In the face of an escalating and prolonged global pandemic, the U.S. stock market lost a third of its value almost overnight and is about to receive a $2 trillion injection in an attempt to stabilize lives and markets. Realistically, the worst is not yet upon us; Americans, our economy and the healthcare system face daunting challenges for months to come. Most experts estimate that this crisis might last 12-18 months.
How businesses are being impacted from a talent standpoint across our economy runs the gamut. On the extremes, some industries are shedding tens of thousands of jobs (travel, hospitality, in-store retail) while others are hiring in similarly large numbers (healthcare, e-commerce, retail pharmacy). Everyone in the middle is experiencing disruption due to greatly accelerated remote work arrangements as well as financial pressures that may lead to workforce reductions. Many of these organizations are bound to face permanent change as to how business is conducted and staffed in the future.
As a backdrop heading into 2020 pre-COVID-19, market values reached unprecedented highs in a knowledge economy that has emerged and expanded rapidly over the past several decades. The majority of value that is created in most companies, even beyond the obvious industries such as technology, pharmaceutical and consumer products, is directly related to the intellectual capital that drives cash flow today. Brands, patents, research, and technologies, as a few examples, make up more than 80% of the average company’s market value already – and in many cases, well beyond that. Companies like Apple, Visa, and Microsoft are almost exclusively valued for their intellectual capital rather than the relatively few tangible assets they own. Perhaps surprisingly, even companies with large manufacturing and warehousing operations such as P&G, Home Depot, UPS and Caterpillar are valued more for the intellectual capital they have accumulated than for the substantial physical assets they have in property, plants and equipment.
All of the intellectual capital, and most of the market value, for today’s companies originates with people rather than with the tangible assets of the industrial age. Regardless of their evolution, all companies intuitively recognize this fact; most continue to publicly acknowledge that “talent is our most important asset”. But many companies, especially those that are greater than 30 years old, have not designed or codified a talent strategy that matches this modern economic reality. Even though the “War for Talent” talk has been popular for years, many companies continue to embrace outdated beliefs about the reliability and availability of highly skilled talent.
It is then clear that with today’s fact pattern, any SWOT or other form of analysis providing the backdrop for companies’ talent strategies pre-March 2020, should be unceremoniously discarded. There are new talent risks that supersede those previously existing, and they require different plans and capabilities to remediate.
Our conversations with clients in recent days and weeks indicate a significant change is underway. While the near-term threat to businesses from the fallout of COVID-19 is real, strategies for driving post-virus business recovery are coming to the forefront. Alongside that rests the clear need for identifying critical roles and building strategies for ensuring the right people are in these jobs in an uninterrupted way.
These critical roles vary by industry and do the work that produce the valuable intellectual capital, and ultimately cash flow, for their companies – the value drivers. Identifying them usually means identifying vertical parts of the organization that house this talent rather than horizontal, hierarchical bands of jobs as was the practice in days gone by.
What is the fallout of COVID-19 and its direct and indirect consequences for talent? In addition to the pure health risk to existing employees and their families, the list of likely and indirect consequences will be much longer.
For example, for roles in which skilled talent is already at a premium, what business risks exist if even more such talent unexpectedly leaves? For roles in which talent is, in theory, widely available, how can we handle a rapid increase in turnover? How can we identify those roles for which we need to continue recruiting and hiring throughout the crisis?
We only know that, from this day forth, we must expect the unexpected and do our best to be prepared.
New approaches are needed immediately to mitigate the impact on talent availability – and for making strategic – and very different – talent investments. For example, planning for a higher number of unpredictable, yet rational, risks may warrant investment in building new internal or external pipelines of talent for certain roles that are deemed essential to your post-virus recovery plans. There may be roles for which borrowing (i.e. contracting) talent will be a necessary alternative where it had not been in the past. The key to ensuring successful business recovery is to plan for multiple alternatives and secure the ability to execute those plans.
Where do we start? Unfortunately, many businesses will struggle with the economic pressure to reduce workers now, while at the same time planning to ensure talent for business recovery in the future. This is at best a very difficult (but unavoidable) position to be in. The bottom line is, investment in talent for your business recovery must be prioritized.
We recommend a risk focused planning approach to ensure an effective business recovery. What are the critical roles in your organization for which vacancy is not an option in order for your business to recover? These are roles that truly create the value in your business. What is the steady state (pre-virus) availability of that talent and what can you expect in the way of availability post-COVID-19? What risks exist relative to potential turnover? Succession? What current scenarios heighten those risks for the most critical roles?
While we believe that all roles are important to your organization, critical roles are normally defined as those which drive business value. In a steady state (pre-COVID-19) these might merit most of your talent strategy focus and decision-making, but this may no longer be the case. Roles that support, rather than drive, business value may now be considered critical because of the specialized, institutional knowledge incumbents possess. Risks to business recovery might be significant if the organization is unable to backfill these roles rapidly. Therefore, they merit essentially the same strategic consideration as “critical roles” because they are key to effectively reinvigorating your growth curve.
No doubt we have tough weeks and months ahead of us but being positioned to accelerate business recovery as soon as that is possible is the strategic imperative.
The critical factor for successfully executing the recovery will be identifying critical roles in the organization and ensuring talent availability for them. This will require different and rapid talent planning efforts that must be developed and institutionalized now.
In this way, the HR function, which is responsible for the organization’s talent strategy, is the key lever to business recovery post-COVID-19.
Tom McGuire, Managing Partner (Former CFO of Revlon, Inc. and global head of Talent Acquisition, The Coca-Cola Company)
Linda Brenner, Managing Partner (Former talent acquisition and talent management leader at Pepsi and The Home Depot)
Have questions about COVID-19 business recovery and what it will mean for your talent strategy? Contact us.