The Real Business Risks of an Aging Workforce: Where’s The Eye of the Storm?

by Evan Smith, Featured Contributor

We Can’t Wait for the Storm to Blow Over; We’ve Got to Learn to Work in the Rain” –Peter Silas

A CLIENT RECENTLY described to me the threat of pending retirements among his organization’s aging workforce as a “silver tsunami”, a storm of major proportions poised to blow through the company over the coming 10 years.  They face imminent retirements from all positions, ranging between 20 and 50% of their workforce, depending on the group and business line.  The challenge? Without intensive manual data gathering by business group and function, they can see neither the proportion of staff per business group approaching retirement – OR the key business capabilities that the most-imminent retirees possess.

This Storm Has Been Brewing for Decades

This challenge has been with us for many years. David Delong writes about NASA in the 1990’s, pursuing work in the rain umbrellaaggressive cost-cutting efforts in the space program, offered early retirement to significant numbers of its engineers. “With them,” David Delong writes, “went years of experience and expertise about the design trade-offs that had been made in building the Saturn rockets.”  Delong quotes one NASA manager as saying, “If we want to go to the moon again, we’ll be starting from scratch because all of that knowledge has disappeared.”

In 2006 American Express awoke belatedly to the awareness that large numbers of key staff were poised to retire from business-critical functions[1]. Based on some clearly defined initial requirements, they began a program to capture knowledge from selected retiring employees in their Finance and Technology groups.

In 2007, we carried out an urgent audit-provoked “triage” knowledge-capture project with the State of New York’s Division of Retirement Services, the pension- and benefits managers for civil servants in the state – an organization serving many millions of people, facing the imminent risk that more than 50% of their staff could retire in 10 years or less.[2]

What you really lose through people leaving is efficiency–knowledge of how to get a job done faster and better.”  –David Delong, Lost Knowledge:  Confronting the Threat of an Aging Workforce, 2004

What’s the Big Deal? People Leave Jobs All the Time…

According to an article in Cleveland’s The Plain Dealer in June 2014, the percentage of people in the labor force who are 55 and older is near a four-decade high.  This is the boomer generation – swelling the mature-worker ranks, and needing to build their nest-eggs…  leading to decreases in available positions for younger talent.  These aging boomer staff members have been in role longer, they’re productive, they’re tech-savvy – and they also know more about how the work in their areas really gets done!  The downside:  when they retire – their institutional, tacit knowledge, work speed, and relationships walk out the door with them.  The swelling ranks of older workers has also reduced velocity of younger staff[3] through jobs, so that organizations are developing less work-specific process knowledge (about how work really gets done), with less sharing by employees as people stay in roles longer. This effect both increases the risk (as large numbers of key workers approach retirement) – and reduces the knowledge and learning transfer needed to keep businesses operating.

My colleague Margaretta Noonan cites a recent annual survey of employees that identified 83 percent of them planning to look for a new job this year.  This means that less than 20% of employees intentionally mean to stay in their jobs.

What are the very real risks that large, complex organizations face from these seismic demographic shifts, and the forces operating in organizational labor markets – and how can companies really see where and how they might respond?  Here are a few risks identified from our work with large clients, and distilled from listening to others working on this challenge:

  • In complex organizations – especially those decentralized, geographically or otherwise – leaders may find it difficult to pinpoint and prioritize which capabilities, teams, and business units need the most help.
  • For organizations lucky, strategic or intentional enough to have great human resources information systems (HRIS’s) – often the datasets on employees are large, numeric and tabular.  Many organizations don’t have effective ways to summarize and report on basic dimensions of their workforce, in ways that can support effective strategy development and decision-making.
  • The large-tabular-datasets problem is one for the organizations with GREAT HRIS’s.  How many companies can claim this status for their system?  And what do the other organizations do, with less complete, more fragmented, less accessible data?
  • Even for organizations with great HRIS’s, summarizing the critical dimensions of knowledge, identifying key groups and units, and naming key skills and capabilities is challenging for the best analysts to coax from databases and spreadsheets.
  • The shifting proportions of part-time, flex-time, full-time, contract and outsourced labor means that many companies (even those with great HRIS’s) can only really see “part of the elephant” regarding the status of their talent, skills and capabilities.  Therefore, their reporting and decision-making to address talent and workforce risk is by definition limited, fragmented, and potentially very flawed.
  • All of these reasons make the data on staff, talent, capabilities and risks inaccessible and invisible. Like an iceberg, so much risk lies below the waterline, “out of sight” but very, very dangerous.

IcebergThese realities and limitations constrain leaders from being able to clearly see and focus on what is truly important: creating accountability to close the gap between where their organizations stand today, and what a fully effective, staffed and capable, “going-concern” organization might need to be tomorrow.

What if it were possible to really see your organization – rapidly, periodically, with low overhead, and over time – to see your progress against talent, maturity, capability, diversity and other initiatives that are filling identified gaps?  What if your senior leaders could regularly see snapshots of (for example) organizational status by expected retirement cohort, or how many mid-level employees had been promoted recently?  Would decision-making (and focus/ priority setting) change – for the better? How would your leaders see, target and address these important business risks?

While the work is young, one great example of a firm with a nifty, practical solution for organizations trying to “see through the storm and its complexity is Data Morphosis – with its “Gender Gap” software.  While this SAAS offering suggests a focus on gender, the beauty of this product lies in its ability to simply and easily digest a standard HRIS output table of employee records – and produce simple, visually compelling pictures of employee tenure, by role, title, level, business unit…  pictures that clearly and unflinching describe an organization’s shape, and tell its story, to help senior leaders and boards see the challenges directly, and enable better/ stronger/ more timely decision making.

GG-Screen Age PictureWith “simple” maps of the organizational terrain like this – on a full range of dimensions – leaders can begin to have different conversations about where, when and how to invest to address risks created by demographic, knowledge and capability shortfalls.

As we learn to work in the rain, how are your leaders – in HR and elsewhere – getting a grip on the talent, maturing workforce and transitional capability challenges your organization faces?

What focus and priority do the risks of the pending “silver tsunami” bring for your organization?

Image Credits:

Related Reading

[1] Issue: Retiring Employees, Lost Knowedge

[2] Develop/ Execute Triage Plan for Business-Risk Management and Knowledge Capture

[3] In addition – other economic forces lead to less time in position for younger workers – exacerbating the knowledge transfer problem. “Today, as the oldest baby boomers (1946 to 1965) prepare for retirement, some Gen Xers and many millennials are not remaining employed long enough to learn from their older colleagues. A 2012 study by PayScale, called “Gen Y on the Job,” found the median tenure for millennials to be two years compared with five for Gen X, seven for baby boomers and 10 for silent generation workers.” Pena, “When Knowledge Left the Building”


Evan Smith
Evan Smith
EVAN is a select member of our "BizProphets" Thought Leadership Panel, a principal with Metamorphosis Management Group, a Director with Carriage Hill, and carries operating roles in several other companies. He trained as an industrial engineer who took deep dives into the social sciences, exploring the essence of what makes people "tick" - and has been helping leaders to deliver business growth and other measurable results through successful organizational and individual change for more than 20 years. Consulting clients have included major pharmaceutical, medical devices, financial services, chemical, automotive, technology, energy, and professional services companies, among others – and startup/ mid-market growth ventures. He’s based near New York City.

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  1. ” pending retirements ”

    What pending retirements? After the 2009 crash, people’s 401K’s are cratered. Who can afford to retire? Older folks are holding on to their jobs with clenched fists.

    The REAL issue is age discrimination. But this “OMG pending retirements” nonsense keeps them from hiring other older folks with similar experience to come on board.

  2. David – thanks for writing. I see/ understand your point: if this is a problem in all parts of a large organization, don’t we have to solve this problem everywhere?

    Pragmatically – in many large organizations – the challenge of retiring talent/ departing expertise is not “uniformly distributed” – and the severity of the impact is not uniformly distributed, either. Some groups may have very high %’s of retiring workers – but the work itself may be important but less urgent, less directly impactful for the customer, or more “back office”. However, some other groups may have only a few pending retirements – but those people have key relationships with major customers – or specialized expertise that keeps the business running.

    This is why I’d make the argument that for business risk management and continuity – in addition to capturing knowledge, “working out loud” and other tactics across the whole organization – many companies will be well served to try to see where they may have specific vulnerabilities in their organizations… because some “fixes” and solutions may take more time to implement.