Organizations are grappling with unprecedented workforce challenges, including labor market shortfalls and evolving generational needs. Talent management has become a primary concern for business leaders, with industry experts offering valuable guidance on shaping a future-ready workforce. They examine the impact of technology on operations, the importance of leadership and development opportunities in retaining talent, and innovative approaches to flexibility and career advancement within the manufacturing sector.
In this episode of McKinsey Talks Operations, host Daphne Luchtenberg sits down with McKinsey partner Julian Salguero to discuss navigating these challenges. We also hear from McKinsey associate partner Tyler Freeman in conversation with Lindsay DeVagno, vice president of human resources at Keurig Dr Pepper (KDP), about her strategies for managing workforce dynamics.
The following conversation has been edited for length and clarity.
Daphne Luchtenberg: Organizations are currently witnessing an unprecedented phenomenon. For the first time in history, five generations are working side by side. This age diversity presents new challenges but also offers incredible opportunities for businesses. I’m joined by the authors of “From hire to inspire: Getting—and keeping—Gen Z in manufacturing,” Julian Salguero from our Miami office and Tyler Freeman from our Atlanta office, to discuss why this shift in the workforce is crucial for leaders to consider. We’ll also hear insights from Lindsay DeVagno about her role in implementing key programs that shape the future workforce of Keurig Dr Pepper.
Let’s dive in. There’s a lot of discussion about Gen Z’s impact on the workforce. But looking beyond that, why is talent a primary concern for CEOs today?
Julian Salguero: There’s a significant shortfall in the US labor market. Companies are struggling to fill roles, leading to shortages and operational challenges. Meeting customer demand is becoming increasingly difficult. Moreover, about one-third of manufacturing employees are considering leaving their jobs within the next three to six months. This issue is critical and demands attention at the CEO level. In my experience, clients have observed a 25 percent increase in throughput at sites where employee tenure is four times longer than at others, highlighting the performance benefits of workforce stability.
Daphne Luchtenberg: We’re discussing it less now, but to what extent is the COVID-19 pandemic and its aftermath still affecting workforce challenges?
Julian Salguero: The pandemic exacerbated these challenges, but it’s not an excuse. The shift in workforce demographics was anticipated, though the speed at which it occurred during the pandemic was unexpected. Workers with over 35 years of experience are naturally starting to seek more flexibility, while newcomers are still learning their roles. As you mentioned, these different generations have varying needs and levels of expertise that must be addressed.
Daphne Luchtenberg: It seems there are significant opportunities for companies to shape their future workforce, though it requires considerable strategic planning and collaboration. Julian, you mentioned workforce incentives. Is there a noticeable difference in how various generations view compensation?
Julian Salguero: From my work with clients, meeting a minimum compensation threshold is essential. However, other factors become important beyond that point, particularly for different groups within the manufacturing workforce. For instance, Gen Z workers highly value career development and supportive leadership. I’ve seen clients create new roles and clearer career paths for entry-level employees in manufacturing plants. Additionally, investing in leadership skills, such as supervisory soft skills, is crucial. Implementing regular 30-minute coaching sessions allows supervisors to connect with each team member, demonstrating care and encouraging improvement. This approach is challenging if supervisors are overwhelmed with tasks and long hours.
Daphne Luchtenberg: With the evolving nature of jobs and the need for new roles, how is technology influencing this transformation?
Julian Salguero: Technology can significantly enhance productivity in the manufacturing workforce. However, the full potential is often unrealized due to inadequate change management. Effective change management involves developing tools and solutions in collaboration with the current workforce, who spend significant time in these roles and understand the challenges and opportunities. Engaging them from the beginning is crucial for maximizing the benefits of technology.
The second thing I would say is that Gen Z, being what I would call digital natives, are eager to engage with technology and digital tools. This presents a significant opportunity for companies to enhance their value proposition by showcasing their investment in technology. In manufacturing, this means going beyond assembling gadgets or performing repetitive tasks; it involves interacting with technology to improve operations and learning the latest technologies that position a company as a leader in its field. This is what can truly excite Gen Z about joining the workforce.
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Daphne Luchtenberg: Can you provide an example of how this has been implemented?
Julian Salguero: At a few client sites, I’ve introduced a digital tool called a copilot, which incorporates AI to assist supervisors in decision making. For instance, it can streamline the process of scheduling labor. Previously, supervisors might spend 30 to 45 minutes organizing the day’s assignments for 50 workers based on their skills. Now they can input this information into the copilot, and it generates a labor schedule in minutes. The supervisor simply needs to review and approve it, freeing up their time for more impactful leadership activities like coaching, as I mentioned earlier.
Daphne Luchtenberg: Let’s hear from an organization that has successfully addressed some of these workforce challenges. Lindsay DeVagno, vice president of human resources at KDP, recently spoke with McKinsey’s Tyler Freeman about this topic.
Tyler Freeman: Could you tell us about your journey to Keurig Dr Pepper and your current role?
Lindsay DeVagno: Early in my career, I was an HR generalist at a GE manufacturing plant, supporting about 100 frontline workers. That experience profoundly impacted me, as it was my first HR position where I truly had to understand the personal and professional challenges they faced, what they brought to work every day, and how that affected their mood, productivity, and overall presence at work. Fast-forward ten years ago, when I joined KDP, this foundational experience proved invaluable.
About four and a half years ago, I stepped into my current role at KDP, leading our supply chain HR organization, overseeing approximately 9,500 individuals, including salaried leaders and a significant frontline workforce. Today, I focus on coaching and developing leaders while reimagining the dynamics of frontline work.
Tyler Freeman: It sounds like your journey began just before COVID-19. Could you expand on that?
Lindsay DeVagno: Yes, before COVID, we didn’t focus much on our frontline workers, assuming we had enough staff to operate and accepting high turnover as normal. However, COVID changed our perspective dramatically, increasing appreciation and respect for frontline workers globally. We celebrated them here as well. This comfort was short-lived; as the world reopened, we were unprepared for the massive wave of resignations that followed. During COVID, our coffee business saw unprecedented demand as people stayed home. But post-COVID, as employees began leaving, we faced a collision of high demand and insufficient staffing, leading to service disruptions. Our attrition rates soared, and we found ourselves reporting vacancy rates to our executive leadership weekly.
Tyler Freeman: Clearly, this was a daunting challenge, and it seems that as people began to have more options, they chose to leave. Suddenly, the business issue became a people issue. We often hear from clients, “I want to invest in my workforce, but I can’t justify the business case.” How did you begin addressing this?
Lindsay DeVagno: I vividly remember a call in early January 2022 from one of our operations leaders. He said, “We can’t meet demand. This is a crisis, and it’s a people problem.” That conversation was a turning point. It provided a unique opportunity to engage regularly with our executive leadership and operations leaders in a way we hadn’t before, specifically focusing on our frontline employees. You need a clear business reason to initiate such discussions. Then, as you mentioned, it’s crucial to quantify the people-related issues. In frontline operations, the cost of people challenges essentially becomes the cost of doing business. So, how do you demonstrate that?
The first step we took was to listen extensively. We conducted roundtables and surveys to understand the root causes from our frontline employees. Simultaneously, we knew we had to stop the bleeding. If we didn’t have enough staff to operate our machinery and serve our customers, we couldn’t address longer-term issues. We started by quantifying the cost of lost sales and comparing it to the cost of investing in people to provide temporary surge labor. We also knew we needed to invest in upskilling our supervisors and in technology that would allow us to explore schedule flexibility, which we hadn’t considered for our frontline before.
Tyler Freeman: As you mention investing in long-term solutions, it almost sounds intuitive, like, “We need to secure these quick wins.” Could you explain how you managed the short-term solutions and the impact they had?
Lindsay DeVagno: What we did initially was bring in surge workers at a high cost. However, when you compare the return on investment of what we would lose versus the cost of the labor, it was clearly worthwhile. We got our machines up and running and began production. Concurrently, we enhanced our talent acquisition efforts, focusing intently on filling open positions, onboarding new hires, and retaining them. One thing that surprised me was how quickly we were able to make an impact with this focused approach on people.
Tyler Freeman: You mentioned getting people in the door. Previously, it seems you had more insight into who might leave than into taking proactive steps. Is workforce planning something you’re continuing to enhance?
Lindsay DeVagno: Yes, it is. One of the outcomes was the creation of a new role: a labor planning analyst who anticipates predictive labor needs. If we foresee a need for additional labor in six months due to attrition trends, we determine how many positions we need to open now to ensure we have the necessary staff when needed, rather than waiting until we’re already short-staffed.
Tyler Freeman: How has this approach transformed your strategy from a broader future of work perspective? And what are some key learnings or initiatives from the coffee recovery plan that you’re expanding?
Lindsay DeVagno: One of our main strategies for the past few years has been to create a thriving front line. With about 20,000 frontline employees at KDP—the majority of our workforce—it’s crucial that they are engaged and committed to staying. This focus is essential for our business’s success. Specifically, within the coffee supply chain, this approach has served as an excellent pilot. We’ve been able to test and learn a great deal in this area and then expand those learnings across the organization. Two particularly exciting areas we’ll discuss further are the concept of flexibility for our frontline workers and our investments in skill building and career pathing, which have led to the creation of what we now call our advanced technician role.
Tyler Freeman: With many preconceived notions about what flexibility means in manufacturing, how are you challenging these conventional views?
Lindsay DeVagno: This project is probably one of the most enjoyable ones we’ve worked on and continue to develop. When we returned to work, the concept of hybrid work was popular, and people embraced it. Initially, we thought too narrowly and assumed that such flexibility couldn’t apply to our frontline workers due to the nature of their work. However, listening to our frontline employees, we realized we needed to challenge this convention and think differently about how to make it feasible. This shift from a mindset of “no, we can’t” to “how can we?” was a significant breakthrough for us. In terms of implementing flexibility for frontline workers, particularly regarding shift patterns, it required us to bring the operations team on board and engage in extensive change management. We began by exploring how we could test this concept. Our first step involved a market scan, leading to the purchase of an app that allowed frontline workers to swap shifts with each other. For example, if I needed to attend my child’s soccer game and was scheduled to work, I could easily swap shifts with someone. The app was user-friendly and intuitive, and employees appreciated the ability to adjust their schedules as needed.
As we shared these successes with our executive leadership and gained support from our operations leaders, we secured investment for a more sustainable, long-term solution. Beyond just swapping shifts, this new system allowed employees to post shifts to an open marketplace. If a conflict [in my schedule] arose, I could post my shift for all my coworkers to see, and anyone could pick it up without me having to find a specific person to swap with. We launched this system more broadly, and it has become our most downloaded software to date.
Tyler Freeman: What I find compelling here is how you’ve empowered employees to make decisions within the company’s operational needs. You’ve listened to their needs, acted on them, and now they’re actively using the system. It also seems like this approach could attract a new type of worker.
Lindsay DeVagno: Yes, we’ve observed that younger individuals attending technical schools who need additional income are taking advantage of this system as a second job. However, the most successful application has been with retirees. Some are individuals considering retirement who opt for a flexible arrangement instead of fully retiring, while others are retirees wanting to stay connected to KDP. They appreciate working fewer hours than a standard 12-hour shift and enjoy the flexibility to work when it suits them.
Tyler Freeman: Let’s talk about career pathways and reskilling. How are your employees on the shop floors engaging in upskilling and feeling empowered to create meaningful work opportunities for themselves?
Lindsay DeVagno: Interestingly, we often assume that employees view automation and technology negatively rather than as opportunities. During our coffee recovery efforts, we not only faced challenges with personnel but also with our machinery, which wasn’t operating as efficiently as we wanted due to frequent minor stops. We discovered that many of these issues weren’t severe mechanical problems needing maintenance technicians but were minor issues that could be resolved by production techs if they had the necessary skills. This led to the creation of the advanced technician role, essentially a production tech trained to perform minor maintenance tasks.
This new role offers technicians a clear career pathway with higher skills and compensation, increasing job satisfaction and autonomy. We introduced this concept to our frontline workers, who were very enthusiastic. We selected candidates, provided training, and found that over 90 percent of those initially chosen are still in these roles, feeling more energized and capable. One employee expressed immense pride in learning new skills, from not knowing the difference between standard and metric wrenches to independently changing weld heads on a production line.
Reflecting on the past three years, these initiatives have significantly reduced our annual turnover by about 40 percent and helped retain a substantial portion of our frontline female workforce. We’ve also begun to shift the mindset around automation, showing it’s not detrimental but beneficial. This change has created a virtuous cycle: as employees upskill, they become more engaged; as they stay longer, their experience enhances productivity, which positively impacts our bottom line and overall business results.
Tyler Freeman: Highly engaged, highly retained, highly productive. If you could leave the audience with one key lesson learned, what would it be?
Lindsay DeVagno: I believe the essential lesson is the importance of a crystal-clear partnership between operations and HR, supported by leadership. When these elements align and focus on a people challenge or any business challenge, progress is accelerated. Particularly for frontline workers, the people strategy becomes synonymous with the business strategy.
Daphne Luchtenberg: Julian, could you share your thoughts on Lindsay’s point about the critical partnership between operations and HR, and how this relates to frontline strategy?
Julian Salguero: I completely agree with Lindsay. A strong partnership between operations and HR is crucial. In our work with clients, we ensure that both departments are involved from the start, sharing insights and aligning on strategies to transform the organization into one that prioritizes talent. This alignment is impossible without both HR and operations being on the same page, which also facilitates bringing other departments on board to ensure everyone is moving in the same direction, optimizing talent productivity.
Daphne Luchtenberg: As organizations face ongoing workforce disruptions, what should leaders continually ask themselves to adapt effectively?
Julian Salguero: Leaders should first ask if they view labor as an investment rather than just filling roles. This perspective is vital for success today. They should also focus on key metrics: Are they tracking the return on their investment in labor? How are they measuring improvements in labor productivity, especially with recent wage increases? Are they monitoring the costs associated with turnover? These metrics are crucial for leading companies to maintain a focus on managing and enhancing their workforce effectively.
Daphne Luchtenberg: Leaders need to move from an idea of cost to an idea of value when it comes to their workforce.
