Labour shortages were identified as one of the most impactful factors on business confidence (second only to the pandemic), in Pitcher Partners recently released Business Radar 2022 report.
Almost every industry is facing staffing shortages. Respondents said they had challenges with attracting the right staff (49%) and/or retaining good staff (48%). Businesses rate high-quality talent as the second most important driver of their success and 31% of respondents said labour and staff shortages were negatively impacting their business confidence. This is second only to the related pandemic at 37%, with retaining talent (22%) as the fifth biggest impact factor on business confidence.
Given the still parlous state of net immigration flows (recovering but far below pre-pandemic levels) we estimate it will take some time before the labour force expands enough to put downward pressure on wages.
In the current situation worker bargaining power is at elevated levels relative to recent history with the underutilisation rate (a measure of unemployment plus underemployment) sitting at levels last seen in the early 1980s.
This will add to wage pressure in the short term with a tighter labour market tending to predict accelerating wage growth. We would suggest that businesses be prepared to measure the cost of investing in their staff (their human capital) and weigh this against the value of future growth those workers are needed for. It is not a situation we expect to improve in the short term.
The push and pull of high staff turnover
As much as 52% of mid-market businesses have seen an increase in staff turnover, and only 20% have seen a decrease. Respondents say the main factors for the increase are poor work-life balance (38%), lack of opportunity (30%) and workplace culture (27%), while staff are also being pulled by higher compensation (44%) and flexibility (34%) offered by other companies
Holding back profit and growth
Whatever the causes, staff shortages and higher turnover are also directly impacting the bottom line, customers and growth. 45% of our decisionmakers say higher staff turnover is negatively impacting that hard-to-measure but all important morale and business culture.
However, there are also obvious and direct commercial implications with mid-market respondents delivering poorer customer outcomes from the disrupted workflow (42%) and covering increased HR costs (39%) – both of which will have an impact on profit margins.
Perhaps most significant is that staffing shortages and high turnover are stagnating growth for nearly half of all Australian mid-market businesses. 46% of those businesses with increased staff turnover say that they’re unable to expand because of staff shortages.
Making do with what they have
Businesses are working around these challenges with inventive solutions. For example, 58% said they’ve considered outsourcing, while others have refocused on upskilling existing or less experienced staff (56%). 60% of respondents have changed their recruitment practices employing staff they wouldn’t have hired previously. 91% of respondents have taken at least one step towards improving staff retention.
Offering flexibility and prioritising work-life balance are the steps seen as being most successful, with steps taken by surveyed businesses including:
- Rewarding and recognising employees (35%)
- Offering increased flexibility (37 %)
- Prioritising work/life balance (32%)
- Monitoring employee engagement (30%)
- Developing career paths and opportunities for growth (27%)
Insights for business
As is often the case with challenging times, managing staff shortages will likely separate weaker businesses from the rest. Those with strong, positive cultures and established processes will find they have lower staff turnover, can more easily attract good people and are also better able to train and support inexperienced staff.
On the opposite end of the spectrum, we’re likely to see compounding negative outcomes – poor culture and processes will see more people leave, making it harder to attract new staff and offering little room for upskilling less experienced people.
This issue, therefore, is fundamental, and best solved holistically – retention and attraction are two sides of the same coin. Businesses must look at both the practical – ease of processes, efficiency, how domain knowledge is captured and accessed, remuneration and working conditions, for example – and the intangibles of a supportive, positive culture, attractive values and an inspiring mission all of which is driven by strong leadership.
Actions you can take
- Build a strong employee value proposition (EVP) based around the type of employees you want to attract and what you’re able to deliver. Be clear about where your value lies – you’re unlikely to be able to compete on all elements of remuneration and benefits, so invest in and promote those most important for your business.
- Track and measure your culture with regular employee engagement surveys to identify pain points and issues in the employee experience. Build initiatives to address the pain points and gaps in expectation.
- Support your employees’ wellbeing. Consider programs to build connection, create a culture of open communication and build a positive and resilient mindset.
- Provide clearly defined career pathways supported by effective learning and development programs to help your people achieve their goals and career aspiration, at the same time as addressing the skills shortage within the business.
- Ensure your remuneration profile is competitive.
- Ensure employees are working in the most effective manner. There is no scope for inefficiency in times of worker shortages. Targeting effort may also result in a happier workforce because efforts are valued and recognised making all stakeholders happy.
- Use automation tools to replace the mundane parts of people’s jobs. In doing so, you free them up to do more value add / roles that they find more rewarding.
- Drive business efficiency which may allow you to do more with less.
- Use technology platforms to measure and track engagement and wellbeing to ensure you are living up to your EVP.
- Consider the use of staff digital journeys in support of your EVP/employer brand.
- Work to operationalise any new ways of working – make sure people understand what technologies are available to them and how to use them.
What to do now
Explore further insights through the full Business Radar hub on our website today.