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Optimization in times of labor shortage

labor shortage

In the last few years we could all observe an increase of labor shortage in traditional sectors of the private business as well in the public administration. In May 2022 only in the US there were 11.3 million open positions vs. 9.3 in April 2021, an increase of 22%.

Many jobs today are not seen as attractive anymore, skilled available resources are getting more demanding to their employer. Several reasons can be identified, just to mention the main ones:

  • A demographic change is happening since the “baby boomer generation” (born around 1955-69) is increasingly retiring
  • During the COVID-19 pandemic many workers have moved from industries affected by the lock-down to industries with better pay and working conditions
  • Many, especially in the younger generation are moving from a permanent work condition to independent. Only in the US a recent survey made by McKinsey&Co. shows a remarkable 36% of employed respondents identify as independent workers compared to only 27% in 2016.

All this not only leads to a shortage of skilled workers and unfilled positions in manual artisanal and social professions, but also forces larger companies in all sectors to adapt to the new situation. And this affects all areas of the company.

Current solutions don’t solve yet the problem

In Germany, in addition to promoting (qualified) immigration as a solution to the problem (there is consensus for additional 500,000 qualified people needed every year), it is often increasingly pointed to the possibilities given by digitization and automation.

Both approaches may have their justification, but in our view they are not sufficient and concrete enough. Especially for the administrative areas of a company, we see other possibilities for action.

While measurable productivity gains have already been achieved in the past in the production areas through approaches such as lean and automation, the administrative areas are still rarely the focus of optimization.

This will have to change, as it is questionable whether the labor shortage can be addressed in reasonable time and moreover, new resources can be qualified quickly for those complex administrative positions that require less manual and more intellectual skills.

Further options for action

So what needs to be done?

First of all, there must be a paradigm shift in the thinking of the companies concerned: where in the past optimization was done to save costs thus increasing profitability, in the future optimization must be done to concentrate limited human capabilities on the core added-value processes of the company. This will also make the workplace more interesting and the company more attractive in general.

This only works if the company processes are consistently aligned with customer benefits and the employees support this so that every additional labor effort also generates corresponding added value for the customer. To achieve this, a number of questions needs to be answered, depending on the company and the sector. Some are:

  • Why do we offer the same customer experience to all and not according to the respective value generated for the company?
  • Which processes create competitive advantage and therefore must be kept in our hands and which can be outsourced?
  • Why do I have more than 100 process variants in my company’s purchasing process if I do not gain any advantages with suppliers as a result?
  • Why do I keep a large product portfolio and therefore increase complexity if the customer would also be satisfied with fewer variants?
  • Why should a retail business offer opening hours that generate much less business vs. prime time?

In our view, the consistent and honest orientation towards customer benefits is a central element in order to make efficient use of increasingly limited skilled labor in the future and to enable growth.