Strategy Dynamics Briefing 44: Staff development before joining the organization

Recent briefings have focused a lot on customer-development, but the development of other resources also has important implications for strategy and performance.
Virtually all organizations, for example, are heavily dependent on the flow of potential employees, not just from previous employment positions, but also out of the education system. Some powerful firms deliberately reach back into these earlier stages to help stimulate the education and training of the very population of graduating students on which their future business will depend. Others inadvertently influence that process in ways that may be less helpful.In 2005, Shell oil company tried to hire 1000 experienced oil engineers demonstrates the point. Shell was not alone in experiencing a serious shortfall of these skilled people. Figure 1 shows the number of students enrolling and graduating from petroleum engineering degrees in the United States between 1975 and 2006. Note the exceptionally strong graduation rate during the 1980s. Intriguingly, the 1983 peak occurs four years after the second oil crisis of the 1970s triggered an unprecedented jump in world oil prices, and ends a similar number of years after oil prices fell back. Oil firms typically enjoy strong profitability when prices are high and have big incentives to find more oil, so that era also corresponded to high rates of hiring as companies raised their efforts to discover new reserves.

Figure 1: Numbers of people enrolling and graduating in petroleum engineering in the US.

Numbers of people enrolling and graduating in petroleum engineering in the US.

Reproduced by kind permission of Prof Mukul M. Sharma.

Employment surges of this kind can attract so many keen youngsters that many are unable to find jobs in the industry by the time they receive their degree. Similar experiences befell many Indian IT graduates when the technology boom of the late 1990s came to an end. As it becomes apparent that job prospects are not as strong as expected, many drop out before they would otherwise graduate. In Figure 1, considerably more people enrolled in the 1980–1985 period than subsequently graduated. The problem in this case was exacerbated because the flood of graduates in the early 1980s coincided with much reduced hiring as the oil price fell back. The collapse in graduation rates from 1988 to 1991 can thus be traced back to a collapse in hiring between 1985 and 1988.

Why, though, are we concerned in 2006 with what happened in the late 1980s and early 1990s? The direct reason is that the industry is still living with the consequences. Major oil companies have traditionally developed their own engineering talent, a process that takes 10 years or more of professional practice. Any company finding itself short of people in 2005, must have not hired those people during the early 1990s. Bright young school leavers in 1988 considering a career in the oil industry would have seen large numbers of their predecessors unable to get jobs, and looked elsewhere. If undergraduates did not start courses in 1988, they would not have been available to hire in 1991/2. Shell’s shortage of 1000 people in 2005 is thus directly traceable back to slow hiring, not only by Shell, but also its peers, between 1990 and 1998.

The wider lesson is that this was not the first time, nor will it be the last, that an industry and those who would join its workforce have grossly misunderstood the big changes in supply and demand of appropriately trained labor over extended periods. Both employers and employees live to regret this misunderstanding after every such episode. It therefore pays to be conscious of how such a situation is developing, whether you are a young professional seeking to join an industry or an employer seeking to hire.

Until next time…

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Strategic Management Dynamics book cover
Growing future staff at Infosys

Infosys Technologies, a world leader in IT services based in Bangalore, India, offers an interesting statement on the front of its 2007-08 Annual report. “Our core corporate assets walk out every evening. It is our duty to make sure that these assets return the next morning, mentally and physically enthusiastic and energetic.” Infosys has long had a powerful command of the choice chain for staff.

Infosys keeps costs down and quality up by leveraging a base of highly trained technicians. By 2010, a Nasscom study estimated, the Indian IT industry would need 2.3 million software engineers, and see a shortfall of over 20%. But during 207-08, Infosys’ industry-academia initiative reached 120 colleges, over 14,000 students and trained 871 teachers – not just on the supply chain for talent, but on the supply chain for those who could develop that talent.

Developing the available pool, though, would not work if the company did not then capture the people who emerge from it. The company repeatedly ranks as amongst the most admired companies in India, and talented youngsters regularly choose to work there, rather than at global giants like EDS and CSC.

You can read more on this and other staff-related examples in “Developing Employee Talent to Perform.” By Kim Warren, available
from Business Expert Press.

This briefing summarises material from chapter 6 of Strategic Management Dynamics, pages 366-373.

Read more about the book on the Strategy Dynamics website

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