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Haygroup Help Wanted: Averting The Talent Famine Oct2012

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Will 2025 be a feast or famine for companies in Indonesia?

That will depend on the kinds of talent management strategies that they implement now.

Find out more about the risks and challenges of business sustainability in Indonesia.

Published in: Business
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Haygroup Help Wanted: Averting The Talent Famine Oct2012

  1. 1. Help wanted: Averting the talent famine Understanding the underlying risks and challenges of talent11 | 2012 management in Indonesia. >>
  2. 2. Contents Potential, people and performance 2 Retiring in the prime of life 7 Leadership, development and succession 12 Akan Datang: A talent apocalypse or an economic miracle? 15
  3. 3. 2 Help wanted: Averting the talent famine Potential, people and performance Will 2025 be a feast or famine for companies in Indonesia? That will depend on the kinds of talent management strategies that they implement now. Find out more about the risks and challenges of business sustainability in Indonesia. Not business as usual Indonesia has a grand vision – to be a To support this grand vision, the MP3EI1 top 10 advanced economy by 2025, and program was launched in May 2011. Some top 6 by 2045. To achieve this lofty goal, 750 projects valued at US$240 billion are Indonesia has to attain a real economic earmarked for implementation by 2025. growth above 7 percent every year for the Of these, 135 infrastructure projects worth next four decades (Figure 1). Business, as more than Rp490 trillion are already President S.B. Yudhoyono puts it, cannot underway2. go on as usual. Figure 1 Indonesia’s 2045 economic vision (Source: MP3EI, p 15) GDP: USD 700 Billion Income/Capita: 2010 USD3,000 GDP: USD 4.0 – 4.5 Trillion Income/Capita esitmated: 2025 USD 14,250 – 15,500 (country with high income) GDP: USD 15.0 – 17.5 Trillion Income/Capita esitmated : 2045 USD 44,500 – 49,000 1 Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia. The Masterplan for Acceleration and Expansion of Indonesia Economic Development 2011-2025 focuses on 3 key goals of increasing value-added, production efficiency and national innovation. 2“ Kadin: MP3EI Offers Big Business Opportunities”, Embassy of Indonesia, Washington, news release, 28 August 2012 (http://www.embassyofindonesia.org/news/2012/08/news108.htm)©2012 Hay Group. All rights reserved
  4. 4. Talent famineThe intention is to narrow the income gap, As with all ambitious visions, there arereduce unemployment and boost economic many challenges that Indonesia has togrowth across the regions. The Indonesian overcome. One of the biggest challengesgovernment hopes that by accelerating and that we foresee is the severe talent shortage,expanding infrastructural development, it which will only get worse in the yearscan attract global investments and create ahead, if nothing is done now.high value-added jobs for the people.High value-added jobs are essential to With the abundance of natural resourcesdeveloping human capital and higher underwriting Indonesia’s ambitious visionGDP per capita. This, in turn, will boost for 2025, the economic potential is real anddomestic demand, create a vibrant economy attainable. However, it has become apparentand generate the momentum of growth that the supply of local skilled workforcethat Indonesia needs to bypass the middle- will not be able to keep up with theincome trap. Indonesia is determined to increasing demand required to transformavoid the economic stagnation typically Indonesia into the world’s sixth largestfaced by emerging economies following the economy.initial growth spurt.
  5. 5. 4 Help wanted: Averting the talent famine Figure 2 Attrition rates in Indonesia (Source: Hay Group PayNet Indonesia, 2012) 13.0 12.6 Employee turnover rate (%) 12.0 11.4 10.6 10.9 11.0 10.0 9.0 8.0 7.9 8.0 7.3 7.0 7.2 6.0 2005 2006 2007 2008 2009 2010 2011 2012 Projections from the World Bank and While this is nowhere near China’s attrition Indonesia’s Central Bureau of Statistics rate of 21 percent in 2011, employers are showed that Indonesia will be short of some finding it difficult to recruit managers 10 million skilled workers by 2025. Intense and professionals (Figure 3). Across the talent competition in recent years has seen board, Director-level talent are in shortest attrition rate climbing above 10 percent supply. This is the Achilles’ heel that would (Figure 2). curtail Indonesia’s economic progress if left unresolved.©2012 Hay Group. All rights reserved
  6. 6. Figure 3Hiring hits a snag (Source: Indonesia Skills Report, World Bank, May 2010, pp xiv) Difficulties in filling vacancies by sector Manufacturing Director 84% Professional 69% Administrative 11% Sales 29% Production 29% Unskilled 0.86% Non-educational services Director 78% Professional 56% Administrative 14% Sales 25% Production 23% Unskilled 6.6% Percentage indicating “very difficult” and “rather difficult” Difficulties in filling vacancies by export orientation Non-exporter Director 79% Professional 60% Administrative 11% Sales 26% Production 25% Unskilled 4.2% Exporter Director 85% Professional 70% Administrative 16% Sales 36% Production 39% Unskilled 1.9% Percentage indicating “very difficult” and “rather difficult”
  7. 7. 6 Help wanted: Averting the talent famine The talent shortage is not just in the number The next section will deal with some of the of workers, but in their skill sets as well. The challenges in Indonesia’s journey to be a effect is reflected in Indonesia’s low ranking developed country. in the Human Development Index3. Despite having a high literacy rate of 90.4 percent4, this is not a true reflection of the workforce’s true productivity. For one, fluency in the international business language – English – continues to hinder Indonesia’s development as a service-based, innovation-led economy. 3 Indonesia ranks 124, lagging behind its ASEAN neighbors. Source: International Human Development Indicators, United Nations Development Programme. (http://hdrstats.undp.org/en/countries/profiles/IDN.html) 4 Source: Index Mundi (http://www.indexmundi.com/indonesia/literacy.html)©2012 Hay Group. All rights reserved
  8. 8. Retiring in the prime of lifeFifty-five is the new marker for middle age according to a recent UKsurvey5. It is also Indonesia’s current retirement age, when privateemployees can start to collect pension from Jamsostek, the socialsecurity provident fund.Notwithstanding the obvious loss of national With the mean age of senior and middleproductivity when the workforce retires at managers hovering above 42, more than halfits prime, a Hay Group research revealed of the leadership team will be gone by 2025an alarming trend. The early retirement age (Figure 4). The leadership vacuum will notwill have severe consequences on leadership be easily filled, given the shortage of skilledsuccession and the strapped talent market. managers and professionals. Figure 4 Average age of employees (Source: Hay Group PayNet Indonesia, 2012) 60 48 48 47 47 46 50 45 43 42 40 36 38 38 Average age (years) 37 40 35 35 35 35 34 28 30 20 10 0 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Clerical/production Junior management Middle management Senior management 5 Middle age ‘doesn’t start till 55’ - but you’re old by the time you hit 69, says Britons, MailOnline, 18 September 2012. (http://www.dailymail.co.uk/health/article-2205081/Middle-age-starts-55-youre-old-timeyou-hit-69-say-Britons. html#ixzz29M3eb2Ln)
  9. 9. 8 Help wanted: Averting the talent famine With the worrisome trends of labor capital development under its 2025 Vision, shortage, skill shortage and leadership Indonesia needs to build its capability from vacuum, can the 2025 Vision remain within and en masse. on track? The stage may be set, but the eventual outcomes will depend on the To close the skills gap, a massive reform of evolving government policies and responses the education system and industry practices by the companies. is required. Basic academic skills like mathematics and reading remain essential. However, management and technical skills, Coaching or poaching? on top of fluency in English, will be in higher demand, especially in the growing The most direct and natural response, as service and export sectors (Figure 5). This already evidenced in most companies, is to can only be provided by private education, hire talent from abroad. Australia, India, in-house company training and practical Malaysia, and Singapore are popular talent experience on the job. hunting grounds. This is at best a stop-gap solution6. To achieve the human 6 In an informal poll of private sector companies in Indonesia, we have found that not many organizations require their expatriate staff to groom their local successors, as part of their regular duties. Without the skills transfer, these jobs will always have to be filled by foreign imports.©2012 Hay Group. All rights reserved
  10. 10. Figure 5 Skills for hire (Source: Indonesia Skills Report, World Bank, May 2010, pp xi) Share of firms rating workers’ skills ‘very important’ Manager / Professional Skilled worker1.0 0.93 0.840.90.8 0.72 0.71 0.660.7 0.61 0.6 0.560.6 0.51 0.52 0.5 0.430.5 0.340.4 0.28 0.28 0.28 0.270.3 0.22 0.220.2 0.090.10.0 Non exporter Exporter Non exporter Exporter Basic skills (math and literacy) Thinking skills Behavioral skills Computer skills English skills
  11. 11. 10 Help wanted: Averting the talent famine With economic development, better the initiative of thinking about customers’ product and service quality will be expected. future needs, instead of waiting for This implies a greater need for innovation, instructions from their managers. which Indonesian companies lack as compared with their Asian counterparts, For that to happen, companies must according to Hay Group’s Best Companies be organized differently – with more for Leadership survey (Figure 6). For empowerment downwards. In some innovation to occur, Indonesian companies companies, it will mean more training must be prepared to run unprofitable programs to enable employees to projects to try new things and allow good understand what their new empowered role ideas to bypass the chain of command. will entail and to impart personal and team Leaders have to be more pro-active at leadership skills. In this way, the company helping employees understand the long- is seen as investing more in their career term strategy and their roles in achieving development. it. On the employees’ side, they must take Figure 6 Innovation best practices (Source: Hay Group Best Companies for Leadership survey, 2011) Global Top 20 Asia Top 10 Rest of Asia Indonesia 100 94 90 90 90 90 90 81 80 70 65 65 65 61 60 58 54 54 54 49 48 50 40 30 20 10 0 My company runs Employees spend much Leaders are effective If you have an excellent unprofitable projects to time discussing customers’ at helping frontline idea you may bypass the try new things future needs employees understand chain of command with no our long-term strategy negative consequences©2012 Hay Group. All rights reserved
  12. 12. Accelerated talent Most companies like to measure the success of leadership developmentdevelopment: programs by the number of training hours and skills enhancement achieved.Future Stars While managers will acquire new knowledge for personal development, such indicators do not guarantee that the company will have an experienced bench of leaders who can generate sustainable wealth and growth.Consider the case of a Fortune 500 conglomerate in China. The Chairman was troubled. The majority of theboard members would be retiring within five years. Yet, the next generation of managers was not ready to stepup to top leadership roles. On top of that, the company had been working to integrate operations among itssubsidiaries to generate economy of scale. This would be impossible without strong and determined leadership.The usual approach of career development, on-the-job training and mentorship would take time. The Chairmanneeded an urgent solution to deal with the situation before it became a crisis. Hay Group designed anaccelerated 18-month senior executive development program.A customized leadership model established the norms for successful leadership performance over the next fiveyears. Key competencies, such as pursuing market leadership and achieving greater productivity, were identified.The outward behaviors and traits were clearly defined to assess the level of performance of the managers.The program successfully calibrated and cultivated the managers. One of the managers eventually went on tolead a global beer brand. How had the program equipped the manager with skills and confidence for such aheavy responsibility?The program first assessed the manager’s strengths and weaknesses, as well as his potential, to meet theexpectations and challenges of the new roles. He was put through an international business school education,stretched business assignments, and personal coaching by the Chairman. All the training and learningopportunities were targeted at preparing him for his future role.The program also considered the manager’s response and ability to work with his colleagues on actual businesscases – to ensure the manager possessed the right attitude and aptitude. The rest of the senior leadership wasconstantly assessing and providing feedback on the manager’s performance. The stringent process assured theobjectivity and quality of the final promotion decision.The graduates from this “Future Star” program are about 45 years of age and usually end up holding top jobs inthe conglomerate’s diverse portfolio. So far, nearly 40 top executives have graduated from this program. The chief concern with most companies on a whim. Rather than submitting is that adopting a coaching approach in a to circumstances, a leading Chinese tight labor market is risky business when conglomerate consulted us to design others are taking the convenient shortcut an accelerated program for leadership of talent poaching. We believe that the risk succession (see box story above). of not training is even higher: what if these undeveloped talent stay on? The result was a robust talent grooming process which enables the company China faced a similar situation in the mid- to identify the right talent to fill its 2000’s. Talent management was a nightmare management bench. with employees job-hopping, seemingly
  13. 13. 12 Help wanted: Averting the talent famine Leadership development and succession The current retirement age of 55 was set in 1979. With the average life expectancy now at 70, we foresee that the Indonesian government will need to gradually raise the retirement age in order to retain talent and maintain national productivity. National policy notwithstanding, In addition, for true leadership succession companies can also help themselves by to take place, managers in Indonesia need extending the employment of retirees to step up to the challenge. Hay Group’s through short-term contracts, thus retaining Best Companies for Leadership 2011 their knowledge and experience. In survey revealed that Indonesian leaders lag addition, the retirees would be required to behind their Asian counterparts in four key groom and mentor the next generation of leadership areas (Figure 7): managers during their tenure. In this way, a short-term solution can also yield medium- • People development term benefits. • Connecting people to work that is personally meaningful to them But before these can take place, there must be a mindset shift – employees must be • On-boarding new parents which is willing to change their attitude to working critical for the relatively young Indonesia beyond 55 years old and employers must workforce view them as experienced assets, rather than • Maintaining a balanced mix of local and walking liabilities with more health issues foreign talent and less energy.©2012 Hay Group. All rights reserved
  14. 14. Pay for performanceA key contributor to the intense talent This appears to be the path that Indonesia iscompetition in Indonesia is its low labor heading towards according to Hay Group’scost. The talent auction will continue until PayNet database. There is a sharp mismatchsalaries rise beyond productivity levels. If between remuneration and performance.Indonesia fails to develop its human capital Companies are not using their salarysufficiently to match the target productivity budgets as a weapon to drive performance.level by 2025, it will fall into the middle-income trap it is trying so hard to avoid.Figure 7Leadership best practices (Source: Hay Group Best Companies for Leadership survey, 2011) Global Top 20 Asia Top 10 Rest of Asia Indonesia100 95 95 95 8790 8480 74 7070 5860 56 55 52 5150 43 40 3940 36302010 0 Senior leaders personally Leaders work hard to Introduced an on boarding Balanced mix of local and spend time actively connect people with program to help new international talent in developing others projects that are personally parents return to the senior leadership positions meaningful to them workplace
  15. 15. 14 Help wanted: Averting the talent famine For instance, as Figure 8 shows, for The remuneration and talent retention supervisors/ junior managers, the average strategy must target at changing behaviors merit increase is 8.3 percent while the that are aligned with the 2025 Vision. It is by seniority-based one was a mere 0.4 percent creating an equal opportunity workplace with lower. What kind of message does this exciting personal development opportunities communicate to the employees? Not only that companies can keep their talent and has effectiveness of the remuneration strategy motivate the rest of the employees. been reduced, it drives the wrong behaviors. Figure 8 Everyone gets a pay jump (Source: Hay Group PayNet Indonesia, 2012) Average forecast base salary movement (%) – all organizations (April 2011–April 2012) Type of salary movement Supervisory / Middle Senior Clerical / management Operations Junior management / Overall professional / Seasoned Executives professional Salary structure 10.6% 8.3% 7.2% 2.7% 11.4% Merit / performance 9.7% 8.3% 6.9% 3.1% 11.0% Inflation based 8.8% 8.1% 6.7% 3.1% 10.6% Seniority based 7.9% 7.9% 5.8% 2.9% 9.9% Average base salary increase 11.2% 10.9% 10.4% 9.8% 10.7%©2012 Hay Group. All rights reserved
  16. 16. Akan Datang7: A talent apocalypse oran economic miracle?The success of MP3EI will not just be in creating a more productiveworkforce and greater national innovation. Indonesia has a realopportunity to create a highly skilled middle class of professionalsand managers who are able to drive fiscal growth, achieve humancapital targets and ultimately sustain Indonesia’s economybeyond 2025.All this is contingent on the government The flip side does not look so good. Ifand companies working together to solve Indonesia succumbs to a weak talent marketthe upcoming talent apocalypse. Not and fails to develop its human capitalonly must the retirement age be adjusted sufficiently, it will have to resort to foreignupwards, the workforce needs to be talent to sustain its economic growth. Thisequipped with technical, management and leadership-outsourcing model will displaceEnglish language skills. the local talent pool and slow the human capital progress. Without a stable talentWithin companies, transformation must development environment to groom localalso occur. Companies must focus on capabilities, there will be huge skill gapsdeveloping a sustainable pipeline of local and salary discrepancy. This will ultimatelytalent, enabling them to succeed with the lead to social inequality and a stagnatednecessary skills and authority and rewarding economy.the right kinds of behavior. With thepending mandatory retirement of a large Whichever the case may be, the countdownpart of its middle and senior management, has already begun.steps must be taken now to captureinstitutional knowledge, groom the next-in-line and formulate a post-retirement hiringstrategy.7 Bahasa Indonesia meaning “coming soon”.
  17. 17. 16 Help wanted: Averting the talent famine East meets West: An executive leadership challenge Today’s leaders are expected to play multifaceted roles: visionary chief, astute decision-maker, brilliant strategist, team captain and inspirational boss. And they are expected to do all these effortlessly.   What does it take to lead Fortune’s Most Admired companies in Indonesia? In 2012, Hay Group and Fortune magazine launched our first Most Admired Companies in Indonesia, with the aim of understanding what sets successful companies apart from their peers. Published in January 2012, the companies ranked included local luminaries like PT Astra International, PT Unilever Indonesia, PT Bank Central Asia PT Bank Mandiri and PT Garuda Indonesia in the top five.   In this Viewpoint, we will summarize what makes them admired by their peers and incorporate some observations from Hay Group’s Leadership forum, held in Jakarta on 25th January 2012, in tandem with the launch of Fortune Indonesia’s Most Admired Companies. To download this viewpoint, please go to: http://goo.gl/oE0Bu. For more information, please contact: Nidthia Chelvam Managing consultant Hay Group Indonesia E| Nidthia.Chelvam@haygroup.com©2012 Hay Group. All rights reserved
  18. 18. Africa Frankfurt Charlotte Lima Name | version x | 01 Month 08 | CountryCape Town Glasgow Chicago SantiagoJohannesburg Helsinki Dallas São PauloPretoria Istanbul Edmonton Kiev HalifaxAsia Lille Kansas CityBangkok Lisbon Los AngelesBeijing London Mexico CityHong Kong Madrid MontrealHo Chi Minh City Manchester New York MetroJakarta Milan OttawaKuala Lumpur Moscow PhiladelphiaMumbai Oslo ReginaNew Delhi Paris San FranciscoSeoul Prague San José (CR)Shanghai Rome TorontoShenzhen Stockholm VancouverSingapore Strasbourg Washington DC MetroTokyo Vienna Vilnius PacificEurope Warsaw AucklandAthens Zeist BrisbaneBarcelona Zurich CanberraBerlin MelbourneBilbao Middle East PerthBirmingham Dubai SydneyBratislava Tel Aviv WellingtonBristolBrussels North America South AmericaBucharest Atlanta BogotáBudapest Boston Buenos AiresDublin Calgary CaracasHay Group is a global management consulting firm that works with leaders totransform strategy into reality. We develop talent, organize people to be moreeffective and motivate them to perform at their best. Our focus is on makingchange happen and helping people and organizations realize their potential.We have over 2600 employees working in 86 offices in 48 countries.Our clients arefrom the private, public and not-for-profit sectors, across every major industry. Formore information please contact your local office through www.haygroup.com.

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