It is widely recognized that chips will be the engine of the next wave of growth and innovation, and the semiconductor industry is at the center of a high-stakes race. Companies from South Korea to Germany to the United States have announced plans to build large new factories. From 2023 to 2030, the total investment is expected to approach $1 trillion. This frenzy of global expansion could reshape the industry and disperse the balance of power around the world.
However, manufacturing capacity is only part of the equation. Talent will be an important part of this growing industry. Companies must ensure that they can attract and retain enough talent to ensure that new capacity under construction can run at full speed once it is operational. We've previously noted the challenges semiconductor companies face in attracting and retaining talent.
However, few companies and regions have taken adequate measures to address the severe shortage of qualified workers in the industry. The combination of factors such as a lack of graduates, an ageing workforce, and poor industry awareness among candidates means that without urgent, coordinated action, these new capital projects may be delayed or not run at full capacity.
For semiconductor companies, making talent the primary strategic goal is no longer an option, but an inevitability. There are a range of actions business leaders can take to make the most of their existing workforce, tap into a previously untapped pool of labor, and fill the remaining gaps with a contingent workforce.
Assess talent challenges in the semiconductor space
Even before the current wave of investment, the industry's demand for qualified candidates was growing by leaps and bounds. From 2018 to 2022, semiconductor technology jobs in the EU and the US grew at a CAGR of more than 75%. If the semiconductor industry does not become more attractive, the resulting engineer talent gap will be enormous: more than 100,000 each in the United States and Europe, and more than 200,000 in the Asia-Pacific region (excluding China). There are significant differences between countries in the Asia-Pacific region: India, for example, is a potential net exporter of engineering talent, while other countries such as Japan and South Korea face severe shortages. With the number of recent graduates not keeping pace with the growth of job openings, the industry is facing a growing demand for talent.
The talent challenge extends across the broader ecosystem of semiconductor value chain players. For example, companies that design and manufacture complex, capital-intensive equipment used to produce chips face similar challenges in achieving growth and increasing the capabilities they need. Conversely, (often mid-sized) companies that provide individual parts for these machines struggle to fill talent gaps, as they are often located outside of talent centers.
Our analysis identifies the main drivers of increased demand for technical talent in semiconductor companies.
The new building is located far from the existing talent pool
Building a new plant requires rapid onboarding of multiple roles, including manufacturing (process engineers and technicians, area operators, and maintenance services), facilities, quality, and industrial engineering. Skilled construction workers (plumbers, welders, electricians, and carpenters) are also needed.
To date, each region has benefited from the concentration of talent in the vicinity of existing semiconductor hubs – such as Silicon Valley, Taiwan and Germany's "Saxony Silicon Valley". New construction in other regions may not be so lucky, and companies may face the daunting prospect of developing their own semiconductor ecosystems to attract talent. These ecosystems are important because highly skilled workers like to have multiple employment opportunities and connect with like-minded people. A well-established ecosystem can also facilitate cross-pollination between companies, helping to spread teamwork practices, tools, and culture.
Transformation of required skills
Over the decades, silicon-based semiconductor chips have gradually become more powerful, in line with Moore's Law. Recently, the physical limitations of existing materials have sparked the exploration of the next wave of cutting-edge chips.
Research into new materials such as silicon carbide and gallium nitride, advanced packaging, application-specific ASIC (application-specific integrated circuit) applications, and the growing importance of embedded software have changed the talent landscape for semiconductor companies. AI and machine learning have replaced system architecture as the most critical skills in the European job market in 2022, and the proliferation of generative AI is likely to further amplify the importance of these skills (Exhibit 1). 8 Knowledge of applications and new materials has also become more important in the last few years.
As a result of these changes, by 2022, the role of the software engineer (especially embedded software programming) will replace the design engineer as the most critical profession in the European semiconductor industry.
Persistent attraction and churn issues
Several models in the semiconductor industry continue to present challenges in attracting top talent.
Demographics and the "gray to green" shift. The industry is facing an imminent wave of retirement. One-third of semiconductor employees in the U.S. are 55 years of age or older. The situation is somewhat better in the European Union, where a fifth of the population is in the labour force, but a significant proportion of engineering and manufacturing employees are approaching retirement age. According to the German Association for Electrical and Digital Industries (ZVEI) and the Federation of German Industries (BDI), about one-third of the country's semiconductor workforce will retire within the next decade. The lack of STEM graduates to replace these retirees could create a huge labor gap.
Sub-par branding. The semiconductor industry faces branding and marketing challenges in attracting technical talent. Surveys of employers and college students show a lack of enthusiasm for semiconductor brands. Among senior executives, about 60% believe that semiconductor companies have a weak brand image and recognition compared to other high-profile technology companies. At the same time, students show greater interest in working in consumer-facing tech companies, which they believe offer more exciting jobs, higher pay, and better growth prospects.
Employees have "itchy feet". A growing number of employees in the advanced electronics and semiconductor industries are at least somewhat likely to leave their jobs in the next three to six months – up from 53% this year to 40% in 2021. These employees cite a lack of career development and promotion (34%) and a lack of workplace flexibility (33%) as the main reasons for finding opportunities at another company (Chart 2). To make matters worse, many resignations not only quit the company, but leave the industry entirely. In fact, McKinsey's "Great Churn/Big Attraction" survey found that only 36% of industrial respondents who quit their jobs between April 2020 and April 2022 found another job in the same industry (compared to 45% in the TMT). Others have moved to different industries or have not returned to the workforce due to retirement.
Another challenge for semiconductor companies is that the industry still lags behind tech and automotive companies in employee satisfaction. The proximity of the company's business model to software was a contributing factor: for example, workers in manufacturing, materials, and outsourced semiconductor assembly and test (OSAT) positions scored lower, while intellectual property, electronic design automation (EDA), and fabless had the highest employee satisfaction scores.
Key actions to attract and retain semiconductor talent
While the battle for tech talent is daunting and the gap between supply and demand is widening, there are many things semiconductor companies can do to reverse these trends.
1.
Address the causes of current attrition
Over the past few years, employees have created new expectations about how, where, and when they work. Semiconductor companies that prioritize fundamentals can ensure that their workforce environment meets these expectations.
Strengthen non-traditional career trajectories. Many companies follow the traditional career path: when employees stand out for their exemplary work, they are rewarded with being a manager and taking on additional responsibilities for the team. It's critical for organizations to recognize that not all high-performing employees aspire to managers, and they don't all have the interpersonal skills needed to excel in these roles. In fact, two-thirds of developers have no ambition to become functional managers. To complement the traditional talent leadership career path, companies should consider defining an expert path that enables individual contributors to move up the ranks within the company. It is also important that the company be clear about the expectations of the managers who lead the team. To ensure that these employees take their leadership tasks as seriously as they do what they push, companies should provide them with the time, training, skills, and tools.
For example, a leading semiconductor company defines three parallel career paths: management, technology (where researcher is the top role), and non-technical support functions (such as finance, sales and marketing, and human resources). This initiative increases motivation and overall retention for employees who are interested in career development but want to continue as senior individual contributors. In addition, early talent identification and succession planning play an important role in improving career trajectories and enabling companies to develop the future leaders needed to support their growth.
Give power to the "centrists". Middle managers may find themselves bogged down in administrative tasks instead of focusing on the work of running the organization, such as developing talent. On average, they spend only 28% of their time on talent and people management. Since they lack the necessary support and resources to manage their team more effectively, they spend most of their time working as individual contributors.
Companies that restructure their organizations to free up middle managers can create "force multipliers" that make their direct reports better. Actions to support this goal include optimizing team structures and reviewing roles to limit unnecessary layers and processes. In fact, 44% of respondents said that organizational bureaucracy is the number one contributor to negative experiences for middle managers. Companies can also invest in improving the interpersonal skills of middle managers while improving their overall experience and ensuring they have the right level of responsibility and autonomy. For example, a McKinsey survey found that providing decision-making power to middle managers is the number one factor in creating a positive environment for them. Ideally, companies regularly review their operating models to ensure that decision-making authority is in the best position and that the interfaces between departments are clearly defined.
A biotech startup conducted a review of its organization and found that more than half of managers had three or fewer direct reports. To optimize the structure, the company increased the number of employees under each manager by transforming some of its functional managers into specialist roles that were more suited to their strengths. These shifts have increased the efficiency of more than 200 teams, but the number of people has not decreased.
Increase flexibility in the workplace. While workplace schedules and schedules have changed dramatically since the onset of the pandemic, most companies are only scratching the surface when it comes to how they adapt to employee expectations. Technology can support more strategic on-site and remote work approaches, but most organizations are still struggling to strike the right balance in creating a truly hybrid work model. Many have mastered basic capabilities, such as advanced workplace technology, to seamlessly communicate synchronously and asynchronously from anywhere. When it comes to more dynamic practices, companies lose the opportunity to test new work arrangements (e.g., hybrid) and learn lessons, as well as measure hybrid versus fully remote experiences. Many are still struggling to balance employees' desire to work remotely with the risk of reduced productivity and a diminished connection to the company and its culture.
However, leaders of hybrid teams also need to adapt their leadership methods and pathways to successfully lead their hybrid teams compared to teams that are fully on-site.
2.
Identify and access an untapped talent pool
Semiconductor companies can begin to address the skills gap by considering several talent pools that are often overlooked. For example, women make up only 17% of technical roles in the semiconductor industry, compared to 32% in social media and 23% in industrial. McKinsey's Women in the Workplace study found that female leaders are more likely than male leaders to leave their jobs in pursuit of greater flexibility or to work for companies that are more committed to employee well-being, diversity, equity, and inclusion (Figure 3).
Our research shows that in order to be more attractive to women, companies can focus on offering job options. The most important factors for employees when choosing an employer are the opportunity to work remotely, greater control over location and scheduling, and health care benefits, including mental health benefits.
Retirees who want to work but don't currently do so (20% of respondents in a recent survey of high-income economies) can also help fill this gap. Unemployed older persons interested in finding work cite barriers such as lack of attractive opportunities, difficulty finding work, and social barriers (e.g., mandatory retirement policies and cultural norms). By defining different paths for seniors with experience in the industry, companies can create a fast-track that helps them re-enter the workplace in areas where they have special abilities, such as semiconductor R&D.
Adjusting role requirements to focus on an individual's skills rather than their credentials (such as a college degree) can also help companies find and attract more candidates who are better suited to fill these positions on a long-term basis. For example, a process engineer in a fab is responsible for process stability as well as recipe optimization and development, a role that requires knowledge in areas such as quality assurance and statistical control, continuous improvement of the process and the ability to develop new processes, support new product introductions, and lead process-related customer meetings. In some cases, the shift leader of a former operator can possess these skills and take on the role of a process engineer without a degree.
Generative AI can help accelerate this shift through its ability to label capabilities in unstructured data – essentially piecing together a candidate's skills based on a description of their previous job experience. These capabilities can expand the talent pool to include workers in adjacent industrial sectors: for example, workers in cleanroom manufacturing (e.g., chemicals and pharmaceuticals) and heavy capital equipment (e.g., military maintenance and power generation) have skills that can be transferred to other industries.
HR providers are now integrating generative AI into talent acquisition. A global HR technology company uses these tools to generate contextually relevant job descriptions, highlight suitable external and internal candidates, send personal emails, and provide succession planning for high-performing employees. These tools can also identify upskilling and reskilling opportunities and flag employees who may be at risk of leaving.
Overall, Gen AI can help elevate the HR function of semiconductor companies. This demand is critical as many companies are looking to hire an unprecedented number of new employees quickly, often in regions that do not have existing semiconductor ecosystems.
3.
Enhance semiconductor-related storytelling
The accelerated pace of technological innovation is forcing companies to ensure that the skills and abilities of their employees keep up. Organizations that have upskilling and continuous learning as part of their culture can gain a hiring advantage. The focus on career development and wellbeing is particularly attractive for the younger workforce. These elements can be promoted in recruitment pitches, storytelling, and online communities to reinforce the organization's commitment to its employees.
In addition to leveraging development opportunities as a hiring angle, the industry can collaborate to raise awareness of semiconductors, starting with rebranding (e.g., from semiconductors to microelectronics and nanoelectronics). In addition, fostering connections between universities and semiconductor companies and research centers can increase students' exposure to the industry and their career opportunities.
It is also crucial to link the often highly specialized work of each worker to the significant impact that companies and semiconductors have on the world. The study found that when employees found their work meaningful, they experienced a 33% increase in performance, a 75% increase in loyalty to the organization, and a 49% decrease in the likelihood of leaving.
Reimagining Employee Productivity
Companies can invest in-house in building relevant skills by shifting to traditional universal programs to focus on tailored learning journeys. This approach to reskilling and upskilling can be summed up as "experience and apprenticeship, not curriculum" and is specific to the necessary roles and job categories that organizations can identify as part of their workforce planning efforts.
Reducing onboarding time and accelerating time to competency are key levers for productivity, so these journeys need to begin the moment new hires walk through the door. Leverage through technical support can increase onboarding speed to enhance knowledge management and new skills development. For example, large language models can enable organizations to quickly and easily "capitalize" the existing knowledge of today's employees.
Additionally, companies can leverage generative AI to reduce skill requirements, accelerate skill development, or both. The latest frontiers in artificial intelligence and generative AI have the potential to double the productivity of software developers, enabling them to complete coding tasks twice as fast. More specifically, generative AI can speed up manual, repetitive work (such as auto-populating standard features and documenting code capabilities), quickly launch first drafts of new code, and accelerate updates to existing code. Additionally, improving the simplicity and user-friendliness of the platform, such as low-code and no-code, can reduce the need for additional software developers, as people without extensive experience can still write the basic code effectively.
As the industry matures further, cost will become more important, and increased productivity is a key driver.
Leverage outsourced labor to address shortages
Labor shortages are likely to persist, especially in long-term unneeded positions. Examples include construction, equipment installation, and professional maintenance. For such roles, companies can rely on outsourced labor to address critical gaps. However, this approach is not as simple as filling an individual role. Both semiconductor companies and labor providers should be prepared to work closely together. Strategic collaboration and management can ensure proper planning and allocation of outsourced resources, prevent double bookings, and maintain schedule and productivity as planned.
Other industries provide roadmaps for talent outsourcing facing workforce challenges. For example, the healthcare industry has adapted to the severe labor shortages associated with the pandemic by accelerating the use of travel contract workers, such as travel nurses. This shift was made possible through an existing, proven outsourcing model characterized by multiple HR agencies with pre-existing hospital relationships and rapidly scalable travel nurse procurement and placement services. Hospitals apply this approach to account for other forecasted demand fluctuations, such as an increase in the number of patients during local holidays at snowbird destinations.
The IT industry also offers valuable lessons. The need for outsourcing is growing due to aging software infrastructure, the proliferation of remote work, and increasing specialization of technology, such as AI-driven data analysis and integration projects. The shift from relying on in-house core employees for all business functions to outsourcing non-core industry functions such as low-skilled technicians, linen services, and security has allowed organizations to focus resources on filling critical positions.
The semiconductor industry isn't the only one facing a talent shortage, but its rapid expansion over the next few years brings a greater sense of urgency. The most successful organizations not only expand their candidate pools by being more strategic and resourceful, but they also strive to get more talent from their existing workforce.
The growth of the semiconductor market and the construction of new fabs will increase the demand for talent, requiring increasingly sophisticated approaches, such as hiring at scale at short notice – often where there is no existing semiconductor ecosystem. In fact, industry and governments seem to recognize the need to close the gap that has arisen rapidly and successively after multiple countries passed legislation to support semiconductor production. Many programs are underway to increase the supply of skilled construction process workers, semiconductor engineers, and technicians. Further evaluation is needed to see if existing programs can fully close the emerging talent gap.
These recent trends show that organizations must take talent strategy as seriously as they do business strategy. There is no time to waste.
Link to original article
https://www.mckinsey.com/industries/semiconductors/our-insights/how-semiconductor-companies-can-fill-the-expanding-talent-gap
Source | Semiconductor Industry Watch (ID: icbank) compiled from McKinsey & Company
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