Demographic changes and the values of a new generation look likely to result in a severe talent shortage. To survive and prosper, companies need to take a fresh look at competence management.

What particular resource scarcity may soon hamper economic growth and prosperity in the Western World? Oil? Capital? No, it’s brains. “People! Talented people!” says Bengt Lejsved, senior partner and vice chairman of Heidrick & Struggles International, a leading pro­vider of senior-level executive search and leadership development services.

The recent economic slowdown may have served to lessen the attention given to the rapidly approaching talent shortage, but that is a false and temporary illusion, says Lejsved. In his view, companies need to change their mindset now; a structured approach to competence building is essential – and even crucial – to survival.

“Looking after and safeguarding the competence you have in your organization is the single most important challenge facing companies today,” he says, “and even more so tomorrow, when the war for talent is on.”

In this respect, many companies apparently have a long way to go, at least according to a survey under-taken by consultancy firm McKinsey in 2001. It showed that, out of 410 managers in the 35 biggest companies in the U.S., only 19 percent said they were good at recruiting talent and a mere 8 percent said they were good at retaining talent.

At the root of the looming talent deficiency, which will be shared by many industrialized countries, is the demographic structure that sees a frightening number of senior employees retiring in the foreseeable future. For example, it has been projected by Sweden’s Statistics Agency that by 2008 the Swedish labor market will be faced with a deficit of 8,000 graduated engineers.

In the U.S., projections from the Bureau of Labor Statistics forecast a shortage of roughly 10 million workers by the year 2010.

“It may seem difficult to imagine now, but we will soon experience the worst labor shortage in our lifetime,” says Jeff Taylor, founder of the leading global online career network Monster. “Demographics are driving these predictions. Baby Boomers, who currently constitute a big portion of the labor force, will soon begin to exit the market, with 70 million to 75 million retiring in the coming years.”

Meanwhile, Lejsved points out that machines, capital and brands are still widely regarded as the foremost vehicles in providing a company with that special cutting edge. “But within five years,” he predicts, “it will be people – talented people. When it comes to new machines and other capital expenditures, a lot of time is spent on investment decisions, while there is still too little focus on talent and competence building.”

The shift from skill shortage to body shortage will spark a job seeker revolution in the next decade, says Jeff Taylor.

“Companies will be forced to focus on the needs of their employees,” he says. “The workers will be in power, and companies will need to treat their trusted employees well if they want to hold onto them. Not preparing for this new labor market could be dangerous. It’s absolutely feasible for companies to go out of business because they are not good at retaining employees.”

To some extent, however, the competence shortage may be checked by productivity gains and rising auto­mation, which means fewer employees are needed. In addition, production is being relocated to emerging markets outside the Western hemisphere. “It is difficult to predict what the results of this equation will yield eventually,” says Bengt Lejsved, but, he says, a do-nothing approach is fatal.

“Companies that do not have an organized approach to nurturing the talent they possess and do not know how to find, recruit and retain new talent are the losers of tomorrow,” he says.

How, then, should companies position themselves ahead of the war for talent?

“By taking care of employees now,” says Taylor, “companies can prevent the damage that high turnover creates when the job market improves. In addition, personnel managers should treat current job seekers with professionalism – even if their company is not actively recruiting – and keep resumes on file. Many of these candidates could easily become tomorrow’s pipeline of talent for the company.”

In spotting new talent, companies may have to look beyond traditional hunting grounds. Lejsved points out that India, for example, is a budding greenhouse for IT talent. In addition, in many parts of Asia, more advanced manufacturing and management skills are becoming increasingly common.

Lejsved counsels organizations to try new ways of spotlighting talented people who may already be on the payroll, but whose potential remains hidden. “Facilitate and cultivate cross-fertilization of competencies within your own organization to stimulate meetings of minds,” he suggests.

Companies must avoid thinking in terms of budget constraints when it comes to finding challenges that could make the difference between a talented employee staying with the organization or leaving it, says Lejsved. “Losing good people is dangerous; the employer might miss out on business opportunities simply because he lacks human resources capable of exploiting them,” he says.

But competence isn’t just becoming a scarce commodity. The very definition of competence on the job has been widened beyond the capacity to solve a certain task well to include how a person interacts with and relates to other people, inside and outside the company. Consequently, the need for social and emotional competence at the executive level increases all the time, and, speculates Lejsved, has probably become as important as technical skills.

“Communicative and inspirational skills matter more and more, since employees in general become more critical, educated and accustomed to democratic decision-making processes,” he says. “Nowadays, you have to be able to sell a vision to your colleagues and make them understand and accept what needs to be done. Simply issuing commands and instructions is just not enough anymore, at least not in highly industrialized countries.”

Whether the future looks promising or perilous depends, in other words, on your standpoint. If you’re a demanding but talented young-to-middle-aged professional, it’s all yours. If you’re a human resources director wondering whether you should put in some overtime – stop wondering, get another cup of coffee and return to your desk.