The Skills Paradox in Times of Change
Graham W. Winch
University of Plymouth Business School
Abstract
The skill base of an enterprise rises and falls as a result of staff turnover, training and other
development processes, and with the change in the relevance of the skills to its current
circumstances. A qualitative Skills Inventory Model (SkIM) is proposed using the familiar stock-
flow structure. The SkKIM model helps articulate the dynamics of this key variable, and may
suggest why some firms find major change in insuperable barrier. It reflects how in stable times,
the received wisdom of retaining staff applies, as skills lost when staff leave must be recovered
through those of their replacements or through training and other staff development. In times of
relatively slow change, staff retention may be even more important, as change leads to faster skills
obsolescence, which would otherwise put a double burden on skill replenishment.
In times of major change, however, the picture may be quite different. In these circumstances the
rate of skills obsolescence becomes rapid, and normal staff development processes may simply
prove inadequate in building up the necessary new skill base. Smaller firms in particular may not
have access to staff rotation with sister firms and other mechanisms available to larger firms to
deal with this. In which case, the ability to enhance the skills inventory through staff recruitment
may be necessary. This poses a particular challenge to firms whose natural staff attrition is low
and growth is not leading naturally to the creation of new posts.
Introduction
We often hear it asserted that “Our firm’s greatest assets are the skills and talents of our
people.” and this is interpreted into the maxim that where-ever possible an enterprise should
seek to retain its experienced workforce - at least in terms of its more competent staff. This
applies to all levels within the organisation, but is arguably most critical in the case of
managers. The reasons are straightforward, if managers leave they take their skills and
abilities with them to the benefit of their new employer. Those skills then have to be replaced
either by new recruitment or by training and development within the existing management
team, both of which are time consuming and potentially costly activities.
The dimensions of this retention strategy are explored within the framework of a ‘skills
inventory’ viewpoint in this paper. It describes, in general terms, how the skills inventory can
be increased and how it decreases. It then proceeds to consider the specific situation of when
an enterprise is facing a major change, or a period of industry turbulence that may demand a
sequence of changes. These changes are likely to be particularly challenging times, as skills
‘in the old ways’ more quickly become irrelevant and obsolete, depleting rapidly the skills
inventory of the firm. A simple visual model - a Skills Inventory Model (or SkIM) - using the
stock-flow diagramming approach is developed to help in the articulation of these ideas. This
suggests that under such circumstances the retention of the managerial workforce might not
be such a favourable strategy, as the firm may then have very limited scope to acquire the new
skills that would be needed to face the challenge after major changes have been implemented.
The SkIM model is developed further to take into account other methods by which firms may
bridge the skills gap - staff rotation with sister firms, secondees, use of consultants etc..
However, it is recognised that these other methods are not available to all firms, particular
small medium enterprises (SME’s).
While the basic objective of this paper is to present a visual model of the skills dimension in
managing through and after change, the model is able to help in understanding the manager
retention paradox in times of change. The fuller model gives a more comprehensive picture,
and it is conceivable that a quantitative model could be developed that would support analysis
in the development and evaluation of specific recruitment/training/succession policies for a
firm.
Preparing for Fundamental Change - the Challenges
It is generally accepted that the accelerating pace of organisational and societal change in
recent times has led to an increasing range of demands on managers (see Huey, 1994;
Kilcourse, 1994). Any change poses challenges to a management team (and to the workforce
as a whole), but fundamental change is likely to be particularly challenging. Small-medium
enterprises (SME’s) in particular, though sometimes benefiting from increased cohesion and
‘entrepreneurism’ their small size brings, may have limited room to manoeuvre in trying to
address these challenges. For the purposes of discussion here, a deliberately broad view of the
term ‘manager’ is taken. Handy (1993) has noted the difficulties in precisely defining what a
manager is and does. The term includes any person with responsibility for the management of
others (as in Wynarczyk, et al., 1993), here the definition is specifically held to include
directors and SME owner/ managers.
Classically, Minztberg (1973) defined 10 roles of a manager centring around interpersonal,
information handling and decision areas. Significantly, however, Litwin and Culler (1993)
estimated that managers show a 50% drop in effectiveness in times of major change: in their
case downsizing and cost reduction. The reasons for such a drastic fall in performance are
many and complex, but Braham (1981) points particularly to the strain uncertainty and change
puts on human resource planning.
There have been many attempts to establish change guidelines and frameworks for
organisations (see Kotter, 1990; Tichy and Devanna, 1986; Burke and Litwin, 1992).There
have also been many valid proposals which have utilised, BPR and OD based models and
frameworks (see Coulson Thomas, 1992; Aitken, 1995; Carr, 1993 and Pollalis, 1996). These
have all provided valid and sensible generalisations about change management issues
however they generally fail to explain how managers can deal with the enormous range of
consequences and complexity generated by change (see Dunphy and Stace, 1993; and
McKendall, 1993). Gilbert and Kleiner (1993) suggested that an alternative approach to
change from these traditional frameworks was for leaders to promote and drive
experimentation and adaptation from all staff: thereby encouraging the up take of new ideas
The practical experiences of how useful the different methods proved in assisting managers in
their preparations for change are mixed. In his study of a hundred US organisations, Darcy
Hitchcock found that some of the most successful support approaches were often neglected in
practice (Hitchcock, 1996). He found that a key success factor was to allow managers to
explore their own roles and this was often achieved by giving them on demand access to a
consultant. There has arguably also been an over reliance on the ‘hard’ aspects of structures
and systems in much of the literature on change. Swist and Ayers (1994) found that such
visible aspects related to change: such as structures and strategies, accounted for only 20% of
change management processes. They suggested that 80% of all change factors are hidden
from view and relate to human interaction, employee understanding and commitment to
organisational vision. Litwin and his colleagues (1996) stressed the importance of providing
guidance to individuals who were experiencing change, while Barham (1988), and London
and Wueste (1992) emphasised integrating training and development issues into overall
organisational strategy. Grieve-Smith and Fleck (1987) and Wynarczyk (1993) also
highlighted the importance of recruiting and retaining management from outside the
organisation in growth oriented businesses.
A Visual Model of Skill Inventory Management
The credibility and utility of visual models - diagrams based on either the causal loop
diagramming approach or the stock-flow format - has been widely discussed (see, for
example, Wolstenholme and Coyle, 1983; Ward and Schriefer, 1997; Richmond, 1994). This
paper presents a model capturing the structure of flows of skills into and out of a firm’s
management team, using the stock-flow format.
The aggregate cumulative skills of an enterprise’s workforce may be regarded as its ‘skills
inventory’. These skills comprise the knowledge of the organisation and its environment, and
the ability to use that knowledge productively to the benefit of the enterprise. Clearly,
managers are required to possess and display a wide range of ‘skills’, some will be very
specific to their functional role, some specific to the industry they are in, and some related to
their ability to manage - interpersonal, integrating and co-ordination, ‘leadership’, and
strategic thinking skills. There are a number of basic mechanisms by which the skill inventory
changes over time.
The inventory can be depleted:
¢ when experienced staff leave,
* as skills become obsolete
It may be replenished by:
* new recnuits, if they represent a net increase in workforce (i.e. do not replace a
leaver), and assuming that every new recruit brings at least some minimum skill
level with them.
* recruits who replace leavers, if the individual skills of those new recruits exceed
that of the leavers
* accrual of skills through experience, training and development.
More complex processes may also affect the skills inventory level, for example the use of
consultants, job rotation with sister companies in a group, strategic joint ventures that include
staff sharing, secondments, or misuse of resources - e.g. using mangers in one area where
their skills would be more valuable elsewhere. Some of these will be addressed later.
The basic skills inventory structure may be represented pictorially as in Figure 1. (This
structure could similarly apply to other employee groups, but this paper is focused towards
the management team.) This model fits quite neatly with the received wisdom of retaining
managerial staff - at least when times are relatively stable - as highlighted in the literature. In
steady state conditions, nothing much in the environment or the firm is changing, and it might
be assumed that the rate of skill obsolescence is therefore zero or relatively low. In these
circumstances, retaining managers broadly retains the skill level, while training and personal
development can make up for any slow falls in skills inventory due to skills obsolescence. If,
however, managers do leave, then as long as they can be replaced by managers of a similar
level, then the problem is not too severe, though the organisation does incurs the recruitment
costs. Any further small shortfalls due to staff changes can also be made up with training. Of
course, in stable periods - e.g. in mature industries - cost containment is often a critical issue
and so costs of recruitment and/or training may not be regarded as negligible.
MANAGEMENT TEAM
Managers leaving
3
Recruitment
Experiential Ledning
Average skill level
Training activity
Non recruit skills aquisition
SKILLS INVENTORY
Skills acquired with recruits Skills lost with leavers
3
Recruits! skills
Skill obsolesence
Skills obsolesence rate
Figure 1_Levels and Flows in the Skills Inventory View
The situation remains relatively straight-forward in times of gradual change due to slow
changes in the external environment and/or intemal initiatives like continuous improvement.
In this case skill obsolescence can again probably be counter-balanced by increased training.
However, the situation becomes more difficult to handle if staff tumover is significant at such
times, particularly if replacements tend to have skill levels lower than those they replacement
by any significant margin. Training, and other mechanisms, must then be relied upon to make
up for shortfalls due to turnover, as well as with skills obsolescence. In such times, clearly
minimising turnover is going to be highly beneficial.
The primary concem here is what happens when an organisation faces fundamental change.
The organisation can possibly utilise consultants to assist in the change implementation, but
of equal concern is how its regular managers will be able to manage the new situation. In this
case there is significant skills reduction as the new processes and new thinking make old
ways of approaching management problems rapidly obsolete. To boost the necessary skills
through training may not be feasible, and even if it were, there may be long lag times before
the managers are able to master the new skills needed. The other option is to acquire the
necessary skills by recruiting new managers who already possess those skills. This highlights
the skill paradox, for if growth is not generating the need for new posts that can be filled by
staff with the ‘new’ skills, then this may only be possible if the firm actually has staff leaving
who can be replaced.
Of course, the point has been made earlier that recruitment may be an expensive way to
acquire the new skills, particularly if redundancy, early retirement or other inducement has
been required to create the ‘space’ for the new managers. It also assumes that the necessary
new skills are available in the employment market place. The critical issue is whether the
benefits of post-change managers being able rapidly to master the requirements of the post-
change organisation, and to exploit the new opportunities, outweigh the costs of mobilising
its managers to meet the challenges.
Additional Skill Inventory Structures
The analysis so far has lead to a basic skills inventory structure whose visual form supports
understanding of the problems of retaining and developing the skills base. This structure
would probably apply to just about any kind of organisation. However, some organisations,
large multi-divisional firms in particular, may have additional means of supplementing their
skill base in times of major change. One form of enhancement is through job rotation or
secondment with sister organisations, which if available as an option to the firm, this can be
called upon to quickly boost the skill base. Clearly, though, it is only an option if there is a
sister organisation with whom the rotation can be made, and that the sister has experience of
the new circumstances.
A second altemate form of skill enhancement is through the use of consultants. The presence
of consultants obviously provides an immediate boost, but it present only while the
consultants are on contract. However, there may also be a longer term benefit that accrues
from the internal staff’s leaning as they work alongside the consultants. Other forms of
extemal intervention includes the use of secondees from universities or indeed other firms,
the use of ‘Teaching Company Associates’!, and such newer concepts as the ‘guest
engineer’’. (These may all be regarded as ‘transient’ members of the management of the
firm.)
The visual model can therefore be further developed to include these mechanisms, as in
Figure 2. This figure includes the main skills inventory structure, while the internal
management team sector and the transient team sector are represented separately in Figures
3A and 3B. Inevitably as the diagram becomes more complex in order to capture all the
mechanisms, it probably becomes less useful as a thinking/discussion aid.
' The Teaching Company Scheme is a knowledge/technology transfer initiative centred in a number of UK
universities. Good graduates with some industrial experience are recruited for a fixed time period, usually two
years, by the university and are funded jointly by the receiving firm and the government's Department of Trade
and Industry. They are based in the receiving firm and spearhead work on a particular innovation project with
the technical support and guidance of a team of university specialists.
? Guest engineers are employees of one firm who are co-located with specialists in a supply chain partner to
work on a specific project. Guest engineers are able to support the two-way flow of ideas and knowledge
between the partner firms.
INTERNAL MANAGEMENT SECTOR
Experiential learning
erage skill evel
Non recruit skills acquisition
Staff rotated in
SKILLS INVENTORY
fills acquired with recru) Staff rotated out
Leaming fr
Loss with leavers
Recruits' skills
Skills Obsolescence
TOTAL SKILL BASE
TRANSIENT SKILL SECTOR
Figure 2 - Extended Skills Inventory Model
CONSULTANTS, SECONDEES, GUEST ENGINEERS, etc
INTERNAL MANAGEMENT TEAM
MANAGERS IN SISTER FIRMS
Managers rotate in
O
Managers rotated out
Managers leaving
Non anager ne No staves
&
Recruitment
Team kang onstasioss
1 hom ostean
Convicn a esteem earings Conmyton toatl bate
Figures 3A & 3B - Detail of the Internal and Transient Management Team Structures
Conclusions
The objective of this paper was to present a visual model - the Skills Inventory Model or
SkIM - capturing the key elements of skill management to help in understanding the
dynamics of skill acquisition and retention, particularly during times when a firm is going
through major change. The model helps in understanding why the universal retention of
managers at such times may not always be the best tactic, as the quick replacement of rapidly
obsolescing skills may be hindered. This paradox has been observed in case studies of firms
which had undergone major change in the recent past. There did appear to be some
(qualitative) correlation between the success that the firms had achieved and their
opportunities for bringing new managers into key roles in the firm (see Winch and
McDonald, 1998).
An expanded version of the Skills Inventory Model does give a more complete view, but is
arguably diminished in usefulness due to its complexity. Nonetheless it clarify that there may
be other mechanisms available by which a firm could rapidly acquire skills in times of rapid
change, either by manager rotation or transfer or through the use of what has here been
described as transient managment team members, external consultants etc. However, manager
rotation/transfer is clearly only available to firms that are part of a multi-divisional company.
Smaller firms may be particularly handicapped by this in their attempts to remain
competitive, though they are more likely to have access to secondees, teaching company
associates, and perhaps guest engineer type resources - possibly even through some
government or trading partner subsidy.
Use of this model has demonstrated again the potential value of stock-flow representations of
system structure to help in understanding counter-intuitive or paradoxical situations.
Acknowledgement
This paper is based on research funded by the Economic and Social Research Council (ESRC), within its
Innovative Management Programme
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Contact Details:
Prof. Graham Winch, University of Plymouth Business School
Drake Circus, Plymouth PL4 8AA, England
Tel: (+44) 1752 232811 Fax: (+44) 1752 232853
Email: graham.winch@pbs.plym.ac.uk
