The Coming Knowledge Drain

Offering flexibility may help persuade workers to stay on longer, but some firms might have to revamp the way they do business in order to cope with the exodus.

By Patrick J. Kiger, Workforce Management, November 21, 2005

Imagine having to deal with this nightmare scenario: One-fifth of the executives, managers and workers with critical skills that your company needs to survive have walked out the door.

Unfortunately, that’s the real-life predicament that companies could face as soon as 2008 because of the aging of the baby boom generation, according to Mary Sue Rogers, global leader of IBM Business Consulting Services’ Human Capital Management group.

"It’s like the Y2K problem," she says. "If you don’t start early enough in preparing for it, you’ll reach a point where no matter how much money you throw at the problem, it won’t be enough."

Rogers says that over the next decade, mature companies in the U.S., Europe and Japan will be hit by a double whammy--difficulty in retaining aging workers, and possible shortages of workers in certain key job categories and skill sets. That’s why IBM is unveiling a package of consulting services that will help companies figure out how to cope with the coming crisis.

Rogers says there isn’t a one-size-fits-all answer. Some companies may need to redesign the work culture and/or financial and benefits incentives to lure older employees into staying, while for others the answer will be to recruit replacement workers and train them to fill critical jobs that will become vacant in a few years. For other companies, she says, the answer may be to alter their business strategy to reduce the importance of the jobs held by retiring workers.

Dimensions of the dilemma

Rogers isn’t the only one predicting a dilemma because of graying boomers. "A lot of companies will be struggling just to sustain, much less improve, their workforce capabilities in the next five to 10 years," says Massachusetts Institute of Technology AgeLab researcher David DeLong, author of the book Lost Knowledge: Confronting the Threat of an Aging Workforce. "They’ll be losing so much talent due to the aging workforce."

According to a recent study by the Conference Board, by 2010 about 64 million workers--40 percent of the nation’s workforce--will be poised for retirement, though not all will choose to leave. The number of people ages 35 to 44 in the nation’s workforce actually will decline by 10 percent, while the number of workers 45 to 54 will grow by 21 percent, and the number of 55- to 64-year-olds will grow by 52 percent.

DeLong says the crisis will hit some sectors--government agencies, utilities, the oil and gas industry, chemical companies and aerospace--particularly hard. "They’re all dependent upon experienced workers who’ve been in jobs for a long time," he says. And within organizations, the graying wave will hurt some departments and skill categories more than others.

"You may see a peculiar situation in which companies are laying off employees in one department and struggling to retain them in another," DeLong says.

A January 2005 study by Input, an information technology consulting firm in Reston, Virginia, projected that by 2008, 45 percent of the federal government’s information technology workers would be 50 years of age or older, setting up a potentially huge loss of institutional knowledge when those workers eventually retire. In a government increasingly dependent upon computers and the Internet to carry out many of its basic functions, it’s not hard to imagine IT talent losses creating chaos.

In the Conference Board study, half of companies surveyed believe that the departing workers will cause "potential knowledge vulnerabilities"--i.e., the loss of crucial experience and skills. But only a third of the companies in the survey had studied their workforce and identified areas where they may lose workers with important knowledge.

Worse yet, IBM’s 2005 Global Human Capital Survey, a study of more than 300 companies, found that 60 percent of human resources executives at mature organizations had trouble even identifying what skills and experience were crucial to the company’s mission.

"Companies’ first response is, ‘Here are my top talents. If they walk out the door, I’m in trouble,’ " Rogers says. "Our brains tend to go in that direction in the knowledge economy. But those may not be the most difficult people to replace. Sometimes, the vulnerability is in a job that’s hard and not very glamorous, where young talent isn’t attracted to it.

"In the oil industry, for example, think of guys working out on oil rigs, maintenance guys. It’s not a particularly enjoyable environment to work in, and you may have to be out there for six months at a time, away from your family. That’s where the maturing population will hit first. If oil companies don’