Retraining and reskilling workers in the age of automation
Executives
increasingly see investing in retraining and “upskilling” existing workers as
an urgent business priority that companies, not governments, must lead on.
The world of work faces an epochal
transition. By 2030, according to the a recent McKinsey Global Institute
report, Jobs lost, jobs gained: Workforce transitions in a time of automation, as many as 375 million workers—or
roughly 14 percent of the global workforce—may need to switch occupational
categories as digitization, automation, and advances in artificial intelligence
disrupt the world of work. The kinds of skills companies require will shift,
with profound implications for the career paths individuals will need to
pursue.
How big is that
challenge? In terms of magnitude, it’s akin to coping with the
large-scale shift from agricultural work to manufacturing that occurred in the early
20th century in North America and Europe, and more recently in China. But in
terms of who must find new jobs, we are moving into uncharted territory. Those
earlier workforce transformations took place over many decades, allowing older
workers to retire and new entrants to the workforce to transition to the growing
industries. But the speed of change today is potentially faster. The task
confronting every economy, particularly advanced economies, will likely be to
retrain and redeploy tens of millions of midcareer, middle-age workers. As the
MGI report notes, “there are few precedents in which societies have
successfully retrained such large numbers of people.”
So far, growing
awareness of the scale of the task ahead has yet to translate into action.
Indeed, public spending on labor-force training and support has fallen steadily
for years in most member countries of the Organisation for Economic
Co-Operation and Development (OECD). Nor do corporate-training budgets appear to be on any kind of upswing. But that may
be about to change.
Among companies on the
front lines, according to a recent McKinsey survey, executives increasingly see
investing in retraining and “upskilling” existing workers as an urgent business
priority—and they also believe that this is an issue where corporations, not
governments, must take the lead. Our survey, which was in the field in late
2017, polled more than 1,500 respondents from business, the public sector, and
not for profits across regions, industries, and sectors. The analysis that
follows focuses on answers from roughly 300 executives at companies with more
than $100 million in annual revenues.
Among this group, 66
percent see “addressing potential skills gaps related to
automation/digitization” within their workforces as at least a “top-ten
priority.” Nearly 30 percent put it in the top five. The driver behind this
sense of urgency is the accelerating pace of enterprise-wide transformation. Looking back over the past five years, only about a
third of executives in our survey said technological change had caused them to
retrain or replace more than a quarter of their employees. But when they look
out over the next five years, that narrative changes.
Sixty-two percent of
executives believe they will need to retrain or replace more than a quarter of
their workforce between now and 2023 due to advancing automation and digitization. The threat looms larger in the United States and
Europe (64 percent and 70 percent respectively) than in the rest of the world
(only 55 percent)—and it is felt especially acutely among the biggest
companies. Seventy percent of executives at companies with more than $500
million in annual revenues see technological disruption over the next five years affecting more than a
quarter of their workers.
Appropriately, this
keen sense of the challenge ahead comes with a strong feeling of ownership.
While they clearly do not expect to solve this alone—forging creative
partnerships with a wide range of relevant players, for example, will be
critical—by a nearly a 5:1 margin, the executives in our latest survey believe
that corporations, not governments, educators, or individual workers, should
take the lead in trying to close the looming skills gap. That’s the view of 64
percent of the private-sector executives in the United States who see this as a
top-ten priority issue, and 59 percent in Europe.
As for solutions, 82
percent of executives at companies with more than $100 million in annual
revenues believe retraining and reskilling must be at least half of the answer to addressing
their skills gap. Within that consensus, though, were clear regional
differences. Fully 94 percent of those surveyed in Europe insisted the answer
would either be an equal mix of hiring and retraining or mainly retraining
versus a strong but less resounding 62 percent in this camp in the United
States. By contrast, 35 percent of Americans thought the challenge would have
to be met mainly or exclusively by hiring new talent,
compared to just 7 percent in this camp in Europe.
Now the bad news: only
16 percent of private-sector business leaders in this group feel “very
prepared” to address potential skills gaps, with roughly twice as many feeling
either “somewhat unprepared” or “very unprepared.” The majority felt “somewhat
prepared”—hardly a clarion call of confidence.
What are the main
barriers? About one-third of executives feel an urgent need to rethink and
upgrade their current HR infrastructure.
Many companies are also struggling to figure out how job roles will change and
what kind of talent they will require over the next five to ten years. Some
executives who saw this as a top priority—42 percent in the United States, 24
percent in Europe, and 31 percent in the rest of the world—admit they currently
lack a “good understanding of how automation and/or digitization will affect
our future skills needs.”
Such a high degree of
anxiety is understandable. In our experience, too much traditional training and
retraining goes off the rails because it delivers no clear pathway to new work,
relies too heavily on theory versus practice, and fails to show a return on
investment. Generation, a global youth
employment not for profit founded in 2015 by McKinsey, deliberately set out to
address those shortcomings. Operating in five countries across over 20
professions, Generation operates programs that focus on targeting training to
where strong demand for jobs exists and gathers the data needed to prove the
return on investment (ROI) to learners and employers. As a result, Generation’s
more than 16,000 graduates have over 82 percent job placement, 72 percent job
retention at one year, and two to six times higher income than prior to the
program. Generation will soon pilot a new initiative, Re-Generation, to apply
this same formula—which includes robust partnerships with employers,
governments and not for profits—to helping mid-career employees learn new skills
for new jobs.
For many companies,
cracking the code on reskilling is partly about retaining their “license to
operate” by empowering employees to be more productive. Thirty-eight percent of
executives in our survey, across all regions, cited the desire to “align with
our organization’s mission and values” as a key reason for taking action. In a
similar vein, at last winter’s World Economic Forum in Davos, 80 percent of
CEOs who were investing heavily in artificial intelligence also publicly
pledged to retain and retrain existing employees.
But the biggest driver
is this: as digitization, automation, and AI reshape whole industries and every
enterprise, the only way to realize the potential productivity dividends from
that investment will be to have the people and processes in place to capture
it. Managing this transition well, in short, is not just a social
good; it’s a competitive imperative. That’s why a resounding majority of
respondents—64 percent across Europe, the United States, and the rest of the
world—said the main reason they were willing to invest in retraining was “to
increase employee productivity.”
We hear that thought
echoed in a growing number of C-suite conversations we are having these days.
At the moment, most top executives have far more questions than answers about
what it will take to meet the reskilling challenge at the kind of scale the
next decade will likely demand. They ask: How can I map the future against my
current talent pool and processes? What part of future employment demand can I
meet by retraining existing workers, and what is the ROI of doing so, versus
simply hiring new ones? How best can I tap into what are, for me,
nontraditional talent pools? What partners, either in the private, public, or
nongovernmental-organization (NGO) sectors, might help me succeed—and what are
our respective roles?
Good questions all.
Over the coming months we intend to share more of our own thinking and
analytical work—and some of the best ideas we are finding elsewhere—about the
solutions that are emerging. Success will require first developing a granular
map of how technology will change the skill requirements within your company. Once
this is understood, the next step will be deciding whether to tap into new
models of online and offline learning and training or partner with traditional
educational providers. (Over time, a more fundamental rethinking of
100-year-old educational models will also be needed.) Policy makers will need
to consider new forms of unemployment income and worker transition support, and
foster more intensive and innovative collaboration between the public and
private sectors. Individuals will need to step up too, as will governments.
Depending on the speed and scale of the coming workforce transition, as MGI
noted in its recent report, many countries may conclude they will need to
undertake “initiatives on the scale of the Marshall plan.”
But for now, we simply
take comfort from the clear message of our latest survey: among large
companies, senior executives see an urgent need to rethink and retool their
role in helping workers develop the right skills for a rapidly changing
economy—and their will to meet this challenge is strong. That’s not a bad place
to start.
By Pablo Illanes, Susan Lund, Mona Mourshed, Scott Rutherford, and Magnus TyremanMcKinsey Global Institute January 2018
https://www.mckinsey.com/global-themes/future-of-organizations-and-work/retraining-and-reskilling-workers-in-the-age-of-automation?cid=other-eml-alt-mgi-mgi-oth-1801&hlkid=8b800f7bcdf742b9bc94fad59177b678&hctky=1627601&hdpid=15560729-b393-4c60-8833-c5a11363b2d9
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