Baird Capital’s experts examine recent recruiting trends.
The number of new hires in the U.S. has been on the rise recently. One common explanation for this trend is that companies that halted hiring during the economic downturn are beginning to invest in new talent again. Is this consistent with what Baird Capital is seeing in its U.S. portfolio companies? Are European companies also starting to expand their talent pools?
Jim Pavlik, Partner, Venture Capital:
I think we’re seeing cautious optimism in the hiring market, with a continued level of caution and measuredness in how aggressively companies are adding talent. However, it’s important to note that there’s more activity and optimism in certain sectors. For example, we’re seeing much more robust hiring in the healthcare and technology sectors.
Benedict Rocchio, Partner, Venture Capital:
The ramp-up in hiring is also very selective by function. For example, the battle for engineering and product management talent is very heated and very, very competitive, especially on the West Coast and in other tech centers. Right now, the competition for talent is probably as strong as it’s ever been, and it largely focuses on the recruitment and hiring of passive candidates. Rather than waiting for the “right” person to apply, employers are actively sourcing and contacting candidates with the skill sets and work experience that suit their organization’s needs.
We’re also seeing a new level of interest in some of our companies’ recruiting and human capital solutions from corporate customers. Corporate buyers are willing to spend a little more on solutions that will enable them to source, interview and hire better candidates.
Randy Mehl, Partner, U.S. Private Equity:
Looking at hiring activity in our portfolio is a little tricky, since most of the companies are in growth mode, and in many cases, are acquiring other companies. Overall, we have definitely experienced a shift from a focus on productivity and rightsizing to a focus on hiring. The signs in the talent market are consistent in that good talent, especially sales or technology talent, is difficult to find and compensation is increasing.
Chris Harper, Managing Director, U.K. Private Equity:
In Europe, we’ve got multiple economies at various stages of growth. In the U.K., we’re witnessing an uptick in the use of “flexible resources.” More and more companies are employing people at “zero hours contracted” rather than committing to a traditional full-time hire.
Another challenge facing some large European cities is a lack of liquidity in the talent markets. Companies are recruiting qualified candidates, extending offers and ultimately losing the hire because the incumbent employers step in and make the employee an offer they can’t refuse. There is simply a shortage of people willing to take the risk of moving jobs in our current economic cycle. Despite a very high demand for qualified candidates, the market is very thin. Employers are going to have to pay premium prices to recruit skilled professionals in the coming years.
It’s estimated that 35% of the U.S. workforce will reach retirement age by 2020. Is this trend impacting the way U.S. companies recruit and manage talent? Are European companies facing similar challenges?
In venture-backed companies, it’s not a huge issue. Many of those relatively new, high-growth companies are often founded and run by younger talent to start with. However, we are seeing a number of interesting companies that target large organizations with a need for mid-level and upper-level talent, linking candidates in the later stages of their career with companies attempting to fill those upper-level roles.
Age demographics are an important issue in certain European markets. Germany is struggling with a difficult combination of a shortage of young, skilled workers and a very low birth rate. On the other hand, the U.K. is projected to be the continent’s largest economy by 2030. We aren’t feeling the same talent crunch due to an influx of extremely qualified professionals from Eastern Europe and former British Empire nations. This migration into the U.K. is actually refreshing the country’s workforce with educated and highly skilled talent.
And again, the situation just differs by industry. For example, the U.K. oil and gas industry is experiencing a major shortage of new talent. The industry was formed in the late '70s, and the people that entered the sector as it was getting off the ground are approaching retirement age. There aren’t enough qualified candidates to replenish their positions, and this is driving a remarkable boom in recruitment in that space. In the long term, I think the economy’s overall supply-demand tension will be addressed as students start to select different paths in the education system.
The media keep referring to the “globalization of the workforce.” What is driving the globalization trend, and how has it shaped the way companies recruit and manage talent?
Globalization of the workforce is an irreversible trend. To be competitive long term, companies must be set up to allow work to travel to where it can be completed most effectively and efficiently. Most of our portfolio companies have non-U.S. operations, and those operations have been growing. Ten years ago, globalization (especially in Asia and Mexico) was about cost reduction. These decisions now focus on the ability to find and/or train the right talent to create the most effective capabilities and scalability.
This has shaped the way companies recruit and manage talent in several ways. The importance of a well-thought-out workforce strategy has increased. Managers – whether in manufacturing, technology or services – now must understand how to build and manage a distributed workforce.
The drivers of globalization have really shifted relative to where we were about 10 years ago. Today, globalization is driven more by access to skilled talent than by the potential cost savings from doing business in offshore markets. In the case of technology, software development and other related areas, there is a substantial pool of skilled technical talent in Eastern Europe and Asia that U.S. organizations continue to tap into. Today’s companies also have much more robust technology infrastructure and talent management solutions that make it easier to interact with and manage remote teams.
Approximately 46% of the U.S. workforce does virtual work at least once a week, a sign of the way technology has changed the way we do our jobs. How has technology impacted the way companies prefer to recruit and the way recruits prefer to interact with companies?
Supporting remote employees and flexible work styles can be a major differentiator for companies today, especially in their efforts to recruit younger candidates. However, companies also need the technology infrastructure, support from management and corporate culture to support a disparate workforce. Companies that cannot provide the cultural support for alternative work styles will likely turn to consultants and contractors to attain a similar type of flexibility in their workforce.
The trend toward the virtual workforce is compelling, and we see it in our portfolio companies. This has become relevant across all levels of recruiting, from hiring top executives to call center staff. Companies are valuing talent level over location preference, and technology has reduced the need for people to be in the same area. Recruiting has changed to accommodate the virtual workforce, from online interviewing to establishing “home office” arrangements. Given the advances in communications and workflow technology, we see growth in virtual functions such as “at home” call centers (networks of individuals forming one call center) and virtual IT departments.
One of the big trends we’re seeing in Europe is something I’d call proactive sourcing. Social media is enabling companies to quickly make direct connections with potential recruits. They’re turning to platforms like LinkedIn to proactively identify and converse with passive candidates.
Has recent legislation such as the Affordable Care Act become a major issue on the benefits side of the equation as companies recruit and retain talent?
On the employer side, the recent regulatory changes have added a significant amount of change and complexity to companies’ healthcare and benefits strategies. The ACA is forcing them to revisit their benefits programs and insurance options. Given the emergence of private insurance exchanges and the increasing shift from defined benefit plans to defined contribution plans, new market opportunities are being created for innovative companies that can help employers sort through and manage their benefits programs.
Finally, what are the key areas to watch in the human capital space in 2014 and beyond?
We’re seeing a lot of intriguing activity in the HR/workforce analytics area. There’s a major trend toward utilizing data and analytics to become smarter about managing your business and your workforce. By integrating data-driven insights into talent acquisition and workforce management processes, companies are finding that they can more effectively attract and retain top talent and improve overall workforce performance.
We see a major opportunity in businesses that embrace a flexible workforce. We think we’ll see this evolve over the next three to five years. It’s a matter of finding solutions that address these difficult questions – how do you deal with an aging workforce? A lack of qualified candidates? The demand for more flexible work arrangements? I think businesses that are able to grasp that opportunity by utilizing the “gray workforce” to their competitive advantage, accommodate flexible schedules for new mothers and families, and so on will benefit from their more flexible models.