Introduction
As the global workforce undergoes a significant demographic shift, organisations are confronted with a new and formidable challenge; people risk in the context of an ageing workforce. Simultaneously, on the opposite side of the spectrum, orgsanisations grapple with the difficulties of recruiting young(er) talent for traditional roles, creating a dual challenge in the evolving workforce landscape. Acknowledging and effectively managing this risk is crucial for organisations aiming to thrive in an environment where workforce dynamics are evolving rapidly.
The impending disruption poses a significant challenge to our conventional methods of planning and allocating human capital. Inaction, or a lack of any proactive measures, will expose organisations to vulnerabilities, particularly in the realm of effective people risk management.
Recognising people risk in the context of an ageing population as one of the most significant threats facing organisations, this article explores its strategic importance and the imperative for businesses to proactively address this evolving landscape.
Workforce Dynamics
The World Health Organisation (WHO) predicts that by 2050, the global population aged 60 and above will nearly double, posing new challenges for workforce management [1].
The World Economic Forum projects a 6-year increase in the global median age to 43 by 2050
Simultaneously, fewer young individuals are entering the workforce compared to 20 years ago. The World Economic Forum projects a 6-year increase in the global median age to 43 by 2050, leading to substantial rise in the proportion of older employees and a more age-diverse workforce [2].
A Strategic Imperative
Effectively managing an ageing workforce and responding to associated risks are strategic imperatives that organisations cannot afford to overlook. Failure to address the risk posed by a transformative workforce can have significant financial and operational repercussions.
The cost of replacing an experienced employee can be up to 2.5 times as expensive as retaining them.
According to a study by the American Association of Retired Persons (AARP), the cost of replacing an experienced employee can be up to 2.5 times as expensive. Moreover, organisations that neglect to manage risks associated with an ageing workforce may face legal and reputational consequences.
Workforce Longevity
In the context of people risk, the implementation of a robust workforce longevity strategy stands as a crucial solution to effective risk management for several compelling reasons:
Knowledge Retention
An ageing workforce often possesses a wealth of institutional knowledge and industry expertise. A robust workforce longevity strategy ensures the preservation and transfer of this critical knowledge to newer generations of employees, mitigating the risk of losing valuable insights that are essential for organisational continuity and success.
Risk Mitigation
As employees approach retirement, there is a risk of key positions being left vacant, leading to potential disruptions in operations. A well-designed longevity strategy anticipates and addresses succession planning, reducing the vulnerability associated with sudden departures and ensuring a smooth transition of responsibilities.
A well-designed longevity strategy anticipates and addresses succession planning.
Proactive strategies will provide any organisation with enhanced knowledge retention, innovation, and the preservation of institutional memory.
Innovation and Adaptability
Older employees bring a depth of experience that can contribute to innovation and adaptability within an organisation. A workforce longevity strategy supports a diverse and multi-generational workforce, fostering an environment where different perspectives and experiences can drive creativity and resilience.
Employee Engagement and Loyalty
Demonstrating a commitment to workforce longevity sends a positive signal to employees, fostering a sense of loyalty and engagement. When employees perceive that their organisation values their contributions over the long term, they are more likely to invest in their roles, leading to increased productivity and employee retention.
Reputation and Employer Branding
Organisations that are known for their commitment to workforce longevity and age-inclusive practices enhance their reputation and employer branding. This can attract top talent across different age groups and contribute to a positive perception among clients, investors, and the wider community.
Cost Savings
A solid longevity strategy can result in cost savings associated with recruitment, onboarding, and training. Retaining experienced employees reduces the need for constant recruitment and minimises the financial impact of turnover, ultimately contributing to better financial stability.
Retaining experienced employees contributes to better financial stability.
Legal and Compliance Considerations
Adhering to age-inclusive practices is not only ethical but also aligns with legal and compliance standards. Proactively addressing age-related diversity and inclusion can mitigate the risk of discrimination claims and legal challenges, safeguarding the organisation’s reputation and financial standing.
Sources of Strategic People Risk
Strategic people risk in organisations encompasses a variety of factors that can potentially impact the effectiveness, productivity, and overall success of a workforce. These risks are often linked to the changing dynamics of the labour market, demographic shifts, evolving employee expectations, and technological advancements. Identifying and understanding these sources of risk is crucial for developing effective strategies to mitigate them
Mitigating people risk is crucial for organisations to maintain a robust and effective workforce.
1. Talent Shortages
Research from the World Economic Forum (WEF) emphasises the looming skills gap as a critical risk, with workforce ageing identified as a key contributing factor [2]. Addressing this challenge is crucial for maintaining a skilled and competitive workforce.
2. Health and Well-being
The Harvard Business Review highlights the impact of ageing on employee health and well-being, emphasising the need for organisations to invest in preventive health measures to mitigate potential risks [3].
3. Succession Planning
The Society for Human Resource Management (SHRM) underscores the importance of effective succession planning, noting that organisations with robust plans are better equipped to navigate leadership transitions and minimise disruptions [4].
4. Changing Work Dynamics
The International Labour Organization (ILO) emphasises the need for organisations to adapt their workplace policies to accommodate the evolving needs and preferences of an ageing workforce [5].
Strategic Importance of Addressing People Risk
Addressing people risk strategically is vital for organisations seeking to maintain competitiveness, resilience, and sustainability in an ever-evolving global marketplace. People risk, encompassing various workforce-related challenges and uncertainties, has a direct impact on an organisation’s performance and long-term viability.
Resilient organisations can better withstand uncertainties and market fluctuations.
1. Organisational Resilience
According to McKinsey & Company, building organisational resilience requires a proactive approach to managing workforce risks, including those associated with ageing [6]. Resilient organisations can better withstand uncertainties and market fluctuations.
2. Talent Retention
A study by PwC highlights the strategic importance of talent retention in the face of demographic shifts, emphasising that retaining experienced workers is crucial for maintaining institutional knowledge and a competitive edge [7].
3. Innovation and Productivity
The Center for Talent Innovation points out that diverse workforces, including age diversity, drive innovation and enhance productivity by fostering creativity and adaptability [8].
4. Reputation and Employer Brand
Deloitte’s Global Human Capital Trends report emphasises the impact of workforce-related risks on an organisation’s reputation, citing the need for businesses to prioritise workforce management to enhance their employer brand [9].
Strategies to Mitigate People Risk
Mitigating people risk is crucial for organisations to maintain a robust and effective workforce. This involves implementing strategies that address the various challenges and uncertainties associated with workforce management.
1. Flexible Work Arrangements
The Boston Consulting Group (BCG) advocates for flexible work arrangements as a key strategy to address the changing dynamics of the workforce, allowing organisations to attract and retain older talent.
Many employees are willing to quit if they are not happy with their flexible work options.
The risk is high: nine in ten respondents consider flexible work options important when looking for a job. Moreover, many employees are willing to quit if they are not happy with their flexible work options. Of the employees surveyed by BCG, those who were dissatisfied with their work model were more than 2.5 times more likely to consider quitting their job in the next year compared with those who were satisfied[10].
2. Lifelong Learning Initiatives
The OECD highlights the importance of investing in continuous learning programs to address skill gaps and ensure a skilled and adaptable workforce in the face of ageing. Digitalisation is transforming the way many jobs are handled, whilst the pace of digital transformation continues to accelerate [11].
In the light of fast technological development, workers might feel anxious about being made redundant.
In the light of fast development of artificial intelligence with OpenAI’s ChatGPT and the likes, many workers might feel anxiety about whether these advancements in technology will render some workers redundant. Providing learning opportunities for the existing workforce becomes ever more important to maintain a competitive edge.
3. Health and Wellness Programs
The World Economic Forum stresses the role of health and wellness programs in mitigating workforce-related risks [12]. Implementing such strategies promotes employee well-being and productivity, thus contributing to an organisations overall health and directly contributes to the bottom line.
4. Succession Planning
SHRM provides comprehensive resources on effective succession planning, offering guidance on developing and implementing strategies to navigate leadership transitions. However, succession planning will take much more than documenting names on a spreadsheet or adding them to an automated system.
Without impactful development planning and a retention strategy for those that have been identified as potential succession candidates, the plan will not be effective. Succession planning is a strategic talent initiative that should be evaluated throughout the year [4].
The Junoverse Opinion
People risk is emerging as a critical concern for organisations in the face of an ageing workforce. Recognising its strategic importance is pivotal for businesses seeking to thrive in a dynamic and competitive environment. By proactively addressing the challenges associated with people risk, organisations can not only safeguard their operations but also position themselves as employers of choice, well-equipped to navigate the complexities of the evolving workforce landscape.
References:
[1] World Health Organization. (2022). Ageing and Health.
[2] World Economic Forum. (2021). The Global Risks Report.
[3] Harvard Business Review. (2020). The Case for Hiring Older Workers.
[4] Society for Human Resource Management. (2023). Succession Planning is back in the spotlight.
[6] McKinsey & Company. (2021). Building resilience across your organization.
[7] PwC. (2020). Navigating the rising tide of uncertainty.
[8] Center for Talent Innovation. (2019). Innovation Diversity and Market Growth.
[9] Deloitte. (2020). Global Human Capital Trends.
[10] Boston Consulting Group. (2020). Making Flexible Working Models Work.
[12] World Economic Forum. (2020). COVID-19 Risks Outlook.