Are you ready for the skill shift?

We daily read about increasing skills shortages. In the next 5-10 years we will have replaced an additional 50% of today’s job skills. The accelerating technological development is the reason for this shift. This places high demands on our ability to adapt and develop. History shows how a large percentage of companies failed to adapt to previous technology shifts. In order to meet future challenges, we therefore need to focus more on developing new skills. This applies to us as individuals, to organizations and society at large.

We currently have an increasing shortage of key skills

Over the past 10 years it has become increasingly difficult to recruit staff with the right skills. According to Manpower, 2 out of 3 larger companies are now unable to find staff with the skills they need. According to a PwC study, the lack of key skills is a CEO´s most significant problem.

3 out of 4 (Swedish) technology companies believe that skills shortages are standing in the way of growth. More than half of the companies say they have not been able to develop products and services as planned and a quarter are considering moving their business abroad due to a shortage of staff with key skills.

It is not primarily strong growth leading to an insufficient supply of skilled workers. On the contrary, growth in the economy has been rather modest over the last 10 years, in Sweden for instance this growth was only 1.5% per year. It was significantly higher (3.5%) previous years when there was NOT a significant labour shortage.

Instead, a shortage of key skills is due to structural changes with transition from certain jobs to other jobs. According to the Swedish Employment Service the main shortcomings exist in in professional areas such as IT, technology, construction, but also in health care and education. At the same time, there are professions where there is no shortage at all and there is vast competition for the available jobs instead. Examples include administration, marketing, finance, sales and sourcing.

What is the reason for this structural change? The need for IT jobs is increasing, but classic jobs in administration and retail sales are declining. The reason is digitisation, the “Fourth Industrial Revolution” with AI, robots, internet of Things, 3D printing etc. This create great opportunities to automate jobs that are more predictable and at the same time create demand within IT jobs.

Digitisation has created an imbalance between the skills needed and the skills employees already have. For example, in the Swedish IT industry, the key skill shortage is estimated to reach a lack off 70,000 professionals by 2022.

If we look ahead, there are indicators that the shortage will increase even more. Korn Ferry estimates that the shortage of skilled workers in the 20 largest countries will reach 85 million by 2030. The problem is a major gap between the skills needed in an increasingly digitised business and the skills of existing employees. According to CEB/Gartner, 70% of employees already lack skills needed to implement the company’s goals and strategies.

Skills shortages have reached a level where it hampers growth in the economy.

Technological development is driving the shift of skills

Therefore, we are facing a major change of skills. According to the World Economic Forum forecast for 2023:

• 40% of the skills we used in 2018 will be replaced by new ones.
• 30% of the jobs available today will disappear.

This all at an incredibly high speed. You might ask if this is true. It’s easy to think that the change will not affect me, or our company. “It’s in the future”.

An example that highlights the speed which these changes have taken place are the employees of travel agencies. Since early 2000, there has been a drastic increase in air travel by 77%. However, at the same time the number of employees has decreased by 50%. Physical offices and customer support have disappeared, and employees are now working on other tasks. In less than 15 years, jobs and tasks have fundamentally changed. Who would have thought it back in the ’90s?

Another example is the “store death” that has been talked about for a long time in the United States. Several large chains have had to shut down recently, such as “Toys R Us”. These changes have taken place in favour of an e-commerce that increases by 15% per year. For Swedish H&M this has led to a stock market price that has more than halved in 2 years. Is H&M too late with its digital transformation?

In the long term, the changes are even greater. Both McKinsey and the Swedish Foundation for Strategic Research expect more than 2 million Swedish jobs to be affected by 2030. That’s almost half of the jobs in 10 years.

Who is it then that suffers in the long term? According to the reports I mention here, it is the jobs with predictable activities in manufacturing and administration, but also more advanced professionals, such as lawyers, journalists and financial advisers. In our own field, which is HR, McKinsey estimates that 60% of the tasks can be automated.

As I describe above, it is jobs in IT and technology that are expected to grow. However, future skills are more than just technical skills. Customers change behaviours and place higher demands on customer experiences. Business models are changing with increased service and digital content. Working methods change and become more agile, flexible and collaborative.

It has been found that the combination of technical and social skills is what is needed in the future. Research from Burning Glass Technologies is already showing the emergence of a new type of complex job that combines social and creative skills with technical skills. An increasing proportion of the jobs that are now sought after are so-called hybrid jobs. This new type of more complex jobs already provides 20-40% more in salary than the corresponding traditional jobs and is expected to have growth which is twice as high. One example is that marketing managers who also have SQL earn 41% more than the marketing managers who do not possess that combination, on average.

Skills shortages mean that we cannot leverage the technology development

One issue currently being discussed is why growth is so low. In the last 10 years the annual growth in GDP (for Sweden) was an average of 1.5%, while it was 3.5% the previous period. We have a situation with exponential technological development but at the same time an almost flat productivity development. Productivity per employee has in principle remained at a standstill despite all the new innovations which normally support increased productivity. The situation is the same in all developed economies and most prominent in countries that are far ahead such as the US and Sweden.

The problem is that even if we make the technology readily available, it will be some time before we learn to make full use of the opportunities. Therefore, productivity gains are not yet available. An illustrative example is our challenges as office workers in acquiring new technology:

• 20% of working time is used to search for information.
• 27% of the time is spent on managing emails.
• 4 hours per day is spent using our mobile phones.
• Office 365 currently has 27 different apps to help us become more productive. How many of us use more than 3-4?

When do we really work to produce results? Since 75% of all developed countries production consists of services, the examples above highlight problems with increased productivity. A higher number of robots within the industry won’t affect productivity considerably. How you and I use new technology and how we organize work is far more crucial.

We have experienced this kind of lack of growth before. During the 1980s and 1990s extensive digitisation of most activities took place. That’s when most of us ended up in front of a computer. However, it was only at the end of the 1990s that this was evident in growth figures and we achieved 10 years of considerable growth.

The above is an example of how we find it difficult to adapt to technological development. McKinsey show in a study that the time for us to embrace new technology is relatively constant. From when a technical innovation begins to spread, until 80% of the population uses it, it typically takes 10-15 years. This was the case with the spread of colour TV in the 60s-70s as well as the spread of e-commerce or smartphones in early 2000.

The problem is that technological development is exponential while our expectation of development and our adaptability is linear. The slow initial growth lead us to underestimate the impact of new innovations.

Progress is not as fast as we tought, fuelling our belief that nothing changes. Then when the development takes off, we are caught off guard. One example is clothing e-Commerce. For a pioneer like Boo.com, the slow start of e-commerce in the early 2000s was devastating. H&M and other traditional big companies, on the other hand, are facing major problems right now with rapid digitisation on a market where other players have a head start.

Another example of underestimation is Digital Equipment CEO Ken Olsen who in 1977 made the classic statement: “There is no reason for any individual to have a computer in his home.”

By 1986, Digital Equipment (which manufactured minicomputers) had 120,000 employees worldwide and Ken Olsen was named by fortune magazine as the most successful entrepreneur in U.S. history. In 1998, the company was bought by a successful home PC company, Compaq and in 2001 the production of minicomputers was discontinued. 15 years after the company was on top, it disappeared!

Differences in adaptability create major differences in competitive power

Deloitte further expand on the paradox and describes how adaptability differs between individuals, businesses and society at large. We as individuals can be quick to intercept new technology and use it for private purposes. I would think that many individuals privately use social media and cloud services such as Google Docs to a much greater extent than their company does. Companies, in turn, are quicker to adapt to changes than society at large with legislation, education systems, etc.

The difference is also large between individuals, between companies and between countries. There are major differences between large, older companies and newer companies that use new technology and staff with new skills who can keep up with development. Although the comparison may be unfair, there are many examples of newer companies that after only a few years have stock market values that outperform many of the big companies. Spotify’s market capitalization (250 MRD SEK) is, for example, as big as the Swedish telecom company Ericsson’s is.

Another example is the profit younger companies can generate compared to traditional companies. For example, Facebook, Apple and Google have a profit of SEK 3-5 million per employee per year. The corresponding figures for Swedish industrial companies are about one tenth of this.

The ability to adapt to new conditions, technology development and skills change, differ greatly between companies. Often existing culture and business model are factors that slow down development. It is difficult to change large organizations that have been successful for a long time. Implementing digital transformation and new ways of working as well as new business models has proved difficult. McKinsey recently published a study showing that only 16% of digital transformations are successful.

Companies that fail to change lose their position or disappear.

The table show the proportion of companies that successfully transitioned to the next phase in their industry. Apparently, it is not a large percentage.

Of manufacturers of large and minicomputers in the 1980s (Digital Equipment, Honeywell, NCR, Control Data, Amdahl and others), it is only IBM and Unisys that survived. The same scenario can be applied to PC manufacturers. The majority of those that existed in the 90s are gone (Compaq, Commodore, Fujitsu, NEC, Packard Bell etc.)

Amongst the Swedish travel agents from the 90’s, there are basically only Ving and Apollo left. Companies such as Spies, Tjäreborgs, RESO, Royal Tours and others are gone.

The picture below shows how quickly the biggest internet players have changed.

In fact, 88% of companies from the Fortune 500 have disappeared in the last 50 years and the life span of the Fortune 500 will only become shorter.

Many industries are currently facing major disruption and digitisation. The apparel industry is amid it, insurance and banking are heading towards major change. At Bank Summit in Stockholm recently, the message was clear: Adapt or disappear!

Despite the gloomy examples above, many companies manage to survive year after year despite major changes in the industry. IBM survived the transition from mainframes to PC and then turned the company into a system and software vendor. More recently, the transition to a platform-based company selling services from “IBM Cloud” has proven successful.

A large part of that change has been to change the culture and employees’ skills. I often tell you about how IBM CEO Ginni Rommetti introduced “Think Fridays” where employees spent half of every Friday committed to develop new abilities or attending webinars presented also by Ginni.

Swedish IKEA is often used as a perfect example of a successful transformation. IKEA invests heavily in digitizing the customer experience with, among other things, an AR app that enables customers to see the furniture in the home, the transformation of department stores into showrooms, home services to assemble furniture, investment in “smart-home” products, etc. An important component in the transition is to have the right skills for the staff and here IKEA has long been far ahead. As one initiative, they are switching employee skills. They strengthen the development of digitalization and home services by 11,500 people, while 7,500 jobs in the store movement becomes redundant.

Many companies are working with their digital transformation. McKinsey describes how one of the factors for success is to rapidly build the new key skills required. Maybe we should follow IKEA´s lead and let employees switch positions. However, this cannot be done on a large scale. With up to 40% of skills and jobs undergoing active change and a great lack of professionals who have the requested skills, we need to work more widespread.

The company needs to make itself attractive to new generations that possess new technological skills, work more with external networks, use consultants, purchase skills in the form of tech companies, etc. However, a major effort will be to develop the skills of the current employees. Companies and employees need to really switch up learning.

We need to invest significantly more in skills development

It is difficult to quantify the pace of change. I hope I’ve done it above. In short it can be said that 50 years ago you learned the bulk of what you needed in school and at university. Today this in not enough. As I described above, the life-span of knowledge is shorter and shorter. Right now, it is 5-10 years, and, in the future, it will be even less. In the past we were mainly developed skills from experience at work and from our colleagues. We were able to learn a skill and gradually get better. After doing a project 10 times we were specialists in one field. In the future this will not work. The same type of project does not repeat itself 10 times. Technology changes all the time and we need to spend increasingly more active time retrieving knowledge outside of our own experiences, colleagues and the company.

How much more time needed is difficult to assess. According to ATD, 20 years ago we spent 25 minutes a week on “intentional” learning (mainly courses). According to the report above from the World Economic Forum many will have to spend significantly more time learning new skills. Half of employees will need to spend 100 hours a year building new competencies and 25% over 400 hours a year. That is over 10 hours per week.

We simply need everyone to gear up and spend more time learning to stay employable. There is a concept called the “5-hour rule“. Many successful people such as Bill Gates and Elon Musk spend at least 5 hours a week reading, reflecting and experimenting around new knowledge and ideas. We will all need to apply the 5-hour rule.

Research from LinkedIn shows that those who spend more than 5 hours on intentional learning a week are:

• 39% more productive.
• 23% more likely to be given more responsibility.
• 47% less stressed.
• 21% happier at work.

Continuous learning will be one of our most important skills in the future. The author behind “Future of Work”, Jacob Morgan speaks about, amongst other things, that shift from “Knowledge Workers” to “Learning Worker”. It is our ability to bring in new knowledge and transform it into innovation and results that characterize successful employees in constant and accelerating change.

The responsibility will be in our hands, as individuals, but also on society at large if we are to keep up with the US and China in technology development, especially AI. According to McKinsey’s report “Digitizing Sweden: Opportunities and priorities in five ecosystems”, the potential to fully utilize our digital opportunities is SEK 1,400 Billion per year from 2025. That is a 30% higher GDP than today or SEK 140,000 more for every citizen, each year.

Every business leader needs to think about what it takes to cope with the skill shift in their industry. As I have shown above, it is far from self-evident to cope with the shift by continuing in the same way as before. But, it’s not enough to continually make small changes. It’s too slow. Drastic shifts in skills are a necessity. In many companies the need for efforts to develop employees’ abilities is acute. Success requires efforts to change culture, leadership, employees’ ability to learn, digital opportunities, etc.

In my article “6 factors for creating a learning organization”. I describe several factors that must be in place:

1. A culture that encourages continuous learning and development.
2. Employees who want too, get the opportunity too and have the ability to learn continuously.
3. Managers who enable employee growth and development.
4. Work that is designed for learning.
5. A digital learning ecosystem.
6. A Learning & Development function that enables continuous learning.

I will also continue to write articles on how individuals and companies build abilities to take advantage of the benefits that the technology shift brings.