Winter 2006 Newsletter

Companies Face Baby Boomer Brain Drain By Keith Mudd Director UHV SBDC

Statistics show that as 76-million baby boomers get ready to retire, only 46-million replacements are entering the workforce. That leaves the middle aged workforce with a void of expertise and burdens the remaining workers in terms of productivity. Given an American economy that is driven by expansion, businesses are expected to face challenges in the coming years with respect to filling positions and retaining quality employees.  

How does a business cope with such a staggering loss in personnel and in productivity? The answers may not be perfectly clear, and at best, this is likely to be a painful blow to a company’s bottom line.

As seasoned, experienced employees start to retire in larger numbers, managers are forced to deal with this potential loss of personnel. Generation X, those who are 25 – 45 years of age, are having to step up to management level positions and positions of senior expertise much sooner than that of their baby boomer predecessors.

Companies will be short on expertise and consequently will have to spend more money to retain skilled personnel and will have to spend even more money to educate and train the new incoming generation (called Generation Y - those below the age of 25). Anyway you look at it, companies will spend more money to train and retain quality personnel.

The next twist in the personnel expense category is that company loyalty is not the same as it was with baby boomers. The newer generations have seen parents downsized, laid-off, and forced to retire. The newer generations will not wait for internal promotions or salary increases if competing companies are willing to pay more money now. Labor and expertise can literally be bought and sold on an open market.

Here are several methods to better protect your company in the coming years:

1. While your senior expertise is still employed, make sure you are tapping into the knowledge base they possess by having them mentor to your next generation of employees, team leaders and managers. Make sure your senior personnel are accessible and available to train younger members of the firm. Also, an increasingly popular trend in business is to insure that all employees are cross trained in other areas of the company. This works to protect the company from information hoarders, who might decide to leave in one swift and sudden motion. It is important to have a backup plan for jobs deemed critical to business continuity. 
    

2. Get ready for a price war when it comes to paying for top labor. Supply and demand effects will be more noticeable in the coming years. Baby boomers had to do battle for top paying positions as there had been a surplus of labor. Generation X and Y should have less trouble competing for positions due to a shrinking workforce; however, Generation X and Y are faced with the reality of having to do more with less in terms of having fewer coworkers and subordinates to share workloads. In short, money talks with the newer generations, and 401K plans are like packed suitcases waiting on standby. The newer workforce thrives on change and changing jobs is always on the table.
    

3. Training costs will increase. Generation Y expects to be adequately trained. They learn best by instructions and expect tasks to be explained. Companies will be forced to spend more money on training to make up for the losses of experienced staff. However, use caution: Too much training and you run the risk of increasing the monetary worth of the trainee, which essentially can train them right out the door. Your competition is always looking to hire a trained employee.
    

4. Short on expertise? Consider hiring back a baby boomer (retiree) as a consultant. Boomers will enjoy work in the coming years as self-employed paid consultants. However, do not expect 40-60 hour weeks from these individuals, as they have earned retirement. The moral here: You will pay more for experienced input.
    

5. Look to eliminate wasted time and unnecessary or redundant processes. If labor costs continue to increase, and if labor supplies are increasingly scarce, you must work to tighten up, or reduce costs in other areas of the company. If you increase labor costs, look for a balancing transaction such as having employees share other company resources.
    

6. Prepare your organization for change. The only thing certain in life is change. If your small business is still running like it did 25-years ago, make sure you take well prepared steps before implementing new methods of conducting business. Be sure to obtain “buy-in” from key senior personnel before implementing a new idea. After all, you are trying to retain the skilled labor you have.
    

7. Make sure you are utilizing the most effective technologies to offset the shift in labor patterns. Many small businesses have pushed technology aside due to the high costs associated with equipment or simply out of fear. This strategy could come back to haunt a business when you can also no longer afford adequate labor. In 1933, FDR said, “The only thing to fear is fear itself”. Since then, we have been to the moon and back and it is time to stop fearing technology and start putting technology to its full use.

All in all, the shifting labor patterns will end up costing employers more money over the next couple of decades. Major employers already have an easier time attracting top candidates than small businesses and this trend is likely to continue. The successful small business will take measures now to protect itself from the impending labor changes in the near future. There is always room for competition, but a company must keep the above points in mind to stay competitive.

-Keith

You can email Keith at:

muddk@uhv.edu