Last week, the UK officially entered a recession. Inflation is well above target levels, consumers continue to cut spending, and employees are demanding higher salaries to cover the cost-of-living spike.
Navigating this tricky macroeconomic environment is challenging for all businesses, but it’s even harder for startups and SMEs. How to attract and retain talent is just one significant concern, as multiple industries struggle with a skills shortage.
Competing with large corporations on pay has always been difficult for SMEs, but today, many are struggling more than ever. According to our latest Future of Work report, almost half (49%) of UK business leaders believe economic restrictions will inhibit their ability to attract and retain talent as they won’t be able to offer competitive remuneration packages.
However, there’s hope. Salary increases might be out of the question for some, but there are other things SMEs can do to win talent in today’s cost-of-living crisis.
Prioritise internal training and development
A third of organisations still cite skills shortages as one of their primary growth barriers, as demand for skilled professionals in fields such as AI, product and data soar. Yet, 24% of businesses do not have any internal training or development programmes in place.
This is a huge missed opportunity. In today’s technology-driven world, jobs are constantly evolving. To stay future-ready, businesses must be proactive in their approach towards up and reskilling.
There’s also rising expectation among employees that businesses offer enhanced learning and development (L&D) opportunities. Early data from our 2024 Census reveals this as a critical factor when they consider their current role or next career move.
For those SMEs that take a proactive approach, the benefits are two-fold. One, they boost their skills capabilities as an organisation. Two, they improve the long-term retention of their staff and become a more attractive employer to the talent market.
Hire from within
In the same vein, SMEs need to look within their existing talent pool when job opportunities arise. Just 10% of businesses are currently filling roles internally, with the rest having to dip into the wider market. The cost of replacing an employee on an annual salary of £30,000 is estimated to be between £15,000 and £22,000 – an enormous cost to bear when budgets are already squeezed.
But it’s not just about saving money. If businesses fail to prioritise internal mobility, they risk losing their existing employees. Some 30% of leaders are concerned that a lack of internal opportunities will impact their ability to retain talent this year, and with 4 in 10 permanent employees looking to change roles in the next six months, it’s vital that organisations provide paths up the career ladder.
Employers should look to building out skills matrix to see where transferable skills might create opportunities for current employees, while also putting strategic career development and succession plans in place. Providing these opportunities and retaining staff will be paramount in tackling the talent shortage.
Prepare for the rise of AI
Whether you believe AI is overhyped or that it is the next industrial revolution, there’s no questioning its ability to automate repetitive tasks and free up people’s time. However, our survey shows that only 17% of businesses feel confident in their AI approach.
SMEs need to get to grips with AI to get the most out of their employees. Early adopters are already seeing improvements in productivity and innovation, as AI gives staff the space to think creatively and learn new skills. Embedding this way of working within your company culture makes a highly attractive proposition for new and existing employees.
That said, AI naturally brings fear of job displacement; early indications from our 2024 Census show that a quarter of workers feel generative AI threatens their careers. It’s therefore critical that businesses provide reassurance and investigate how AI and humans can best complement one another.
In short
In today’s climate, SMEs have to find the right balance between investing in their workforce and keeping their business financially stable. Fostering a culture of learning, career mobility, and creativity is the most cost-effective way to build your team, and it’s the armour SMEs need as the battle for talent heats up.
