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November 12, 2021 | Time and Attendance | Posted by Victor Assad

The Compelling Case for Upskilling and Reskilling Your Workforce

America’s supply chain is being reordered, and with it, American firms are rethinking their relationship with employees. For more than a generation, the CEO playbook was to believe employees were expendable and to move manufacturing to low-cost or low tax regions of the world. The new thinking is to move manufacturing closer to consumers or regional R&D or supply chain centers and to upskill the workforce to avoid the supply morass the US is currently facing.

This global shift puts pressure on HR to reskill and upskill its workforce and build a long-term relationship with employees.

Factors Driving the Need for Upskilling and Reskilling the Workforce

In September, the US had 10 million job openings and 7.7 million unemployed leaving a shortfall of workers according to the US Department of Labor.

This is not a short-term issue. About 4 million US workers have left the job market since Covid-19 due to safety issues, retirement, child-care needs, and the mismatch of desired skills or locations. Even before the endemic, the US was in a long-term labor shortage due to baby-boomer retirements, low birth rates, restrictions on immigration, and difficulties automating many office jobs, according to The Conference Board and the US Census Bureau.

McKinsey’s analysts suggest that 39 percent to 58 percent of worldwide work activities in operationally intensive sectors could be automated using existing technologies. However, most organizations are not ready to address this issue and implement it successfully.

Reskilling vs. Upskilling

The terms reskilling and upskilling may be used frequently, but what do they mean? Reskilling is the retraining of current workers with new skills to take on entirely different new roles. Manufacturing engineers, for example, could be trained on how to write program code or to be software engineers.

Upskilling means teaching workers new skills and specialization around their current jobs or career path. For example, manufacturing workers could be trained to be robot controllers and production exception handlers.

Examples with upskilling and reskilling of engineers and in the factory — and the savings

  1. I have had a successful experience with both upskilling and reskilling workers. While leading Human Resources for Honeywell Space Systems in the 2000s, our workforce planning revealed that we needed more specialized software engineers and software programmers to accommodate changes in satellite design by NASA and private-sector satellite manufacturers. We calculated that our retraining effort saved us a few million dollars as the retraining of our existing workforce was less expensive than hiring scarce external workers. In addition, the speed with which we reskilled our mechanical engineers allowed us to complete software work ahead of schedule and to release new products early, which also helped revenues and profit.
  2. Today, Walmart is investing $4 billion over four years to help frontline and back-office jobs transition to new customer-service roles. Amazon plans to spend $700 million on technology training by 2025 to help employees learn and move to higher-skill jobs.
  3. Tata Steel’s Netherlands plant established an advanced-analytics academy to train and certify hundreds of engineers on the application of new analytical approaches to manufacturing-process improvement. The new technologies and trained workforce helped the plant to boost its earnings before interest, taxes, depreciation, and amortization by more than 15 percent.

Workforce Planning and Mapping of Skills to Job Families

Skill demands are determined by the organization’s wider business and technology strategies. The question for the business is what to automate and does it change the skills required of the workforce.

For the HR leaders who want to identify what new skills are required for different job families of the workforce, there are a series of discussions I recommend.

  • First, speak to the technology architect to understand the strategy for change.
  • Speak to the leaders of each department to understand which job families in their departments will need to learn new skills and any other changes that may be required of the workforce, and the tactics, or preferred way of training the workforce.
  • Determine if the training will be online, in-person classes, one-on-coaching, or a combination of all three?
  • How will the training be tracked, and will certifications be issued?

Total up the job families, employees to be retrained, and create a map of who is to be trained where and when in the organization.

Before implementing the training initiative, determine the top-line business Key Performance Indicators to be improved and by how much, and the predictive measures to track to assure success, adjusting as you implement.

How to Calculate the Return on Investment of Reskilling and Upskilling

With reskilling or upskilling the workforce, this is a comparison of reskilling and upskilling with the cost of doing nothing. Remember the cost of doing nothing in a global supply chain crisis can mean serious shortages and a significant loss in market share and revenue.

Here is how the savings from retraining the workforce is calculated:

  • Add up the total cost of the reskilling initiative, including direct training costs, employees’ time off work, and any administrative costs. Research shows that the average cost is $24,800 per worker according to the Boston Consulting Group and The World Economic Forum. But hesitation is costing companies regardless: high turnover and new hires cost the average 100-person company approximately $660,000 to $2.6 million per year, according to a study conducted by Gallup.  I have found that upskilling costs are much cheaper per employee for manufacturing and warehouse workers – and less expensive than recruiting.
  • Currently, employers can deduct certain qualified education and training expenses for tax purposes, improving their ROI. Generally, at the firm level, only education expenses which improve worker skills for their current positions (upskilling) are deductible. Check with the tax foundation and your state government or a local community college to learn more.
  • Add up the cost of doing nothing.
  • Does the reskilling or upskilling initiative pass the organization’s “hurdle investment” rate? (Run it by Finance.)

It will be essential to track the improvement in productivity from reskilling and upskilling versus the goal. Also, track the essential people metrics — such as retention and engagement — for the impacted workers.

The 2020s will see a colossal reordering of America’s offshore supply chain back to the United States with heavy doses of automation and digitization. It will require the reskilling and upskilling of the most precious resource any organization has: its workforce.

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on innovation, global talent strategies, developing agile leaders and teams, and other strategic initiatives. Questions? Please email Victor at victorassad6@gmail.com.