Brain Drain Follow-up: Reasons Why Companies Obsess Over "Attract and Retain"
In my last post, "Focusing on Michigan's Brain Drain Is a Miss", I criticized the common dialogue in our state about "brain drain" and its emphasis in local politics. After thinking on it a bit, I'd like to offer up a few reasons why attraction-retention programs seem to be en mode and how we might use different approaches to do something different, namely advancing comprehensive policies focused on developing vibrant cities. First, let me clarify my position. I don't disagree that brain drain is something worth mitigating. What I criticize are programs that are narrowly focused to combat brain drain via attraction-retention approaches. These "attract and retain" programs that might provide generous subsidies for relocation or create [poorly designed] job databases seem to be the wrong approach. Rather, we should focus on creating strong communities and vibrant cities that people want to move to and that increase the likelihood that innovative job growth occurs. In other words, we should be creating amazing opportunities for talent to develop (so that people want to come here over other places). To paraphrase my (supremely intelligent) friend Chad: it's not that you either combat brain drain or build great cities....building great cities is the best way to combat brain drain.
Anyway, the thrust of my point of view on why folks might obsess over things like job boards, living incentives and other attract and retain policies: employers focus on the costs that they bear and make decisions based on those costs. This is reasonable.
Employers bear a lot of costs when acquiring new talent. One such cost is a search cost - the cost of finding talent and hiring. Another cost is a relocation cost - the costs of getting someone to move from one place to another. A third cost is retention cost - the more people leave your company, the more you have to repeat the costly process of hiring. A fourth cost is training cost - you have to use time and resources to give hires the skills they need to succeed on the job. There are more, too. I'm just generalizing some of the most understandable and commonly discussed costs. These costs are all real, hard, dollars, and do not even include the costs of morale, lost productivity, etc.
Because these costs are the "direct" costs of talent, that is the costs of talent management that directly hit an organization's bottom line, organizations actually care about them. These are costs you can't argue with. Organizations, particularly businesses, usually make decisions on these costs because they can see them directly. That's what is visible on a financial statement and thus what shareholders and analysts measure a business on, generally speaking. Money talks, but more importantly it also tells a story about the economic realities of that business. That story, as told by financial statements, is how decisions are made.
So it should be no surprise that we see the traces of Detroit's regional talent strategy - if you could call it that, it's not very strategic - focus on some of these things (the impact on costs are in parentheses):
- Job Boards like MI Talent Connect (reduces search costs)
- The Live Downtown Program (reduces relocation costs)
- Live Work Play Initiatives (you could argue that these might affect retention costs)
Now, let's look at some of the costs and revenues that are NOT directly measured by employers (and some snarky conclusions in parentheses related to the role of business. Looking through the lens of business is critical because business is current THE power player in Detroit city affairs).
- Transportation Costs - employers don't pay to get their people to work (So should we be surprised that public transit isn't robust in Detroit?)
- Cost of Basic Education and Skills - employers don't bear the cost of their people learning to read, learning calculus, or going to college (So should we be surprised that scant attention is paid to really bolstering the performance and affordability of public K-12 schools or universities? To be fair, the business community is starting to act in this arena)
- Opportunity Cost - employers don't measure the money they could've made if they were more innovative (So should we be surprised that we don't have more of an emphasis on density, cultural institutions, and public dialogue - i.e., some of the things that really drive people to innovate within a city?)
I don't think we should be surprised with the attract-retain strategies that we have, because the business community is simply acting in its own interest - to reduce its direct costs of talent. And this is a problem, I think, because some of the stuff like job boards, the Live Downtown Program, or so called "Live Work Play" programs don't seem to be moving the needle on Detroit's resurgence (in a broad sense), by themselves. My guess is that the attract-retain strategies are unsustainably expensive in the long term, as well.
I think the strategy of building strong communities and vibrant cities is attractive for two reasons: 1) it addresses the direct AND indirect costs/revenues I've listed, and, 2) it has spillover affects that affect more than just the economic viability of companies...it also improves social welfare (happiness, health, etc.)
How strong communities and vibrant cities affect direct and indirect costs/revenues of talent
Here's some qualification of my assertion above - that creating great cities addresses direct and indirect costs/revenues:
- Search Costs and Relocation Costs- If you have a great city, the city PULLS people interest with less effort on the part of individual businesses. Thus it takes less time, effort, and money to find qualified candidates who want to work in Detroit. Consequently, employers have to pay less of a premium to attract talent
- Retention Costs - If the city is strong and there are more job opportunities and people actually want to live here, there's less turnover (i.e., there's less of a "I'm in Detroit until I find a job in Chicago" effect). If more opportunity produces a spike in turnover, it probably means talent quality is at least higher and there is quality talent to fill openings
- Training Costs - Vibrant cities are places where people can learn from other smart people. There are lots more opportunities to learn and grow as a professional as a result, like skills-based volunteering, talks, or workshops
- Transportation Costs - Cities with transit systems provide an opportunity to lower the total overall cost of transportation for residents, both in terms of time, money, and the headaches of traffic. It's a form of compensation, in effect, which lowers the cost of living and allows employers to pay less. More importantly, it opens up new talent pools because more talent can move within the city
- Basic Education Costs - Strong communities and vibrant cities probably educate their kids better. I'm not an ed expert so I'm not supremely confident about this, but that's my intuition. At very least, strong communities probably give the opportunity for a better education to a larger portion of its residents
- Innovation Opportunity - When smart people bump into each other (this is obviously simplifying the issue, but this is a whole research paper in itself, but don't worry, one is coming) is when innovation happens. That's when value creation opportunities happen. That's why there's this dialogue on cities = innovation. If people in the city are more innovative and good at innovating, that probably translates into individual firms that already exist as well
Actions to consider
Let's assume for a second that strong communities and vibrant cities are a better option than some of the "attract and retain" policies currently used in Detroit. Even if that's the case, how do we actually get there? This, again, is a blog post in itself, but let me suggest a few ideas which form an ad-hoc list for considering this question:
- Talk in a language business understands - businesses are driven by what their financial statements say (because that's what shareholders care about...I think this is foolish, but let's assume we can't change this immediately). So, give them a case that they can take to their shareholders. We need to create a business case (detailing revenues and costs) for why a comprehensive strategy to bolster communities and cities is the best option
- Strengthen other institutions - other institutions, like government, are often better suited to address to broad public concerns (like creating vibrant communities). If we strengthen civic institutions to displace the headwinds in civic life created by business, the public sector can lead the charge to create strong cities. In Detroit, maybe this means being more active as a citizenry or building up the capacity for transformational change within city government
- Recruit big players - if we have a big player in our ecosystem that's not accountable to shareholders, they can be a leader in creating a vibrant city which provides political cover to other, smaller players. That way, the smaller players could use the big player as an example when justifying decisions to their own shareholders. I suspect Dan Gilbert is having this effect in Detroit - he can do what he wants because he's wealthy and his own boss, giving other community leaders increased tacit permission to follow suit
- Focus on our broader narrative - I alluded to this in a previous post - [link]. If we have a broader narrative of why we want to have a city, it allows people to create a moral case for change, instead of just depending on a cost/benefit analysis
I welcome your feedback. This issue is debatable and important.