Reimagining people development to overcome talent challenges

The talent shortage is a critical problem that is only getting worse. Organizations already face a severe shortage of key talent, and 90 percent say they will have a meaningful skills gap in the coming years.1Building a learning culture that drives business forward,” McKinsey, April 16, 2021. At the same time, digitalization and automation of work activities are leading to further skill shifts, with about 40 percent of Americans and 34 percent of Western Europeans potentially needing to switch occupational groups by 2030.2Skill shift: Automation and the future of the workforce,” McKinsey Global Institute, May 2018. And with 40 percent of workers planning to leave their jobs, attrition is making it harder to retain skills within organizations.3The Great Attrition is making hiring harder. Are you searching the right talent pools?,” McKinsey Quarterly, July 13, 2022.

The bottom line? Organizations can’t wait to act. They need to drastically change how they think about talent, from attraction to hiring for potential (rather than fit or experience) and, especially, the development of skills at the enterprise scale.4Overcoming the fear factor in hiring tech talent,” McKinsey Global Institute, August 31, 2022. People development is often overlooked and underused, but it’s critical to attracting talent and driving lasting market advantage. In this article, we recommend eight imperatives for people leaders as they build their capabilities.

Why people development is so important

A reputation for a strong culture of people development can make all the difference for companies in a tight labor market. Organizations that make learning and development a priority and a part of their mission can create a virtuous cycle and improve the odds of success in attracting, advancing, and retaining talent. Our research shows that fostering a growth mindset among leaders and employees—for example, by providing training and internal advancement opportunities—is a cornerstone of effective organizations (Exhibit 1).5Overcoming the fear factor in hiring tech talent,” McKinsey Global Institute, August 31, 2022.

Effective organizations offer more training and enable internal moves.

The organizations that prioritize people development become talent magnets for employees who want to build their knowledge and networks. People quickly develop new skills and skill depth: we have found that 40 to 60 percent of an employee’s human-capital value (knowledge, attributes, skills, and experience) can be attributed to skills acquired through work experience.6

Highly effective “learning organizations” also have higher levels of talent retention. Best-in-class organizations provide an average of about 75 hours of training per employee annually, promote their employees at higher rates (seven percentage points), and enjoy higher retention (five percentage points).7Human capital at work: The value of experience,” McKinsey Global Institute, June 2, 2022, based on 362 companies. By contrast, organizations that don’t provide learning and development opportunities risk losing talent. Our research found that the top reason employees cited for quitting previous jobs was a lack of career development and advancement (41 percent).8The Great Attrition,” July 13, 2022.

Reimagining people development: Eight imperatives

Redesigning people development is complex and challenging. It requires acting on shifts in modern employee behavior, keeping pace with the speed and scale of business capability-building needs, and applying the latest innovations in learning technology. All three actions have become more challenging through the pandemic, and few organizations believe they have cracked the code on how to empower employees to drive competitive advantage (Exhibit 2). However, we have identified eight imperatives that address the challenge (see sidebar, “Eight imperatives to reimagine people development”).

Few organizations have figured out how to leverage people development as a competitive advantage.

A comparatively straightforward action is to rethink recruiting practices. While companies should always consider candidates with nontraditional backgrounds, it is especially important to do so in a tight labor market. For instance, people with unconventional career paths may have a demonstrated ability to master new skills and absorb new knowledge.9Human capital at work: The value of experience,” McKinsey Global Institute, June 2, 2022. However, adopting such a recruiting strategy requires a commitment to helping these employees expand their skills to fit their roles by emphasizing people development.

Addressing employee needs with a ‘segment of one’ approach

Effectively developing employees requires organizations to consider their expectations and needs, including empowering them to access relevant content anywhere, anytime. More than half of employees—58 percent—prefer to learn at their own pace and “on demand.”10 People development is shifting from providing formal learning to enabling democratized and self-driven learning in the flow of work. Modern employees want learning to be contextualized, personalized, easily accessible in consumable formats, incorporated into the daily workflow, and supported by timely nudges. And users expect a high degree of customization—moving from one-size-fits-all learning to a “segment of one” approach that considers individual needs and preferences.

When 85 percent of organizations were forced to shift learning content to digital formats during the pandemic,11 we learned that not all development can or should be replaced by virtual and digital platforms. In fact, in a dispersed and virtual world of work, on-the-job training could become more challenging because it may be harder to deliver adequate apprenticeship and onboarding with reduced in-person interaction and fewer unplanned coaching moments. Organizations must learn to deliberately create moments of connection in a hybrid “phygital” world and rethink how to integrate the best of both worlds into their people development.

This includes fit-for-purpose offerings—blended-learning journeys that focus on the employee’s experience and create deliberate “back to human,” or people-centric, moments. Recent McKinsey research has found that a varied, multichannel approach that includes different types of learning formats works best. While virtual workshops or webinars and self-paced digital modules need to be offered for scale and flexibility, in-person training is still most effective for specific cohorts and topics.12Building workforce skills at scale to thrive during—and after—the COVID-19 crisis,” McKinsey, April 30, 2021. For example, many organizations have refocused their leadership development efforts on building out their culture of learning, growth, and feedback by teaching leaders to become great coaches. And it is in these organizations—with a culture of lifelong learning—that reskilling at scale is most likely to be successful.13Beyond hiring: How companies are reskilling to address talent gaps,” McKinsey, February 12, 2020.

In fact, both developing leaders and driving cultural change—the self-reported top priorities for people leaders globally (Exhibit 3)—benefit significantly from in-person formats.

Developing leaders and a leadership bench is the top people development priority for HR leaders.

Keeping pace with the speed and scale of business needs

One key to effective people development is the ability to rapidly assess current skills and skills gaps in an organization, anticipate future needs, and rapidly address these at scale, all while adjusting to continuously changing environments. That is why it’s important that HR—and the people-development function—collaborate closely with the business side of the organization to fully understand business strategy and needs and jointly develop holistic measures to address these gaps.

The problem? Offering formal learning to address skills gaps is not enough because just 10 percent of corporate learning is effective, according to one meta-analysis.14 That is why it is important to measure actual (business-relevant) outcomes of learning and development interventions, allocate resources where they generate the highest returns, and quickly update or discontinue those that simply do not work.

Some companies have shifted their people-development operating model to create dedicated “learning factories.” These are cross-functional sprint teams on which employees and subject-matter experts from the business side help design and develop offerings and interventions with people-development experts. Such a model harnesses the best of different perspectives, ensures content and formats are fit-for-purpose, and enables rapid development and redevelopment. But business involvement should not stop at design. Business leaders can also lead development programs and act as role models and coaches to help their employees apply new skills in their day-to-day work.

Finally, beyond learning, the ability to redeploy skills based on continuously evolving business priorities should be central to modern people-development functions. This includes a structured approach to development—involving apprenticeship, sponsorship, mentorship, and project opportunities—and it includes increased fluidity across roles. Employees want opportunities to progress, grow, and develop. Creating pathways for both upward and lateral moves reduces the risk that employees will look for a job elsewhere. Schneider Electric, for example, is leveraging AI to create an internal “open talent market” after learning that 47 percent of those leaving the company said they couldn’t find their next career opportunity internally. Employees can upload a profile listing their skills, expertise, and goals to the open talent market, and an AI algorithm matches them with development and career opportunities that fit their profiles.15Artificial intelligence (AI) is creating jobs for the future. And at Schneider Electric, ‘the future’ is now!,” blog entry by Employee Voices, November 1, 2019.

Using technology to increase speed and flexibility

Innovations in learning technology can help people-development functions deliver learning opportunities that meet employee expectations and fulfill the business’s strategic needs with speed and flexibility.

Technology can help make capability building more user-friendly, customizable, and flexible via machine learning–driven “future skill” taxonomies, AI-powered personalized learning paths, automated nudges in the flow of work, or full metaverse learning and development platforms, for example. These technologies help put the employee in the driver’s seat of their own development journey and can help provide the right development intervention at the right time, place, and pace.

But the learning-technology ecosystem is going through a phase of continuously increasing complexity and innovation. Many companies want to integrate additional innovations but face a multitude of legacy platforms, systems, and apps that are often decentralized, fragmented, and inefficient. A deliberate HR technology strategy is required, starting with key choices around best of breed versus best of suite. Consolidating into a purposefully architected, central, and AI-enabled learning experience platform that acts as the technology backbone, for example, can allow organizations to rapidly integrate innovative external content and methodologies, reduce complexity, harmonize and streamline offerings, and transparently measure effectiveness and efficiency.

Consolidating the learning experience can help the people-development function extend a coherent talent strategy and learning culture across the organization and provide a superior user experience for all employees, democratizing development opportunities. The right technology infrastructure that can be flexibly adapted to changing business needs is a prerequisite for efficient skill building at scale. Staying on top of technology requirements and rapid innovations also requires the appropriate roles and skills within the people-development team.

While building world-class people-development capabilities isn’t easy, people leaders around the world are confident that out of the eight imperatives, developing this function will be the least of their implementation challenges (Exhibit 4).

People leaders recognize implementation challenges across all eight imperatives.

Done right, people development can be an uncommon solution to a common problem: helping organizations address current and future skills gaps and shifts at scale. This function is the key enabler for turning an organization into a talent magnet in a tight labor market, and it helps organizations provide employees with the best opportunities to make the most of their talent—simultaneously creating value for the business. Especially in times of economic uncertainty, organizations should focus on both providing effective people development and prioritizing key areas of value and impact.

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