Talent management is more critical than ever. However, the HR function is facing mounting challenges such as limited resources, outdated methods, and rising expectations.
One issue, in particular, stands out for 82% of HR leaders: The shortage of skilled workers has become an existential challenge for companies across nearly every industry, emerging as one of the most pressing problems for the role. In fact, research underscores the urgency of this issue, with one study highlighting that the labor supply in Germany could decline by around seven million people by 2035 if no countermeasures are taken. Companies are therefore hitting a wall as the talent pool shrinks, especially when it comes to recruitment.
The issue of scarcity is further compounded by a lack of quality. As companies point to gaps in the education system’s ability to adequately prepare young people for the job market, this younger talent pool has also raised its expectations of potential employers. These include a high degree of flexibility with hybrid working models, a desire to feel supported, and an aspiration for rapid career advancement.
Surveys of HR professionals underscore what we also observe in our work with clients: Conditions in the talent market have become tougher, and the cost of external talent has risen. As a result, the business case for identifying, developing, motivating, and retaining existing talented employees is becoming increasingly urgent.
Undoubtedly, the need for strategic talent management is growing enormously. However, the HR function may still remain transactional at times. The question is: What measures are necessary for talent management to secure its rightful place at the management table and deliver its intended strategic impact?
To explore this, we spent the past few months focusing on how People Leaders are addressing both individual and broader role challenges. We conducted one-on-one interviews with these leaders, hosted roundtables with groups of HR heads, and discussed trends and challenges with our team. The key findings: All HR functions are under considerable pressure to change and meet expectations. Their value contribution to the company is growing, but the environment for this is anything but easy, particularly for talent managers.
Talent management means ensuring that the necessary talent is available and ready to take on (leadership) tasks and challenges at the crucial moment. Talent managers, therefore, develop requirement profiles, manage recruitment, or identify top performers internally. They promote talent strategically and organize further training. They use efficient performance management to determine what potential lies dormant within the current workforce. They develop career paths and plan succession for key positions. Last but not least, they ensure that the talent identified and developed stays within the company.
To fulfill these responsibilities, they need not only resources and budgets but also processes, key figures, and support from adequately equipped IT platforms—so that talent management is not based on "gut decisions." Unfortunately, critical enablers, such as a robust HR information system, are often lacking or insufficient. As a result, talent managers may find themselves consumed with building these foundations rather than focusing on strategic impact.
Company leadership has high expectations of HR leaders, as emphasized by the feedback from our conversations with them. They are expected to present a comprehensive, long-term talent strategy. They should respond agilely to market changes, ensure regular, strategic personnel planning, maintain a pool of diverse candidates, and develop learning opportunities tailored to the needs of individual employees, while also contributing to the upskilling or reskilling of entire employee groups.
At the same time, talent managers have the crucial task of retaining top talent within the company. They must establish standard processes to ensure internal and external candidates have an optimal—and above all, comparable—experience throughout their Employee Experience Journey, from job advertisement to exit interview.
With generative AI now available, management expects talent managers to use it to search for external candidates more effectively and analyze their data more efficiently. AI is also expected to play a role in evaluating internal performance and motivation indicators, as well as in the development of training programs, coaching, mentoring, and potentially even retention—by predicting which talents may be "on the move." AI should simplify and expedite the entire process. After all, board members have read research showing how intelligent automation can improve HR efficiency and customer experience—while reducing costs.
And because all of this is far from enough, the C-Suite naturally desires a "talent-first mindset" among HR leaders. They should transcend purely factual and task-oriented leadership and focus more on individuals and their potential. In general, the list of skills leaders are expected to have is growing longer and longer. With so many expectations placed on them, they often no longer know what really matters when it comes to leadership. The targeted development of top talent in the company is, therefore, at the top of the already lengthy to-do list for talent managers.
While expectations on leaders are high, their role is more challenging than ever. In recruiting, they are finding it increasingly difficult to identify the right talent in the market. Regarding onboarding, the pressure to reduce costs through digitalization and AI is mounting. In talent development, personalized, sustainable, and effective learning is increasingly in demand, alongside modern learning management systems. In performance management, there is a growing need for modern, flexible methods that accommodate the desire for personal growth and individuality, as opposed to rigid assessment methods like Dave Ulrich's 9-box grid.
When it comes to succession planning, which has become crucial due to the talent shortage and the need to close gaps and retain top talent, most actions happen ad hoc: There are few systematic processes in place. Likewise, strategic, forward-looking workforce planning requires valid and reliable data, which several companies still lack.
From our discussions and interviews, several areas of action can be identified where the desires for change from company management and talent managers overlap. Here are four key topics where we currently see the greatest need for action:
- First Field of Action: Get the Store in Order!
Talent managers need sufficient resources to build and optimize a digital database with AI. It’s all about powerful IT systems and data availability. Effective AI models require substantial valid data. There is great potential in connecting and harnessing data across international and functional business units. Many talent managers still need to establish this digital foundation and meet data protection requirements in the process. It’s also clear that, as they become more involved in data analysis, talent managers need to evolve into technicians to some extent.
- Second Field of Action: Make Management Accountable!
The "talent-first mindset" that management desires is an important foundational attitude. However, companies cannot leave their talent managers to work in isolation. This requires entrepreneurial thinking at all levels—from talent acquisition to employee development and incentive structures. It’s a full-fledged change project. For the C-Suite, this means empowering talent managers within the company, involving them in strategic corporate development considerations, and creating a framework that enables them to develop talent successfully in the medium and long term.
- Third Field of Action: Put an End to One-Size-Fits-All!
Individualization is becoming a decisive condition for successful talent management. With a shrinking talent pool and an aging workforce, talent managers must embrace and leverage diversity among applicants and existing teams. They need the mandate and time to focus on applicants and employees with real development needs and potential, tailoring their approach accordingly. Standard training for everyone is no longer viable.
- Fourth Field of Action: Use AI—If It Makes a Difference!
Finally, instead of simply demanding "more AI" in talent management, there needs to be a strategic application of the new technology. For talent managers, it’s about creating win-win scenarios: They need to develop AI strategies that meet the needs of both the company and its employees. The three most important planned use cases in internal talent management are currently chatbots for employees, the automation of administrative tasks, guidelines, and documents, and the design of job descriptions and qualification data. Meanwhile, functional HR co-pilots are already being used in many areas of talent acquisition—especially in "market search," making the recruiting sector a pioneer. One thing is clear: AI will not be equally useful in all processes. However, it can, for instance, help create digital platforms and systems that allow talent management clients to independently assemble their own training and development modules as needed.
