The future of the global workplace: An interview with the CEO of Manpower

The future of the global workplace: An interview with the CEO of Manpower

Jeff Joerres explains how a rapid pace of change requires both companies and employees to take a new approach to work.

Rodger L. Boehm

Web exclusive, November 2005




The global market for labor is changing in unprecedented ways. In developed markets, such as the United States and Western Europe, executives face a rapidly aging workforce and high labor costs. Meanwhile, executives in China, India, and much of the rest of the developing world increasingly encounter want amid plenty as a shortage of suitable candidates and the changes associated with the staggering pace of economic growth make it difficult for companies to attract—and retain—enough qualified workers.

Jeffrey A. Joerres, the president and CEO of Manpower since 1999 and its chairman as well since 2001, has a rare vantage point on these and other issues affecting the global workplace. With revenues of nearly $15 billion in 2004, Manpower is the world's second-largest provider of employment services, placing some two million workers a year into professional, industrial, and office positions with companies in 72 countries. Moreover, since 2003 Manpower's permanent-placement division has doubled in size. Through four acquisitions since 2000 (including the purchase of the permanent-placement operations of India's ABC Consultants, in October 2005), Joerres has guided the expansion of the company's employee-assessment, recruiting, and training services, as well as the addition of outplacement, organizational-consulting, and internal-auditing services (exhibit). In May 2005 Manpower signed an agreement with the Chinese government to provide, among other things, vocational training and Internet-based employee-assessment systems for local employment offices.

At Manpower's headquarters, in Milwaukee, Wisconsin, Joerres talked with Rodger Boehm, a director in McKinsey's Chicago office, about the changing nature of the global labor market, the state of corporate human-resources departments, and the difficulties companies face when they enter developing markets such as China and India.

The Quarterly: Running Manpower would seem to give you a unique view of global labor markets. What do you observe?

Jeff Joerres: The first thing is that major companies are trying to become more agile by using flexible staff. In our top ten global clients, for example, nonregular employees make up about 10 to 25 percent of the workforce. The data from the US Bureau of Labor Statistics—in other words, the US average—says that the figure is 3 percent. The difference between the two percentages indicates that big companies are ahead of the curve. Midsize companies haven't felt the squeeze yet, and small companies definitely haven't, but it's coming.

Big companies aren't using nonregular employees for abatement on their health insurance costs. They're calling us because they need talent and because they can't move fast enough. As the world gets more talent constrained and organizations get more competitive at all levels, you'll see this more frequently.

When I look ahead, I see the talent crunch creating structural changes in the workforce, and companies that aren't paying attention might find themselves healthy one year and in trouble the next—it will be that dramatic. The focus can't be just on the top 10 percent of your organization; your janitor had better be good and your clerks had better be good because the whole process is different. Companies will need to focus on the whole equilibrium of talent because they're running themselves so lean that if they get a little sand in their gears, the whole organization breaks down. Some leading-edge companies see this, but they're being quiet about it because they don't want to sound any alarm bells.

The Quarterly: How has the global market for temporary labor changed?

Jeff Joerres: For the biggest companies, temporary labor is no longer an incidental concern—it's now strategic. Particularly after the downturn in 2001, we saw major companies reevaluate themselves in an effort to become more efficient and more productive. They "leaned out" their entire organizations, thinned their product lines, stopped their nonessential projects, and started expecting more from their people. As they stretched the limits of their people, companies found they were getting by with a leaner organization. Now executives won't go back to the way it was—they can't, because their companies are publicly traded and investors won't let them.

Of course there's still plenty of incidental usage of temporary labor, but it's at smaller companies, and in many cases it's below the radar. However, for the large companies temporary labor is no longer about covering for vacationing administrative assistants—it's about workforce optimization. It's about deciding whether to stay in New Jersey or move to Chennai. The competitive pressures have been reformulated.

The Quarterly: What challenges do workers face in this environment?

Jeff Joerres: Think of a Webmaster. As my children would say, "That's yesterday." That was a pretty hot job not so long ago. Now, with the right software you can press a button and create a Web site, so the market for those skills is significantly lower.

Today hot jobs turn cold almost as fast as a product's life cycle changes. So if the cycle used to be three years, now it's nine months. Every industry has its own speed of compression, of course, but underneath the compression is a never-ending treadmill of improving your skills, and it's quite sobering for people to find themselves on the cold list when 12 months before they were on the hot list. This makes the retraining of employees immensely important.

The Quarterly: How have companies fared with their retraining efforts?

Jeff Joerres: Too many companies view retraining as window dressing. The largest companies have good training programs, but they don't mandate training, because there isn't time in the day given this lean machine they've created. Companies provide access to training materials but no longer say, "Take four weeks off and go to our training school in Pasadena." Training is offered at night, on weekends, over the lunch hour, and employees are ignoring it. Individuals may choose training if it is tied directly to a stipend, but they haven't embraced training, and they need to.

The Quarterly: Does organized labor have a role to play in training?

Jeff Joerres: Absolutely. The core of what unions stand for is wages, benefits, and job protection. But what about job protection through better training? Ultimately, unions face the same problem as everyone else: the need to train and "up-skill" their workers. So I think that, increasingly, you're going to see unions asking themselves, "How can we protect the talent base of our members? How can we make sure they aren't losing their jobs because they don't have the right skills?"

The Quarterly: Is anyone doing training well today?

Jeff Joerres: At the governmental level, France's notion of retraining—having companies set aside money for a training fund—is the most proactive approach we've seen. We're starting to hear more about retraining in the United Kingdom and in Australia—countries that have an aging problem. But they're still further away.

The Quarterly: Many other countries have aging populations. How will this pattern affect the nature of labor in the coming years?

Jeff Joerres: Demographic issues are hard to solve because they require a partnership between government, which is only in office for a period of time, and business, which has its own quarterly issues to deal with. But don't forget the individual. Think of the 60-year-old in Europe who has worked all of his life dreaming of retiring on his country's social plan. Suddenly, he has to work five more years because the government extends the retirement age. Or he has to do something different.

One of the biggest challenges we've found is that the majority of these individuals are interested in part-time jobs—not full-time temporary jobs—and those are very different things. People want to work Wednesday afternoon and Thursday morning, not for four months on a project. Getting individuals to think beyond part-time work and to take more responsibility for improving their skills will be absolutely key.

The Quarterly: How do you get someone to move away from that mentality?

Jeff Joerres: Governments can help with tax schemes, training, payroll subsidies—but, ultimately, I'm afraid there will have to be pain associated with this issue before it becomes institutionalized. Without pain, it's just too easy to keep putting it off for somebody else to solve. But it's not just demographics—you can't forget the pure talent gaps. You're going to find 40-year-olds in the same position as someone who's 60, because the 40-year-old simply lacks the skills the company needs. People can't turn on a dime and change a skill set. You can't be a machinist one day and a nurse the next when you're 60. So the demographic crunch is coming, and it will be exacerbated by the talent crunch.

The Quarterly: What's the future of HR departments at a time when some companies are outsourcing that work?

Jeff Joerres: Outsourcing the transactional side of HR—things like payroll or administering the 401(k)—to someone with the right expertise is probably the best thing a company could do. But outsourcing the things that create the company's culture or the engagement that employees feel with the company would be dangerous and very shortsighted.

The new challenge for HR is to move beyond transactions and into areas where HR can bring competitive differentiation. The CEO is asking, "How do I get my employees to feel engaged with my company? How do I make them feel more strongly tied to my company's mission?" And then, "How do I optimize my talent?" This is where HR professionals need to step into the batter's box and make a difference on everything from the in- and outflow of people to how connected people feel to the company. Nobody's solved this yet, and I've talked to people at some very large companies that are really wrestling with it. IBM is around the fringes—the closest to it we've seen.

The Quarterly: Is employee engagement more difficult for companies that operate in emerging markets?

Jeff Joerres: Employee engagement—or employer branding as it's also known—is important anywhere you compete, whether it's Chicago or China. But it works at different speeds in different markets. To some extent, engagement doesn't matter when it's all you can do to feed your family. So when companies moved overseas, many of them focused only on labor arbitrage and didn't worry about why an employee would pick your company over another.

Fast-forward to today. For the top companies—the Fortune 20—labor arbitrage is over. It's already annualized and baked into their profits, and most of the low-value-added jobs have been eliminated. Now, doggone it, they're back to the basics: talent. The high-value employees who remain are looking around and asking, "How much do I really enjoy my colleagues? Why should I stay here when there's another company asking me to do this for more money?" And it's exponentially more difficult for companies because you've got to answer those questions for employees within the culture of China or India.

Here's an example. Within three months, we had four clients talk to us about a city they're going to—Brno, Czech Republic, a great place for talent. Brno has fewer than half a million people. What if four companies with 1,000 new jobs all dropped into a city of that size within three months of each other? You've soaked up the whole labor market. So executives have to be careful about arbitrage and really look at the things that make their company attractive.

The Quarterly: What is your assessment of the market for skilled labor, including managers, in China and India?

Jeff Joerres: China's biggest challenge is line management. You can get 1,000 workers, but who's going to manage them? How do you find a quality assurance manager? There's nothing like that in China. Companies have entered into partnerships with Chinese universities and technology centers, but there's still frustration. Multinationals are spending money and not getting the returns they had hoped for. There are obviously many reasons, but a big reason is that the labor market in China is so active.

To make it even more difficult for multinationals, local Chinese companies have gotten into the game. Until about a year ago, you would see a 50 percent disparity in pay between managers working for multinationals and for local Chinese companies. Now Chinese companies say, "Not so fast. I'll pay what they're paying," and the Chinese people, who now have more confidence in their own institutions, are willing to work for a local company because they've already got that multinational stripe on their shoulder. So a multinational takes a double hit—it doesn't have the talent in China, and when it tries to develop employees, the Chinese companies pull talent out of its organization as if it's a minor-league baseball team.

But beyond line management, companies must understand that if they're in China to arbitrage labor, they're going to be very disappointed in the long run. Be there because the market is good, and be prepared to deal with the talent shortage because it is absolutely going to get worse, and the government knows it.

In fact, the government passed a law that expands special manufacturing zones beyond the major cities because the flight of workers from agricultural jobs into the cities has created some pretty rough, desperate cities. Multinational companies that were used to setting up on the coast—whether it be Guangzhou or Tianjin—will now have to move west. It's a whole different culture, and it will be even harder for companies to find management talent there because they don't know the ropes.

The Quarterly: What is your view of the labor market in India?

Jeff Joerres: For India, finding management talent is less of an issue. The problem we hear when we talk to Indian companies or multinationals doing business there is that the attrition rates in call centers and transaction-processing centers are out of this world. In fact, when a company says it has an employee turnover rate of 30 percent in the call center, it's often not counting the first 60 days. If it counted the first two months, the annualized rate would be 300 percent.

Companies need to get more sophisticated in assessing employees and to work on differentiating themselves in the eyes of prospective hires. But speaking more broadly, companies need to understand, in a pragmatic way, that labor markets are ultimately local and have local characteristics. There are important differences between Bangalore and Delhi, for instance, or between Chennai and Mumbai. Some of the differences are self-fulfilling. Bangalore has been known as the IT capital, so it has a huge influx of IT companies. Chennai is known more for blue-collar workers, and it has attracted customer service and support centers. Delhi's government influence has caused generalist talent to gravitate there. As companies saturate these cities and start to set up shop outside them, the companies are going to have to go through a new development cycle and learn how to convince professionals in Bangalore to move to Chennai. This will be new for India because, historically, there hasn't been a lot of geographic movement in the population.

The Quarterly: What mistakes do you see companies making with respect to labor when they enter developing markets?

Jeff Joerres: The most classic mistake—one that's perpetrated again and again—is to start by bringing in an expatriate management team. It's seductive because when you bring in expatriates, communication throughout the organization is right and everything seems to be working fine. Executives make site visits and it all feels right. Then, about three or four years later, the CEO is thinking, "OK, we had this big growth spurt but now we've plateaued." So the CEO puts in new expats and still can't get growth out of the company.

If you're going to be in a developing market, you've got to invest in nationals—in your own way and in keeping with your company's culture, of course. It's fine to bring in expatriate teams for a short time to make sure the culture of your company is transferred to the new location, but that's it. Expats simply won't have the local market knowledge that the national managers have.

Paradoxically, one reason some companies are using expatriates less frequently now is that the lean machine is at work again. Executives look at their expat bill and say, "Too expensive. I can't keep doing that." They're arriving at the answer in a different way, but I think they're going to be solving a much more systemic problem by not overusing expats.

The Quarterly: What lessons has Manpower learned about entering developing markets?

Jeff Joerres: The first day we opened in Moscow and Saint Petersburg, in 1997, we opened as a temporary-help company. We had 500 people lined up outside our doors. We assessed them, interviewed them, and put them out to multinationals. And by 12 o'clock that day the companies called and said, "Well, they're no longer temps—we just hired them permanently." We switched to a permanent-placement model pretty soon after that.

So when it came to China and, to some extent, India, we made the decision that, at least for now, we don't see temporary staffing as our major role. Instead we find companies permanent managers and assess a fee. And the reason is that if we put 1,000 people to work as temporary workers at a dollar an hour and then assess a markup, the math simply doesn't work for us.

About the Authors
Rodger Boehm is a director in McKinsey's Chicago office.