Behind every great business is a talented and motivated workforce: the right people must be hired; then they must be sufficiently rewarded to ensure they stay with the company. This process has stayed broadly the same for decades because most people have followed similar career trajectories: individuals left school or university, joined a company, got promoted, occasionally changed job, and then retired.
As a consequence, many companies have emphasised graduate programmes (in order to find the right people early in their careers) or sought to support employees through life changes (by providing parental leave, for example). Older people have been largely neglected because most have simply retired. Now, with the population ageing, that is starting to change.
“The [historic] focus on young employees has been replaced by the acknowledgment that a company is better positioned if it has a healthy balance between younger and older employees,” notes Carsten Hölscher of global law firm Jones Day. “As a consequence, companies will need to create an environment that provides the same opportunities to older as to younger employees.”
Making work attractive for older people
Demographic change is not just an academic issue: a shortage of workers (and managers) is an impending reality in many countries around the world. “Germany, one of the most exposed countries, could experience serious labour supply constraints within the next two or three years under the European Commission’s most pessimistic scenario,” notes a report by global advisory firm Willis Towers Watson.
To address this shortage, companies need to keep older people in the workplace by introducing new, more flexible employment practices. For some companies, this will be tricky: many sectors have business models that have scarcely changed in decades. Older workers may also need more support to do their jobs properly: demographic changes could spur the introduction of artificial intelligence and automation, which will require companies to make significant investments.
Rather than simply reacting to change, companies should take a proactive approach to the potential benefits such investment could create. If companies were to respond to an ageing population by investing in new technology, for example, it could help many developed countries to increase productivity for the first time in many years. Accenture says that a connected industrial workforce, in which people and machines work together to reinvent production and service processes, would have significant benefits: an auto manufacturer with annual revenues of €50 billion could unlock as much as €500 million in profitability, for example.
A more diverse workforce
A shrinking workforce is also likely to accelerate a number of other workplace changes already underway. “Women can help offset the problems of an ageing population and a shrinking workforce,” note Yuko Kinoshita and Kalpana Kochhar of IMF's Asia Pacific department. Women make up over half the world’s population but because they generally outlive men, the share of women in the over-65 age group is notably higher. “Yet the percentage of working-age women who actually participate in an economy’s workforce (known as the female labour force participation rate) has hovered around 50% over the past two decades.”
In addition to hiring more women, in many countries companies will need to ensure their workforce becomes more diverse in other ways, with an increasing representation of ethnic minorities, for example. Corporates will need to put in place policies to attract and retain a wider range of employees than in the past: in some countries, there may be a need for government intervention to broaden opportunities and access.
Other human resources challenges will include nurturing a new generation of workers as millennials and Generation K enter the workforce, with different attitudes and priorities (see lead article). It will also be important to ensure that the next generation of managers – likely to be from Generations X and Y – are savvier than the baby boomers they replace. Research by Katinka Jongkind, economist at ING, shows that many C-level managers see the current leadership of their company, which is typically aged 50-65, as lacking vital knowledge in areas such as digitalisation; they also see them as having a traditional, inflexible approach to decision making.
An evolving marketplace
Shifting demographics will change the things people buy and the services they use. A report by the European Parliament notes that Europeans over 65 already have a spending capacity of over €3 trillion while according to US asset manager PGIM the spending power of the over 60s will reach $15 trillion globally by the end of the decade, compared to $8 trillion in 2010. Companies will need to respond as some markets expand dramatically – most obviously those that serve older people – while others shrink.
Health is likely to be the biggest beneficiary of changing demographics. “As there are increasing numbers of older people, the number of people with age-related impairments will also grow, meaning the market for goods and services to minimise, manage and mitigate these impairments will become bigger still,” notes the European Parliament report.
Eric Spiegel, president and CEO of Siemens USA, anticipates greater innovation in health-related technology as a result of an ageing population. “There will be an even stronger drive to decrease the cost per patient. As the population is getting older we have to invest in prevention, early detection and therapy of all serious diseases like diabetes, dementia and Alzheimer's disease, cardiologic diseases or cancer. Given the demand to decrease the cost per patient, we believe that technology will be part of the solution to drive down costs.” He adds: “This is an opportunity for technological innovators to develop products and solutions that can address the challenges of tomorrow.”
Changing demographics will also create opportunities in food (an ageing population will want to stay healthy and may also need more services such as home catering) and financial services (to plan for growing longevity). Travel and leisure activities are likely to enjoy increased demand. Many of these trends are already established. For example, the cruise industry has an annual passenger compound annual growth rate of 6.55% from 1990 to 2019, according to Cruise Market Watch.
Some technology sectors, such as home-automation, are expected to grow quickly as the elderly seek to retain mobility and stay in their own homes for longer. The Japanese company Cyberdyne, for example, is building powered exoskeletons designed to assist the elderly at work and at home. Toyota has begun testing ‘human support robots’ that can move around rooms and pick up objects, while Panasonic is currently working on a bed that transforms into a wheelchair. Older people are also likely to be enthusiastic users of driverless cars, given the flexibility and safety they offer.
While spending by senior citizens will grow, it is often held back by a range of factors, according to Cesira Urzi-Brancati, research fellow at the International Longevity Centre. “For many older people, it isn’t a lack of money, but more of a lack of opportunity which stops them spending,” she notes. A growing older population should prompt government and companies to find ways to “open up spending by this group of the population,” says adds.
In Japan, there are already shopping malls designed for the elderly that offer discounts on pension day and provide leisure activities such as dancing and calligraphy, and medical clinics. Similarly, a supermarket chain in Germany has designed stores with elderly-friendly features such as bright lighting, wide aisles (for mobility scooters), non-slip floors and emergency call buttons. More prosaically, the packaging used in food and personal care products will need to be made easier to open for elderly people.
A nuanced response
Despite their growing importance, the older generation should not dominate companies’ strategic thinking: demographic change is complex and requires a nuanced response. Companies will also have to capture new consumers – and that will require a completely different strategy. Millennials are the largest demographic group since the post-war baby boomers in many developed countries. And they have completely different preferences and spending priorities compared to previous generations.
“Brands don’t win over millennials easily,” says Saja Chodosh of brand strategy agency Emotive Brand. “In fact, in many ways, [millennials] hold higher expectations of the businesses they work for, the brands they buy from, and pledge loyalty to.”
Justin Keeble, managing director at Accenture Sustainability Services, agrees that millennials are more idealistic. He describes them as “engaged in global issues: 84% believe it is their generation's duty to change the world”. Keeble adds that millennials are tech-savvy and committed: “Tomorrow's biggest spenders want things done differently”. Business must focus on sustainability and digital technology to earn the trust of this new generation of consumers.
A positive approach to change
The checklist of challenges facing companies in the coming decades is formidable. Even as they scrabble to adapt to a changing workforce and marketplace, they will have to manage legacy issues such as pension liabilities. The estimated €7.6 billon pension deficit of General Motor’s European assets, including Opel and Vauxhall, was a critical part of negotiations for the €2.3 billion sale of the company to PSA, for example.
“Often the devil is in the detail with pensions,” says Stephen Postill, senior consultant at Willis Towers Watson. “For potential acquirers, the aim will be to identify such issues during due diligence. From a seller’s perspective, there’s a potential need to review and deal with the issues before they pose a risk of scaring off interested parties. Acquirers and sellers should be aware of the possible obstacles.”
More generally, demographic challenges should not be seen as a barrier to success but as a potential opportunity for nimble firms. Research by Carol Dweck at Stanford University suggests that organisations, like people, can be divided into those with a fixed mindset and others with a growth mindset, which relish challenges and continually strive to learn. The key to thriving in the future will be to adopt a growth mindset that prioritises the capacity to change. Corporates will need to be more open minded about what their workforce looks like and nurture them in order to unlock their potential. And they will need to embrace a more innovative outlook that can recognise and respond to the changes in business, society and culture that will result from the forthcoming shift in demographics.