Businesses losing profits as skills shortage worsen and wages jump: Institute of Management

The skills shortage is beginning to take its toll on businesses, a new Australian Institute of Management survey has found, with companies of all sizes warning of declines in profits, employee morale and customer service standards.

The survey comes just weeks after the Skills Australia report was released, warning that wages will continue to rise and education will be stunted if the Government does not address the skills shortage quickly.

“The report is concerning,” says AIM head of Victoria and New South Wales, Susan Heron.

“The main impact, and I think the one that is most concerning, is that stress is being created amongst the workforce as a result of these skills shortages.”

The survey, which interviewed 1,850 board members, chief executives and business owners from a wide range of business sizes, found 82% of those believe they are now experiencing a skills gap, up from 76% in the 2009-10 survey.

These skills gaps are having dramatic effects. The survey shows 46% of those questioned believe work pressures have meant time for training has been reduced, while 39% say they are having trouble finding the right candidates for open positions.

But overall, the biggest impact is on staff morale. With workers stretched thin, 71% of those surveyed say they are seeing more stress on employees, compared to 69% in the previous survey. And 56% say their staff has lower morale, compared to 52% in 2009-10.

Moreover, 48% said they are losing high-performing employees, compared to 42%, while 41% also said they are seeing a decline in customer service standards, and profits.

Heron says the fact skills shortages are beginning to impact on the bottom line is troubling.

“What we’re actually looking at here is a vicious circle. We’re seeing an impact on the bottom line, but at the same time employees have options because they’re being increasingly approached to go and work elsewhere.”

While the report does not specifically address the issue of rising wages, Heron agrees it is a concern. Over the past year several unions have been able to leverage substantial wage increases across the country as these industries suffer harsh skills shortages – particularly in the construction industry.

In fact, a separate AIM survey released today found that smaller companies are facing wage blowouts.

In order to retain staff, 83.2% of small companies surveyed paid salary increases – up from 76% in the previous survey.

“This is a direct consequence of the skills shortage,” Heron says.

“This can leave people to leave companies, and of course, the most important resource is people. If they’re not engaged, if they don’t feel like they’re in an organisation which suits them, there is going to be a flow on effect.”

However, businesses are beginning to fight back. The survey shows 68% are showing a strong commitment to training and development, up from 65%, which Heron says will go a long way in helping morale.

“Training is a key engagement tool. One of the biggest reasons for why there is a skills gap is because employers won’t allow the time away from their desks. And that’s fair, but if you aren’t skilling employees in your short-term, you have no medium or long-term plan.”

Others are promoting internally, and 56% say they are being more flexible when deciding on who to hire, up from 50% The survey also shows 53% are using internal resources for training, up from 50%.

While Heron says many companies aren’t able to avoid a skills shortage, they are able to mitigate it using a few different methods.

Staff morale becomes lower when companies aren’t communicating with them, she argues, and management need to ensure employees are in tune with the long-term vision of the company.

“Business owners need to look at their culture. They need to ensure they have a forum that has good leadership, good communications and is focused not just on wages, but understands concepts like workplace flexibility.”

“We shouldn’t be talking about this anymore. You need to up-skill, recruit for up-skilling and make sure you have the right employees for training.”

Heron says morale tends to be higher, even during skills shortages, in smaller firms as the management is in constant contact with employees. This tends to drop as management becomes dislocated from employees as businesses grow.

“Leaderships is seen to be stronger there. Employees need to be engaged, and businesses need to demonstrate that leadership so even if they don’t have that financial backing, morale can still be high.

The biggest business size represented in the report was those with between 1,000 and 5,000 employees, making up 18% of respondents.

Those with under 20 employees represented 9%, those between 20 and 50 employees represented 7%, and those with up to 100 employees represented 9%.