Putting Talent at the Centre An Evolving Imperative for Manufacturing 2025

of respondents to a recent survey of manufacturing employees, are planning to leave their jobs in the next three to six months.41%The essential differentiator: impact orientation Much has already been written about talent in the context of the production system. What sets the Frontline Talent of the Future Initiative apart? It’s about drawing a direct line to impact. Unlike other thought leadership efforts focused more generally on talent, this initiative has intentionally tied each innovation directly to a demonstrable productivity or stability outcome. On average, pilot participants saw a 52% improvement in stability metrics, a 34% improvement in financial metrics, and a 28% improvement in productivity and operational health and safety metrics. Average productivity growth across advanced economies FIGURE 1 1997-2002 2012-2016 2016-20222.4 1.52.1 1.9 1.1 0.81.5 0.6 0.61.01.2 1.2 0.5 Average advanced economies Advanced Asia North America Western Europe2002-2007Great Financial Crisis 2008-2011 1.62.6 2.2 Source: Mischke, J., C. Bradley, M. Canal, O. White, et al. (2024). Investing in productivity growth. McKinsey Global Institute. https://www.mckinsey.com/mgi/our-research/investing-in-productivity-growth. Productivity and stability remain elusive In most sectors of developed economies today, business can no longer rely on the old tactics of increasing prices and finding new sources of growth as the drivers to increase profit. Rather, productivity is now, in many respects, the only viable path to increased financial performance. Despite this, productivity growth everywhere is slowing. Advanced economies saw productivity growth of only 1% between 2016-2022, down from 2.2% between 1997 and 2002, a period driven by the boom of the “dotcom” era. The last 15 years have seen productivity growth decline, largely driven by the global financial crisis but also by other systemic issues, including ageing populations and decreased workforce participation. Manufacturing is no exception The manufacturing sector, a pillar of most economies, is no exception to the trend. In the US, a similar productivity pattern of accelerated,declining and meagre growth has unfolded. Between 2011 and 2019, the decline in productivity growth was even stronger in manufacturing than in the broader economy, with only 0.7% growth. Most recently, from 2020 to date, the manufacturing growth rate has partially recovered to 1.8%, with the latest report at 1.3% in Q2 20241 – but it is still lagging the historic rates, leading business leaders to reevaluate their productivity strategies. Labour stability, critical to improving productivity, presents a growing challenge. An outlook survey by the National Association of Manufacturers (NAM)2 found that more than 71% of manufacturers have difficulty attracting and retaining employees. One driver is labour market participation, which dropped sharply during the COVID-19 pandemic; meanwhile, job switching spiked – neither of these has returned to pre- pandemic norms. Internal McKinsey research3 has found that among respondents to a recent survey of manufacturing employees, 41% are planning to leave their jobs in the next three to six months. Absenteeism and attrition remain major issues for companies. Putting Talent at the Centre: An Evolving Imperative for Manufacturing 6