Smart Workforce Management - How to Successfully Address Changing Demographics

Perspective Dr. Rolf Habbel Dr. Wolfgang Zink Katharina Dittrich Diana Heumann Smart Workforce Management How to Successfully Address Changing Demographics Contact Information Dubai Dr. Wolfgang Zink Zurich Ahmed Youssef Principal Dr. Rolf Habbel Principal +49-89-54525-517 Senior Partner +971-4-390-0260 wolfgang.zink@booz.com +41-43-268-2165 ahmed.youssef@booz.com rolf.habbel@booz.com San Francisco London DeAnne Aguirre Katharina Dittrich Varya Davidson Senior Partner Associate Partner +1-415-627-3330 +41-43-268-2191 +44-20-7393-3468 deanne.aguirre@booz.com katharina.dittrich@booz.com varya.davidson@booz.com Laird Post Diana Heumann Mexico City Principal Associate Sergio Meneses +1-415-281-4924 +41-43-268-2131 Principal laird.post@booz.com diana.heumann@booz.com +52-55-9178-4200 sergio.meneses@booz.com Tokyo Chieko Matsuda Munich Partner Christian Burger +81-3-3436-8573 Senior Partner chieko.matsuda@booz.com +49-89-54525-546 christian.burger@booz.com Booz & Company EXECUTIVE The workforce in developed economies is getting older. The graying of the baby boomer generation, coupled with declin- SUMMARY ing birthrates, will exacerbate the war for talent. Most busi- nesses understand what this means, but few are developing, let alone implementing, creative solutions to address the issue. Companies must adopt HR strategies that reflect the aging of the working population or they will find themselves at a com- petitive disadvantage. They need to analyze their workforce demographics to identify areas that will be affected by waves of retirement and develop strategies to fill the gaps. We call this approach Smart Workforce Management. Smart Workforce Management requires a regular review of HR strategies and programs. First, companies should identify potential skill deficits. Next, they should look at the kinds of programs that mitigate the shortages—e.g., better compensa- tion and healthcare packages—or the introduction of flexible work arrangements and a corporate culture that values older staff. The productivity of the 50-plus generation is key to gain- ing a competitive advantage in the future. Forward planning will reduce corporate brain drain and strengthen a company’s position in the fight to attract and retain the best available talent. Smart Workforce Management must start now. Booz & Company 1 SMART Across the Western world, the age structure of the working population is In the U.S., the total population is increasing, but the percentage of those WORKFORCE changing. Companies need to under- in the active workforce—people aged MANAGEMENT stand the impact of this demographic shift in the general population and 18 to 64—is shrinking as a result of the graying of the baby boom genera- how it affects specific industry sectors. tion. By 2030, one in five Americans Human resources (HR) departments will be 65 or older (see Exhibit 1). can then develop plans to address The picture in Western Europe, where the issue and, more important, take populations are in decline, is differ- advantage of the situation. We call ent—but the consequences are the this approach Smart Workforce same: smaller, older working popula- Management. Given the magnitude of tions. In Germany, for example, the the shift, how companies respond will active workforce is expected to decline greatly affect their future success and by as much as 29 percent by 2050. even their survival. Surprisingly few companies are People today are living longer and developing strategies to accommodate having fewer children. Globally, life or, more important, take advantage expectancy is expected to reach 82 in of these demographic realignments. 2050, up from 78 in 2020. In paral- This can be explained by the fact that lel with this trend, birthrates are in population changes are not sudden, decline. In more than 40 develop- but instead occur gradually: They ing countries, fertility rates in 2008 creep up on us. Many companies just were at or below replacement levels, do not react because they do not yet according to the U.S. Census Bureau. feel the impact. Visionary organiza- In Russia and Japan, birthrates are 1.4 tions, however, can gain a competitive and 1.2 children per woman, respec- edge by understanding these changes tively, well below the 2.1 children and proactively managing their work- per woman required to maintain force. This, in effect, is the essence of population. Smart Workforce Management. 2 Booz & Company Exhibit 1 Population Pyramid in the U.S. and Germany U.S. POPULATION BY AGE AND SEX 100 100 2010, U.S. 2030, U.S. 90 90 80 80 70 Baby Boom 70 Baby Boom 60 60 Baby Boom 50 Baby Boom 50 40 40 30 30 Males Females Males Females 20 20 10 10 0 0 3,000 2,000 1,000 Thousands 1,000 2,000 3,000 3,000 2,000 1,000 Thousands 1,000 2,000 3,000 Population: 310.2 million Population: 373.