Lynda Gratton - The Future of Work

How Will Japanese Corporations Address their Ageing Workforce?

I have recently returned from Japan where we held the Future of Work Research Consortium’s first live event in Japan. During the course of my visit, I found myself thinking more and more about how Japan will cope with the dual conundrum of an ageing population and a rapidly shrinking workforce.

During a previous visit to Japan, I was struck by the challenges facing Japanese Youth and the behaviours they will need to adopt to remain competitive in our increasingly global talent pool. This time round, as I spoke to some of the country’s leading organisations including FoW members, Fast Retailing, Kokuyo and Ricoh, I became more fascinated by the organisational response to Japan’s demographic dilemma. To give you an idea of the magnitude of the challenge facing Japan, 22% of the population is 65 or older, and this will increase to 40% by 2060. This increasing number of older people will be supported by a shrinking population of workers, owing to Japan’s birth rate of just 1.39 children, one of the lowest in the world.

For organisations, this context will present two key challenges. First, the war for young, talented workers will become increasingly fierce. Companies wishing to succeed in this war for talent will need to consider how they support younger workers who will likely be caring for elderly parents and grandparents as well as starting their own young families. 

Second, organisations will need to develop models that help older workers remain in the workforce. Japanese companies already outperform their peers on this front, but will need to consider whether their policies and practices will continue to work when older people significantly outnumber younger colleagues. How will career models have to change so that they are not faced with the increasing wage costs associated with older, senior staff? Part of the solution will come from rethinking linear career paths that see pay increase in line with age and considering more lateral models in which people can dial up and dial down their commitments and pay over long working lives.

From the discussions I had during my trip, and my own research in this area, it seems there are three tools Japan has to relieve the demographic tensions it faces:

1. Involving Women

One way to ease the tension around a shrinking workforce is to be more innovative about where you seek out talent. For Japanese corporations, the challenge is to increase the number of women in all ranks of its organisations. With just 48% of women in the workforce, this remains an area of untapped talent within Japan. Indeed, some of the savviest Western multinationals such as AMEX and Unilever have taken advantage of this situation and recruited many of Japan’s female stars. The issue around women’s participation is very much a cultural and behavioural one, requiring the breaking of conventions such as women leaving the workforce as soon as they marry or have children. Attracting women will require a concerted effort from Japanese corporations, perhaps reaching out to young women as they begin forming their aspirations in their late teens and early twenties, and demonstrating that there are opportunities for female leaders.

 

2. Globalising Japan

One of the observations I made during my previous trip to Japan was that the students I met at Tokyo University did not speak English. This was in marked contrast to the experience I had at Chinese and Indian universities in which the appetite for learning English is insatiable. To take advantage of a global talent pool, and to expand operations abroad, Japanese students must equip themselves with the international business language which, for now at least, is English. 

 

3. Opening the Borders

Perhaps the most contentious issue, but also the most promising way out of the demographic dilemma, is immigration. Currently, less than 2% of Japan’s population is non-native and the government’s approach to immigration has been generally conservative. Prime Minister Shinzo Abe has eased restrictions on some categories of immigration in recent months, but these reforms will need to go much further if they are to make a substantial difference to workforce dynamics. 

What became clear to me during my time in Japan was that there is a great deal of promise in this fascinating country. Japan has a unique culture in which age-old tradition sits side-by-side with groundbreaking technology. It is home to some of the world’s oldest and most successful companies and holds a reputation around the globe as a producer of the highest quality technologies.

I believe that the demographic challenges facing Japan are by no means insurmountable and the appetite for change demonstrated by the wonderful people I met during my stay suggests they are at an important turning point. With ageing populations a worldwide phenomenon, Japan has an opportunity to be at the leading edge when it comes to catering for the needs of citizens who may live to be 100 – with the potential to provide case studies and establish best practice that other countries will follow. In this area in particular Japan’s next moves will be the subject of great interest – and the world will be watching.

 

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Davos 2014 – what is on and off the radar screen?

One of the interesting aspects of attending and blogging about Davos each year is that I can look back and reflect on my impressions of previous years. For example, looking back at my Davos 2012 blog, I wrote: “The pervading theme this year is of extraordinary change and challenge: ‘we don’t have a moment to lose’; ‘we have to do things differently’; ‘this is a unique moment in history’; ‘there is a crisis of consent’ are phrases I’ve heard from academics, CEOs and politicians.”

By Davos 2013, I wrote of some change: “Looking back to the 2012 Davos, the talk was all about the final playing out of the financial crisis and the deep concerns about the break up of the Eurozone. Just a year later, and the mood seemed more optimistic, though with a strong undercurrent of realism”.

Looking forward to Davos 2014, what can we expect? The Eurozone has now stabilised and the prospects for a less turbulent world are emerging. But this is also a world that FT Editor Lionel Barber in his pre-Davos briefing described as likely to experience ‘terminally tepid growth’. It is a world of low growth and low inflation. In light of these facts, here is what I think will be on (and off) the radar screen at Davos 2014:

 

On the radar screen:

The rise of nationalism

A crisis is in a sense a great way of diverting attention. Now that the realities of ‘terminally tepid growth’ are beginning to be apparent, many people across the world – and in particular the developed world – do not like what they see. Economies may be healthier, but people are unhappy. And so we are already seeing issues of identity, atavistic politics, and the emergence of fringe populist parties. Those gathered at Davos will be concerned that this will destabilise labour and capital flows and impact on economic recovery.

The misery of youth unemployment

Last year, I saw youth unemployment as one of the major emerging themes at Davos, and I think the debate will continue in 2014. Youth unemployment continues to be a structural issue that is particularly damaging in the fragile economies of Africa and the Middle East. What makes this worse is the ever widening gap between the needs of the work place and the education system. Last year at Davos many of us were entranced by a session in which a young Pakistani girl talked about the incredible progress she had made by using an on-line learning module created by professors at Stanford University. As fascinating as her story was, it’s clear that her experience is the exception rather than the norm. For the vast majority of young people the promises of low cost education and flexible labor markets are yet to be delivered.

 

Off the radar screen:

After the crash and the crisis it is remarkable how quickly the old systems are re-emerging – and as a result some of the challenges we thought might begin to be solved through disruption, seem instead to be moving off the radar screen:

Climate change

Right now what is emerging is a dissipation of political will, for example shale gas has brought the prospect of cheaper energy and disincentivised the investment in renewable energy sources. Governments and corporations alike are still finding it difficult to tackle global problems like climate change which involve multiple stakeholders and there is a growing realization that we don’t yet have the requisite global infrastructure – so I expect the debate about climate change to be pushed onto the back burner.

Gender parity

As any visitor to Davos will notice, women participants make up a tiny proportion of those who attend. Next week at Davos I will be chairing one of the workshops on the subject of diversity, but I don’t expect much to happen in gender diversity in 2014. The glacial movement of women assuming senior positions is surprising and disappointing to those who expected more. As always I expect there to be talk of quotas and much debate about the Norwegian experience. But I don’t expect to see much action. 

The Skill Gap: Asian Style

One of the paradoxes of contemporary business life is that, just as unemployment soars, the number of unfilled vacancies increases. In the USA right now there are over 3 million unfilled jobs, while in countries like Spain, youth unemployment stands at a jaw dropping 47%. The extent of the gap between what employers need and what the labour market provides in terms of skills and talents seems to be continuously widening.

Why the skill gap is here to stay.

This is not a surprise. There are three trends that we believe will only gather momentum and, as they converge, will continue to impact on the extent of the skill gap. None of these trends will go away fast; in fact, our research suggests that they will only accelerate in their velocity.

The most obvious creator of the gap is technological advancement within work. This has been felt most in semi-skilled work, where business analytics have replaced many clerical activities, while much service work has been outsourced from the high-cost West.

Historically, these were jobs that those with minimum educational qualifications could perform.  But it’s not just about technology replacing semi-skilled work. Increasingly, the knowledge and skills that high value jobs demand has shifted to engineering, IT and the sciences. This is good news for countries like Germany and India, where these disciplines are considered a good professional choice – but bad news for the UK and the USA, where fewer students take these options. To make matters worse, the Asian students who fill the science classrooms of the West are increasingly likely to take the first plane back after graduating, rather than staying and filling those vacancies as they might have in the past.

Demography is also playing a hand in the skill gap: Over the next decade, the largest workforce cohort the world has ever seen - the Baby Boomers - will rete in their millions. Many will take with them the deep tacit knowledge that has come from a lifetime of experience, and which they have often failed to bequest to those members of Gen X who follow them. This demographic time bomb is particularly deadly in sectors such as aerospace and pharmaceuticals, which have traditionally had long apprenticeships.

 

The Asian Response

Anxieties about the skill gap are no less prevalent in Asia. With 15% compound growth rates and, in many countries, a missing management class, companies across the region are deeply aware that this could prove a significant barrier to growth.

However, what is interesting is the speed, depth and complexity of their response. Take Singapore: here is a country, with few resources save its people, with aspirations to play a significant role in the industrial life of Asia. For them, closing the skill gap is crucial. This is achieved by actively creating close ties and a constant information flow between the key stakeholders, be they in companies, the government or educational establishments. The Ministry of Manpower and the Economic Development Board have the role of coordinating this flow of information, and provide the resources to  ‘nudge’ when necessary. This could mean, for example, supporting Unilever’s opening of a major leadership campus, funding scholarships in high value skills, or working closely with pharmaceutical companies and Western universities to build a cluster around bioengineering.

In India, the speed and scale of the response has taken a very different form, spearheaded not by government, but by the private sector. Indian companies face a huge potential skill gap for, while the technical education in the Indian Institutes of Technology is of a high level, the general education standards across the country are poor. For Indian’s rapidly growing IT sector, represented by companies such as Wipro, Infosys and TCS, this could be a disaster. Yet instead of accepting this, these companies have reached out into communities across the continent to significantly impact the development millions of youngsters. Executives at Wipro, for example, work with tens of thousands of colleges across India to train teachers to develop IT skills, build state-of-the-art curricula, and encourage students to become what they term ‘work-ready’. With a recruitment target in 2011/12 of 60,000, the teams at TCS play a similar role in helping young people across India understand from an early age what the most valuable skills for the future are, and how best to acquire them. Like Infosys they also work closely with hundreds of thousands of teenagers to actively increase their skills.

The global skill gap is here to stay for as long as technological advances, globalisation and demography continue to redefine work. For some countries, it will be the government that takes the initiative to bridge the gaps. For others, it will be companies themselves who will step up to the challenge. What is clear is that, if neither of these stakeholders are actively engaged nor prepared to put significant resources into the problem, the unemployment rates now seen in Spain could become the norm for many countries in the West.

When Generations Fight

I have a fascinating insight into the future of work through the 45 corporations across the world we are studying as part of the Future of Work Research Consortium. Last month we asked 2,500 executives from these companies to rate the areas they believed would  be critical for the future, together with the extent to which they believed their company was currently competent. We gave them a list of 20 areas that an earlier study had shown would be important for the future. This list included for example ecosystems, open innovation, flexible working and networked leaders.

What was extraordinary is that almost a quarter rated ‘intergenerational cohesion’ as the most significant risk their company faced, and many more rated it as one of the top three risks. This was not an isolated area of risk, but rather was seen to be a risk by executives in both West and Asia companies, and indeed across all industrial sectors. Their concern was that the potential differences and conflicts between the generations could lead to poor cooperation and knowledge sharing, but might also flare into more open sources of conflict and dissatisfaction.

Five Unique Generations at Work. 

The potential opportunities and conflicts that are arising between generations are a recent phenomena and are a factor of both demographic changes (particularly around reducing birthrates and enhanced longevity) and accelerating technological and societal trends (particularly around the use of social media and family experiences). Over the next two decades, many companies will have potentially five distinct generations in the workforce: The Traditionalists (born around 1928 to 1945); the Baby Boomers (born around 1945 to 1964); Generation X (born around 1965 to 1979); Gen Y (born around 1980 to 1995); and Gen Z (born after 1995).

Generations fight for a number of reason. They don’t understand each other, they have differential access to resources and power, their working style and use of technology is in conflict, or they are not really sharing knowledge and experience with each other.

Of course generational conflict could also be great – really create innovation, remove some old style thinking, bring creative tension. However, if companies are to move to creative rather than destructive tension, it seems to me they have to ask themselves three key questions:

1. Does technology favour one generation? The generations communicate with each other differently and one potential source of tension is that corporate communication typically favours the Baby Boomers’ preferred mode of communication rather than the younger generations. Typically, Gen Z and Y use social media such as MySpace, Facebook, LinkedIn, and Ning to access information instantly, to multi-task, and to build valuable networks and stay connected; typically Gen X use portals; whilst Baby Boomers are most comfortable with e-mail as their primary technological communication tool. Yet many companies have banned Facebook and social media, which is the lifeblood for the youngest generations and by doing so have inadvertently favoured one generation over another.  

2. Has flexibility become embedded? Each generation would value greater flexibility. Gen Y would like greater work/life balance in jobs that can be overwhelming; younger Gen X’s would like maternity and paternity leave and time off to spend with their young children, the possibilities of sabbaticals, and to temporarily step away from frontline into less demanding roles, and older Gen X’s can find themselves with ageing parents who need care; whilst Baby Boomers would like sabbatical breaks and the opportunities to work more flexibly nearer the time of their retirement through part-time and reduced hours. What is clear is that the inflexibility of work will create ever greater conflict across the generations as those that need it most (typically Gen X) are denied it. There are many reasons why the rhetoric of organizational flexibility has rarely been delivered in practice: a focus on being present rather than making results, few if any senior role models prepared to work flexibly, and under- designed and over complicated jobs. But if generations are to work together, flexibility has to be a reality.

3. Is cross-generational mentoring taking place?  There are important exchanges to be made between generations; Gen Y in particular are keen to build strong functional skills and industry knowledge and insights that those more experienced can help develop and yearn for feedback; whilst Baby Boomers want to develop their expertise in the use of social media and newly developed technology. These can be crucial issues as Baby Boomer retire taking with them valuable knowledge, insights and connections. However, too often mentoring does not take place because executives are too busy, too stressed and feel overwhelmed and under skilled. Yet the generations have so much to teach each other if only the time and resources could be focused on this.

It seems to me that the creative tensions between the generations can be a real source of innovation and excitement. Have you experienced tensions between generations – and what do you think can be done to ensure these tensions are creative rather than destructive?

 

 

 

Asia and the West Differences? - the four reasons why it’s a tough question

As I move back and forth from Europe and the USA, to Singapore and India – one of the questions I encounter is ‘what are the differences between Asia and the West?’ The subset of this broad question is– are employees different (more cooperative, more skillful, more educated, more determined?) – are leaders different (more authoritarian, more inward looking, more specialized?) – are companies different (more hierarchical, more global, more innovative?) This question becomes ever more crucial as we look forward to the next couple of decades. 

This question of Asia and the West arose again as we launched the Pan-Asian Hub of the Future of Work Consortium in Singapore this week. With over 50 people at the launch and another 60 expected at the London launch in November, this is a great crowd to play this question through.

But the more I get to think about the future of work – the less I can really answer this question of Asia and the West without falling into old stereotypical responses. It’s becoming increasingly clear to me that one of the profound impacts of the Five Forces we are exploring in our research, is that trends such as ever increasing technology and globalization are making it almost impossible to make any broad statements about the difference. Here are four reasons why:

Multinational Champions. Across Asia we are seeing the emergence onto the world stage of the multinational champion able to fend for itself in this world stage. Whether it’s Wipro, TCS or Infosys in India; Singapore Airways and Olam in Singapore; or Lee & Fung and Nanjing Automobile Group Corporation in China, these companies have world-class leaders, world-class systems and world-class processes. They are barely indistinguishable from their Western competitors and each have their own unique ‘signature’ that goes way beyond any Asian stereotype.

Global Talent Pools. It’s clear to me that the most talented Gen Ys in India, China or Malaysia are nearer in ideals, values and mindset to their peers in California, Moscow or Munich … than to their own parents. This is the world’s first truly ‘joined up’ global generation with skills and values that span the world. So you thought that ‘work-life balance’ was a western phenomenon of Gen Y? Then talk with the youngsters in Mumbai and you will hear many of the same issues. Technology and globalization has connected this generation to such an extent that to talk of differences is to miss the enormous similarities.

Regional Differences. Demography plays a key role in our research on the Future of Work – both in terms of the creation of talent pools and consumers, and indeed with regard to aging and pensions. With regard to demography, one of the Asian stereotypes I hear is that ‘ Asian families are bigger’. Well yes, they are in rural India (though rapidly declining) – but they are not in Japan, and certainly not in China. Or a western stereotype such, as ‘western managers are less hierarchical than their Asian peers’. Well perhaps in Finland and some UK companies, but not in many German or French companies that stick resolutely to their hierarchies. Broad sweeps – such as ‘Asia’ or ‘The West’ are just too general to pick up the huge variation between countries, and even within regions.

Families, Governments and Local Companies. Finally, it’s really hard, even within a single region, to make any broad sweeping generalization about ‘ leadership capabilities’ or ‘management practices’. The reason is simply that companies in the same location come in so many different types and varieties. Take family firms for example. Japan and Europe have some of the oldest family firms in the world, where resources have been carefully handed down for centuries. These family firms, which are prevalent across Asia – just as they are in the USA (Mars or Cargill for example), and Europe (Fiat or Banco de Santander) have typically their unique governance structures, managerial practices and resource allocation measures. They are different from the ways that state owned companies are lead and governed. The implication is that even for firms within a single location, the history of the firm is likely to play an even greater part than where it is located.


It is of course attractive to fall back on broad generalizations, particularly those associated with ‘Asia’ and ‘The West’. But as we learn more about the variety within regions and countries, these broad generalizations really have very little foundation. So much so, that when people ask me ‘what are the differences between Asia and the West’ I end up looking rather blank and saying ‘well it depends’

Am I being particularly blind about this? Are there differences between these parts of the world that you think hold up to scrutiny – I’d love to hear your views.