European banks face a looming talent shortage. In the next five years, some large institutions will face difficulties filling positions crucial to the execution of their evolving strategies.
While the best talent managers can tap strong internal contenders for such roles, many others will be forced to fill pivotal jobs with second-tier Internal talent or with external candidates--a relatively expensive and risky approach for banks.
To date, McKinsey research finds that European financial institutions have made little progress in managing talent effectively. Those that fail to act soon may have to forgo important growth opportunities.
McKinsey interviewed top human resources executives at 13 large European universal banks, 10 of which are among the top 30 in the region by market capitalization. Most bank executives told us that they don’t currently have enough qualified people inside the organization to fill critical positions. Within three years, McKinsey estimate, the talent gap will expand, leaving most banks unable to use top internal talent to fill 25% to 40% of their senior-executive positions and other roles with economic or strategic significance.
Exhibit 1
Moreover, McKinsey found that in the next three to five years, banks may be desperate for capable people to work in specific areas that are vital to the banks’ evolving business plans. In retail banking, for example, we estimate that almost half of most banks’ critical functions will be deprived of talent (Exhibit 1). Bank functions--such as cross-border integration, turnaround management, push marketing, third-party channel development (for mortgages and consumer lending, for example) and underwriting and monitoring retail credit--all will require skills that are in relatively short supply.
Several trends are behind the growing need for more sophisticated skills in these areas. One is the banks' rapid growth in emerging markets, which frequently involves mergers and acquisitions. Others include the increasing sophistication and declining loyalty of customers, heightened competition for deposits and the effects of the subprime lending crisis.
Exbhit 2
All executives in our sample recognize that developing, retaining and, if necessary, recruiting top talent is fundamental to ensuring a bank’s future profitable growth. Very few banks have benefited substantially from their talent-management efforts, however (Exhibit 2). Only a third of the respondents, for example, say that their organizations manage to fill critical vacancies quickly and effectively with internal talent. Indeed, the extent to which these banks have implemented talent-management strategies varies widely.
Exhibit 3
We found that the 13 banks represented in our study can be grouped into three distinct categories based on the relative effectiveness of their talent-management practices (Exhibit 3).
Banks in the beginner group do not treat talent management as a priority. As a result, they tend to rely on external recruiting for their evolving talent needs. To retain top talent, the beginners also tend to emphasize compensation and brand names rather than career prospects and inspirational leadership.
Banks in the intermediate group recognize the importance of talent management and have put in place basic practices centered on identifying and reviewing talented mid-level and senior executives. Yet these banks have not applied themselves consistently in other areas, such as talent development, where progress is less visible.
Banks in the advanced group are clearly the most effective in the war for banking talent. The top team makes a high priority of talent management, developing and applying key processes and creating a specific, centralized unit to handle it.
Even the intermediate and advanced banks that have attempted to transform the way they manage talent have much room for improvement. Our experience suggests that, to succeed, they’ll need to be more rigorous in their talent-management processes--for instance, by using objective indicators (such as the average time to fill critical positions) to measure and improve the effectiveness of these efforts.
Furthermore, members of the top and senior-management teams must work harder to incorporate talent-management activities into their own weekly routines--for example, by personally advocating, endorsing and communicating key messages to middle management and to front line employees. Such commitment drives active participation in talent management, rather than mere compliance with it, throughout the organization and shows employees that it is a top priority.
***This article was originally published in The McKinsey Quarterly
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