The manufacturing skills gap: HR audits are good risk management

The well-documented skills gap in manufacturing, already critical, is poised to get much worse. In Deloitte Consulting LLP’s 2015 Skill Gap Study, 82% of respondents believe that the skills gap will impact their ability to meet customer demand. At the time, 6 out of 10 positions remained unfilled due to the skills gap. The authors note, “This clearly indicates there are not a sufficient number of workers in manufacturing to fill these positions.” Demographic trends are making this crisis exponentially more challenging.

David Iyoha, director of software solutions at Fortech, states in a Design News article, “The baby boomers are retiring in a steady flow. Soon it will be a tsunami.” As the boomers continue to retire, they take critical skills and knowledge with them. Without a constant pipeline of available replacements, this valuable knowledge base will be lost to the organization—permanently. Aside from the direct impact this has on productivity, the ripple effects have the potential to reach far beyond. Executive respondents in the Deloitte study cited expected impacts on customer service (69%), the ability to innovate and develop new products (62%) and the ability to expand internationally (48%).

The skills gap is an enterprise level risk

Given the disruptive effect the manufacturing talent crisis can have on an organization, it makes sense that the international consultancy DEG’s guide on How to Bridge Skills Gaps Step-by-Step identifies this type of gap as a Type 4, the most severe. According to the authors, “Type 4: skills with a wide gap, where the gap seriously endangers business success. For example, a large number of qualified production workers might lack the right skills after a new generation of machines is introduced. Such gaps should be addressed as a matter of priority.”

Despite the level of risk posed to the organization from the widening skills gap, HR and risk management frequently remain unconnected. When Blackhawk Intelligence lists the most common HR functions, one omission is noted: “However, what is conspicuous by absence from the above list is risk management in the broader sense. This might encompass the ability to monitor aspects of the workplace which could enable an employer to spot pending risks or threats and to pre-empt them.”

Managing the skills gaps with risk management

The scope of the skills gap means that any potential solution will likely require considerable investments in resources. Whether the approach is working externally with educational organizations to build a pipeline, developing targeted third party certification programs, expanding training programs and cross-training more employees, or investing in new HRIS capabilities to decrease hiring times and capture key competitive talent, each of these courses of action will involve allocating considerable resources.

The DEG guide recommends conducting an analysis of any solution under consideration. It states, “After a potential solution has been found for your company’s specific skills gap, it is worth conducting an ex-ante cost-benefit appraisal. Such an analysis can check whether the (intended) benefits outweigh the (expected) costs, and can help to secure top-management buy-in, to obtain external funding, and to identify possible weaknesses in the initiative.” While this analysis helps to identify the most practical options, additional steps are necessary to incorporate the skills gap into risk management functions.

Connecting HR to the C-Suite

Our previous article, ERM—Moving Beyond Risk Assessments and Heat Maps, we discussed the importance of relating risk assessments and heat maps directly to the organization’s strategic objectives. Without the right context, assessments can fail to specify even what the most pressing issues is, much less what to do about it. Aligning these tools so that the data produced remains meaningful and actionable is an essential step to any viable risk management program.

Similarly, in a paper presented to the Portland Human Resources Management Association titled Auditing HR Practices for Risk Management, Chrys A. Martin states, “To obtain and maintain a seat in the ‘C-Suite’ Human Resources needs to be an indispensable business partner with the other C-Suite members… Business executives want an HR partner who helps them do what they need to do to accomplish the organization’s strategic goals.” In order to be a true partner, HR must produce information that the executive team can actually use.

Leveraging the power of audits

Martin suggests using HR audits as “an important tool to help HR stay on the cutting edge.” The Deloitte study echoes this point. “Internal audit can play a key role in assessing the human resources (HR) and talent processes in place designed to address anticipated talent shortage and skills gaps risks. An opportunity exists to play a strategic role in identifying weaknesses and assessing an organization’s ability to identify resources capable of enabling the organization to meet its objectives. This may involve assessment of areas, such as recruiting and retention programs, HR IT systems, and deployment of data analytics capabilities to monitor trends.”

Though internal HR audits can examine and track the efforts made towards mitigating the manufacturing skills gap, Martin offers one caveat. “HR professionals must have a willingness to evaluate themselves, acknowledge deficiencies, and most importantly, to make or influence the necessary organizational changes to maintain their position as valued strategic business partners. Thus, an audit without the prerequisite commitment to continuous improvement is useless.” Audits can highlight what needs to be changed, but that only matters if the organization is willing to actually make those changes.

Linking audits and continual improvement through a RMIS

A flexible, configurable RMIS provides an organization with the ability to quickly create the audits that ensure compliance and track results. Origami Risk’s audits are easy to set up, intuitive to complete, and eliminate the back-and-forth of chasing down results. Our clients have used this versatile tool to track everything from employee security badges to the status of affected facilities in the wake of hurricanes.

By connecting HRIS data, location information, training completions, and other related information in one central place, HR audits can identify how effectively the organization is deploying workforce solutions. Adding the associated cost of mitigating the manufacturing skills gap to the total cost of risk (TCOR) allows each operational unit to see how their efforts relate to organizational objectives. With the robust allocation methods highlighted in our recent webinar, Origami Risk enables unit managers to see how their efforts tangibly contribute to the strategic objectives, and provides a way to reward those making the most progress.

The manufacturing skills gap offers no simple solutions. Treating it as the enterprise risk that it represents, however, and then using HR audits to assess current conditions and the adoption of new recruiting and retention programs allows your organization to effectively measure progress. Armed with that data, and connecting any mitigation efforts to the organization’s objectives, solid risk management principles can be applied.

 


 

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