Steven's Blog

No Such Thing as a Labor Shortage

No Such Thing as a Labor Shortage

There is no such thing as a labor shortage. In reality, there are more excellent people in Japan than you could possibly hire. You can have them, if you do things right.

The first step in growing a business, even in a labor shortage, is deciding what to cut. If you find that your business is dealing with the current labor shortage by taking more on and clinging to what you have, then heed my advice. If you want to grow, you must first let go. Let go of what, you ask? Read on, and I explain the top four.

1. Let go of mediocre people.

While it might sound counterintuitive, if you want your company to become an employer of note, let go of the mediocre, hire only the best, and never compromise your standards.

The most common excuse I hear for retaining mediocre people on staff is lack of a replacement or fear of difficulty in finding one to hire. However, excellent people are always attracted to other excellent people, and if it is excellent people that you want in your company, you must let go of the mediocre.

At one company where most directors were complaining of a dearth of talent both internally and externally, a sales director let go of three-fourths of her division’s staff as soon as she took over the position. She retained only the best. She nonetheless rapidly filled open positions with top people even while HR was claiming hiring qualified people in a tight labor market is nearly impossible.

What’s more, excellent staff tend to become excellent managers, and excellent managers tend to attract excellent staff. The director of the legal department of a non-Japanese company in Tokyo was able to fill open positions with excellent people with little difficulty even while HR was encouraging her to keep her exceptions low.

Unfortunately, the opposite is also true. Mediocre staff become mediocre managers, and mediocre managers tend to prefer hiring more mediocre staff. It is the excellent candidates who they eschew, as the mediocre tend to find excellent threatening.

Which people in your company would you let go if you were not concerned about the consequences? How many excellent people on your staff do you think are stymied because the mediocre are in the way? How many excellent candidates have passed your company up as a place to work in search of better colleagues and managers?

2. Let go of higher labor-intense business, even when profitable.

What I mean by labor intensity is the amount of time and effort that is needed to generate value. One company I know sells a product into a highly fragmented retail market. The business is profitable, and the company has been successful in the market for years. However, servicing customers requires a lot of footwork on the part of a large sales force and often results in sales of the company’s lower-value offerings.

However, the same company has recently been successful at a newly developed business-to-business model in which it is able to sell large quantities of its highest value products. A smaller number of highly capable account managers each oversee large quantities of business.

Compared to selling into a fragmented retail market, the business-to-business selling capabilities in the new model are more demanding and rare. Despite that, people with such unique selling skills are attracted to the business precisely because it is where they can use their capabilities to the fullest. The business does not need nearly as many of them as in the fragmented retail business. The company can wind down the retail business as it ramps up the new business and be more profitable with fewer people. At the same time, the company is strengthening its capability to identify and then address less labor-intense, higher-value business in the future.

Attracting sales staff for the retail business is a lot harder. Even though there are larger numbers of low-skilled sales candidates, the demand for them is high and it is hard to fill positions. Such candidates are merely looking for a sales job, whereas the higher-skilled candidates are looking for the right sales job. The higher the value of the business and the lower the labor intensity, the more attractive the job is to exactly the kind of people you want and the less competition you have.

Is there a profitable higher labor-intensive business to which your company clings? Are you having difficulty maintaining it or growing it because of lack of the right people? What higher-value business do you really wish you had? You have to let go to grow.

3. Let go of seniority-based promotion and lifetime employment.

The hallmark of a company with practices of seniority-based promotion and lifetime employment is that there are a lot of staff with the right titles and, at the same time, a dearth of candidates who are in mid-level and/or senior-level leadership positions.

Seniority-based promotion and lifetime employment practices institutionalize mediocrity. No one is ever fired, except for the gravest of infractions. The mediocre move up based on years served, while the excellent are suppressed and expected to wait their turn. The excellent who have ambition will leave as excellent people never worry about finding other work, whereas the mediocre will always worry about finding another job and will remain loyal to you until the bitter end, exacerbating the dearth of much needed talent. The shortage of talent is thus a crisis self-imposed, and as noted before, companies replete with the mediocre repel the excellent from applying.

Ironically, when I suggested to an HR director at one such company that she abandon these practices, she countered that without security guarantees, current staff would quit and the company would have an even harder time attracting Japanese candidates. Yet, nothing could be further from the truth. As I mentioned above, the mediocre never quit on their own, and do you think it is really in the best interest of the company to hire candidates for whom lifetime employment and seniority-based promotion is a priority?

What is the current practice in your company? If you are not sure, check.

4. Let go of pay grades.

A vice president at a client company of mine was considering candidates for a senior sales leadership role. The candidate she wanted had achieved extraordinary results in his last company and was looking for the right opportunity to go to take him to his next level of success.

The candidate outshone all others in the vice president’s view. His salary requirement, however, was higher than the industry average. More importantly, the kind of results she expected he could deliver were also well above industry norms and would deliver ample return on the salary differential—well over one-hundred to one. Certainly, the company could justify and afford the higher salary. The vice president chose him.

However, HR intervened and nixed the vice-president’s choice, citing the candidate’s salary requirement as “well above industry norms,” and as exceeding the company’s pay grades. While attempting to renegotiate compensation, the candidate walked away. He was confident that another company would recognize his value and meet his requirement, and a competitor did.

The second choice candidate whose salary was within industry averages accepted the offer of employment. Like his salary requirement, his business results were also average, albeit within industry norms. HR considered this a victory. The vice president did not.

People are not commodities—at least should not be—and treating them as such only drives your best candidates for employment away. Click To Tweet

What are the priorities of your company when considering compensation, business results or something else?

What to Take On After Letting Go

As I mentioned at the beginning of this piece, the first step in growing a business is letting go. But then, what? In next week’s blog, I’ll talk about what to take on.

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