Updated: Jun 7, 2020
First in a series of posts based on insights from our recent US workforce research report. We will explore labor market insights in more detail to shine a light on the skills gap in tech roles that is rapidly impacting US businesses across a wide range of industry sectors.
Demand for tech skills is 10x supply of available talent, this demand will increase and is being fueled by large US businesses committing over $2.4tn / year on digital transformation for 2020-2024
Successful digital transformation is not about technology, it’s about talent, culture and business capability
There are already over 1.1m open tech jobs in US, a massive skills gap that is set to grow as large US employers complete stages of digital transformation, citing a need to fill over 200k new tech roles every year for next 3 years
The supply of available talent in traditional sources like college / university or open labor market is insufficient - with c. 111k relevant newly skilled workers per year entering the labor market from STEM related courses, demand exceeds supply by 10x
We have over ten years experience creating custom enterprise programs to address skills gaps in support of digital transformation, and we believe apprenticeships are a scalable solution to address the rapidly growing US skills shortage as well as diversity in your workforce
SO WHY ARE WE DOING THIS?
For over ten years Charlie and I have been speaking with US business leaders about digital transformation (DX) - at conferences, industry events, and as partners supporting their L&D initiatives.
Our main focus during that time was helping organizations going through digital transformation to develop capabilities that help them succeed in a digital world.
There’s a lot more to it, from our expertise in building, developing and customizing enterprise online learning platforms to build technical skills and evolve digital culture, or our experience in building programs for leadership teams that unlock potential and change ways of thinking… we have been lucky enough to have some really great clients with whom we have done great things and from whom we have learned a lot.
In recent years a few common themes emerged:
Increased urgency to address digital & data capability at scale
Seniority of program sponsors, with more C-suite stakeholders
Inclusion of Digital, IT & Data stakeholders in L&D initiatives
Focus on realizing the value of digital transformation investments ,
Realization of an imminent skills gap that will adversely affect business
Having witnessed the evolution of these themes, built large programs to help solve them, and been inspired by working for one of Europe’s largest apprenticeship providers, we decided to dedicate ourselves to innovating apprenticeships in the US to help solve the skills gap.
Not the blue collar trade apprenticeship that most folks think of first (those are great, but we don’t do them), but modern ‘new collar’ apprenticeships that teach much needed technical skills in data, digital, IT, AI & software development. There’s so much that can be achieved with apprenticeships: being able to refocus hiring criteria or people with potential that you can train vs finding and paying for people who have the exact experience you need. The on-the-job earn while you learn approach not only enables you to attract talent with great potential, but also to custom fit any training to the skills you need to get the job done.
You can unlock business potential faster by having the right resources in place, and in most cases Apprentices are producing results and getting things done within the first few months. Furthermore, if you are motivated to address diversity in your organization, or to provide access to career opportunities for a wider talent pool based on their potential rather than if they hold the right 4-year degree, then Apprenticeships are ideal.
OK. Sales pitch over. Truth is, the shortage of tech skills available in the US is so severe right now - with demand exceeding supply by 10x - that something has to be done, and Apprenticeships are a proven solution. If you’re not convinced yet, then stick with our blog for the next few chapters, read our white paper or give us a call and we’ll share examples and case studies with you.
One last point on why we are doing this. It’s great to get paid, but that doesn’t usually make you do your best work. What motivates us is being able to make a difference to the businesses we work for - witnessing the impact of building business capability is very rewarding. That rewarding feeling is incalculably multiplied when witnessing an individual unlock their potential, grow in confidence and achieve their goals. It wouldn’t be right to say this isn’t important. Because it is.
WHY IS THERE A SKILLS GAP IN THE US? WHY IS IT SO SERIOUS, AND WHY NOW?
As we went about starting American Apprenticeships we acknowledged we had to eat our own dog-food and be customer-centric focus on what people needed vs what we had in our hands.
Of course we felt we knew it well already from our hands-on coal-face experiences of the last ten years, but as we all know - a research of ‘one’ is never to be relied upon. So we challenged ourselves to do a robust piece of research into the tech skills gap in the US to put some data behind our instincts. We had worked on multiple projects like this before, and I had worked in the European Consumer Insight team at Colgate many years ago, so how hard could it be!!!
So the first step was to complete some desk research, and to focus on the key drivers our professional insight and experience led us towards.
If you take a minute to google search “technology skills gap” you’ll find around 70,000 search results linking to studies, white papers and thought leadership dating back to the 1980s…
Common sense dictates that there are a two big questions to ask when trying to get to the bottom of the ‘skills gap’ question
Why is demand for skills increased?
Why is there a shortage of supply?
We’ll deal with the first question in this blog, and address supply in another. The answer to why demand has increased seemed obvious to us (having spent over ten years working with businesses going through digital transformation) but we had to validate this.
The data is clearly alarming. It’s alarming for various reasons (which we’ll address in topline in this blog, and in more detail in future issues).
The scale is worrying
The impact is serious
It’s worth stating the obvious, that this data is often compiled by firms offering a service that is a solution to the problem. Imagine that! But behind all the sales spin, there are real data trends we can take direction from. Such as, where’s the big investment going?
How much money have enterprise businesses spent on digital transformation?
The IDC Q3 2019 report (surveying over 1000 top global businesses) forecast that in the 4 years between 2020 and 2023 global DX investment will be in excess of $7.4 trillion. The US accounts for over 1/3 of that, so around $2.4tn. But! when you get into the detail, that investment is just on ICT i.e. Information & Communication Technology. So that’s not including costs of restructures, lay-offs, training staff at all levels, hiring new staff at all levels, developing new processes, innovating new products, and all the other ‘stuff’ that goes along with making that ICT investment deliver on its promised return!
Check your own P&L or company reports over the last 10 years, or look at the jobs you’re hiring for now that were not in existence three years ago. Now consider your sector, and extrapolate that to industry as a whole, and you begin to see the weight and momentum behind the wave of change that is maturing now.
While this was a problem once predominantly felt by the big tech firms, it isn't any more. It isn't just the tech sector, or even just in your IT department.
Manufacturing has Automation, Supply Chain, HR & Finance have AI, Marketing & Consumer Insight have Data Analysts & AI… and if your organization doesn’t yet then you are potentially at risk of falling behind your competitors. This genie is out of the bottle and running freely around modern industry unlocking new potential and it’s very exciting!
DIGITAL TRANSFORMATION IS ABOUT TALENT NOT TECHNOLOGY
Hang on...if Digital Transformation is not about buying infrastructure , then why did I just talk about IDC investment? Don’t get me wrong, looking at the IDC data cited above is a great “canary in the coalmine”, and really the best we have if we want to gauge how much DX is going on. However, it’s not going to tell us how many businesses have reached their goal - or made that first transformational leap into their new digital paradigm.
If you’re looking for an analogy, I guess you can view investing in DX infrastructure like having a gym membership - you aren’t going to magically reach your goals unless you make the commitment, the changes and the investment of energy to get results. In other words you aren’t a digitally transformed organization just because you have a new system, website or an app. You need to unlock the business potential from it. And so we reach the conclusion that it’s about talent and not technology.
Researching digital transformation gets very confusing. Once you start asking the question about “what does good digital transformation look like and who’s getting it right?” you get quickly bogged down in bright shiny objects. For the Fortune 1000, DX means billion dollar investments, career defining board-level decisions, and major organizational change. So it’s no surprise it is gilded with often celebratory PR that highlights success wherever it can - and while there’s nothing wrong with that, it can mask the truth.
There are also plenty of “shared” insights passed around as fact - that gather momentum over time.. HBR in 2019 cite Forbes from 2018 who cite McKinsey from 2016 who said that “70% of complex, large-scale change programs don’t reach their stated goals”.
What that exactly means isn’t explicitly clear, but the application of the insight is clear. Same goes for IBM’s Chief Strategy Officer who is often quoted as saying 85% DX programs will fail.
Across these thought leaders - who do really know their stuff - it’s commonly cited that 70%-85% of DX programs are failing - and if you spend enough time trying to get to the bottom of it, many recent thought leadership paths usually point to either the 2016 McKinsey report, or an oft cited Forbes Insights review of Gale & Aarons book ‘ The Digital Helix’.
Why mention that overlapping cluster of highbrow sources and the obvious resulting confusion? Well… it is confusing! And we didn’t take everything at face value, and we wanted to cut through the confusion.
So, DX is clearly hard and most companies are not there yet. DX causes change, culturally painful change, costly, unpredictable and disruptive change. It can mean lay-offs, restructures, leadership feeling out of their depth, missing skills and inadequate business capability, and it can mean quickly adapting to a culture where failure is not only tolerated, but encouraged, as you iterate towards success in a new paradigm…
This is everything a classical fortune 500 business despises! So yes, it’s hard, and most large organizations are - if they are honest with themselves - struggling.
So why mention all this? Well, we have to acknowledge what’s at stake. Big organizations do not take these commitments lightly, and they have often been criticized as being oil tankers as compared to the zippy little speed boats of startups… So after a decade of seeing leadership teams invest in ‘shifting their mindset’ and investing in top talent to guide their strategy, we are now seeing the results.
The commitment has been made, the money is spent, the journey has been taken, the die is cast, and the mold must be filled..
ICT infrastructure spends are already maturing, and will continue to do so over the coming years.
So if we follow this logic, this means these large employers will have a burgeoning need for new skills. More IT, network and systems support. More data capability. Ai capability. And more technical skills to use and innovate with the tools they now have in their hands.
WHAT DOES “IT’S ABOUT TALENT” MEAN?
We are back to sports analogies again, so what if you have the best equipment money can buy for your team, will you win? Not often. Commonly you need talent, and you need to develop the skills to use these tools, and you need to put the effort in to perhaps buy great talent to get a headstart, but then invest in a talent pipeline to ensure you get to a sustainable leadership position!
Attracting and retaining the right talent is critical and good leaders know this. This is played out in research, with recent World Economic Forum (WEF) survey citing: 73% of CEOs cite a tech skills shortage as a major threat to their business.
THERE IS NOT ENOUGH TALENT TO MEET DEMAND
There were 5.4 million tech job postings in 2019. That’s huge! Of course this captures new roles created and replacement.
In the first half of 2019, tech job postings in the U.S. rose 32% from a year earlier, according to federal employment data analyzed by IT trade group CompTIA. In Q3 2019, U.S. employers had about 918,000 unfilled IT jobs, CompTIA said. (WSJ October 2019)
We surveyed 160 large US employers ( you can get a copy here) and found that non traditional tech firms - i.e. those not dominating IT hiring in 2019 - plan to hire over 200,000 new roles every year for the next three years. So if we assume some simple arithmetic we can deduce there are over 1,100,000 jobs unfilled tech roles in USA in 2020. This largely captures core data and IT jobs, and isn’t necessarily capturing the expanded impact of all the tech-tool users / operators that will need training in automation or supply chain. So we can assume that this number is likely underestimated and the need is even greater.
WHY IS THE SUPPLY OF TALENT NOT THERE?
It just isn’t. The education system has not kept up.
IT, Data Analytics, Data Science, AI etc. are all technical skills - and thankfully they are learnable.
They rely on STEM programs in the education sector - Science Technology, Engineering & Maths.
We’ll address this in more detail in another blog, but some brief googling around this will tell you that there is a serious STEM issue in US education, and that the numbers are lower than we need in high schools today, and unsurprisingly not great in college/ university today. When you make calculations on available data on supply of talent you end up deducing around 134k skilled workers will enter the tech job market in 2020. This is made up of Computer Science grads from university or community college, and bootcamp self taught grads. There are more, but in reality, most STEM graduates will end up in their speciality e.g. engineering, bio-science or medicine, or whatever their speciality is. They are less likely to enter the job market as a e.g. “retail data analyst”. So whilst the numbers have noise in them, this is very useful maths to discern the quantum of the supply of talent. Again, if we focus on what this indicates, we can see that we have a major supply problem with talent, and we are not going to see the system solve it quickly.
SO WHAT DOES THIS MEAN?
If not properly addressed it is estimated that by 2030 the United States alone could miss out on $1.748 trillion in revenue due to labor shortages annually, or roughly 6% of its entire economy!
This seems like a nebulous figure, and frankly it also seems low.
Our research looked at six challenges common to the impact of the tech skills gap and found that 82% of large U.S. employers had projects slow down due to not having the right tech talent. Additionally, 50% were freelancing domestically at higher cost, 38% had projects not start, or had to reduce project requirements, and 29% had to stop existing projects or freelance overseas
That is costly, and it is often why 70% - 85% of DX is failing.
ADAPT OR FAIL
Technology is rapidly outpacing our ability to adapt, and while there is very exciting potential, large U.S. businesses have to understand their core challenge.
Thomas Friedman’s book illustrated this point well with the graphic shown here, and Google’s sage Astro Teller has made frequent use of it to make the point: It’s not what shiny new technology to invest in, but how humans can adapt to embracing it.
From a business pov: who is going to set up, operate and make use of those systems?
However crude the math, reality is, there simply is not enough skilled talent to support all the new jobs that are being created by technology.
US businesses have committed massive resources to step-changing digital infrastructure, but there has not been an equal investment in skills development - and without that, those investments will not produce results to their potential, and in fact may languish as wasted investments.
WHEN EMPLOYERS CANNOT BUY TALENT, THEY HAVE TO BUILD IT
The skills gap won’t be solved by our faith in the education system. Schools, colleges & universities do amazing work, but they can’t speed up time. It’s likely at least five to ten years before the first waves of ‘sufficient’ numbers appear. But of course technology doesn’t stand still, so perhaps we will never go back to how it once was, and we will have to go back to how it really used to be where employers took on the responsibility to train their employees! So this labor shortage and tech skills gap will only be solved if organizations innovate to find solutions that create the talent pipeline they need. Our research estimates the Fortune 1000 will add an additional 200k tech roles to the labor market this year alone.
The costs to compete in the labor market by boosting salaries or benefits are eventually going to be prohibitive to sustainably recruiting talent, and in reality today’s tech skills do not have the shelf life they used to.
So now ‘everyone is a tech company’ because they are digitally transforming. When we asked, these ‘new tech’ employers estimated they will add an additional 200k+ new roles per year for the foreseeable future - which only adds pressure to an already tight labor market - driving up wages and recruitment costs, and compounding retention issues. (We’ll address these issues in future blogs)
We see the modern apprenticeship model as an effective method for large. organizations to quickly prepare themselves for this accelerating disruption that the fourth industrial revolution is unleashing. The last ten years have been disruptive, but in reality we are only on the cusp of this - as waves of applications of AI, Machine Learning, and other tech wash over industry creating new opportunities, processes and efficiencies that generate an increased need for new skills.
If you’d like to learn more, check out our research, get in touch, or share your question in the comments below. The insights we have shared are sourced from our own desk research with sources cited, and from our own survey research and analysis conducted in Q1 2020, where we asked leaders from over 10% of the Fortune 1000 about the challenges they are experiencing with the tech skills gap.
You can access that research here. In it we examine & quantify important themes , driving factors and key challenges faced by large US employers when trying to fill tech roles, and we analyze approaches taken to address this by some of the largest companies in the U.S.
We’d love to hear from you, and welcome your thoughts, feedback, and personal experience on the above.