How Mid-Market Companies are Closing the Talent Gap

While the middle market continues to grow at an impressive clip, outpacing the S&P 500 and its larger cap and public entity counterparts, it faces unique challenges that larger companies do not. Chief among them: closing the “talent gap.”

As the economy improves, the labor market is becoming more competitive and CEOs are becoming increasingly concerned with what’s been widely dubbed the “talent gap” – a lack of human capital that is hindering companies from meeting their goals and growth plans.

This issue is particularly acute for the middle market because most of these companies are owned and operated by members of the baby boomer generation, who will continue to retire in droves over the next decade. With retirement in sight, the concern around identifying and readying the next level of leadership has come into focus.

In a recent survey of 100 middle market CEOs, we learned that addressing, in some way, talent acquisition and retention is a top goal as middle market businesses in 2015. Of course, specific priorities differ by industry and location.

Manufacturing companies seem to be the most concerned with the issue. This problem has been well documented over the past few years, as companies continue to reshore, bringing production and a meaningful number of jobs back to the U.S. After almost 30 years of a decline in jobs in the sector, the gap for qualified workers is wide and large. According to the U.S. Bureau of Labor Statistics, while we are seeing slight improvement in the skills gap trend, about 40% of U.S. manufacturing companies still struggle to fill the positions they need. Some economists say it could be well into the 2020s before the industry is able to surmount this trend.

The same study identified other positions beyond skilled tradesman that were experiencing a talent gap – sales professionals, drivers, IT staff and accounting and finance professionals all topped the list.

Unsurprisingly, engineering talent is in high demand in technology and telecommunications industries, while manufacturing and construction companies cite finding skilled labor their most important goal. When it comes to retention, CEOs plan to implement training programs, educational programs and reward employees to encourage them to stay.

Middle market businesses seem to be getting more and more creative about finding talent. Some of the larger companies we surveyed are targeting acquisitions of smaller peers in the same industry in an effort to bring on senior officers and middle managers who can seamlessly transition into their business and help them grow. This strategy — known as acqui-hire — has been seen in some tech and venture capital communities, but appears to be making inroads in the middle market.

Other companies said they’d look to expand their business or open new offices and facilities in talent-rich markets. The Midwest, as a region, was the most conscious of unavailability of talent (particularly skilled labor) while the Northeast, the New York metro area in particular, self-identified as a market comfortable with the availability and level of talent.

However, survey respondents have expressed concern that government policies and regulations will make closing the talent gap extremely difficult.

One major concern, especially as it relates to attracting more employees towards skilled labor positions, is that wages have remained fairly stagnant over the last decade. All ears seem to be on the continued discussion within Congress around an increase in the federal minimum wage. Guest-worker policies also remain in flux and continue to impact the industry’s ability to fill jobs with qualified candidates.

The good news is that middle market companies feel healthy enough again to grow and expand. But to do that they need to find ways to keep their workforce stimulated and motivated while at the same time bringing on new and more workers to increase productivity, maintain margins, drive innovation, and achieve competitiveness. With the proliferation of America’s middle market, and it’s increasing impact on overall U.S. economic growth, under the microscope in Washington, labor issues will remain in focus for companies and policymakers alike. At the same time, expect to see creative solutions, aggressive hiring goals and new training and retention programs from middle market CEOs as they aim to make meaningful strides towards narrowing the talent gap in 2015.