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Over the last few years of market shocks and geopolitical tensions, mid-market businesses have grown accustomed to bracing and planning for the unexpected. Despite ongoing economic uncertainty, Grant Thornton’s most recent International Business Report (IBR) shows that most business leaders remain optimistic about the future. As they entered 2023, 59% of mid-market firms were optimistic about the year ahead, only 6% lower than six months ago.
Business leaders are facing a unique combination of challenges. In many markets, inflation and interest rates are high, and although economic growth is sluggish, employment rates also remain high. Skilled workers are in short supply.
To deliver for their clients, firms need to invest in their people strategies to enhance their ability to attract and retain top talent. Smart leaders know that they need the right people and having a people strategy focused on their growth and development is crucial to a firm’s overall commercial success.
Competition for talent is tight, but for business leaders, labour cost is also a concern. Fifty-five percent of mid-market leaders identify these costs as a barrier to business growth. Although slightly down from the highs of 59% in 2022, concerns about labour costs are still outstripping pre-pandemic levels, which averaged 45% in 2019.
However, for many firms looking to cut costs, reducing headcount is not attractive option. A record number of leaders (57%) cite the availability of skilled workers as a key constraint to growing their business. Businesses need to take a longer-term view when addressing labour cost challenges so they don’t find themselves short-staffed when economic uncertainty subsides and demand expands.
Record numbers of people have left their jobs since the pandemic. While most workers moved in search of higher salaries, World Economic Forum data shows that over two-thirds say they are seeking more fulfilment in the workplace. If the right skills are hard to come by externally, leaders need to build a long-term strategy for talent development to ensure that they have the skills they need at hand now while simultaneously creating an environment where their existing team can develop the skills that will be required to meet the firm’s future needs.
Andrew Howie, partner and head of advisory at Grant Thornton Bermuda, comments, “The demand for talent in Bermuda has never been higher. This means that the retention of people is as important as it has ever been. Organisations need to stay close to their people and understand what’s important to them to ensure that the organisation remains an attractive place to work.”
Lydia Lejay, partner at Grant Thornton France, also notes, “Companies need to assess what kind of expertise is needed. We must keep people in place and select them for the skills that we could benefit from. When growth occurs, these people will be indispensable. Companies
Pay remains a major struggle for companies looking to hire and retain top talent. Wages are growing, but they mostly fail to keep pace with rising inflation. For example, in the UK, inflation fell slightly to 8.7% in April as energy prices softened, but overall prices are still rising more quickly than wages. The latest figures for wage growth show that average private sector wages have grown by 7% and public sector wages by 5.6%—the highest growth rate in 20 years—yet earnings still lagged inflation significantly.
Globally, four out of every five mid-market businesses intend to give pay rises this year. Nevertheless, the persistent high levels of inflation and additional costs limit business’ ability to increase salary, with only 24% of businesses indicating they intend to offer ‘real increases’ over the next 12 months. As firms struggle to compete on pay, many are finding other ways to stand out as an attractive employer, and looking beyond the paycheck has become a major factor in retaining talent.
Angela Nalwa, managing director and people and organisation practice leader at Grant Thornton US, explains, “Competition for top talent is still fierce, and the continued surge in labour costs just adds to the challenge for mid-market firms. Post-Covid, the goal-posts have shifted and pay isn’t always top of an employee’s list when considering a role. The focus now is on the employee experience, and this is an opportunity for organisations to strengthen their culture, employee value proposition and overall employee engagement strategy.”
Many firms have become more creative and inclusive in where they look for the talent they need. Organisations that actively seek out candidates from diverse backgrounds are able to tap into talent pools that have been historically underutilised. By having a wider range of perspectives and experiences on staff, diverse firms are more creative and innovative, finding new ways to respond to the challenges they face.
Firms should assess their people and work policies to determine the best methods for creating more inclusive work environments, which attract a more diverse talent pool. Sinead Donovan, chairperson at Grant Thornton Ireland, pointed out the benefit of flexible and hybrid working in increasing diversity in The push for parity, Grant Thornton’s most recent Women in Business Report.
“The pandemic has given us a bigger pool of talent and so our workforces have become much more diverse,” she explained. “Businesses are able to hire people from different countries when they offer remote working. This brings real benefits to decision-making, and ultimately, to business performance.”
Howie adds that “Bermuda has always had a diverse talent pool. When diversity is embraced within organisations, it empowers better decision-making leading to improved results”
Embedding an inclusive, empowering and diverse culture is a crucial goal for all organisations operating today. It allows for more cross-border thinking and breaks down silos, and it can be the catalyst for new and cutting-edge ideas. The right talent won't settle for anything less.
Emerging technology also presents opportunities for reshaping the way we work, the roles we perform and the jobs of the future. AI platforms such as Chat GPT and Google’s Bard, which are accessible to most businesses because of their relatively low costs and intuitive interfaces, potentially create opportunities for companies to increase productivity whilst also freeing up employee time, creating roles and career paths that are more engaging and appealing.
Shona O’Hea, partner at Grant Thornton Ireland, comments, “Today, people starting out on their careers don’t want to come in and do mundane repetitive tasks. They just won't stay. So firms have to have the right technology in order to make the job interesting and appealing. Investment in tech and AI will remove some of those repetitive, low value tasks and create more time for analytical higher end activities. And that will help attract new people and keep them as they grow their careers.”
In the face of uncertain economic conditions, emerging developments in working culture and technology are adding an element of dynamism to the business world and creating optimism among mid-market businesses. A talented and resilient workforce can provide companies with a lifeline during economic turbulence. Moreover, it can act as a springboard to capitalise on growth when times change. With the right people, and a good track record on ESG and DE&I, firms can maintain growth, weather the current global challenges and be ready to take advantage of new opportunities when the economic headwinds shift.