The Coming Knowledge and Capability Shortage: Knowledge, Skills and Experience Walk out Industry's Door Opened by the Growing Wave of Retirees

Industrial companies face a crisis, and many of them do not know it--yet. The crisis, which these companies have helped to create, is that as the baby boomers retire, they will take their tacit knowledge and their human-information networks with them and there simply will not be enough skilled, experienced, well-trained knowledge workers to replace them. Consequently, U.S. industry faces a "knowledge and capability" shortage (1). This coming shortage arises from demographic and educational factors and is exacerbated by corporate policies that have led to a "trust gap" among their professional employees. The end result will be a drain of what Dorothy Leonard and Walter Swap term "deep smarts"--the experience-based store of tacit and explicit knowledge that allows people to understand issues, put together patterns, and come to correct conclusions with startling swiftness (2). For the last 50 years, American corporations have thrived on the 76-million-strong baby-boomer generation, born from 1946 to 1964. But the boomers were followed by a much smaller Generation X, the 41 million people born from 1965 to 1983. And the Gen Xers will be followed by the Echo Boomers, those born from 1984 through 2002 (3,4). Although the Echo Boomers will eventually provide a substantial labor force, this generation will not possess deep smarts for several more decades. Thus, in 2006, we are facing a "retirement bubble" as those baby-boomer professionals--especially technical professionals--begin to retire. Knowledge, skills, experience, and networks walk out the door with retirement. At a 2005 Industrial Research Institute (IRI) meeting where some of this information was presented, a participant reported that when the issue of aging technical professionals was brought up in his organization, a VP simply shrugged, "Weu0027ll just hire new people, weu0027ll get them from somewhere." The truth--and part of the problem--is that the same aging demographics are everywhere (3, 4). (See "Demographic Trends the Same Everywhere.") In the coming years there will be a shortage of technically-trained professionals, threatening the overall innovation potential of the U.S. (and of other countries as well). Immigration data are not encouraging, as it is increasingly difficult for people to emigrate to the United States. Even in countries with relatively high rates of immigration, these rates are offset by near-equal emigration. (See "Not Enough Scientists," next page). As well, it will be a hard struggle to re-gain the loyalty of professionals who have been subjected to various corporate actions over the past few years. Managerial actions such as downsizing people on the one hand while demanding more and more from remaining employees on the other--all while corporations encourage early retirement--have generated distrust among many talented employees (3). Losing Those "Deep Smarts" If industrial organizations wish to remain innovative and competitive, management must confront the coming knowledge and capability shortage. As Leonard and Swap have noted, very few organizations do a good job managing the deep smarts embedded in their human talent, because itu0027s difficult to pin down and measure (2). In this article, we describe steps two IRI companies have taken to address the coming capability crises in their organizations. We will also describe a simulation model that can help organizations begin to pin down and measure those deep smarts. Recently, an IRI member company we shall call Company A asked, "What will our organization look like in 10 years if we donu0027t something?" To answer its question, the company developed a population flow model of its employees. Its managers identified key input and output variables that could be adjusted for modeling purposes. They also used company trend data to determine the most likely staffing scenario they could encounter--what they called a strategic model. …