14 Apr Labor Shortage Mitigation
Five years ago, HBI’s Christopher Dore gave a lecture to the Federation of Archaeological Managers and Employers (FAME). The U.K. was on the verge of an archaeological labor shortage and Dore was asked to talk about the lessons learned from the U.S. archaeological/CRM labor shortage of the middle 2000s, from approximately 2005-2007, and ending with the economic crisis or “great recession” in 2008. He presented things that U.K. firms could do, in advance, to minimize the problems that a labor shortage brings.
Today, in North America, we are once again looking at the possibility of an upcoming labor shortage in the CRM/environmental industry. Given that is has been nearly 20 years since our last major increase in demand, it is worth reviewing what problems the shortage brought and outlining some steps to mitigate these problems.
So, what happened in 2005? After a few years of strong industry growth, the supply for trained, experienced, and degreed employees, especially project managers (PMs), exceeded the supply leading to a shortage of PMs. Demand can change quickly, but it takes many years of education and experience to make a valuable PM. PMs jumped from firm-to-firm cashing in on very high-salary offers. PMs are often the “bottle neck” for a firm’s ability to take on more projects. For firms, this led to disruption, chaos, and higher labor, training, and retention costs. Unbillable labor shot upwards as new PMs had to be trained to the policies and procedures of a new company and figure out how to take over a portfolio of ongoing projects. While firms were able to charge some clients 2-3 times normal prices, many firms who had long-term and/or government contracts were locked into the prices they could charge while they were facing rapidly escalating costs. The ability to subcontract to partner firms or, more critically, to specialized analysts disappeared because they were beyond capacity too.
Normally a “boom” in business is considered good, but in this case the consequences were damaging both professionally and commercially. First, firms could not cash in on the profitability that would be expected in a boom and that the market would support. The opportunities for high profits were missed. Second, the scientific quality of work decreased because projects were rushed, standards were relaxed, and the use of paraprofessionals increased. Third, attacks against compliance legislation and regulations rose because CRM was holding up economic development, especially “strategic” energy development. Finally, fourth, it was boom and bust for PMs who changed firms. When the recession hit and demand was reduced, high-paid project managers who had low seniority at their new firms were laid off. Many left the industry.
Can these happen again? Absolutely! So, what can be done to minimize risk now. Demand can exceed industry supply quickly and when it happens there is little individual firms can do. First, take measures to tie key employees to the firm. This can be done through the use of long-term contracts, guaranteed bonuses, or equity stakes. Second, explore options for outsourcing non-fieldwork activities to lower-cost, higher-capacity markets. It is a global market for heritage services. Develop trusted relationships now for support and technical work that doesn’t need to be based, like fieldwork, in the capacity-shortage area. Third, pay attention to contracting. Avoid long-term contracts, seek cost-plus contracts, and add clauses that allow pricing to change relative to short-term changes in costs. Offer clients “preferred” status where you trade what they want (e.g. schedule priority) for what you need to be able to deliver (e.g. higher prices). Fourth, identify key vendors and subcontractors. Seek to become priority clients with top-of-the-list rights. To do this, you may need to give them what they need: more business and/or higher prices. Fifth, assess your organization’s structure. Is it scalable? Are you at the right stage of growth to be able to handle an increase in work? If not, make adjustments now. How much extra capacity do you have? Sixth, rethink your capital structure. Retained earnings can usually only support about ten percent growth. Establish robust lines of credit and other forms of capitalization now so that you have the resources to quickly scale up and add capacity.
Let’s learn from our past failings. Sure, some CRM firms did great during the boom of the first decade of this century. Overall, though, it caused more harm than good for firms, our sciences, our industry, and our public reputation. Now is the time to ensure that everyone benefits from a new period of high demand.