By David A. Rossi, Peter A. Frandina and Mika Jarvensivu
As the recession continues to bite in the pulp and paper industries, there is a danger that the downturn will result in damaging cutbacks in the talent pool of a sector that has suffered from skills shortages throughout the economic cycle. However, by taking the right steps now, the industry can use the slowdown as an opportunity to tackle its long-term skills crisis, while also building the talent base it will need to capitalise on the eventual upturn. David A. Rossi, Peter A. Frandina and Mika Jarvensivu of Accenture explain.
With attention focused on the immediate impact of the global downturn, the pulp and paper industry's long-term skills challenges have escalated still further. Not only has the industry suffered a 33% drop in total employment in the past 15 years, but the decline has been especially acute among employees under 34 years old. As a result of this rapidly rising age profile, more than 50% of the industry's experienced workforce is due to retire in the next seven years, threatening a massive loss of knowledge and skills in a fast-changing sector.
The global downturn is now intensifying the pressure on skills in an industry that has always faced challenges in winning talent from more appealing sectors. However, while the current environment is tough, it is only one phase of a business cycle. And the increasing challenges around talent represent just one aspect of the seismic shifts currently under way in the pulp and paper industry.
Rising to the challenges of the ‘multi-polar world'
Indeed, with the emergence of the multi-polar world, where competition can arise from literally anywhere around the globe, all industries need to keep a sharp focus on the risks and opportunities presented by new global patterns of consumption, innovation, capital, talent and resource availability. For example, the paper industry is now experiencing a significant shift in supply, away from North America and Western Europe and towards lower-cost developing countries, primarily in Latin America, Asia and Eastern Europe.
At the same time, parallel changes in other industries, such as that in entertainment and media, away from printed newspapers and magazines and towards the Internet,are reshaping market segments, driving down demand for paper for printing in some markets, especially North America. In contrast, China's paper consumption is experiencing explosive growth, and in addition, South American countries are expected to double their exports of paper grade wood pulp by 2016. These divergences reflect the fact that varying consumer preferences will influence the relative growth of different segments across the world, with, for example,the rapid growth in paper consumption in China reflecting rising demand for packaging and printing in the consumer products marketplace.
Uncertain times call for new thinking on talent
As the global paper industry faces up to the combined impacts of the multi-polar world and the economic downturn, effective management of talent is becoming increasingly critical. To achieve high performance through and beyond the current economic downturn, many companies will need to rethink their entire approach to human capital. Traditionally, the industry's focus has been on optimising and rationalising assets, eliminating waste, and improving labour productivity. While these objectives remain important, the problem is that too little attention has been paid to the talent, or human performance, side of the equation. Instead, talent management today needs to recognise the link between market pressures, business strategy, and the impact of human capital on bottom-line business results.
Accenture's experience and analysis of the current downturn shows that companies are currently tending to position themselves in one of three ways, depending on the degree to which their business has been impacted. These three positions involve focusing primarily on survival, advantage or growth each of which involves its own distinct situation, emphasis and response.
Regardless of their positioning on this continuum, pulp and paper products companies need to identify and exploit opportunities to attract, retain and develop the right talent to remain competitive as the current business cycle plays out. Even companies that are struggling for survival can use this point in the cycle as an opportunity to look outside the industry for skills and capabilities that will sharpen their competitive edge.
Elements of a strategic approach
To make the most of these opportunities, pulp and paper companies can apply various proven, strategic approaches to managing talent effectively in uncertain times. First and foremost, they need to go beyond traditional human resources processes and find new, more rigorous ways of attracting, developing and retaining talent, based on a more strategic and holistic approach. There are four key steps that companies can take to facilitate such an approach:
1. Develop a holistic company-wide talent/human capital strategy.
Accenture's research shows that high-performance companies focus on creating consistent enterprise-wide competency and career development models. To maximise the benefits from these programmes, organisations need to continually evaluate and forecast the skills and leadership capabilities they will need now and in the future. This would encompass talent recruitment and career development, learning and performance management. It should also cover succession planning, together with the tools and processes needed to foster engagement, productivity, skills and the retention of the most business-critical talent.
The strategy must also respond to changing industry trends. For instance, the emphasis of specialist paper markets in North America, or the investment in raw materials in South America.
A further important step is to fill key positions with the company's best people or get new talent from outside the industry with relevant skills. Looking outside will enable companies to take advantage of the surplus of skilled workers who become available thanks to workforce reductions in other companies. Bringing in the right talent now will position the business to outpace its competition in the next up-cycle.
Several economic and industry trends may help these efforts. The downturn means forest product companies can invest in new talent from other industries that used to draw graduates away, but which are now struggling to survive, such as chemicals. This might help address the forest industry's collapse in employed 25-34 year olds. This group represented just 22% in 2007, down from 34% in 1994.
They can also attract young talent with opportunities in the industry's emerging competitive areas, such as carbon trading, paper and forest certification, and sustainability. Additionally, supply growth in South America, Africa and Eastern Europe can be exploited to attract international talent.
2. Plan talent needs systematically to boost productivity
Many executives traditionally view a downturn as a trigger to reduce headcount. While there is a need to reduce labour costs in the industry, this task has traditionally been approached as a reactive fire-fighting exercise. Instead, executives need to approach labour productivity in a way that allows them to hit cost targets in a planned, systematic manner.
The key to achieving this lies in looking beyond short-term, narrowly-focused initiatives, and taking a carefully-planned approach to changing not only the workforce itself, but the context in which the workforce operates. By altering the way that work gets done and not just the number of people doing the work, companies can create a solid foundation for lasting improvements. This philosophy can be used particularly in the case of acquisitions to ensure that the right steps were taken to capture cost and synergy benefits.
Such a re-evaluation might reveal opportunities, for example, to gain competitive advantage by investing in remote monitoring and control systems that consolidate work into a smaller group of skilled workers and drive process optimisation and cost improvements. It may also reassess the approaching retirement of a large part of the skills base and identify ways to prevent these people's collective wealth of talent from being lost to the business for ever. Initiatives might be put in place to deepen and lengthen the knowledge transfer from older to younger employees, alongside strong investment in improving career progression, training, and succession planning.
When reducing employees becomes a necessity, especially in a merger or acquisition, it is crucial to identify both the gaps to be filled and the key resources to be retained. One practice that has proved effective is to move many of the company's more experienced managers into project roles on the integration teams, while offering the next generation of leaders the chance to step up into more challenging roles. This enables the rising generation to build necessary skills while still drawing on the experience and mentoring available from more experienced leaders, and enabling them to oversee critical decisions on skills and organisational design.
3. Commit to consistent recruiting.
While companies have no choice but to slow down the recruitment engine when the economy stalls, they should nevertheless commit to recruiting consistently, even during economic downturns. Halting recruitment will stop the flow of talent that will be needed in the forthcoming recovery. In this context, it is more effective to recruit a small number of graduates annually than a mass cohort every five years. Furthermore, a downturn offers opportunities for an instant infusion of talent and experience from a pool of skilled candidates who have become unemployed, uncertain or unsatisfied, either inside or outside the industry.
4. Build capabilities and grow high performers.
High-performance businesses do more than attract, recruit and retain talent. They grow skills and foster talent management throughout the organisation¾and constantly measure their progress. As a result, high performers exhibit several distinctive capabilities, including stable leadership; a management culture that supports measured risk-taking; strong accountability for performance and results; a cooperative and flexible organisational structure; openness to change and new ideas; and the development of capabilities in the right people at all levels.
Likewise, high performers are also responsive to geographic shifts and challenges, such as the shortage of middle management in Brazil, or the lack of technicians, customer service representatives and engineers in Mexico, or the pressure of fast rising wages in markets such as the Czech Republic. But there are also opportunities that high grade talent strategies will play a major part in, such as the new revenue openings from generating energy for local communities from waste products.
Most of these capabilities are unaffected by business cycles and can only be sustained through continuous focus. To foster them, pulp and paper companies should take steps such as making organisational changes that support their strategic needs, maintaining a stable leadership team with adequate experience, and embedding leadership training in career development plans.
Building a talent base for the upturn
In challenging times, pulp and paper companies must remember that the decisions they make on human capital in the short term will have a long-term strategic impact. There is opportunity in adversity, and companies that take a strategic and flexible approach to talent management in today's challenging conditions will reap the greatest benefits, both now and in the years to come.