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October 06, 2021

The Great Resignation Calls For A Big Reset

By Anthony DiRomualdo  – Senior Director, The Hackett Group

The talent world has turned upside down since Covid hit. A flood of people leaving companies, record numbers of job openings, and difficulty finding qualified candidates are among the latest challenges vexing companies large and small. The pandemic may have been the catalyst, but today’s talent crisis has much deeper roots in policies and behaviors that have been building for decades. What’s currently happening in many ways represents a backlash by staff against deeply entrenched workplace policies which place corporate financial goals above all else.

Today we are seeing an unprecedented number of job openings (over 10 million in August 2021) and not enough candidates to fill them. Companies are struggling to fill all manner of openings, from low-skilled positions in industrial and services businesses to highly skilled jobs in finance, health care and technology.

Turnover has been a problem in the U.S. for more than a decade. According to the Work Institute 2020 Retention Report, it increased by 88% from 2010 to 2019, just before the pandemic. Why? One reason is talent models that seem to encourage turnover, whether implicitly or explicitly. “Burn-and-churn” of talent is a feature, not a bug. Amazon exemplifies this to a degree unimaginable just a few years ago. A recent New York Times exposé shed light on the inner workings of the company’s highly automated labor optimization strategy.  A former Amazon vice president who built its warehouse human resources operations said that Jeff Bezos didn’t want lengthy tenure for hourly employees because it led to decreased engagement and productivity. In effect, the company engineered the process to extract maximum output from workers for a limited time. But even Amazon’s leaders are concerned about the sustainability of a model that produces staff turnover at a rate of 3% a week.

Add tens of thousands of other companies that follow a similar, albeit far less extreme labor optimization approach – getting the most out of people during their time with the company for the least investment. Thus, a line can be traced directly from the current flurry of resignations and talent shortages to inadequate investment in employees, or at least to the failure to build more than transactional relationships with them.

The productivity benefits of labor optimization strategies are outweighed by the costs of the turnover they engender. According to the Work Institute, voluntary turnover alone cost US business $630 billion in 2019! With today’s high level of resignations – 4 million people voluntarily left their jobs in July alone – one can reasonably assume the cost is now even higher.

Despite the best efforts of companies to find a quick solution to this problem, there is no silver bullet that can be used to make it go away. Instead, some fundamental fixes to long-standing policies and practices are needed. But for this to occur, the root causes must be acknowledged and understood.

 

This Didn’t Just Happen

Today’s talent troubles can be traced to several long-term trends that have intensified since Covid emerged:

  • C-suite obsession with productivity: Overwork and burnout were problems before Covid. Long hours, always-on communications and a lack of work-life balance didn’t simply appear when people started working from home.  They’ve been staples of corporate culture across many industries and a badge of honor in the C-suite for decades. The issue here is not that people shouldn’t work hard or pursue ambitions with fervor. Rather, it’s the stubborn mindset of leadership that to succeed in business, staff must be willing to make work their top priority. Yes, many leaders have been paying more attention to the wellbeing of their employees since Covid. But burn out levels and inadequate support for working parents/caregivers continue to be pervasive among many sections of the workforce.
  • Overreliance on talent markets and underinvestment in training: Too many business models and workforce strategies assume a perpetual abundance of talent. Even when companies are able to find replacements in the external marketplace, this approach has substantial costs that are often overlooked. For example, The Hackett Group’s benchmark data shows that companies heavily dependent on external recruiting to fill open positions spend 44% more per hire/placement than those good at filling open positions internally. And despite all the talk about “winning the war for talent,” one would guess by the actions of most companies that they actually do not value talent. For example, while organizations often go all out to recruit attractive candidates, many spend as little as possible on training, typically only when there is an immediate, measurable payback. Moreover, they train managers to focus on performance, not to develop people. When this becomes the norm for companies, it’s no wonder people leave for higher salaries and better development opportunities.
  • Unrealistic job requirements, unappealing pay: Talk to people actively looking for jobs or surf sites such as Glassdoor and you’ll undoubtedly hear gripes about ridiculous job requirements (e.g., 2 years of experience for an entry-level position) and bad pay and no benefits. It’s been a buyer’s market for talent for so long in the U.S. that companies have been slow to align their employee value propositions to the realities of a sellers’ labor market. For example, our recently completed poll of talent acquisition leaders revealed that inadequate pay and benefits is the number one reason by far for job candidates declining offers.
  • Lack of mobility within organizations: Most companies do an abysmal job of enabling employees to move into different jobs within the company despite strong evidence that this accelerates learning and skill development as well as increases retention. Our poll found the number one reason people leave their jobs is a lack of career growth and advancement opportunities.  In other words, they feel stuck in their existing jobs. Research has highlighted this problem for two decades, yet companies consistently fail to address it because of rigid hierarchies, inflexible mindsets and managers that can’t resist hoarding dependable talent. Think this is not a problem for your organization? Have a look at your exit data over the past couple years. If a significant number of staff that have left worked in the same role during their entire tenure, then you likely have a mobility problem.

 

Time for a Big Reset

For the past four decades, scores of companies around the world have been pursuing policies that have slowly but surely changed their relationships with employees in ways that have led to today’s recruiting and retention crises. There are several actions that organizations should take to fix the shortcomings of these approaches:

  • Abandon burn-and-churn talent models: Stop treating talent as an inexhaustible resource. Forge a balance between a talent hunter mentality focused on acquisition and a “talent farmer” mindset centered on developing people and build capabilities to support both. Institute succession management processes for key jobs and internal marketplaces to expand job opportunities for your entire workforce. Make sure existing staff get first crack at vacancies.
  • Redesign low productivity jobs built on cheap labor and low skills: Fewer people in the labor force are willing to tolerate underpaid work and poor working conditions. Either increase pay and create better work environments or redesign these jobs to be more fulfilling and sustainable. Even solutions as simple as allowing workers schedule flexibility and discretion regarding how they do their jobs can help.
  • Stop skimping on training: It’s time for companies to stop shirking their responsibility for training employees. Investing in people is good for individual businesses and great for society as a whole. One interesting trend has been companies like Walmart, McDonald’s, Target, Starbucks and others that have introduced programs to pay college tuitions of their front-line workforces. This has the potential to solve both the talent shortage issue in the short run by making unappealing jobs a financial pathway to better careers and skills gap problems by subsidizing the upskilling of a segment of the workforce that needs it most.
  • Appreciate the connection between well-being and sustained productivity: It’s way past time for corporate leaders to take the burnout epidemic seriously and tone down cultures that emphasis winning over everything else, long hours, and “always on” work styles. Become a role model for behaviors that promote individual well-being. Seek systematic ways to increase the organization’s productivity rather than placing the onus solely on individual workers. Use technology to empower workers, not micromanage them.

It remains to be seen whether today’s labor market and talent trends are temporary or reflect permanent changes in the employer-employee dynamic. Regardless, savvy organizations will reap the benefits of adopting talent models that enable the sustained engagement, skills development and enhanced well-being of their workforces.