Episode 28: Talent Strategy

In this episode we talk with Alex Chausovsky,  VP of Analytics and Consulting at Miller Resource Group.  Alex is a highly experienced market researcher and analyst with more than twenty years of expertise across subjects including economics, industrial manufacturing, automation, talent and workforce issues, and advanced technology trends

Bryan and Alex discuss talent strategies and the economy as we head into 2023.

Guest Alex Chausovsky
https://www.linkedin.com/in/alexchausovsky/

Host Bryan Powrozek
https://claytonmckervey.com/team/bryan-powrozek/

For more information on Wipfli, please visit our website at:
https://www.wipfli.com/manufacturing. You can also contact us here.

Transcript

It's going to remain a candidate driven market and the competition for talent is going to remain fierce. In addition to this, there is a trend that clearly has emerged, which is referred to as job hoarding, which is companies are willing to take slightly lower profit margins throughout 2023 in order to retain talent because they know how painful it was to find those individuals in the first place. So they're saying, "Okay, we understand that the costs are going to be a little bit higher, but we don't have to go through that process all over again. We're going to try our best to keep the workers that we have while perhaps curtailing some of the new openings and the growth plans that we have", but we're not likely to see the layoffs and the rise unemployment rate that typically happens during a recession, right, in the "traditional" sense. 

So I think all of those things point to a need by businesses, particularly the smaller, medium size companies, to be very strategic in the way that they think about talent. We've seen actually a shift. There's a lot of announcements of layoffs, the latest one being Amazon laying off quite a bunch of people, but it's those large publicly traded and predominantly tech-oriented companies that over hired during the 2021, 2022 period. And so they're cutting back on some of those over hires right now, which actually benefits the smaller and medium companies that struggle to hire folks in that timeframe and are now actually able to get the talent that they want. So our overall, I'm very optimistic that the labor market, while probably weakening somewhat from the record levels that we saw in 21 and 22, is going to remain very healthy and vibrant. And companies need to be very strategic, as I mentioned, in terms of how they think about talent because on the backside of this is another period of growth. And so you don't want to find yourself scrambling again and not having the people that you need to capitalize on that. 

Brian Powrozek: 

Exactly. Actually, I remember, it was a webinar or something I sat in a while ago talking about that economic downturns can actually be a great opportunity to shore up and build your talent as your competitors who maybe aren't looking out and forecasting as well, have to lay people off. You can now go get those good employees and you earn that bit of loyalty from the employee of during a bad time you were able to hire them, find them a job. Now it requires some good planning on the business owner's part to make sure, okay, do we not just hiring people for the sake of hiring people, but do we have things they can do? Can we keep them busy while things are slow? 

So that, as you mentioned, when things do take off, we've got the bench ready to go. So from our standpoint, we have a lot of conversations around cash management and looking at your, okay, how is your pipeline transitioning to your backlog, which is then the work that you're going to need employees for and how well can you forecast that to make sure that, okay, if I hire this person now because I'm going to have a busy two months, but then all of a sudden the orders drop off, now I'm struggling to find things for that person to work on. 

 Speaker 3: 

Welcome to The Sound of Automation, brought to you by Clayton and McKervey, CPAs for growth driven businesses. 

 Brian Powrozek: 

Hello and welcome to The Sound of Automation. I'm Brian Powrozek with Clayton and McKervey, and joining me today is Alex Chausovsky of Miller Resource Group. Alex, how are you? 

 Alex Chausovsky: 

I'm great, Brian. Thanks so much for having me on the show. 

 Brian Powrozek: 

Excellent. Well, I know, for the audience, if you're involved in automation, you've probably come across the name Miller Resource Group. I know you guys are very involved with industrial automation companies, but I guess can you just give me a little bit of your background and a little bit about how Miller Resource helps automation businesses? 

Alex Chausovsky: 

Yeah, absolutely. So my background with automation goes back more than 20 years. I started my career after getting my MBA, working in a small market research firm called IMS Research, based in Austin, Texas. And my job was to identify automation markets that needed researching, conduct market research studies, and then to share the information with the industry. So I began work looking at machinery production and then really starting to look at all of the different automation components. Electric motors, variable frequency drives, PLCs, and everything in between including mechanical, electrical, pneumatic, hydraulic, and all of those things. So I'm keenly in tune with the automation industry and have been for years. Part of that job was to really help businesses understand where the strategic initiatives needed to be focused. And I did a lot of public speaking. I presented at various industry trade shows and conferences and eventually came across a company called ITR Economics who recruited me to come and talk to the automation world about the economy and what they can expect from the macro and micro forces. 

And of course I did that for about six years and continued to improve my relationship with both the associations and individual companies. And about a year and a half ago, I joined Miller Resource Group for one simple reason. It really struck me that when companies strategize, they always talk about capital investment inventories, profit margins, revenues, and nobody really spends time talking about talent, which is of course, according to themselves is their number one resource. So I am determined to bring insights about talent strategy and the best way to go about attracting, hiring and retaining workers to the automation industry and really help companies develop technical initiatives to get better at the talent strategy game. 

Brian Powrozek: 

So obviously you've been with a couple of names there that I think most people in the automation space are familiar with. And before we jump into the talent conversation, which is really the core of what we want to go into, something else you mentioned there, just curious to get your take on what are you seeing in the economy right now? What's your forecast for maybe the next 12 to 18 months? 

 Alex Chausovsky: 

Yeah, sure. I think it's really critical to continue to follow both cause the labor market and the economy go hand in hand. What happens on the economic landscape obviously influences what happens with hiring and firing of people. So what I'm seeing right now is clearly an economy that is slowing by design. I'm always terming it like we're going into a reselfsion. And what I mean by that is that we are self imposing an economic slowdown and possibly a recession of mild magnitude through the Fed raising interest rates to try to combat inflation. We're already seeing some of the fruits of that labor happening. Inflation numbers have been coming down, the latest reading is just above 7%. We're down off of more than 9% inflation on the core reading, the CPI. And so we're starting to see some of the fruits of that labor by the Fed materialize. 

And I think it's really important for us to continue to pay attention to the data as it comes in. What I mean by that is we don't want to push that lever too far and make the downturn more severe than it has to be. Right now, if you look across the economic landscape, consumers are in fairly stable position. People have jobs. We are in a tight labor market still. The December number showed we add 223,000 jobs last month. There's still about 10 and a half million job openings in the United States. And so it's really this very unique time in our country's economic health in the sense that we are self imposing a slowdown currently to try to bring inflation down. But that's happening while the labor market is very vibrant and healthy still. We really haven't had recessions in the past that weren't accompanied by fairly substantial job losses. 

And I think this situation is going to be exactly that. So I am optimistic that this slowdown, even if it does go into a eventual mild recession, probably towards the latter part of next year, maybe early 2024, it's going to be a recession that needs to be thought of as different. You shouldn't apply the same concepts and strategies as you did to 2020 or 2008, 2009 or 2000, 2001. You really need to think about it as, okay, how can I take advantage of this opportunity to catch my breath a little bit, to look in the rear view mirror, assess what I did during previous downturns and what I wish I had more of going into the next period of growth and make sure that I'm positioned correctly to take advantage of that once we get through this self-imposed lull in economic activity. 

And the companies that are able to do that, that can cut through the noise, not fall victim to the doom and gloom that some pundits out there are pushing forward, are going to position themselves quite well for the growth period that I see emerging in the mid 2020s and lasting towards the latter part of this decade. 

Brian Powrozek: 

Yeah, it's interesting what you mentioned there, and particularly when I think about it for industrial automation companies, is that I almost think this recession will probably, if I had a crystal ball, I feel it'd be something similar to what we saw during the pandemic is that yes, maybe the economy goes into recession, things like that, but the automation companies will probably still have a pretty decent level of demand. And so it may not really appear like a recession to them. 

And I know some of them are actually looking towards saying, "Hey, maybe this is a chance for us to, as you said, catch our breath and regroup after a couple years of really working hard." But I'll be curious to see how that pans out. 'Cause I think that with the drive to reshore some manufacturing, do some of those things, I mean, automation's going to be a key part of all of that. And so I think that a mild recession with hopefully little impact on the industrial automation businesses will be what we see. But I guess we'll talk in a couple years and see how accurate that is. 

Alex Chausovsky: 

Yeah, it makes a lot of sense, Brian, because when you look at the solutions to the talent shortage that's out there right now, it is clearly automation is a major part of the solution. And at Miller Resource Group, we place a lot of engineering talent, a lot of salespeople at automation companies, marketing, HR professionals, all the way up through the C-suite. And we have not seen any slowdown in the demand for our services. So if that is a barometer of health of the automation sector, I think it clearly says that you're likely to weather the storm very, very well in the automation industry. 

It might help you actually catch up on some of the long backlogs that we have and some of the supply chain issues that you're dealing with. But I would be surprised, to be honest with you, if automation companies saw notable contractions in year over year performance. First you have the inflationary pressure driving up prices, so revenues should hold up quite well in that environment. And if volume is down a little bit, you still have in most cases at least six to 12 months of backlog that you can burn through. So that'll be a nice little carry through whatever economic macro level weakness we're going to experience over the next 12 to 18 months. 

Brian Powrozek: 

And specifically as it relates to the job market, I think as you mentioned, treating this as a different type of recession than what we've seen the last couple times is really interesting because when I think about it, the job markets, there's fewer people. The demographics are changing. There's fewer candidates out there for people to find. And now even if you do see some contraction in your business, most companies are already still looking for people anyway. So maybe you eliminate one or two of those positions, but you're still going to try and fill positions. So it's always critical to get the hiring decision correct, but now it's going to be, I think, even more critical going through this recession just to navigate that. You can't necessarily... 

I know there's in our field, some of the bigger companies, they can hire 20, 30 people to start a year knowing that many of those aren't going to work out, we're not going to have that same luxury I think going through this next recession. So I'd be curious to get your thoughts on how you see the recession and the economy impacting the job market for automation companies. 

Alex Chausovsky: 

There's a few things that I wanted to mention in response to that. So you talked about demographics being a differentiator this time around. I agree with that. We've certainly seen particularly men of boomer age and older, not coming into the workforce in the same numbers that we saw pre pandemic. A few factors of that. A lot of them benefited from the run-up in the stock market, and so their financial position is quite good. They said, "This is too difficult, this is too stressful. I don't need to be working. I'm just going to go ahead and sail off into retirement a little bit early." But there are other factors as well. Immigration is a great example. We have severely curtailed immigration during the pandemic, and so there are now about two million immigrants less in the United States had we stayed on the previous run rate. 

And those immigrants are obviously not filling some of the more blue collar jobs, agriculture, production line, manufacturing, construction industry. So that's contributing into tightness in the labor market. Women have also not returned, in force the way that we saw pre-pandemic because the virus is still around. Case numbers right now are going up. There's a new BX1.5.A76 variant, and that is very infectious. And so it still affects childcare and the ability for people to show up in the office. And so all of these factors come together to create a labor market that's not likely to swing back into one that is employer driven. It's going to remain a candidate driven market, and the competition for talent is going to remain fierce. In addition to this, there is a trend that clearly has emerged, which is referred to as job hoarding, which is companies are willing to take slightly lower profit margins throughout 2023 in order to retain talent because they know how painful it was to find those individuals in the first place. 

So they're saying, "Okay, we understand that the costs are going to be a little bit higher, but we don't have to go through that process all over again. We're going to try our best to keep the workers that we have while perhaps curtailing some of the new openings and the growth plans that we have", but we're not likely to see the layoffs and the kind of rise in unemployment rate that typically happens during a recession, in the "traditional" sense. So I think all of those things point to a need by businesses, particularly the smaller and medium sized companies, to be very strategic in the way that they think about talent. We've seen actually a shift. There's a lot of announcements of layoffs, the latest one being Amazon laying off quite a bunch of people, but it's those large publicly traded and predominantly tech oriented companies that overhired during the 2021, 2022 period. 

And so they're cutting back on some of those overhires right now, which actually benefits the smaller and medium companies that struggle to hire folks in that timeframe and are now actually able to get the talent that they want. So overall, I'm very optimistic that the labor market, well probably weakening somewhat from the record levels that we saw in 21 and 22, is going to remain very health and healthy and vibrant. And companies need to be very strategic, as I mentioned, in terms of how they think about talent because on the backside of this is another period of growth. And so you don't want to find yourself scrambling again and not having the people that you need to capitalize on that. 

Brian Powrozek: 

Exactly. Actually, I remember it was a webinar or something I sat in a while ago talking about that economic downturns can actually be a great opportunity to shore up and build your talent as your competitors who maybe aren't looking out and forecasting as well, have to lay people off. You can now go get those good employees and you earn that bit of loyalty from the employee of, hey, during a bad time you were able to hire them, find them a job. Now it requires some good planning on the business owner's part to make sure, okay, do we have not just hiring people for the sake of hiring people, but do we have things they can do? Can we keep them busy while things are slow? So that, as you mentioned, when things do take off, we've got the bench ready to go. 

So from our standpoint, we have a lot of conversations around cash management and looking at, okay, how is your pipeline transitioning to your backlog, which is then the work that you're going to need employees for, and how well can you forecast that to make sure that, okay, if I hire this person now because I'm going to have a busy two months, but then all of a sudden the orders drop off, now I'm struggling to find things for that person to work on. So we have a lot of conversations with clients in that regard. What about from the HR standpoint? How does a business owner start thinking about their hiring, retention, et cetera, with more of a strategic focus as opposed to just, okay, everybody's getting burnout, so now I need to add another head? 

Alex Chausovsky: 

Yeah, I think you nailed it right on the head with the example that you gave in terms of thinking in a way that will position you for the future. So I'll give you one of my examples. I worked with a major automation provider as their economic and business advisor over the course of the pandemic. This is a top five automation global provider. I won't name any names, but components, electrical systems, all of the stuff that a typical big player in automation has. This company, during the second quarter of 2020, made a strategic decision not to cut staff, whereas all of their peers in the industry were pulling back on workers. So they lowered hours, they worked a fewer days a week, but they kept everybody that they had, knowing that they will need those people on the flip side, and I can tell you, I saw in their business performance that when things really started to take off in the second half of 2020, they were able to not only benefit from that, but gain significant market share. 

And when you're talking about a global market share leader already, the fact that they were able to gain several basis points of market share, like several percentage points I should say, was a big deal. And they were able to retain that because of the loyalty of their people, the lack of disruption relative to their competitors that they were able to provide in terms of product delivery and roadmaps and support and all of the things. So yes, you're absolutely right in the sense that you almost have to be counterintuitive. You have to flip the switch on human psychology and say "No, at the low point in the cycle is the time to be aggressive. While everybody else is running for the hills, now is the time for me to invest, and invest in people in particular because not only can I actually access high quality talent that I might not have had access to previously, I can potentially get them at a discount relative to what I would've had to pay at the peak of the market cycle." 

So to answer your question more directly in terms of strategic initiatives, I like to think about talent strategy in three separate pillars. One is, how do I attract people to my organization? How do I become an employer of choice, if you will? How do I then effectively go through the hiring process and have people accept the job offers that I'm giving to them, and then how do I retain those folks? So at Miller Resource Group, we specialize in the first two elements, attraction and hiring, but we also look at retention as a value add provider of services because we do consulting in the talent space as well as actual filling of roles. That's really my job as the Vice President of Analytics and Consulting. So on the attraction side, I observed two key elements. Number one is you really have to think of talent attraction as a sales and marketing function within your organization. 

You have to sell yourself to prospective candidates. The old days of having the candidates sell themselves to you are gone, or at least temporarily. So you really have to think about how do I position myself and really highlight the things that are attractive about me as a business, my products, my industry, the team that they're going to be joining, the things that I do that go beyond making money, the mission of the company. You're not just in business to make a profit. You want to make the world a better place. Highlight that. Young folks in particular really, really respond well to that. And then the second part of attraction is you have to understand who is sitting in front of you. Oftentimes when you do get a candidate in, we tend to have the same conversations over and over and over again, even though the people that are coming in for interviews are drastically different individuals that care about different things. 

So one of the things that we do at Miller Resource Group is we ask every candidate that we talk to fill out something we call a CLAMPS questionnaire. And CLAMPS is an acronym that stands for, it's basically challenge location, advancement, money, people and security. And we just ask them to rank which one of these is the most important one to you. And then we actually use their prioritization in the conversation that we have with them. So we make it seem like we care about the same things that they care about in order to get them to convince to join an organization. And it doesn't cost anything to do that. If you're going to have people come in for interviews, just ask them, "Tell me what are your priorities", and then talk to those priorities. It really makes the efficacy and the throughput of the interview process much more efficient. 

So the second pillar, hiring, really boils down to two things. Number one, you've got to streamline it. The old days of four, five, six interviews, you cannot do that anymore. The vast majority of candidates say if a company can't make up its mind in the first two interviews, then there's something wrong and I'm likely going to be looking somewhere else. So be very efficient. Instead of making one person sit through four or five interviews with different people, get all those people in the same room because the interview process is very consistent. It's homogenous. The questions that are being asked are usually the same thing. So companies that treat this process with efficiency and let the candidate know right away that they're interested, and let's be real, you know whether or not you want somebody in the first five or 10 minutes. It doesn't take multiple interviews, an hour conversation each time. 

So do that. And then also, you really have to track metrics, your hiring metrics. For example, if I were to ask someone listening to this podcast, what is your company's offer to acceptance ratio, how many would you think would be able to tell me? Every time I ask that question from the stage, it's like one hand in a room of 200 people. So in order to get better at something you have to measure and you have to track it over time. In order to improve, you have to measure. So track hiring metrics. How many interviews does it take to get a good candidate in? How many resumes do you get before you get a good candidate in? And all of these metrics that really help you be data driven in your decision. And talking about data driven salaries right now are a super, super important thing to focus on because it's a very competitive market. 

So you need to be data driven in the offers that you're making to your candidates as well. And there are lots of different platforms. We use something called Labor IQ, but it's highly granular, very accurate, validated every month versus about nine million W2 forms. So it tells us what the market says is the competitive rate for that particular position. So all of these things need to be put together in order to make a strategic initiative when it comes to talent. You can't just say, "Well, it's just all an HR function, they'll take care of it." No, it needs to be escalated to the highest management team members of the business, and they have to be involved in setting and continuously refining talent strategy for the business. And then I guess just one last quick mention on the retention side, as I said, as recruiters, we don't deal with retention too much, but I will tell you that for me, companies that really strive to understand what their people think, honestly, and not only encourage honest and constructive feedback, but reward that kind of behavior, tend to do much better on the retention side. 

And one of the tools I've seen used very effectively to help with that is the Gallup Q12 survey. It's very cheap. We have nothing to do with Gallup, but I've seen this effectively used. It costs, I think, something like $20 a head to administer it, and it asks people to basically agree or disagree with 12 simple statements. And many of those statements are hugely predictive in the retention metric of your organization. So if you start to see some red flags in the answers, then you can address those specific issues. And they're things like, I have the ability to do my best work every day. The company actually asks me for my opinion and does something about it. So things of that nature. So very cheap to implement, but very effective in terms of gauging where you are and helping your organization improve its retention metrics. Sorry, I get very passionate about it. I didn't need to go on for so long. 

Brian Powrozek: 

No, I was enjoying it. I was making some mental notes here as well of things that I could... Well, but I think a few of the things you touched on there will really resonate with this audience. Knowing the vast majority of the owners that I work with are engineers who've advanced to start their own business. So this idea of using data to drive decisions is near and dear to their hearts to begin with. But it's little things like you mentioned, the tracking your offer to acceptance ratio and things like that. And I go back to into my engineering career and my Six Sigma certification that how many times do we say, "Well, we're going to start recruiting at this school", or "We're going to start doing this program to try and attract new employees." But then you never really know how effective it was or efficient it was. 

But now if you've got that metric and you say, "Hey, we used to get one out of every five offer was accepted. Now we started doing this, now it's one out of every four." Or to your point about that Gallup survey, "Okay, here's where we were typically recording on this survey", and you do it periodically and you gauge the temperature of the employees and "Hey, we instituted this new program and all of a sudden we saw this metric tick up. So it did what we were hoping it would do." So it's funny, it's easy to apply those things when you're talking about the OEE of a conveyor system that's operating within a manufacturing plant. But to turn it onto something where it's more related to the individual, I think business owners have a hard time with it, but once it clicks, it's like, "Oh yeah, this is just what we do every day for our clients. We're just doing it to our business as opposed to for our business." 

Alex Chausovsky: 

That's exactly right. And one thing that you mentioned there really struck me. So you said your background as an engineer and that there are people that are engineers and eventually they mature or they start their own business, they become the head of an organization. And we see this all the time in businesses, salespeople are great at being terrific salespeople, then they get promoted into management. Engineers are good engineers now they're the engineering manager, but the skillset of being a good salesperson or a good engineer has nothing to do with managing people. 

Brian Powrozek: 

Exactly. 

Alex Chausovsky: 

That's a completely different thing. So companies also need to realize we need to invest in management training because dealing with issues like mental health or DEI or any of these non-traditional task oriented things is hard and you have to give the proper training to your managers in order for them to be effective people leaders, and most organizations miss out on that step. 

Brian Powrozek: 

Well, and that brings me to the last point that I hope the audience takes away from this conversation. And you mentioned a rather large automation company that you work with, that you provided some advisory services to, and that is, and I think it's even more applicable for that small to mid-size business owner who's wearing every hat in the company is don't be hesitant, don't be reluctant to go outside to get, as you were talking about there, get a business owner himself trying to develop a program for growing and developing his employees, it's going to take them a lot longer to do that themselves versus going out finding the expert who's already got the playbook laid out, and now they can come in and offer that. So the leveraging advisors and subject-matter experts, so that you can focus on the one thing as the business owner, you're the best at making this system. So focus on doing that and bring people in who can support you with the other things that aren't your forte. 

Alex Chausovsky: 

Yeah, I could not agree with you more on that point, Brian. So the way that I like to think about it is to compare it to the housing market. If you're going to buy or sell a home, you're not going to do that on your own. You're going to engage with a realtor who knows the marketplace, who knows all of the ways to get things accomplished, and you're willing to pay a fee for that service, for the knowledge and the expertise because you're going to get a much better ROI, a much better outcome of that practice. So when you think about the war for talent, you cannot go at it alone. You need partners and allies, and you cannot go at it without ammunition, which is good quality information. So you've got to be willing to open yourself up and acquire both. 

Great recruiting organizations, not ones that just going to flood your inbox with resumes, but really ones that understand your vision and your mission that will get you the right set of candidates that are highly qualified, highly vetted. They will act as an extension of your company. That's what Miller Resource Group does every day for automation firms, and we are able to get a much better outcome. For example, the statistics show that if you're just going to be hiring people off of resumes that come in as a result of job posting online, it takes about 11 on average to get a person that you want to hire. With a recruiting organization that's a good quality partner, it takes four. So it's a 70% improvement in efficacy and throughput on that end, and it's well worth the investment in many cases. 

So my advice to the business owners, particularly as you said, small and medium sized enterprises, is you don't have to do it alone. Find a good partner, whether it's Miller Resource Group or somebody else that you want to work with, and use their expertise, use their know-how of the marketplace. Their insights and their advice is going to be instrumental in helping you craft and continuously refine that talent strategy for your business. 

Brian Powrozek: 

Excellent. So Alex, if somebody listening here wants to make Miller Resource one of those partners, what's the best way for them to get in touch with you? 

Alex Chausovsky: 

Yeah, absolutely. Our website is just millerresource.com. You can connect with me on LinkedIn. Alex Chausovsky, the Vice President of Analytics and Consulting here at Miller Resource, and we really hope that you reach out because we'd love to talk to you to hear about the challenges that you're facing, and hopefully to offer some solutions for those challenges. 

Brian Powrozek: 

Fantastic. Well, Alex, I ordinarily hate listening to myself on the podcast, but this is one episode that I know I'm going to go back and listen to again, because you gave a lot of great information there, and I really appreciate your time and having you on. 

Alex Chausovsky: 

It was my pleasure, Brian. Thanks for having me. 

Brian Powrozek: 

All right. Thanks, Alex. 

Alex Chausovsky: 

Thanks. Take care. 

Speaker 4: 

Thank you for tuning in. Don't forget to like us, subscribe and share on social. To learn more about Clayton and McKervey, visit us at claytonmckervey.com. That's claytonmckervey.com. We thrive on finding the solutions for you.