The vanguard of the baby boom turned 60 in 2007, generating speculation about how such retirements will affect the U.S. economy. For corporate America, however, the most significant impact may be internal. As baby boomers vacate jobs in middle management and the executive suite, they will leave a leadership vacuum younger workers aren't ready to fill.
According to the Aging U.S. Workforce Survey, released by Ernst & Young in 2007, 68 percent of Fortune 1000 companies consider "maintaining intellectual capital" to be their greatest organizational risk, and 62 percent said retirements will create a "brain drain" within their organizations. And, survey results released by Towers Watson in 2010, indicated that 60 percent of U.S. employees still plan to retire.
The issue of baby-boomer retirements should begin to affect Indianapolis companies within two or three years, said Mark McNulty, president of HR Dimensions, the consulting company that is also known as Career Partners International – Indianapolis.
"The numbers are irrefutable," said Roland Dorson, president of the Greater Indianapolis Chamber of Commerce. "It's simple demographics, so it will affect us as much as it affects everyone else." The chamber employs about 30 people, and Dorson said he is thinking about how the issue will affect his organization. One potential solution, he said, might be to mandate sabbaticals for all workers, so younger employees could do "trial runs" of higher-level jobs during senior staff members' time away.
The U.S. Bureau of Labor Statistics predicts about 43 percent of U.S. workers will be eligible to retire within the next decade.
Despite the scope of the problem, many companies haven't taken steps to address it, according to the Ernst & Young survey. Among respondents, 15 percent did not even know what percentage of their workforce would be eligible to retire within five years. Most companies that have formal succession-planning programs focus only on senior-management positions, the survey found, even though middle management also will be affected.
But some Indianapolis employers are taking a proactive approach. Aprimo, for example, recently invested about $75,000 in a leadership development program for younger workers. Ten of the software company's 360 employees participated in the six-month program, which included workshops, mentoring and "action learning" projects with cross-functional teams. Participants also created personal leadership development plans.
“Baby boomers comprise about half of Aprimo's executive team,” said President and Chief Executive Bill Godfrey, “so it is important for the company to develop new leaders.” "The larger investment we made was the time of these individuals being out of their day jobs, and then the executive-level participation and guidance throughout the process," Godfrey said. The company plans to continue the program each year with additional groups of high-potential employees.
Action learning also is a key component of the training program at Adidas Group's Indianapolis- based Sports Licensed Division. That program is open to 12 employees annually. They start the process with 360-degree reviews and personality profiles. Each participant is assigned an executive coach and participates in cross- functional action-learning teams. "It's been very successful," said Blake Lundberg, vice president and general manager. "Those people are some of the top young people in the company, (and) it's really the future leadership of the organization."
The Klipsch Group, an Indianapolis-based maker of high- end audio products, launched a similar program to generate future leaders. "We recognized . . . that there really is an experience gap between our current leaders in all departments and the folks below them," said Steve Klipsch, senior vice president of organizational strategies and administration. "We've started to invest real resources in identifying who the next generation of leaders will be . . . and then investing real dollars, not just sending them to a seminar here and there and hoping to God that that works." Four potential leaders will join the program each quarter, Klipsch said. He expects the company to invest $5,000 to $30,000 on such training per employee.
Those kinds of programs are what companies need to prepare for the baby-boomer brain drain, HR Dimensions' McNulty said. "Unfortunately, some companies don't react until it hits them between the eyes," he said. "I think it's critical that they start planning for it now."
Now's the time to prepare for the leadership vacuum that will occur when baby boomers retire, said Mark McNulty, president of HR Dimensions. Below are recommendations for a succession-planning program:
- Conduct a leadership assessment. Who are the company's leaders today? When are they likely to retire? What gaps will you need to fill, in terms of leadership abilities, technical skills and institutional knowledge?
- Identify high-potential staff. Give special attention to those who have the raw skills -- and the desire and commitment -- to fill future leadership roles.
- Create individual development plans. This might include mentoring, outside training, additional education and self- improvement goals. Update them regularly as employees' skills and goals change.
- Set up cross-functional teams. Teams should develop projects -- what McNulty calls "action learning" -- that create opportunities for the company or solve a company problem.