COVID-19 is truly turning out to be the black swan event of our lifetimes – it will have profound near- and long-term consequences on talent markets around the world. The International Monetary Fund (IMF) recently noted that COVID-19 could contract the global GDP by 3 percent in 2020, causing the GDPs of 170 countries to shrink and making it the steepest downturn since the Great Depression of the 1930s. As discussed in our recent blog, Will COVID-19 Ease the Relentless War for Talent?, talent shortages will become even more acute and the supply-demand gap for emerging skills will further widen as companies undertake rapid digital transformation and adapt to the “next normal.”
Against this backdrop, some firms are seeing this time as an opportune time to acqui-hire – or acquire startups primarily for their talent.
We have been here before. Acqui-hiring tends to spike during and after economic crises. The early 2010s saw a flurry of acquisitions by Silicon Valley giants including Facebook, Google, and Microsoft, aimed at acquiring hot skills. We believe there will be a similar acqui-hiring surge in 2020, with multiples firms announcing plans to acquire emerging skills and accelerate their efforts to build niche capabilities.
Mark Zuckerberg once said, “Facebook has not once bought a company for the company itself. We buy companies to get excellent people.” This sentiment highlights the premium companies place on good talent. Companies acqui-hire to leverage multiple advantages such as access to highly-skilled talent, reduced time-to-hire and training efforts, developing niche capabilities, and launching a business model.
Facebook has plans to hire 10,000 additional FTEs in its product and engineering teams to tackle high utilization after the pandemic abates and to combat misinformation in advance of the U.S. presidential election in November. Amazon and Google are aggressively hiring product, design, and engineering talent. Apple CEO Tim Cook recently stated that the company plans to hire aggressively, just as it did after the 2008 financial crisis.
With multiple startups facing reduced valuations due to the economic downturn, it is highly likely that a significant chunk of this demand for talent will be addressed through focused acqui-hiring. Additionally, we expect leading Indian service provider players supporting global services delivery, like Infosys, TCS, and Wipro, to accelerate their acquisition efforts to gain strategic capabilities and grow business inorganically. And Walmart Labs has announced plans to hire over 3,000 FTEs for its India centers, aiming to strengthen its India COE by hiring new talent and acquiring relevant startups.
We are already seeing many acqui-hiring deals in 2020, a few of which we describe below. While not all were triggered by the COVID-19 aftermath, we expect the business and economic repercussions of the pandemic to accelerate this trend.
As these deals indicate, acqui-hiring presents a great value proposition for companies to access highly motivated ready talent, augment existing offerings, and develop new capabilities. It also proves lucrative for startups, especially those that might be struggling with funding during an economic downturn. We are already seeing early signs of funding scarcity, with industry analysts reporting that total startup funding in New York City is down 48 percent from year-ago levels since the lockdown started in mid-March.
Acqui-hiring can be a win-win for everyone. However, to ensure acqui-hiring success, companies must address critical factors beyond the usual legal and contractual due diligence.
To make acqui-hiring work, companies must:
The economic aftereffects of COVID-19 will surely create some paradoxes. While on one hand startups may be challenged and job markets ravaged, on the other hand this time could present an opportunity to re-strategize priorities, revitalize operating models, build capabilities, and acquire the right talent. We believe companies that proactively realign their workforce strategies and tactically utilize acqui-hiring will emerge stronger and more resilient.
Companies looking to acqui-hire as way to address emerging talent challenges must undertake the following steps to ensure effective outcomes:
For years, financial institutions have struggled to attract and retain quality anti-financial crime (AFC) talent, which remains a compliance program’s most vital asset. And the situation is only getting worse. Why? First, both the importance and application of anti-money laundering (AML) and fraud risk management are increasing. Second, the requirements and expectations of regulators are snowballing. And third, demand for AFC talent is skyrocketing while unemployment remains low. It’s a perfect storm.
Perhaps most importantly, the AFC workforce must now be able to work with artificial intelligence and machine learning technologies. Financial institutions that can’t adapt their workforce to the demands of this new augmented human intelligence era simply won’t survive. Knowing what talent to look for – and how to attract, manage, and retain it – is key.
In the past, whenever new compliance initiatives or regulations arose, banks tended to staff up operational teams to address them. Now banks realize that hiring operational staff isn’t enough. Instead, solving for the underlying problem – be it “Know Your Customer” remediation, reducing incidences of fraud, or ensuring better AML compliance – is the answer.
To do this, banks are breaking up their talent pyramid into tasks. Those tasks that are manual and repetitive (and therefore subject to a high degree of automation) sit at the bottom of the talent pyramid. And those requiring a high degree of judgment that can be handled only by skilled employees sit at the top. As a result, talent must now be “bilingual,” possessing not only the domain and operational expertise to drive judgments but also the technology expertise to help automate repetitive, mundane tasks.
If a bank has bilingual workers, it’s not letting them go, so finding such talent at scale through hiring practices alone is unlikely. Instead, the challenge is to identify skilled workers from either a domain or technology background and train them to develop the skills they lack.
One solution is partnering with universities. For example, recognizing that ready talent is not necessarily available in the marketplace, some service providers partner with universities to identify suitable individuals for entry-level positions and then train staff in those positions on AFC fundamentals.
At the same time, the half-life of professional skills is decreasing at an alarming pace. Regulations and technology are constantly changing, so talent agility is key. Organizations must create an environment of innovation, training, and enabling people to do their jobs faster and better, including enabling them with access to the right tools, be they bots or data libraries.
Firms are increasingly using techniques such as micro learning, which breaks information into bite-sized pieces, and spaced learning, which identifies the right moment for intervention so that trainees retain more information. Gamification is another technique that makes learning fun and increases retention. Through a combination of these approaches, firms can train employees and develop talent much more efficiently.
Today’s banks are losing employees not only to other banks, but also to techfin firms. Amazon, Apple, Facebook, and Google are all making forays into banking, and they’re always on the lookout for people who can help their engineering teams understand the financial payments and risk disciplines. To retain talent, it’s important to drive workers’ aspirations.
Keeping employees engaged is essential to retention. Engagement can be accomplished through creative challenges and contests that instill sustainable change and help employees use their skills beyond their day-to-day work.
When it comes to AFC talent, it’s a battlefield out there. To learn more about how financial institutions can attract, manage, and motivate AFC talent to achieve the best balance between human and technical intelligence, check out the webinar I recently conducted with Genpact on this topic.
IT is fundamentally changing how it operates. The changes are broad and far-reaching. New technologies enable new operational practices, but they require fundamental changes in the way companies deploy and manage technology. Basically, companies are turning IT into a product rather than a set of processes and projects.