It’s skills crunch time

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As the economic forecast brightens, skill shortages may act as a restraint on businesses.

Traditionally, when countries exit extended periods of downturn, one of the biggest problems faced by businesses is building up the necessary cash reserves so that, as orders increase, the cashflow needed to service that demand exists. However, partly due to the longevity of the most recent period of stagnation, the availability of the skills required to ensure seamless business operations has become one of the biggest hurdles.

Over the last few years, one of the expenses that business leaders often cut back was training and development. Combined with this, those with safe jobs tended to stay in one place for risk of compromising that security. The overall result of these two trends is an economy with diminishing pools of skilled professionals, reluctant to move and with few new employees able to take over their responsibilities when they do.

A recent survey of 616 senior directors representing all major UK sectors and businesses with 500+ employees conducted by HSBC and the Prince’s Trust revealed that more than one in three employers (35%) fear the skills crisis will cause their businesses to fold. A separate report by accountancy firm EY found that 77% of entrepreneurs surveyed believed the skills shortage to be a considerable barrier to increasing headcount.

While the skills shortage may be already a concern, the situation may yet take a turn for the worse. Businesses struggling with cashflow and holding onto or retaining skilled employees will be susceptible to a further setback, if and when interest rates rise. Interest rate increases will heap pressure on people with mortgages and other debts, in turn leading them to legitimately seek pay rises to sustain the higher living costs.

The knock on effect for firms will be fewer funds to invest in business growth if they provide those pay rises, let alone the cost to recruit new staff and retain skilled workers. As these financial pressures bite, businesses will be forced to cut costs elsewhere – and often training and development is the first to go – exaggerating the problem further.

Small firms are in a position where they don’t actually need to have all of their staff directly on the payroll. If businesses don’t have the liquidity to retain all their key staff, it will become important to consider which staff to keep in house, and which skills can be outsourced.

A good standard to use when making this decision is: which individuals will play a key role in shaping the brand, culture and direction of the business, and which workers will serve complex, but not brand specific, functions? It is often the latter group – for example, the finance function – that can be most easily outsourced, saving important resources. In this way, business owners can focus on growth, key staff can focus on driving the core messages, training costs can be kept to a minimum, and the company can gain vital best practice skills and market intelligence from the outsourcer.

Outsourcing certain business functions and departments can remove the need for a business to provide direct funding for the training and development of the staff involved. Outsourcing certain functions to specialist providers also provides a business with the opportunity to gain market intelligence from industry experts and benefit from best practice in the relevant field.

With Britain considered by many to be facing a skills crisis, more and more organisations are attempting to gain access to the skills needed to maintain basic business processes and growth. In the most minor instances these are personal skills, but as the size of a business increases this often means ‘hiring in’ the necessary skills.

With the financial pressures of the post-downturn era, keeping a firm handle on costs and managing cashflow is vital. By outsourcing the less brand-centric members of the team, and securing reliable cashflow, microbusinesses and SMEs alike can build the foundations on which to grow steadily and successfully.

Tracy Ewen is managing director of IGF



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