Buyer’s Market

Most of us have experience the joy of finding a “bargain” or a better price than expected on a good or service that we desire. Causal conversation, office stories, social media, as well as reality TV all include stories of diligent and savvy shoppers who use their wits, technology, and negotiating skills to find and make an incredible deal. While there may be a variety of reasons for why we feel we have gained the “upper hand” as a buyer, the key element in the availability of deals is simple supply and demand or the gap between how much of something that is available compared to how much it is desired.

When we speak of a “buyer’s market,” we are describing a purchasing environment where the buyer has some type of advantage over the seller that benefits the buyer. For example, when there are more units of a product then what is desired by consumers, then the price of the product tends to fall. Conversely, when one refers to a “seller’s market,” there is less of the product than what is desired by consumers and consumers compete with each other for the limited availability of the desired product.
Labor markets respond to supply and demand shortages in a similar fashion where some periods favor employers, while other times favor candidates. When there is excess demand and limited supply of labor, the price increases and employers have to compete with each other for talent. Similarly, when there is excess supply of labor and slower demand, employers have the upper hand and have a multitude of choices to acquiring new labor with less resources.

Based on the current level of unemployment and economic growth, potential employees occupy a more influential position. As employers deal with increased levels of competition for labor, talent acquisition strategy becomes more important. In other words, how a firm positions itself in the labor market and the effectiveness of its actions determine how successful it will be at attracting the best talent possible. Various factors influence the success of an organization’s strategy, but this post will focus on one of the roots of strategy formulation: perception.

What an employer thinks of its own organization plays a key role in how an employer positions itself vis-à-vis its peers, enacts its talent acquisition strategy, and interacts with potential employees. Put simply, if an organization thinks it has an advantage with candidates and it does not, then it will more than likely adopt the wrong strategy. Organizations, like most of us tend of have a slightly “rosier” view of its actions, image, and strengths.Figure 1: Comparison of Employer and Candidate Perceptions

In order to demonstrate the differences in perception between employer and candidates, the results of a recent survey of 20 employers and 500 candidates in the southeast within the service industry appear in Figure 1. The survey asked candidates to rate their perceptions of the employer’s image as well as posed the same questions to the employer’s hiring managers. All five questions differ between employer and candidate with the largest differentials pertaining to commitment to social and environmental support, total rewards, and work environment. A variety of factors create differences in perception and this small sample is not sufficient to draw strong conclusions. Nevertheless, some areas for consideration include:

• measurable and regularly reported information tends to have more alignment between candidate and employer perceptions;
• social media affords candidates more insight into workplace environment;
• candidate ideas on what is fair and equitable may be different from the employer’s perceptions; and
• social and environmental initiatives may require more than communication as candidates look for ways to not only join an employer with a commitment to supporting the community, but also desire to actively participate in the process.

Some important things to keep in mind based on these results include the following:

• employers have to define who they are to the labor market or someone or something else will;
• positive characteristics should be communicated through a variety of media; and
• intangible characteristics may require more communication.

Employer Branding

A common question in today’s market is “How can I hire the right people when I need them in such a competitive market?” While some organizations have household name recognition or limitless compensation resources, most of us have limited market presence and resources.  This does not mean we are not great places to work or fail to offer a superior work environment or opportunities, it is just we are not known to potential candidates.  In order to counteract the “hidden gem” problem, a growing number of organizations are turning to employer branding.

What is employer branding? In the simplest sense, it is the application of the marketing concepts and tools utilized to gain customers to attract and hire potential employees.  An employer’s brand is the perception that current, past, and potential employees have regarding what it is like to work for your organization.  These perceptions include most major elements of the workplace experience, including culture, work environment, management style, opportunities, and rewards.  Just like with many major products or brands, certain words, phrases, or descriptions will correspond with each employer and the associated workplace.  Moreover, when combining perceptions, a hierarchy develops that current as well as potential employees rank employers. 

While all employers have a brand by design or not, it requires serious and continuous commitment to have a successful brand that attracts and secures the most desirable candidates. A successful branding process typically includes:

  • becoming familiar with the characteristics of your organization;
  • assessing the characteristics and needs of your potential candidates;
  • gaining insight into the brand and approach utilized by your competitors;
  • defining your value proposition or what makes your organization superior to your competitors; and
  • developing and executing your brand and branding strategy.

Your Organization

A first step to launching as well as maintaining your organization’s brand is to conduct a comprehensive and open assessment of what is positive and negative about your organization.  Very few, if any organizations will only have positive traits, so it is important to have a realistic image of the traits present within your organization.

Potential Candidates

If your organization subscribes to the idea that potential employees would be lucky to work here, many strong candidates will opt to look elsewhere.  In the current labor market, organizations have to be selling their workplace and not expecting high quality hires to focus on sell themselves.  Consequently, it is important that employers have a good understanding of the preferences, needs, and interests of the high quality candidates that they are interested in recruiting,

Competitors

Since most employers do not have the luxury of being the sole, desired employer, it is critical to understand what your competition is offering and how you can demonstrate your competitive advantage compared to opportunities in their workplace.

Value Proposition

Based on the strengths of your organization and knowledge of your competitor’s practices, what you offer potential employees that differentiates your organization should be defined and the associated communication materials developed.

Strategy

Defining your competitive advantage provides the basis for your brand, but your strategy puts your brand into practice.   In the most successful organizations, the brand strategy impacts potential candidates as well as current and past employees.

What Interns Tell Us About the Labor Market?

Over the last several decades, interns changed from an uncommon resource for a privileged, connected few to a regular part of the division of labor of most organizations.  Demand for some type of competitive advantage in hiring coupled with financial concerns in organizations, transformed our impression and utilization of interns.  Moreover, current trends point to this change being unlike to change.  For our purposes, I would like to answer to relevant questions related to the transformation:

What do both sides gain?

Both sides gain in the current arrangement and the benefits typically outweigh the costs.

The intern benefits by gaining real world experience, increasing their understanding of what their chosen profession does, and improving their chance of being hired once graduating.  Most employers want to know that a job candidate worked in a responsible capacity before joining their organization.  Specifically, an employer wants to know if the basics of success exist in the candidate: shows up on time, focuses on quality, responds to direction, and respects authority.  A successful internship provides the minimum of proof necessary.  Although some professions like doctors, police officers, and lawyers benefit from glamor of television and movies, a true understanding of their nature requires day-to-day experience.  The increase in employability after an internship is more than an urban legend.  The National Association of Colleges and Employers (NACE) found that 42.3% of graduating seniors who completed an internship received at least one job offer, whereas only 30.7% of graduating seniors without internship experience received an offer.  Moreover, a student that secured an internship reduced their average job search time frame from six to three months.  In today’s job market, this is a sizable difference.

Organizations gain from having a cost effective way of bringing in talent, being able to “test drive” or work with future candidates before hiring them, and shifting lower level tasks to very talented, yet temporary labor.  When an internship includes pay, it typically necessitates 25 to 35 percent of the market rate for comparable skills of a new hire.  This reduction in cost provides many times a qualified as well as productive resource for a fraction of the cost.  Similarly, the temporary nature of internships allows an organization to “test” multiple candidates for a position with low cost and risk.  As an aside, even when an intern does not receive a permanent position, the person joins the network of individuals linked to the firm as potential customers, market influencers, or future hires.  More recently, interns moved from being there to learn to a critical part of work processes.  Some companies, out of a desire to shift tasks lower in the organization to reduce costs have increased the percentage interns in their workforce to more than three percent.

What does this say about the labor market?

Although it is easy to focus on the benefits of the new relationship, this increased need arose from something deeper going on in the labor market.

Focus on rapid readiness of new labor – While organizations were willing to accept that an investment was necessary for a person to reach full competence and expected productivity, most have little patience with investing in a person for several years before reaching the “breakeven” point.  The new view demands that an employee fully integrates into an organization and produces similar to an interchangeable part.

Costliness of hiring of the wrong person continues to grow – Replacing talent only continues to grow in cost with each passing year.  Demographic trends, globalization of jobs, and more specialized needs collectively drive the cost of finding and hiring the right person higher.  Some estimates place the cost of replacing a mid-level employee as high as three or four times annual salary when considering all factors.  When the wrong person is hired and another hiring process begins, the cost doubles and the time to return to productivity increases.

The balance of cost to productivity gains has leveled – Most organizations have exhausted the typical cost reduction approaches for their labor force: re-engineering, outsourcing, contingency labor, off-shoring, and outright reduction.  The next phase of the labor cost reduction cycle appears to be on the horizon and should come more into focus as the economic crisis recedes.  It is doubtful that organizations will decide to let their current workforce go and replace them with interns.  However, closer partnerships with educational institutions, leveraging new skill and job allocation methodologies, and new ways of utilizing more hybrid workforces seem to be upon us.

Graduation: Let’s Celebrate?

Graduation is an exciting time.  It signals an end to one phase of life and transition to another.  Most of us probably have cherished memories of the excitement of having the world at our feet and being ready to make our mark.  In the best of circumstances, it is a time of leaving behind the last vestiges of childhood and beginning one’s professional adventure.  However, in the dark days of the downturn, many are finding that the transition is not as sweet as it used to be.  For all but a special few, it is a time of frustration and even disenchantment.

The class of 2012 is finding that timing can make a big difference in realizing dreams.  Although unemployment is lowest among those with a college degree, it is highest among those under 24 years of age. To put it in context, unemployment almost reaches more than 15 percent for job seekers 20 to 24 years of age.  Moreover, the “stickiness” of the current level of unemployment continues similar to the trend starting in 2010 and is unlikely to change in the next 12 to 24 months (http://www.npr.org/blogs/money/2011/12/01/143016866/unemployment-falls-to-8-6-percent).

How has the downturn affected recent graduates over the last five to six years?  About half of graduates since 2006 are without either employment or underemployed in their current positions.  Some surveys estimate that as many as 20 percent of recent graduates are looking for some form of full time employment.  Similarly, only approximately 30 percent of recent graduates indicate they are working in their chosen career.  It is safe to assume that some portion of the remaining 50 percent is underemployed while working for low skill, service sector jobs.  Basically, a generation of potential employees continues to wait in a holding pattern frozen in time.

What does mean for our future employees?

Labor Mobility

It is likely that the years of uncertainty will further diminish the idea of the traditional employee-employer contract.  Looking back one day, the economic downturn may be characterized as the final death nail of employee loyalty.  Once hired, these employees will have seen the impact of turmoil, lived with extended uncertainty, and recognize that an employee needs to be self-guided and motivated.

Outcome: reinforce the transient nature of the labor market between organizations as opportunities present themselves.

Govern Reality

Experience of the last four years will diminish the once growing perception that “things have nowhere to go but up” or overly positive outlooks.  A whole generation of young managers and employees alike assumed that the downturn was temporary or even a minor correction since those economic adjustments made up the domain of their experience.  The impact of the economic downturn will stay with current graduates throughout their careers and temper their perspectives and decisions.

Outcome: change in risk profile and future slowdown responses.

Commitment to Alternatives

The classic pattern of seeking non-career centered endeavors after retirement has been changing in the last several decades.  It has become increasingly acceptable to change careers, alter course in the middle years, and move to something more engaging, challenging, or fulfilling.  The flexibility practiced by this cohort to deal with current economic realities should accentuate this trend.  New entrepreneurial as well as socially conscience enterprises should become more common in response to the generational characteristics coupled with the results of the downturn.

Outcome: leaving to pursue outside of career interests will be more of an option.

Job Shopping: The Role of Brand

Recently, one of my children bought a very nice piece of clothing on sale on the internet.   She was very proud that she found a dress made by a big designer at a really good price.  I asked her why she picked that particular piece of clothing and she smiled broadly and told me it was made by such and such designer.  After we spoke about it, I wondered how often we buy something from a brand we like regardless of how it looks, if it is needed, or even provides some practical purpose.  In other words, I wondered how often we buy an ideal instead of an actual object.

Most of us have brands that we prefer and that brand possesses a sense of satisfaction or utility beyond the actual purchase.  It could be brand of vehicle, gum, soda, snack, electronics, clothes, airline, or computer.   If we inventory our preferences, most of us can identify favorites with almost everything.  That is good news for those companies with strong and solid brands since it makes us more loyal to their products and ensures their continued presence in the marketplace. It is less than ideal news for those unknowns or weak brands who want to sell us more profitable merchandise.

Since it is in our nature to be drawn to certain brands, it is interesting to consider if the same mindset applies to looking for a job?  In this economy, it makes sense to take what you can find, but preferences are still alive and well even in the downturn.  There are several major things to keep in mind related to organizational branding when you are recruiting:

  • candidates assess the market
  • initial impressions carry over
  • value of brand

Assessing the Market

As job candidates, we form mental images of different organizations and what type of employers they would be.  Most of us gain information from three primary sources:  advertisements, major media, and friends and family.  These information sources form the basis of an employer’s brand.  Companies communicate with potential candidates formally and informally through job postings, commercials, and public information campaigns.  Companies that identify with fun or making a big difference in the world create a positive image that carries over to candidate impressions.  For example, Dow does a fantastic job of making their case with their Human Element commercial (http://www.youtube.com/watch?v=QpydugTkt1U&NR=1 ). Regular media supplements these sources through news reports and special interest pieces.   A great media example is the CNN-Money rankings of the best places to work in the United States (http://money.cnn.com/magazines/fortune/bestcompanies/2011/full_list/).  Lastly and the most important is what people we trust say about a potential employer regardless of factual content.  This assessment of where are the jobs, who is a good employer, and where is my effort best spent all arises from these three sources and influences each decision throughout the job seeking process.

Initial Impressions Carry Over

Our view of an organization and its “brand” once formed typically stays through the assessment, application, and selection phases of the recruitment process.   Just like with people, the initial impression is hard to change.  If I believe an employer compensates poorly, then any offer will be filtered with the view that the offer is not as much as I could receive somewhere else.  Similarly, if an organization is known to be a great place to work, then other less advantageous components of the job offer will be overlooked in favor of the well-known positives.

Value of Brand

Like it or not, our brand reputation comes into play on a regular basis when we attempt to recruit and retain employees.   Although it is typical to associate high wages being at “exclusive brand” organizations, research shows that it is not always the case.  Actually, those organizations with a positive brand can have a lower labor cost than other organizations.  The value of your brand translates into the quality of candidates you can have apply, who accepts positions with your organization, costs of hiring those candidates that you desire the most, and the overall productivity of your organization.

Just as you protect your corporate brand, you need to protect your brand in the labor market as well.