The 2008 Economic Report of the President presents some clear data on the changing nature of the U.S. economy (and the resulting change in the U.S. workforce). Looking at the U.S. workforce employed in non-agricultural jobs between 1960 and 2007:

• 2007 - 16.2% in goods-producing jobs, 83.8% in service-producing jobs
• 2000 - 18.7% in goods-producing jobs, 81.3% in service-producing jobs
• 1990 - 21.7% in goods-producing jobs, 78.3% in service-producing jobs
• 1980 - 26.9% in goods-producing jobs, 73.2% in service-producing jobs
• 1970 - 31.2% in goods-producing jobs, 68.8% in service-producing jobs
• 1960 - 36.3% in goods-producing jobs, 64.7% in service-producing jobs

It is amazing to see that within the working lifespan of the oldest Baby Boomers (the leading edge of the generation born between 1946 and 1964) the goods-producing component of the U.S. workforce has been reduced by 50%. We have indeed become a knowledge economy, staffed by knowledge workers. The continuing challenge for organizations will be to find the knowledge and expertise they need to execute.

You can find the full report (all 358 pages of it!) here: http://www.gpoaccess.gov/eop/2008/2008_erp.pdf

It is always interesting to see other perspectives on the talent shortage. Today I’m sharing a recent presentation made at Palo Alto Research Center, titled: Tomorrow’s Knowledge Workers: The Evolving Workforce and the Challenge to US Businesses.

The presentation does a good job of summarizing many of the major cultural and technological trends that are driving change in the workplace. The six they focus on are:

• Changing family structures
• Changing expectations of men
• Evolving expectations of Gen X and Gen Y
• Increasing number of women in paid work
• Shrinking pool of skilled labor
• Increasing impact of technology

These changes mirror those I’ve shared previously on this blog. At this point it is clear we have a shrinking talent pool, and those left view work from a different perspective. Organizations that provide compelling work and flexible working arrangements will be rewarded with the talent they need to execute. Increasingly companies will choose to retain the targeted expertise they need on a project-by-project basis.

You can see the presentation here:

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I recently attended the day-long Consulting Summit event in San Francisco sponsored by Kennedy Information and Consulting Magazine. In his opening keynote, Tom Rodenhauser (VP of Consulting for Kennedy) gave a nice summary of the industry. I’ll re-cap some of the highlights and my observations here.

The $300 billion global consulting industry is still strong, but slowing. It is projected to have a 7.1% CAGR from 2006 to 2010. Overall, the market is split in half (50% is management consulting, 50% is in IT.)

Management consulting is a client demand driven industry. Because management consultants solve problems for clients, there is demand in an up or a down economy.

Key verticals are driving consulting spend. Financial services accounts for 30% of total spend. Other major (or growing) industries include: Energy, public sector, and healthcare. Declining spend is occurring in retail, and industrial manufacturing.

Consulting is driven by economic and business trends. The major drivers for the industry today are:

• The economy: Up markets yield growth initiatives which drive strategy opportunities. Down markets lead to cost-cutting and execution opportunities.
• Sustainability: The “green” movement has been great for news headlines, but will it result in consulting opportunities? It is too soon to definitively say, but there is a growing corporate sensitivity to this topic and a relative lack of internal corporate expertise, so there will undoubtedly be many consulting opportunities.
• Technology: Business is increasingly dependent on science and technology to drive growth and innovation. It is important to understand the implications and opportunities for technology on business problems. Client companies need objective, technology-agnostic, advice.
• Localization: The global economy is not digestible in one bite. There will always be demand for local-market applications of business strategy.

Effects on consulting services:

• Business advisory services: Global financial standards (such as IFRS) are changing the market for financial advice. The CFO is now the buyer of advice in many cases, not just the approver of consulting spend. A troubling development for the industry is the growing influence of Procurement in making consulting purchase decisions. This is becoming more prevalent in F-1000 companies. The danger is that cost becomes the predominant evaluation factor trumping quality, service, expertise, and even results.
• Strategy: Execution is embedded in virtually every engagement. The management consulting industry is getting back to its roots of strategy execution! Clients want, need, and demand executable (operational) strategy.
• Operations management: These consulting practices look increasingly strategic. The work feeds right into cost-cutting and productivity improvement initiatives.
• Human Resources: Current demographic and labor market trends translate into vast consulting opportunities. Both from the strategy perspective, but also from the talent perspective.
• IT: Optimization efforts reveal a renewed emphasis on ROI. Many organizations are still absorbing prior technology investments and trying to justify them.

Overall, the sentiment at the conference was that the management consulting industry is still a great industry, with many growth opportunities.

NOTE: One interesting observation is that most large consulting firms are struggling with the same labor market talent shortages that their clients are challenged with. It is predicted that the problem will be most acute at the senior consultant and partner levels over the next decade as the Baby Boomers continue to retire and many of them exit the full-time workforce to pursue independent (and flexible) working arrangements. This trend heavily favors the M Squared Consulting business model. Our leveraged and flexible consulting model allows us to quickly deploy seasoned consultants from the 12,000+ Consultant Network. Their targeted expertise drives client results.

In every consulting engagement there is normal (and very healthy) discussion between the client who wants to cost-effectively solve a problem, the consultant who is entitled to be compensated fairly for their knowledge and expertise, and the consulting firm which must maintain a certain level of profitability in order to keep the doors open.

Our goal as a consulting firm is always to strive for total client and consultant satisfaction. Inevitably this tension resolves itself into a balance so that all three parties get what they need. For clients, cost-control and achieving their short and long-term project objectives are paramount.

While every situation is unique and the trade-offs must be considered for that individual case, there are some general strategies we’ve shared with clients over the years on how to lower consulting costs. Here are 10 of them:

1. Prioritize project milestones into “consultant critical” (those that leverage their specialized skill-set) versus those milestones that could be completed by an internal resource.
2. Structure the project to combine the talents of seasoned consultants that also execute (at a higher price point) with tactical support contractors when it is time to “operationalize” (at a lower price point).
3. Be flexible. Can the consultant work off-site, flex hours, etc? Flexibility on the client’s part can result in flexibility on the consultant’s part.
4. Be creative with your milestones. Include mentoring and/or trainings to leverage the talent of our senior consultants and improve the skills/knowledge of your managers.
5. Commit longer than 3 months. Longer commitments generally result in savings.
6. Lower the number of days you use your consultant(s) per week.
7. Share your project’s findings (or allow M Squared to) with cross-functional groups within your company in order to leverage the spend.
8. Set a firm budget prior to launching the consultant candidate search.
9. Include transition/training/knowledge-sharing time into the project scope. This ensures that intellectual-property remains a part of your company after the engagement is completed.
10. Post project - Consider utilizing the consultant on a “retainer” basis. This allows you to maintain a low cost safety net during the transition.

Yesterday I had the pleasure of speaking to 75+ senior HR executives at the annual Western Independent Bankers HR & Training forum in Newport Beach, CA.

The forum began with a keynote by Nancy Sheppard, the President and CEO of Western Independent Bankers (www.wib.org). She spoke about many of the major banking industry trends and challenges. In addition to the obvious financial market turmoil brought about by the sub-prime mortgage crisis and the resulting consumer repercussions, most community banks are challenged with growing their deposits, and complying with government regulations and reporting requirements. They are also faced with new internet-only banking competitors which are forcing them to revisit their cost-models in addition to developing new and innovative products/services. Many banks are faced with acquiring and integrating new technology (such as portals, mobile banking, remote deposit) that younger generations of banking customers are demanding. All of these initiatives require talented knowledge workers, which most banks are struggling to find and retain in their local markets.

My presentation (titled: “Recruitment & Retention: what’s your value proposition?”) was the first general session after the keynote. I began by presenting a thorough overview of the dynamic forces behind the talent shortage, particularly amongst knowledge workers, then went on to explain how the evolving workforce is bringing with it a new style of working, which in turn calls for new workforce strategies for those companies that hope to effectively compete for talent. In the search for human capital strategies that harness these major demographic and economic forces one powerful solution is to supplement staff with the flexible workforce.

As its name implies, the flexible workforce allows employers to bring in the expert talent they need, for as long as they need it, without many of the burdens or hassles of recruiting and retaining these highly skilled employees. It is a vital component of a total workforce which would also include full-time, part-time, and lower-level temporary workers.

In the rest of my presentation I explained how to consider the “care-abouts” of the four different generations that are currently in the workforce (the Silent generation, Baby Boomers, Generations X and Y) while crafting an employee value proposition that inspires your talent and differentiates your organization from any other job opportunities. I ended with some strategies and tools to use for retaining and recruiting employees.

This past March I attended the annual Staffing Industry Analysts Executive Forum in Lake Las Vegas. There were roughly 700 people in attendance.

A few major and/or re-occurring themes about the contingent workforce:

• The only constant is change.
• The economy for the next 3-9 months is going to be tight. The buzzword of “recession” came up frequently…with no real agreement on whether we’re going into one, in one already, or already in recovery…
• The war for talent is very real, and will only get worse as the Boomers retire in greater numbers. Finding and retaining the best talent will be highly strategic for both staffing firms and their clients.
• Buyers of contingent workers are getting more sophisticated. There is a growing influence of Procurement in the process.
• The contingent workforce is a vital component of total workforce planning
• There are many components to the “contingent workforce” from clerical staffing all the way up to professional niches.
• The greatest need for talent will be in the professional sector. This is where the M Squared value proposition fits into demand.
• Legislation surrounding contingent workers will become more complex.
• The contingent workforce management industry needs to better represent the “free agent” as a legitimate force in the workplace. A key component of this is to lobby for portable healthcare.

Two sessions of particular note:

Barry Asin (EVP and Chief Analyst at Staffing Industry Analysts)

He gave the opening keynote session. The major takeaways were:

• The changing economy, political climate, business models, globalization, buying habits all impact the industry.
• US temporary help payrolls are down 3.9% on a year-over-year basis. There are large geographic differences (weaker on East Coast, stable to increased in Mid West and West.)
• New unemployment claims are near all-time lows. Overall, the unemployment rate is around 4.8%…near historic lows, and almost at full employment when you consider that portion of the “workforce” which has no intention of working. New college graduate unemployment is at 2.1%…essentially fully employed.
• Direct hire is projected to be flat, and retained executive search will continue to be strong.
• Staffing stocks have bottomed out (this is interesting when you consider the generally accepted truth that staffing is a leading indicator of a recession and of a recovery).
• SIA is projecting flat industry growth for rest of 2008 as the economy continues to digest the financial sector turmoil and skirt/recover from a recession. (The topic of recession was a hot button…the truth is that economists generally can’t tell if we are in a recession until after it is over).
• Vendor Management Systems (VMS) usage is projected to increase from 34% to 55% in 2009 (among employers with 1000+ FTE’s)
• The US represents 1/3 of global $235B spend on contingent labor
• Uncertainty is a driver of growth for the industry. The central value proposition is workforce flexibility!
• Increasing trend towards professional skills. It was 30% of contingent spend in 1990. 57% in 2007.
• Legal, healthcare, Finance, IT, Engineering are the toughest recruiting sectors. They also represent the biggest growth opportunities.

Robert Reich (former Secretary of Labor in the Clinton administration and current professor of Economics at UC Berkeley)

In addition to being the shortest speaker (well under 5ft) Secretary Reich was by far the most engaging, funny, and relevant speaker at the conference. Takeaways from his keynote:

• He was not optimistic that we’ll skirt a recession. Having said that, he acknowledged that we may already be through the worst of it and already into a slow recovery.
• We are experiencing the effects of a classic “demand-side” recession: consumers are holding back. Consumers represent 70% of the US economy. Zero personal savings rate and spending beyond means (largely by tapping home equity) are the foundations for the current economic crisis.
• The good news is that global consumer demand will help us recover. Our exports are becoming relatively cheaper. This will help drive the recovery, although it won’t help Americans go to Europe on vacation.
• The Fed will continue to lower interest rates. In his opinion, more stimulus is going to be required.
• Globalization is going to be “the” big economic trend in the next decade (and for the next president).
• Our challenge (and opportunity) is education and innovation. The US economy will never again win based on cost of labor. The talent of the US workforce is key. Innovation is the driver.
• Medicare (not Social Security) is the big, looming, crisis as the Baby Boomers continue to retire. This will be another huge issue for the next occupant of the Whitehouse.
• The long-term trends point to a growing contingent workforce. Variable labor costs for companies, more control for individuals. This heavily favors the industry.