The Future of Financial Management

This series examines strategies for addressing the many emergent challenges of financial management. Prior articles have examined how quantitative differences in financial performance are increasingly driven by qualitative differences in non-financial resources and in how those resources are managed. This week, we will focus on the management implications of the growing tension between talent and opportunity in today's economy.

Fewer Jobs, Plenty of Job Seekers

Last week, I asserted that jobs in the future will be much scarcer than job-seekers. The underlying factors for the coming job shortage can be summarized as follows:

First, workers who aren't among the best in the world in talent (or the least costly for a given level of talent) will have fewer opportunities and less bargaining power because markets are expanding in scope rapidly so that customers don't have to settle for anything but the best (or cheapest) in the world.

Second, fewer enterprises will possess the ability to profitably exploit talent. Marketing, sales, and distribution costs are hijacking the bottom line because it's becoming more difficult to reach prospective customers who increasingly have better products and services than they ever thought they'd have and who are increasingly bombarded with commercial messages. Consequently, only those few companies having the lowest costs of connecting with customers (or who do so in a hard-to-imitate way) will be profitable enough to survive.

Third, enterprises that do possess the ability to profitably exploit highly-differentiated talent are fighting back against their increasing dependence on that talent. The few individuals who possess top talents know that businesses must access their talent in order to compete at all, which conveys enormous bargaining power to the talent. But businesses are doing whatever they can to reclaim their traditional upper hand in the employment relationship. One way they do this is by drawing from a global pool of talent where they're more sure of getting talent no one can beat. This means even a lot of "A" talent will go unutilized. Another way is by needlessly innovating products and services so as to avoid being "married" to any one talent base.

Finally, in contrast to the claims of a host of labor forecasters, a surplus of genuine job opportunities above and beyond the supply of qualified labor simply cannot exist for any significant length of time (and certainly can't continue to grow for decades) in a competitive free-market economy. Of course, the opposite situation can't persist either, but it can resolve itself in more people being under-employed and under-compensated relative to their past employment, which is what I believe will happen.

Implications for Financial Managers

The situation described above has 4 significant implications for financial managers.

First, your enterprise must hire the best (or cheapest) talent it can afford from the largest labor pool it can access. This is the only way your enterprise will be able to compete in a world of increasingly globalized markets. Hiring more workers who possess uncompetitive talent will be no substitute for hiring fewer workers who possess competitive talent.

Second, recognize that you're unlikely to be able to judge, manage, and control top talent using traditional employment practices. In contrast to earlier times, managers today are less likely to possess a superset of the talents possessed by those they manage. And while management is still likely to possess actionable knowledge that workers don't have, the imperative is for managers to freely share that knowledge rather than hoard it. Accountability of subordinates is still "in", but micro-management is definitely "out."

Third, as you would for any essential resource, you must work on assuring a supply of top talent for your enterprise rather than assuming it will be available at an affordable cost in the future. Be wary of trying to reduce your need for scarce talent; doing so successfully requires even-scarcer talent. Interestingly, high pay is often NOT a major motivator for top talent, so be alert for opportunities to attract and retain top talent with non-financial rewards for performance.

Fourth, managing the value created by an enterprise's marketing, sales, and distribution functions has become at least as critical as managing the value created by the production of goods and services. Simply having access to scarce productive capital is no longer the driver of value creation that it once was; having access to effective and efficient marketing and sales channels has taken on greater relative importance.

Conclusion

Savvy financial managers can continue to contribute to the success of their enterprises by understanding and responding to the evolving relationship between talent and opportunity. Ultimately, accepting the need for top talent and exploiting it through competitive marketing, sales, and distribution are the keys to successful financial performance in the coming decades.

Next week, this series concludes with a summary of the points that have been raised along with professional education and development recommendations that will enhance your ability to embrace the future of financial management.

Read the previous article in this series:

Part 7/ Why shortages of jobs are much more likely than shortages of skilled workers in the future.

Read the next article in this series:

Part 9/ Series Conclusion

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