Paper and pulp manufacturing has suffered heavily from the downturn, but it was already facing challenges, perhaps the greatest of which is a shortage of talent. The industry faces an ageing workforce, the decline of printing in certain markets and a perception of being unglamorous. But it could capitalise heavily on the dour economy by investing in talent management, say Peter A. Frandina, J.F Fernandez Perdiz and David A. Rossi at Accenture.
During the last economic cycle, many resource intensive manufacturing industries faced a human capital challenge caused by fast expansion. While the $600bn global forest product and paper industry experienced strong growth in emerging markets, its biggest issue has been to attract and retain talent. With 50% of the UK paper and pulp sector’s experienced workforce set to retire in the next seven years, in terms of recruitment, the industry is at a disadvantage compared with other sectors like chemicals, metals or construction.
The industry must be cautious before taking the instinctive step to cuts costs through attrition and redundancy measures. Research by consultancy Accenture shows that during the recovery after the last recession, high performers not only cut costs in the downturn but restructured human capital for the return to growth. In the research companies are placed in three downturn groups. Only the ‘survivor’ category requires aggressive cost cuts to repair seriously damaged cash flow. The biggest group is the ‘advantage’ category, where companies still generate profits in key segments and enjoy access to sufficient capital to allow them to exploit their competitive advantages. The most fortunate find themselves in the ‘growth’ category where strong balance sheets and profits enable them to use the downturn to grow through consolidation and capital expansion.
An ageing workforce
What are the paper industry’s talent challenges? A declining workforce tops the list. Since 1994, the UK paper and pulp industry has lost 33% of its workforce due to consolidation, which has left the residual workforce ageing at a faster rate than other manufacturing sectors.
The number of people over 55 has increased since 2000 while the number under 44 has fallen. Most telling, the number of those under 35 declined from 34% to 27% of the workforce between 1994 and 2007.
The exodus of the young has compounded the affect of consolidation. The closure of paper mills has resulted in minimal career opportunities and middle ranking executives have switched into other industries where their skills have been in greater demand. The impact has been most severe in developed markets. The average age of a forest product engineer in the United States, for instance, is in the mid- to late forties. Half of the most experienced workers, mostly in mature markets like Europe and the US, are set to retire by 2014.
Disparate trends, regional drivers
Like many sectors, the high relative costs of the European and North American markets has led to a shift in the industry’s supply base to developing countries with lower costs, primarily Latin America. This was compounded by the strength of the dollar and the euro, affecting the profit potential of companies buying or making pulp. Concurrently, the supply of wood from mature markets is decreasing, and there is heightened interest in the environmental agenda, an increasingly important factor in supply decisions.
In addition, the paper industry’s dominant market sectors are diminishing in key regions. Printing remains the largest sector but also has the lowest projected growth. Changes such as the media shift from print to the internet are reshaping market segments, driving down paper demand in some markets especially in North America. In other parts of the world the picture changes, underlining the power of local consumer preferences. For example, paper consumption in China is set for explosive growth, reflecting rising demand for packaging and printing in consumer products. As Figure 1 shows, each global region of the paper industry has its own separate and distinctive trends and drivers, which makes global strategies even more challenging.
Figure 1: In the paper industry, no two world regions share the same consumption trends and investment drivers
But these trends do not cover all developments in the industry. For example, the emergence of the growing consumer market for paper in China and elsewhere in Asia offers new opportunities. The growing importance of compliance, ethical concerns and carbon reduction efficiency in paper production provides strong appeal to that younger group of employees that has turned its back on the industry in recent years. Innovations in bioenergy will also draw in new specialist skills, as pulp and forestry product makers begin to enter new markets for energy generated from waste products.
As the global paper industry faces the combined effects of the recession, its impending skills crisis and these new opportunities, it will need to prioritise effective talent management. Far from being a soft market for labour, the rapid changes in the paper sector indicate an intense period of competition to retain and attract the best skills. To help them exploit such opportunities, paper companies can adopt several new and more rigorous ways of attracting, developing and retaining talent, based on a strategic and holistic approach.
Whole business human capital strategy
To succeed, the talent strategy should be founded on a comprehensive evaluation of the capabilities, skills and headcounts that will be required across the business. This will guide new talent recruitment and development, performance management, succession planning and the retention of the most businesscritical talent.
Effective tools here include consistent enterprisewide competency and career development models, succession planning programmes and aggressive campaigns to secure talent from outside the industry.
Several economic and industry trends may serve to support these efforts. The downturn means paper companies can invest in new talent from industries that used to draw graduates away, but which are now struggling – for example chemicals, metals and construction. They can also attract young talent into exciting emerging areas of the paper industry such as paper and forest certification and sustainability. And the growth of paper product supply in South America, Africa and Eastern Europe can be used as a means to attract international talent.
Getting better use from people
Many managers view a downturn as a trigger to reduce headcount. Instead, paper industry executives should approach workforce size and productivity in a planned, systematic manner by looking beyond narrowly-focused, short term initiatives, and finding ways to change not only the workforce itself, but precisely what the workforce does. By re-evaluating how work gets done rather than just the number of people doing it, companies can create a solid base for lasting improvements.
Such a re-evaluation might reveal opportunities to invest in remote monitoring and control systems that make better use of skilled workers and drive process and cost improvements. The re-evaluation may also identify ways to prevent older employees’ collective wealth of talent from being lost when they retire.
Moving some of the company’s more experienced managers into project and mentoring roles enables the next generation of leaders to step up into tougher business roles while extending the value of those looking to retire.
While companies do have to slow down their recruitment engine when the economy stalls, they should still commit to recruiting consistently. Halting recruitment blocks the flow of talent that will be needed in the forthcoming recovery. Recruiting a mass of graduates every five years in line with the economic cycle can be less effective than recruiting a small number annually. Not only does it put the paper industry in costly competition when the labour market peaks, it also foregoes the consistency that comes with a steady intake of top talent.
A consistent management culture
High performance businesses tend to continually grow and measure talent throughout the organisation.
But this must be matched by a commitment to stable leadership, a management culture of measured risktaking, and widespread adherence to accountability for performance and results. If the paper and pulp industry is to address its talent management shortcomings, it will also have to modify its culture to appeal to a new millennia generation without pandering to it. So while, companies will have to consider more progressive remuneration packages that suit modern expectations on work-life balance, for example, they will also have to put in place methods that restore the appetite for professional competition that many in the industry believe has been lost in the younger workforce.
The paper industry faces challenges and opportunities that require vigorous and motivated specialists.
If the sector has failed to retain and attract the best skills in the past, the downturn offers it a rare chance to reverse that trend. While other industries suffer large job losses, never has there been such a pool of ready and available talent to help build competitive advantage for the paper industry. This is a time for investing in human capital, retaining experienced staff and entering new markets by placing imaginative talent management at the heart of business strategy.
The views and opinions in this article should not be viewed as professional advice with respect to your business.