The Opportunity Cost of Skills Shortages

Posted on: 01.06.2012    16:17:46

We are grateful to the Reed HR 2012 Salary and Market Insight Report, which surveyed 1,500 employers and employees, found that 39% of respondents admitted that there are skills gaps in their organisations that are having an effect on business performance and growth potential. Half of senior managers who responded said that the skills shortages in their organisations are having a negative impact on their business.

40% of respondents said that they are worried about losing talent from their organisation;
33% said that they have a skills shortage in their organisation,
33% didn’t know if they have a skills shortage;
50% of senior managers said that they have a skills shortage
20% was concerned about the migration of talent to other sectors or countries.
In response to some of these findings, the report surveyed the steps that businesses are taking to deal with skills shortages and loss of talent:

46% of businesses are investing in training;
33% are focusing on internal promotion;
25% are looking externally to recruit new talent; and
38% said that their organisations are doing none of these things to grow or maintain talent levels.

The report also found that the skills shortage may worsen before it improves. While it found that 61% of respondents are satisfied in their current roles, many are looking to move on to new challenges. At junior manager level, for example, 46% are either actively looking for a new role or are planning to start the search in the next 12 months.

All well and good with statistics but to understand the true cost you have to look at the wastage occurred in having skills shortages and how even paying materially more to close the skills shortage can make economic sense at 10% of something is infinitely more than 100% of nothing.

Let me explain. 100% of nothing will always be nothing and the only zero you win on is at roulette. Having a skills shortage will impair the overall efficiency of an enterprise. Take for example a light engineering company that supplies the oil and gas sector or the automotive trade both of which are busy at present. Let’s say that the labour element in production is 20% and the gross margin is 40% it would make absolute sense to pay 25% more for your labour making the cost 25% as you would still be left with a net margin of 35% on each ¬£100 of production. Before all your eyes glaze over I will not go onto economies of scale and operational gearing but take it from me more businesses need to look at the absolute bottom line contribution rather than being obsessed by margins or pay rates.

Put simply measure the value and not the cost.


Author: Chris Slay

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