America’s supply chain is being reordered, and with-it American firms are rethinking their relationship with employees. For more than a generation, the CEO playbook was to believe employees were expendable and to move manufacturing to low-cost or low tax regions of the world. The new thinking is to move manufacturing closer to consumers or regional R&D or supply chain centers and to upskill the workforce to avoid the supply morass the US is currently facing.
While moving manufacturing back to the US from low cost parts of the world is expensive, it puts more security and dependability into the supply chain. There is a significant return-on-investment (ROI), however, for many companies when they upskill or reskill the domestic workforce. This global shift puts pressure on HR to reskill and upskill its workforce and build a long-term relationship with employees.
This column will review the following:
- factors driving the need for upskilling and reskilling the workforce
- the industries that will require reskilling and type of skills that will be needed
- workforce planning and how to map the skills needed by job families
- when to hire new skills or up- or reskill
- examples for upskilling and reskilling with savings and ROI
- the importance of change leadership and transparency
- how to determine the return on investment of upskilling and reskilling the job.
Factors Driving the Need for Upskilling and Reskilling the Workforce.
Covid-19 has driven a great deal of uncertainty and crystalizing the weakness of global supply chains. Many companies have had trouble getting raw materials, hiring production workers, managing the bottlenecks of the supply chain, and facing rising costs.
In September, the US had 10 million job openings and 7.7 million unemployed leaving a shortfall of workers according to the US Department of Labor. Job openings are outpacing the unemployed in many fields, such as professional and business services, education and health services, wholesale and retail, leisure and hospitality, manufacturing, and construction.
This is not a short-term issue. About 5 million US workers have left the job market since Covid-19 due to safety issues, retirement, child-care needs, and the mismatch of desired skills or locations. Even before the endemic, the US was in a long-term labor shortage due to baby-boomer retirements, low birth rates, restrictions on immigration, and difficulties automating many office jobs, according to The Conference Board and the US Census Bureau.
Industries That Will Require Reskilling and Type of Skills That Will Be Needed
Automation provides an opportunity for companies wanting to move manufacturing back to the United States and Europe is. McKinsey and Company is predicting that nearly every job will change profoundly over the decade. They estimate that operations-intensive sectors have 1.3 times the automation potential of other sectors in the economy. Operations intensive sectors include manufacturing, food services, retail, mining, construction, utilities, finance and insurance, wholesale trade, transportation, and warehousing. Please see the McKinsey chart below.
McKinsey’s analysts suggest that 39 percent to 58 percent of worldwide work activities in operationally intensive sectors could be automated using existing technologies. However, most organizations are not ready to address this issue and implement it successfully.
Reskilling Vs. Upskilling.
The terms reskilling and upskilling may be used frequently, but what do they mean? Reskilling is the retraining of current workers with new skills to take on entirely different new roles. Manufacturing engineers, for example, could be trained on how to write program code or to be software code quality checkers.
Upskilling means teaching workers new skills and specialization around their current jobs or career path. For example, manufacturing workers could be trained to be robot controllers and production exception handlers.
Examples with upskilling and reskilling of engineers and in the factory — and the savings
I have had a successful experience with both upskilling and reskilling workers. While leading Human Resources for Honeywell Space Systems in the 2000s, our workforce planning revealed that we needed more specialized software engineers and software programmers to accommodate changes in satellite design by NASA and private sector satellite designers. Our planning revealed we required fewer mechanical engineers of whom we had in abundance among our workforce. The software engineers who had training and experience with the specialized software required for the harsh environment of space were in short supply.
We were very transparent with our workforce, telling them what our forecasting indicated for changes in engineering, more software engineers and programmers, and fewer mechanical engineers. We also asked for volunteers who wanted to become programmers or software engineers and outlined the curriculum each would go through, and the time it would take to complete the curriculum. There was no cost to the employees. We also explained that an assessment would be used to help determine who would have the skill set for either role. We organized a sign-up period and implemented our curriculum using a combination of internal and external training. It worked exceptionally well, allowing us to reskill our workforce to meet industry needs. We calculated that our retraining effort saved us a few million dollars as the retraining of our existing workforce was less expensive than hiring scarce external workers. In addition, the speed with which we reskilled our mechanical engineers allowed us to complete software work ahead of schedule and to release new product early, which also helped revenues and profit.
I have also had success with upskilling frontline manufacturing workers. Medtronic’s Microelectronic Center in Tempe AZ has a silicon manufacturing center that increased automation with each upgrade in product technology. Eventually, the insertion of tiny integrated circuits that could balance on the tip of your fingernail into a silicon wafer would be done exclusively by robots in a clean room environment. The role of the operator would be one of inspecting the accuracy and quality of the robots’ work and calibrating the robots.
Again, our reskilling initiative began transparent with the operators. We told them that they would see the trend of increased investment in automation over the next few years and a reduced need for human operators. Additionally, the operator’s would go from manual work to working with microscopes to inspecting the work of the computer and software training to working on programming the robots. We were very clear that we had to take these steps to keep our operations competitive with our competitors that had outsourced this work to vendors. We also told the operators that other manufacturing facilities on our campus would be growing, and those not wanting to make this transition in hybrid manufacturing would be considered for these other roles, which were manual in nature.
Today, several large organizations have announced plans to automate processes and reskill or upskill workers. Walmart is investing $4 billion over four years to help frontline and back-office jobs transition to new customer-service roles. Amazon is planning to spend $700 million on technology training by 2025 to help employees learn and move to higher-skill jobs.
Tata Steel’s Netherlands plant established an advanced-analytics academy to train and certify hundreds of engineers on the application of new analytical approaches to manufacturing-process improvement. The new technologies and trained workforce helped the plant to boost its earnings before interest, taxes, depreciation, and amortization by more than 15 percent.
Workforce Planning and Mapping of Skills to Job Families
Skill demands are determined by the organization’s wider business and technology strategies. In the examples I provided above, the business had determined from meetings with customers and watching external trends that their products and manufacturing process would need to be different in order to be competitive. The question for the business was what to automate and digitize and how would it change the skills required of the workforce.
For the HR leaders who want to identify what new skills are required for different job families of the workforce, there are a series of discussions I recommend. First, speak to the technology architect to understand the strategy for change. Speak to the leaders of each department to get their understanding of which job families in their departments will need to learn new skills and any other changes that may be required of the workforce, and the tactics, or preferred way of training the workforce. Will it be online training, one-on-coaching, in-person classes, or a combination of all three? How will the training be tracked? Will certifications be issued? Total up the job families, numbers of employees to be retrained, and create a map of how it looks and a project plan.
Other critical questions to resolve include the following:
- Will people with the new skills need to be hired or is reskilling or upskilling sufficient? New specialties requiring college degrees or intensive technical training — such as data specialists — are often hired. Training front-line workers is often done for new roles such as robot controllers and programmers, exception handlers, or new roles in customer service added by automation.
- Will your current workforce accept the change in work duties and do they have the capacity to learn the new skills? Does your HR or Ops training infrastructure have the capacity to do the training? Are new training resources required?
- Which skills have the highest priority? Look for ones affecting the largest number of employees, the roles requiring the most skill shifts, or the ones that provide the highest return to the company.
- What is the best content and delivery mechanism for each priority? Should you develop or purchase the training solution you need?
Before implementing the training initiative, determine the top-line business Key Performance Indicators to be improved and by how much, and the intermediate measures to track to assure success, adjusting as you implement.
The Importance of Change Management
In the example I provided above, I spoke to the importance of transparency and showed how company management could be open with the employees who would be impacted about why the change was necessary, how it would impact them, and the details of the reskilling, upskilling, or job change opportunities. Change leadership is essential with reskilling and upskilling the workforce.
I recommend that HR and Operations leaders follow the eight steps of change management by John Kotter from his book, Leading Change, and highlighted below:
How to Calculate the Return on Investment of Reskilling and Upskilling
According to McKinsey’s research, about 62 percent of the US executives they survey believe they will need either reskilling or upskilling for their success in the 2020s. Still, many executives will require an analysis to determine that their investment in reskilling and upskilling will provide them a suitable return on investment. HR executives should always calculate, with Finance, and provide their executive teams an estimate on the return on investment for any HR initiative or investment in technology.
With reskilling or upskilling the workforce, this is a comparison of reskilling and upskilling with the cost of doing nothing. Remember the cost of doing nothing in a global supply chain crisis can mean serious shortages and a significant loss in market share and revenue.
Here is how the savings from retraining the workforce is calculated:
- Add up the total cost of the reskilling initiative, including direct training costs, employees’ time off work, and any administrative costs. Research shows that the average cost is $24,800 per worker according to the Boston Consulting Group and The World Economic Forum. But hesitation is costing companies regardless: high turnover and new hires cost the average 100-person company approximately $660,000 to $2.6 million per year, according to a study conducted by Gallup. I have found this cost is much cheaper per employee for manufacturing and warehouse workers.
- Currently, employers can deduct certain qualified education and training expenses for tax purposes, improving their ROI. Generally, at the firm level, only education expenses which improve worker skills for their current positions (upskilling) are deductible. Check with the tax foundation and your state government or a local community college to learn more.
- Add up the cost of doing nothing. The biggest cost of doing nothing may mean widespread supply chain shortages and loss of market share and revenue and profit. There is of course, a cost associated with the workforce: turnover from employees who choose other employees that offer better upgrading and career development, and then the recruiting and onboarding costs to replace those employees. A recent survey by global learning tech company, Epignosis, found that 53 percent of Americans say they would switch to a role in an entirely new industry if they had the opportunity to retrain and upskill. In addition, there can be the costs of layoff, severance, and its administrative costs if the operations become obsolete.
- Does the reskilling or upskilling initiative pass the organization’s “hurdle investment” rate. (Run it by Finance.)
It will be essential to track the improvement in productivity from reskilling and upskilling versus the goal. Also, track the essential people metrics — such as retention and engagement — for the impacted workers. As with any other initiative, it is important to create a scorecard that not only uses the business outcomes measures as a key indicator of success but that also has predictive measures that can be tracked as the training program is implemented.
The 2020s will see a colossal reordering of America’s offshore supply chain back to the United States with heavy doses of automation and digitization. It will require the reskilling and upskilling of the most precious resource any organization has: its workforce.
To learn more about reskilling and upskilling of the workforce, please watch my webinar with Ascentis. You can register here.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting, managing partner of InnovationOne, and Sales Advisor to MeBeBot. He works with companies to transform HR and recruiting, implement remote work, and develop extraordinary leaders, teams, and innovation cultures. He is the author of the highly acclaimed book, Hack Recruiting: the Best of Empirical Research, Method and Process, and Digitization. Subscribe to his weekly blogs at www.VictorHRConsultant.com.