Chip shortages over the past year have led to slowdowns in some of the world’s most important industries. From automaking to power, consumer goods, and healthcare, a lack of semiconductors has stymied production and held back innovation. In response, several large chip manufacturers have committed to building new factories in the United States and Europe, aiming to relieve pressure on producers in Asia. However, a single factor threatens to undermine their plans: amid intense competition, semiconductor companies are finding it harder than ever to attract and retain personnel. And without a steady stream of expertise, the ambition to build world-class facilities is little more than pie in the sky.
The global semiconductor market grew strongly in 2021, with revenues rising 20 percent to $590 billion.
That performance is expected to continue, with 6 to 8 percent growth (CAGR) up to 2030, driven by megatrends including remote working, wider use of AI, the expansion of 5G, and soaring demand for electric vehicles (EVs). A major challenge to this vision is chip supply, with the COVID-19 pandemic demonstrating how bottlenecks can lead to significant disruption.
To counter supply challenges and establish more reliable regional capabilities, governments in the United States and the European Union have made chip manufacturing a strategic priority. The US CHIPS for America Act, for example, provides $52 billion in grants for semiconductor manufacturing and research. While investment in new manufacturing fabrication plants will be welcomed by the industry, it will do nothing to offset shortages of talent. In fact, it could make them worse. In the United States, official estimates suggest that companies across industries will face a shortfall of 300,000 engineers and 90,000 skilled technicians by 2030.
Against this background, semiconductor manufacturers must acquire the skills they need to put the promised capital to work. They are struggling on three fronts: talent acquisition, retention, and organizational health, which presents a significant threat to the effectiveness of the billions of dollars being bet on the industry’s future. In response, companies need to get a strategic grip on the challenge and create career offerings at least as attractive as those of tech giants. In short, they need to take bold decisions that will ensure that the best and brightest commit for the long term.
Acquisition, retention, and organizational health
If you have the same problem with everyone, the old adage goes, then maybe it is time to take a look in the mirror. By the same logic, semiconductor companies that face persistent talent issues should cast an objective eye over how the problem is manifested in their decision making and ways of working. Across the three key challenges of acquisition, retention, and organizational health, our research reveals a number of dynamics shaping the challenge facing the industry.
Amid red-hot competition, we expect demand for technology skills to rise 20 percent above 2019 levels (based on hours) by 2030. History suggests the most intense demand will be in digital and analytics, where there has been the strongest inflow of technology talent in semiconductors and other industries. For instance, talent inflows for employees with digital and analytics skills have risen by six percentage points at integrated-device manufacturers (IDMs) over the past ten years and by eight percentage points at fabless players. Although the semiconductor industry is manufacturing-intensive, talent inflows into manufacturing jobs have been lower (Exhibit 1).
Negative perceptions may explain why technology talent inflows are lower within the semiconductor industry compared with other sectors. Employer and student surveys reveal a tepid attitude toward semiconductor brands. At senior levels, some 60 percent of executives feel that semiconductor companies have a poor brand image and limited recognition compared with other tech-focused companies.
Students, meanwhile, are much more inspired by consumer-facing tech companies than their semiconductor peers. Excitement levels, compensation, and development opportunities are all seen as higher at the world’s most recognizable brands.
Employment patterns in the wake of the pandemic are changing, which is making it more difficult for companies to hold on to personnel. Some 40 percent of employees in a 2022 survey said they are “somewhat likely” to leave their jobs in the next three to six months.
A key driver of weakening bonds between employers and employees is the gap between what employees want and what employers think they want, surveys show. The factors cited by employees as being most important to them are “to be valued” and “to enjoy a sense of belonging.” However, employers often believe that employees most value the right compensation and career development opportunities. In fact, while these factors are still important, they are less important than employers think.
Compared with competitors in automotive and big tech, semiconductor players also fare badly on sentiment measures (Exhibit 2).
The biggest gaps are in work–life balance and senior management, and there are challenges around culture and diversity and inclusion. The only factor on which semiconductors outscore their peers is career opportunities.
Finally, semiconductor companies must manage the impacts of universal trends playing out in the employment market. These include shifts that accelerated during the pandemic and appear to have become entrenched in behaviors. The pervasive impact of digital, for example, means that people can more easily take on new jobs without relocating. This has created location-agnostic opportunities, increasing the risk that employees will quit if unsatisfied.
Segmenting by activity, IDMs and foundries are seen as the least attractive, while fabless players are perceived more positively (Exhibit 3). The biggest areas of outperformance among fabless players are in compensation, benefits, or both and in career opportunities.
Poor organizational health
Organizational health is defined as the way in which companies and their employees align with a common vision, execute against that vision, and renew themselves through innovation and creative thinking—all factors strongly associated with performance. However, 64 percent of global companies score higher than semiconductor players on these metrics.
Within companies, health factors explain up to 50 percent of the variation in performance between business units.
In short, they make a big difference. But semiconductor companies trail the global benchmark in 34 of 37 practices that are key to organizational health, McKinsey research shows. Talent development is prominent among areas that require more improvement, as well as capturing external ideas and a sense of shared vision.
Dimensions to attract and retain tech talent
Faced with three key areas of talent challenge, how should executives respond? Our work with clients across tech industries reveals 20 dimensions that businesses can use to assess their ability to attract and retain talent (Exhibit 4). These range from brand awareness and image to the onboarding experience, career progression, and trust-based relationships. In all cases, the underlying variable is the company’s ability to engage with potential recruits, facilitate dialogue, and ensure that rewards match both individual skills sets and competitor metrics. These dimensions can enable companies to gauge their progress at key stages of the employee journey and benchmark their performance against best practices.
Through the employee life cycle, tech talent champions leverage best-practice approaches to attract, retain, and excite technologists. Here are a few examples:
- Discovery. A major semiconductor integrated-device manufacturer in the microprocessors segment built stronger brand awareness through a dedicated advertising strategy focused on “bringing people to microchip technology.” It leveraged simple ideas such as adding stickers on laptops sold to end customers that highlight the chip technology in the machine. Similarly, a clean-energy automotive company communicated its breakthrough vision of technology via internal marketing initiatives designed to create a buzz around key moments such as product launches and quarterly results. The company highlighted its positive and sustainable impact based on the number of vehicles sold, rather than on only financials.
- Recruitment. A telecommunication and information technology company implemented global talent sourcing across 30 innovation hubs, each focusing on specific competencies in locations close to talent pools (for example, research centers and universities).
- Onboarding. An IT company designed a three- to six-month onboarding program for newly graduated tech profiles. It designed a learning journey for each core tech domain (based on both theory and application in the workplace).
- Learning and development. A semiconductor fabless player created a cutting-edge learning approach, including tuition reimbursement for higher education, training with internal experts, paid subscriptions to third-party hardware/software tech training platforms, and a budget for personal development.
- Rewards. An Internet of Things (IoT) platform company aligned remuneration to the 95th percentile of the industry’s average full salary, with an annual bonus of up to 30 percent of base salary and a “super bonus” on the achievement of milestones over two years. A consumer technology company developed an internal talent management tool to rate the monthly performance of every employee. It combined this with a feedback culture, ensuring transparency on end-of-year rewards and promotions.
- Transitions. An EV company designed an internal fast-track program for its best talent. It selected 20 to 30 people twice a year for a 12-month development program tailored to the individual (for example, training on tech/soft skills, working directly with directors) and offered accelerated career trajectories. A consumer electronics company defined mobility and rotational programs across functions, organizations, and geographies, especially those in which promotions tended to be rarer.
- Engagement. An IT systems design company hired tech leaders in specific fields, such as AI. By taking on people with personal branding and leveraging their reputations in tech communities (for example, universities), it created a honeypot effect. A fabless company built internal clubs for employees to connect informally and foster a sense of belonging. This effort focused on attracting graduates and talent in their 20s. A consumer tech company stemmed attrition by 30 percent by hiring when teams were under pressure, tracking all projects with three KPIs: urgency rating (1–10), complexity rating (1–10), and number of staffed employees.
- Flexibility. A US social-media company allowed its employees to decide their working locations, creating hyperflexibility designed to engender increased loyalty. A US multinational retailer took similar steps, establishing a postpandemic policy for its 10,000 tech employees that allowed fully remote working, with occasional office visits for collaboration.
- Offboarding. A multinational IT company set up predictive analysis to evaluate employee burnout rates and identify the top reasons for attrition. An online marketplace that lost a lot of staff during the pandemic offered intensive career services as well as an opt-in program that provided job search support.
The path forward
To address talent challenges in the semiconductor industry, nothing less than a holistic, end-to-end talent transformation is required. However, many business leaders perceive the scale of that task as too daunting and the benefits too uncertain—at least in the short term. Moreover, given the urgency of the problem, they want to do something today that will yield results tomorrow.
To speedily move the dial on the talent challenge, some organizations have opted to pool resources in a center of excellence. The “talent win room” model creates a hub for prioritizing and executing on the most pressing talent needs. Win rooms are constructed on two key pillars: talent acquisition, attraction, and selection (including both internal and external capabilities across channels); and employee experience and progression, and both feed into the central capability (Exhibit 5). The win room itself should be led by a senior-executive sponsor and tasked with driving and accelerating change, based on two key mandates:
- Fast-tracking of critical talent decisions. The key to accelerating decisions is to be clear on which decision points are most in need of attention. One solution is to use a diagnostic tool to produce a heat map of pain points across the talent journey. Through this approach, one company found that it faced an issue with candidates backing out after offer acceptance. In response, it created a “candidate concierge” service and an offer “save desk.” Rather than waiting months to reimagine the candidate journey, the company was able to address its most critical pain point in weeks.
- Rapidly adapting new workforce practices. To speedily transform attrition into attraction, companies need a fast, flexible approach to putting ideas into action. The talent win room breaks the mold on execution by launching interventions through an agile test-and-learn model.
Interventions are conceived in a “laboratory environment” comprising agile teams and rapid prototyping. Potential interventions include new approaches to burnout prediction and mitigation, manager capability building (leading through inclusion, leading with purpose), more flexible working, and fresh ideas in rewards and recognition. The interventions are designed and piloted over weeks rather than months, then validated, refined, and scaled. In the scaling phase, HR and business leaders are offered skill building and change management insights, which equips them to adopt a mindset of continuous improvement.
Over the next few years, semiconductor companies are set to play a role that will be ever more vital in global value chains. Indeed, the billions of dollars being invested in manufacturing reflects semiconductor companies’ economic and strategic importance. From autonomous driving to cutting-edge medicine to artificial intelligence, the next ten years could become the “semiconductor decade.” However, as a new era of semiconductors unfolds, companies need to ensure that they have the skills and capabilities that will enable them to innovate and compete on the global stage. In an increasingly crowded environment, the winners will be those that make bold decisions, establish dedicated capabilities, and commit to cultural transformations that will set them apart from their peers.