Addressing the Looming Human Capital Crisis
A PRACTICAL INSIGHTS GUIDE
The nation is currently in the midst of one of the longest economic expansions in its history. While this is good news for manufacturing companies who are experiencing robust growth and reaping record profits, it has also exposed a potential long-term challenge: finding and keeping good employees.
With the economy at near-full employment, workers are finding they have more opportunities than ever. Both skilled and unskilled laborers, as well as managers, have a wide range of employment choices, and they have the ability to change jobs more easily and frequently if they desire.
More than an HR Problem. A Business Problem.
The current labor crisis isn’t just putting strains on human resource departments, it’s affecting the heart of businesses.
Increased employee turnover is beginning to undermine company productivity and profitability. As front office and shop floor employees depart for new opportunities, they create extensive knowledge gaps within the organization. What’s more, without sufficient staffing on the shop floors, it can be more difficult to grow or even meet demand.
And then there are the safety risks. The Bureau of Labor Statistics reports that accidents and injuries are far more common in the initial period of employment. According to their study, nearly one-third of non-fatal occupational injuries or illnesses that involved time away from work were suffered by workers with less than one year of service.†
There’s also a tremendous bottom line impact.
$ 45,000 FOR RECRUITING & TRAINING
According to The Society for Human Resource Management, for a worker making $60,000, a company could spend upwards of $45,000 to get a new employee up to speed.‡
The cost of recruitment, interviewing and onboarding can add up fast. According to a study by The Society for Human Resource Management, employers will have to spend the equivalent of six to nine months of an employee’s salary in order to recruit and train their replacement. For a worker making $60,000, a company could spend upwards of $45,000 to get a new employee up to speed.‡ For businesses with already tight margins, that’s a tremendous burden to bear.
Some businesses may be looking at the current human capital crisis as a temporary problem that will resolve itself over time. However, it is far more likely that this shortage signals a systemic and long-term transformation.
PerspectiveThere is a profound set of shifts occurring that will alter the dynamics of the workforce for the foreseeable future. These include population migration, automation, and a seismic demographic transformation.
On the Move
As the great migration continues in the United States, young workers are flocking from the Northeast to the South and West. According to a Stateline analysis of projections, between 2010 to 2040, the population of working-age adults will decline in 16 states, most of which are in the Northeast and Midwest. Maine, Vermont and West Virginia will see their working-age populations drop more than 10 percent, while Connecticut, Illinois, Michigan, New Hampshire, Ohio, Pennsylvania, Rhode Island and Wisconsin will see theirs fall more than 5 percent.§ This ongoing population shift is leaving companies in the Midwest with fewer qualified workers than ever before.
The Hidden Downside of Automation
Technology today is truly amazing. In business, it has enabled us to accomplish unprecedented productivity. It’s helped us open new revenue streams and new markets. But, it’s also scared off workers. Some potential shop floor employees who see automation as a threat to their job security have already been proactive in pursuing jobs in other industries, thus compounding an already severe shortage of employees.¶
Welcome to the Millennial Age. As the Baby Boomers retire, a new generation has taken their place. Much to employers’ surprise, the goals and priorities of Millennials are vastly different from those who came before them.
This generation generally places a different value on work. While those in the past may have devoted a significant part of their lives to building their careers and working their way up the ladder, Millennials are looking for more balance. According to a survey conducted by the World Services Group, work-life balance was the top priority, ahead of both wealth and leadership opportunities.#
In addition, Millennials have demonstrated a declining interest in blue collar jobs, leaving huge shortages in a wide range of industries.¶
To attract a new generation to the factory floors, manufacturers are getting more creative. It’s an uphill climb, since many now in the work force don’t see themselves in blue collar positions. But, the cause is not lost. Innovative companies are looking at a wide range of strategies and tactics to lure Millennials. And many are succeeding.
Taking the proactive approach
As many manufacturers continue to grapple with the worker shortage, they are finding themselves in a perpetual reactive mode. Job openings are addressed on a case-by-case basis as employers try to fill vacancies as quickly as possible. While this is a challenge for companies of any size, it is particularly overwhelming for small and mid-sized firms who don’t have the luxury of a robust HR department.
To be both effective and financially prudent, companies need to take a step back and develop long-term strategies to keep their current workers and recruit new ones.
Taking on the Role of Talent Management
Astute business owners and executives are quickly learning that talent management has to be their responsibility. In order to run a healthy and sustainable business, leaders can expect that 30%-50% of their time will be spent on talent recruitment and retention, according to John Augustine, Huntington’s Chief Investment Officer. And they need to figure out how to fit that into their already busy day.
Working with Associations
In decades past, trade unions took on the responsibility of training the next generation of workers. But, with unions less prominent than ever, many manufacturers are looking to their local and national trade associations to fill the void.
One of the more successful of these initiatives was conducted by The New Jersey Business and Industry Association and the Consortium for Workforce & Economic Development, which put together a 10- to 12-week training program for aspiring metalworkers. Through this ondemand-training program, more than 200 previously unemployed individuals have been trained— and most of them certified in national credentials—in metal fabrication, CNC machining, and production technology.††
More than 30% of new hires come from referrals
A report from The Society of Human Resources Management states that employee referrals are the top source for hires, delivering more than 30% of all new workers.‡‡
For manufacturing companies, recruiting new employees has become a full-time job. So, many are starting to seek their employees’ help in the hiring process. From management personnel to factory workers on the shop floor, companies are looking to all areas of their operations to help fill vacancies. By offering financial bonuses to workers who recommend potential new hires, employers are able to short-cut the hiring process, saving the company both money and time. A report from The Society of Human Resources Management states that employee referrals are the top source for hires, delivering more than 30% of all new workers.‡‡
Many companies are working with public entities, like local governments and schools, to help them recruit new talent. Community colleges and universities are developing programs that meet the training needs of local businesses. High schools are bringing back shop classes to help spark interest in the trades and train a new generation of workers. To encourage workers to relocate, some local governmental bodies are offering financial incentives to potential new hires.
The Kansas Department of Commerce, for example, is offering many new, full-time residents state income tax waivers or student loan repayments as an incentive to move. The Rural Opportunity Zones (ROZ) program has shown to be highly effective in attracting people to the state.Ұ
Upgrading Pay and Benefits
Of course, for most candidates, the decision to accept a job comes down to compensation. For this reason, organizations need to take a hard look at how their packages stack up against competitors’.
Research shows that an attractive, fully-developed employee package has a positive impact on recruitment and retention.
In fact, a recent survey released by The Society for Human Resource Management found that more than two-thirds of HR professionalssaid that health care, retirement savings and planning, and flexible working benefits will increase in importance to recruit employees in the next three to five years. About three-fifths of respondents indicated that these benefits will also be more important in retaining employees.¥
Organizations should consider:
- Wellness programs
- Signing bonuses
- Health insurance
- Strong and competitive 401(k) offerings
- Other HR benefits
As part of their strategic and financial planning, companies should estimate the overall cost of the plan, account for it, and commit to it. Functionally, this should involve collaboration among all departments, including leadership, finance, accounting and human resources.
In the real world, this can be a challenge. Margins in many manufacturing sectors are already razor thin, and bandwidths within departments are often stretched to their limits. For this reason, many savvy companies are looking to partner with expert advisors who can broker attractive packages for today’s demanding workforce.
To mitigate these expenditures, companies can work with their banks to find ways to reassess fee structures, maximize working capital, and use cash on hand more effectively.
Improving Benefits, Reducing Turnover: Huntington Assists Firm with SMART Strategy Plan
When your company is facing a 150% employee turnover rate, you look for help. That’s why one firm turned to Kristin Janutolo and Dan Rankin, Huntington’s Employee Benefits Insurance Senior Consultants.
Before Kristin and Dan began developing a Huntington SMART strategy plan for the company, they met with employees for insights on what was important to them. Specifically, they talked about benefits. They discovered that the package the company offered didn’t match the needs of the employees. So, Kristin and Dan helped develop a benefits plan that did.
Even though the package they implemented had a slight cost increase, it included offerings that the employees desired.
The result: The employee turnover rate dropped 60%.
Solving the Human Capital Crisis Through Automation
Despite aggressive recruitment efforts and investment in attractive benefits packages, companies in certain industries continue to experience chronic labor shortages. Many are coming to the realization that these jobs may never be filled.
Out of pure necessity, some organizations are turning to automated technologies to fill their labor needs. These include machine to machine (M2M) technologies, industrial robotics, and the use of machine sensors.
While this strategy can shift the allocation of total production costs rather than reducing them, it still provides a critical advantage to manufacturers by reducing the employee recruiting and retention risk caused by this pervasive worker shortage.
Michael DiCecco, EVP of Huntington Asset Finance, explains how Huntington is working with manufacturing companies to explore these options. “We’re focusing on shop floor automation approaches and tactics that optimize ROI. Once identified, we help these businesses finance the purchases through a variety of methods including leasing and other loan structures.”
ConclusionAs the worker shortage continues to intensify, manufacturers must reframe how they see the problem. This growing lack of available human capital is more than an HR issue; it could threaten financial performance, customer relationships, and the ability to grow and expand business. However, manufacturers who address this issue strategically do not have to be debilitated by it. At Huntington, we have the experience to help our customers compete in this profoundly shifting employment environment.
See how Huntington helps manufacturing companies address the ongoing human capital crisis in new and innovative ways. Talk to a local Huntington banker today or explore Huntington Insights to learn more.
The information provided in this document is intended solely for general informational purposes and is provided with the understanding that neither Huntington, its affiliates nor any other party is engaging in rendering financial, legal, technical or other professional advice or services. Any use of this information should be done only in consultation with a qualified and licensed professional who can take into account all relevant factors and desired outcomes in the context of the facts surrounding your particular circumstances. The information in this document was developed with reasonable care and attention. However, it is possible that some of the information is incomplete, incorrect, or inapplicable to particular circumstances or conditions. NEITHER HUNTINGTON NOR ITS AFFILIATES ACCEPT LIABILITY FOR ANY DAMAGES, LOSSES, COSTS OR EXPENSES (DIRECT, CONSEQUENTIAL, SPECIAL, INDIRECT OR OTHERWISE) RESULTING FROM USING, RELYING ON OR ACTING UPON INFORMATION IN THIS DOCUMENT EVEN IF HUNTINGTON AND/OR ITS AFFILIATES HAVE BEEN ADVISED OF OR FORESEEN THE POSSIBILITY OF SUCH DAMAGES, LOSSES, COSTS OR EXPENSES.
†Trotto, Sarah. “New Workers, Higher Risk.” Safety+Health Magazine. 22 May 2016.
‡Kantor, Julie Silard. “High Turnover Costs Way More Than You Think.” Huffington Post. 11 February 2017.
§Fifield, Jen. “Many Northeast, Midwest States Face Shrinking Workforce.” Pewtrusts.org. 27 May 2016.
¶Paquette, Danielle. “Why Are Factory Workers Quitting in Droves? ‘Blue-collar Jobs Are on the Way Out.’” Washington Post. 16 August 2017.
#Generation Now Survey. World Services Group. 3 January 2018.
††Wallace, Mike. State Programs to Help Train and Build Your Workforce. New Jersey Business & Industry Association. 22 March 2017.
‡‡Maurer, Roy. “Employee Referrals Remain Top Source for Hires.” Society for Human Resource Management. 23 June 2017.
ҰBerger, Sarah. “These Towns Will Help Pay Off Your Student Loan Debt if You Move There.” CNBC. 4 January 2018.
¥2016 Strategic Benefits—Leveraging Benefits to Retain and Recruit Employees. Society for Human Resource Management. 30 November 2.