Hemispheres Magazine

August 2006

CASE STUDY: Plugging the Brain Drain

Executive Secrets/Many companies find that an alarming amount of skill goes out the door with senior workers when they retire. Now, with the first boomers turning 60, how can companies prepare for an unprecedented exodus of talent?

Three years ago, when Gary Kaiser retired after 36 years at pharmaceutical manufacturer Eli Lilly, he was glad to give up the 60-hour workweeks and the frantic e-mails. But after directing operations for multidisciplinary teams and working on Lilly's blockbuster Evista and Forteo osteoporosis products, Kaiser was worried that he would be bored in retirement.

Then he found out about YourEncore, a company created in 2003 by executives at Lilly and Procter & Gamble. A talent agency with a twist, YourEncore provides a pool of retired professionals for part-time and temporary work. Kaiser spends about 20 hours a month matching scientists with projects at Lilly and its research partners. "It's been very stimulating," he says. "This gives me an opportunity to be involved in more biotechnology projects than I would have if I actually had worked on them with the osteoporosis team."

Keeping retirees like Kaiser happy and productive is a growing priority for Lilly, P&G, and a number of other companies, including Boeing, Borders, Home Depot, and Walgreens. That's because Kaiser and his colleagues are a silver bullet that companies hope will help them maintain their competitive edge.

Demography Is Destiny / For decades, companies couldn't wait to push older workers out the door. Older workers, the traditional thinking went, were inflexible, less productive than their younger colleagues, and more expensive because of their higher salaries and health care expenses. New employees who were fresh out of school supposedly had more energy, assimilated technology more quickly, and held the trump card in a youth-centered society. And for years, there seemed to be an endless supply of new workers. But no longer.

In the U.S., the second half of the 20th century was shaped by the baby boomers, the 76 million-strong demographic bulge born between 1946 and 1964. This group revolutionized politics and popular culture, the marketplace and the workplace. And now, as the first boomers blow out the candles on their 60th-birthday cakes and start contemplating retirement, their sheer number is threatening an unprecedented brain drain, for which few companies are prepared.

"The threat is significant because of pure demographics," says Carl Van Horn, a professor of public policy and the director of the John J. Heldrich Center for Workforce Development at Rutgers University. By 2012, nearly ? 20 percent of the U.S. work force will be age 55 or older, up from just under13 percent in 2000, according to the Bureau of Labor Statistics. During the next 15 years, 80 percent of the growth in the native-born work force in North America will be in the over-50 category. The Bureau of Labor Statistics projects that in 2010, there will be a shortfall of 10 million workers in the U.S.

There are only 46 million Gen-Xers to replace the 76 million boomers. Though that gap can be filled to some extent by productivity gains, labor-saving technologies, immigration, and offshoring, the real issue isn't so much a labor shortage as a talent shortage. "The problem won't just be a lack of bodies," writes demographer Ken Dychtwald, a co-author with Tamara J. Erickson and Robert Morison of the recently published Workforce Crisis: How to Beat the Coming Shortage of Skills and Talent. "Skills, knowledge, experience, and relationships walk out the door every time somebody retires-and they take time and money to replace."

As a testament to the challenges on the horizon, 58 percent of human-resource managers responding to a 2005 AARP survey said that it's more difficult today to find qualified job applicants than it was five years ago. A study by the National Association of Manufacturers and Deloitte Consulting found that 81 percent of the 815 U.S. companies surveyed already face "moderate" or "severe" shortages of qualified workers, hampering their ability to serve their customers. Furthermore, more than half the HR managers in the AARP survey believed that their companies were likely to face a shortage of qualified workers within the next five years.

"Chasing the Same Three Engineers"

The baby-boomer brain drain will be especially acute among government workers, nurses, and, most notably, in the so-called STEM careers: science, technology, engineering, and mathematics. According to Science and Engineering Indicators 2006, an industry overview published by the National Science Foundation, "Across all degree levels and fields, 26.4 percent of the labor force with science and engineering degrees is older than age 50. Barring large reductions in retirement rates, the total number of retirements among workers with S&E degrees will dramatically increase over the next 20 years."

In the past, companies could count on a steady supply of new graduates. But the overall number depended heavily on foreign students, and with tougher immigration rules in the U.S. and a surging number of schools in their home countries, more foreign students are choosing to study elsewhere. As a result, the U.S. has dropped from third in the world to 17th in the number of engineers graduated.

"Any company that's growing, any company that's recruiting technical talent such as engineers or architects, should be able to see there's a shortage," says Bob Berg, the director of human re-sources for Stanley Consultants, based in Muscatine, Iowa, one of the country's top engineering firms. "As a competitor said just a couple of months ago at an HR roundtable, 'It seems like we're all chasing the same three engineers.'"

The shortage shows up every day when the utility worker who knows where the lines have been buried retires. Or when there aren't enough instructors to staff nursing schools. Or when an energy company wants to explore nuclear energy as an alternative to oil and coal and discovers a dearth of knowledgeable technicians.

On a deeper level, notes Brad Lawson, the CEO of YourEncore, "The U.S. is where it is today as a global superpower because of our innovation." If the present trends continue, he adds, "we won't have the science, engineering, technology, and math ability to retain our innovation superiority." A 2004 report by the National Science Board put it even more bluntly: "These trends threaten the economic welfare and security of our country."

Going Where the Knowledge Is

Companies that want to stay competitive are turning to their aging and retired work force. "That's where our strongest source of knowledge is," says Lawson.

Corporations are beginning to view older workers as assets. Mounting evidence shows that mature workers bring unique capabilities and performance advantages to the job:
• Accumulated wisdom. "Experience counts more than any other factor" in pleasing clients, says Greg Thomopulos, the CEO of Stanley Consultants. "The more experience our members have, the more knowledge they have about what worked and didn't work in the past. Our clients actually prefer that we assign project managers with many years of experience."
• Rich relationships. The U.S. economy increasingly is based on service, and much of the service sector is based on relationships. The more seasoned the employee, the richer his Rolodex. "Take a senior banker who is rendering advice to big companies or wealthy individuals," Van Horn says. "When that person goes, that relationship goes along with him or her. If you're Company X and you lose that person, you've potentially lost a client."
• Market mirrors. Employees aren't the only ones who are aging; so are customers. "You're seeing organizations like Home Depot, Borders, and CVS actively recruiting older workers to match the experiences of their employees with the experiences of their customers," says Eric Lesser, an associate partner in IBM's Global Business Services Group.
• Motivation. Ditch the picture of retired boomers heading for the golf course and quilting circle. Recent studies from Merrill Lynch, AARP, and Rutgers University consistently find that 70 per-cent to 80 percent of boomers want to work past the traditional retirement age. Though money is a component in the wish to stay on the job, the overriding factors are intellectual and social. "Work allows people to express and challenge themselves, to make friends and keep friends," says Dychtwald.
• A lifetime of learning. The myth that older workers are inflexible and uncreative simply doesn't hold true. Economist David Galenson of the University of Chicago posits two types of creativity: conceptual innovation (new ideas that break the mold) and experimental innovation (new ideas that evolve from current practices). The former springs from unconventional approaches to a problem; the latter comes from a lifetime of observation. Companies need both, says Darren Carroll, the executive director of Eli Lilly's new-ventures division. "New workers bring fresh perspectives and the latest techniques, but the accretive nature of knowledge, particularly in industries like ours, makes older workers valuable."

Gray Is Good / Companies are finding that oldies can be goodies. That's one reason why YourEncore has signed up nine new clients in the past six months to a roster that already included Lilly, Boeing, P&G, and National Starch and Chemical. Another reason: With the cost of replacing a departing worker calculated at 1.5 times his salary, tapping a pool of seasoned talent can save significant time and money.

As for the added value of workers already familiar with the company culture, "that's huge," says Lynne Wenberg, a senior manager for strategic development in Boeing's Phantom Works division. "Boeing retirees can efficiently reintegrate right into the organization with little learning curve."

Wenberg recently hired a Boeing retiree to consult on an engineering project. "We were unclear whether he would be able to pull it off because it's a leading-edge technology and he had retired five years ago. He engaged quickly, got it immediately, and added value by suggesting people to talk to whom we hadn't thought of. He brought his whole career with Boeing to bear on the assessment."

Other companies use retirees to pro-vide a different point of view. "We wanted new DNA, ideas to move from one industry to another, and the easiest way we saw was to hire high-performing retirees from one industry and bring them into P&G," says Larry Huston, the company's vice president of innovation. He cites a Boeing retiree who brought his expertise in creating virtual airplanes to the task of creating a virtual diaper. "He can model it on the computer without us having to make handmade prototypes," Huston explains.

Huston notes that YourEncore hires, evaluated after each project, rate about a 4.8 on a 5-point scale. Even more telling was a comment from one P&G project supervisor: "This guy was great. He brought the wisdom of a proven veteran with the enthusiasm of a new hire."

Wise and Willing
Older workers are seasoned to succeed.

Seventy-six percent of baby boomers expectto work in retirement, according to a 2005 Merrill Lynch survey. “Keeping mentally active” is cited almost twice as often as money as a very important reason to work. A 2003 Towers Perrin study of 35,000 workers in the U.S. found that employ-ees older than 50 were more motivated to exceed expectations on the job than were younger workers. There is a strong correlation between employee en-gagement and superior business performance.

Hold Those Thoughts
By Catherine Fredman

There’s a saying among gerontologists that when an older person dies, it’s like a library burning down. As baby boomers retire, companies face growing gaps in their shelves. How can they retain and pass down institutional knowledge before it disappears out the door?

Be proactive, urges Deborah Russell, the director of work force issues for AARP. “Don’t wait until your employees announce they’re going to retire to siphon off everything they learned over time. Companies that have been successful have put in place programs that keep that knowledge transference on a regular basis.”

• Analyze your risk. “Anyone can look in the employee database and seewho’s going to retire in the next three or five years,” says Brad Lawson, the CEO of YourEncore. Identify workers in mission-critical jobs, the skills they have, and what their projected retirement rates are. “Many companies have a gut feeling that this is a problem,” he says, but few have determined which technologies and products will be affected and in which locations. “Until you do that in-depth analysis, you’re flying blind.”

• Create communities of common knowledge. Bring together groups of older and younger workers who have a common interest or expertise to exchange ideas and practices, suggests Eric Lesser, an associate partner in IBM’s Global Business Services Group. “It’s all about building redundancy into the organization, even on an informal basis, so if one node breaks off, the network still has enough connections to preserve the organization’s memory.”

• Leverage mentors. The inherent problem with the one-on-one apprenticeship model of transferring knowledge is that it has no economy of scale. Companies such as Stanley Consultants, where more than a quarter of the 1,100 employees are older than 50, make the most of their older workers’ knowledge-sharing through brown-bag training lunches for co-workers. “These people make great mentors for our younger folks, not only in terms of sharing their technical expertise, but in giving them hands-on, real-world knowledge of client relations,” says Bob Berg, Stanley’s director of human resources. “When a project is over-budget or we’re running into difficulty, they know how to defuse some of the client temperament.”

• Keep in touch. “Some of our companies invite their retirees back and have them work side-by-side with other individuals to address key issues or opportunities or help strategize on projects,” Lawson says. “In many cases, the retirees are able to help the existing workers solve the problem effectively, not by telling them what the answer is but by telling them what not to do when trying to find a solution.”

“There won’t be any magic bullet,” points out Darren Carroll, the executive director of the new-ventures division at Eli Lilly. “But being able to match the wisdom of all these people who have worked dec-ades with the energy and ideas of new people coming intothe work force—I personally think the opportunities are just limitless. And the winners will be the com-panies that harness those opportunities most effectively.