Time to Apply Portfolio Theory to Human Capital Management?

With the continued evolution of the COVID-19 pandemic, this seems to be a particularly good time for CIOs and their IT organizations to revisit future-state plans around talent management. Applying lessons learned from the financial world could make insurer IT organizations better at managing human capital.

One of the very real issues impacting the economy is a significant demographic shift, the likes of which we haven’t seen in generations. Today, the youngest Baby Boomer is 57 years old. The generation is watching about 10,000 members reach retirement eligibility every day. Millennials came to represent half the US labor force in 2020.

The tail end of the Baby Boomer generation is relatively small, thanks to a Baby Bust that came with a significant economic contraction in 1958. This means that by 2025, Millennials will represent 75% of the US labor force. Likely thanks to the pandemic, younger Boomers are accelerating their retirement plans. Financial security, a lack of interest in return-to-office plans, or opportunities to simply do something different could all be at play here. Whatever the cause, instead of 3-5 years to get ready for a significant loss of institutional knowledge, carriers may have only 3-5 months. As part of human capital portfolio planning, understanding how knowledge will be managed for a future-state environment may have suddenly gotten significantly more important.

Compounding the issue is a striking increase in the number of mid-career employees who have decided that this is an opportune time to explore other options. In some cases, this may be an economic issue as employees in relatively remote locations suddenly find themselves attractive to employers looking to leverage newly honed remote work environments. In others, it may simply be a desire to diversify skill sets and experiences to be ready for what comes next in a rapidly changing economy.

A clear impact on what is now being dubbed “The Great Resignation” is employers concluding that they can mandate that high-performing employees—who have come to appreciate the flexibility of “Work From Not Here” environments—must return to offices for no clear reason beyond “I said so.” Hollowing out a critical part of their human capital, without a solid plan for refreshing the talent base, could have significant adverse implications. In a world where some have dubbed flexible work environments “the new signing bonus,” companies may be adding significant risk to their talent portfolio without any demonstrable, offsetting benefit.

A variety of factors will be key for the recruitment of younger Millennials and older Gen Zers. Strong retention may still only mean that they will stay in a chosen environment for 3-5 years as they also look to diversify experiences and maintain flexibility in an economy that clearly values it. This has an array of implications for hiring people, getting them to be productive fast, and positioning for rapid transitions to other talent. In some ways this mirrors technology, which is getting ever better, even while it has a sharply reduced useful life. Environments will be increasingly dynamic, which will require carefully considered operating models if companies are to avoid situations which could adversely impact customers and brand reputation.

The dark cloud of the pandemic has had some notable silver linings in terms of virtualization and digitization of work. As we plan for the next few years, some of the changes inspired by COVID-19 could be far more impactful than many realized until now.

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