Find out the answer by continuing reading or watching the video here – Prasmju dilemma: Pirkt vai attīstīt? (video available only in Latvian)
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The skills dilemma: To buy or to build?
Although times have changed dramatically, the main challenges business leaders are facing have remained more or less the same. And one of the main problems has always been the lack of employees, meaning, the lack of employees with appropriate skills, attitude, and work abilities. There has always been a dilemma on this issue – to buy skills or to build? Practically, there are two ways to fill any vacancy - by recruiting an external candidate or by upskilling and reskilling internal candidates.
A fierce fight for the best candidates
Extra bonuses and experiments with new channels and audiences
In the battle for skilled professionals, employers around the world are going out of their way by offering 500Eur bonuses for successful references and promising free iPhones after successfully passing the probation period. At the same time, some companies, unable to provide service personnel, are even forced to shorten the working week.
The intense competition is also evidenced by the increase in wages. In 2021, salaries in Latvia increased by 15.9% compared to the second quarter of 2019. It is known that this is partly due to the increase in the salaries of doctors and teachers, however, the private sector also experienced an approximate 10% increase.
At the same time, other global companies are trying to solve the problem by looking for employees using new channels and addressing new target audiences, for example:
1) Chipotle catering business - trials the TIK TOK recruiting platform to attract Gen Z candidates.
2) IKEA home interior merchandiser – conducts the interviews at the premises of the candidate.
3) Thinkerbell creative agency – establishes a special internship program for candidates in the age group 55+.
However, the great revelation of large international companies, under the influence of Covid-19, is the following: there is no one left out there! Both demographically, especially in the case of Latvia, and also in the context of skills. As a result
many large companies are currently massively investing in retraining and upskilling their employees.
Upskilling and reskilling - not a priority in Latvia
The most popular corporate excuses
Research on the approach to employee development of Latvian export companies has revealed that 94% of Latvian export companies provided training opportunities for their employees. However, the overall situation within Latvia does not seem as hopeful with only 36% of all employers having a separate budget allocated for reskilling and upskilling their employees.
ERDA has been consulting on the topic of reskilling and upskilling for several years now, and has identified the main barriers, fears, and sometimes excuses discouraging employers from investing in reskilling their employees.
1) Uncertainty about existing and missing skills
2) Company size
3) Non-existent processes for identification and rotation of employees
4) Resistance of company managers
5) Concerns about retraining costs
6) Employees uninformed about open vacancies
Advantages of internal recruiting
Despite all the reasons mentioned above, it is worth considering the advantages of internal recruiting - more capable candidates, lower overall costs, and a more attractive employer internal and external image.
1) Better candidates for a lower pay
A 2018 Deloitte study found that external candidates consistently take an extra two years to reach and perform on the same level as an internal candidate. Plus, on average, externally recruited employees receive a 20% higher salary than an internally promoted candidate. Unfortunately, employees are also often aware of this fact and realize that to achieve a significant salary increase, they would most probably have to switch the company.
2) Lower recruitment costs
Often, for managers, everything related to acquiring new skills associates with a long and unpredictable process, however, it has been proven false. It has been calculated that upskilling an internal candidate, for example, for an upper-level management position is 3x less costly in comparison with recruiting a candidate for the same position from outside. Also, The World Economic Forum has researched that approximately 2 out of 3 employers consider that their investments in upskilling employees have paid off within a year.
It has also been concluded that learning new skills might not take as much time as expected. It has been calculated that learning soft skills like marketing, sales and content, topics related to people and culture, can be learned in 1-2 months. More complex skills such as data analysis, product development, and AI can be learned in 2-3 months. A subject related to STEM, such as programming - can be learned in 4-5 months.
3) A more attractive employer brand
A focus on skills development within the company contributes not only to a higher satisfaction inside the company, but also to a more likable employer brand, especially externally. In 2021, on behalf of Ernst & Young, ERDA surveyed more than 1,500 young people from Lithuania and Latvia, asking questions related to the choice of employer. It turned out that the most defining factor for young people when choosing a workplace was whether the company offers training and development opportunities, as well as leaders who support employee development.
While for many companies investing in employee development is currently not a priority, and the trend of recruiting from outside is not about to slow down, it is clear that considering the fierce battle for talent and the growing skill gap, this is a good time for strategic investments in the development of the internal talent pool.
1) Chipotle, Chipotle Leverages TikTok Resumes To Help Grow Its Purpose-Driven Workforce, 2021
2) IKEA, IKEA Utrecht introduceert solliciteren bij kandidaten thuis, 2019
3) TrendWatching, Innovation of the day, Thinkerbell, 2020
4) Insider, The upskilling economy: 7 companies investing millions of dollars in retraining American workers so they can find better jobs, 2020
5) Deloitte, Are you overlooking your greatest source of talent?, 2018
6) Josh Bersin, 2019; HBR, 2020; CAP, 2012
7) World Economic Forum, We need a global reskilling revolution – here's why, 2020
8) Employers' Confederation of Latvia, The Ministry of Education and Science of the Republic of Latvia, Survey - Employee education in companies, 2019
9) ERDA, Research - Approach to Employee Development of Latvian Export Companies, 2021