partnerships with other C-level executives. Unfortunately, HR and training still are seen as overhead, not moneymakers. Whether that perception is fair or not, HR professionals have to understand management priorities, and facilitate them by harnessing and engaging human capital. If layoffs are unavoidable, HR should help ensure that it is fat, not muscle, that is being cut, so that in better times the organization will be fit and ready for the challenges that lie ahead.

In most companies, HR has not yet articulated the great urgency of filling the void soon to be left by retiring baby boomers. Now more than ever, HR leaders need that seat at the table so they can help find the future of the company. Chief learning officers and senior HR leaders need to have honest and robust conversations about succession — not just replacement, but developing and testing the next generation of leaders. Those conversations should also include the level below executive leadership — those in learning and development roles who have a close-up vantage point of the organization’s talent needs — so that learning and development can be practical, targeted and specific. And this needs to happen yesterday.