Navigating the “5R” Workforce Challenge in Australia

Australian organisations – from local SMEs to enterprise firms – are facing a workforce in flux, driven by what the Australian HR Institute calls the “5R effect”: recruitment, retention, reorganisation, reskilling and redundancies all happening at once. The latest AHRI Work Outlook report shows 69% of companies are actively hiring, yet one in three can’t fill vacancies. At the same time, many firms are restructuring, accelerating automation and planning redundancies – 27% expect to let people go in the coming quarter– while nine in ten worry roles will be disrupted by AI.

In this climate, HR and business leaders must treat the five forces as interconnected, and not as separate problems. For example, recruiting struggles often fuel retention issues; both feed the need to reskill current staff rather than hire externally. The imperative is to balance urgent needs with long‑term capability. To thrive, organisations need practical, people‑centred strategies. Below we break down key insights and actions, with proven data and examples, to help Australian SMEs and larger firms adapt and succeed.

Understanding the 5Rs: A Workforce in Flux

Each “R” in this model represents a pressure point:

• Recruitment: Australian employers are competing fiercely for talent. As of Q3 2025, about 69% of organisations planned to hire, yet 33% report difficulty filling roles. This is acute for skilled trades, professionals and senior leaders. For SMEs, this means smarter sourcing – for example, expanding candidate pools or tapping networks – and building a stronger employer brand.
  
• Retention: High turnover is also a worry. In fact, 28% of companies report an annual turnover above 20%. Wages are rising slower (around 2.9% on average) than last year. Retaining staff requires more than pay‑rises: it means engagement, career development and a positive culture. (According to Gallup, engaged employees have higher retention and productivity.)
  
• Reorganisation: Rapid change is afoot – 90% of employers say their roles will change in the next 3–5 years and roughly one in five roles is already at risk of disruption. Many organisations (including Deloitte) are mapping future scenarios and redesigning jobs to keep “the human element…substantive and adds value”. Yet 34% of companies lack a formal workforce plan. This gap leaves businesses scrambling reactively rather than preparing proactively.
  
• Reskilling: With skills shortages, organisations are increasingly upskilling. More than half (56%) of Australian firms are actively reskilling staff to manage disrupted roles, and 47% redeploy staff internally instead of letting them go. This reflects a shift to “skills‑first” strategies (focusing on capabilities rather than job titles). It’s practical: training an existing employee often costs less than recruiting a new one, and it preserves institutional knowledge. Deloitte research echoes this, noting 94% of employees would stay longer if employers invested in their development – yet only 15% have access to relevant learning.
  
• Redundancy: While redundancies often make headlines, they are increasingly strategic adjustments rather than just cost-cutting. In Q3 2025, 27% of employers planned redundancies (second-highest on record). Significantly, 61% expect AI to reduce some roles (81% public sector vs 57% private). The lesson: businesses should manage any reductions thoughtfully, pairing them with redeployment, support and reskilling, to minimise disruption and protect in-house capability.
  

These five forces overlap. For example, turnover (retention) can worsen hiring needs, and AI-driven role changes (reorganisation) create new skill gaps (reskilling). AHRI’s CEO, Sarah McCann Bartlett, warns that “effective longer-term strategic workforce planning and a switch to a more skills-based operation will give organisations a competitive advantage”. In short, data‑driven planning and integrated solutions are vital.

Strategy 1: Adopt Strategic Workforce Planning

An integrated workforce plan is the first defence against the 5R pressures. Strategic workforce planning (SWP) means looking 3–5 years ahead – as Deloitte’s CHRO Tina McCreery does – while also driving concrete actions this year. Global research shows top companies treat talent like capital: S&P 500 firms excelling in this generate 300% more revenue per employee than peers.

Key steps for SMEs and larger firms:

• Map future scenarios. Think through technology changes, customer demand, regulations – and how these affect roles. For example, use a simple “work analyzer” to break roles into tasks and see where automation could substitute.
  
• Audit skills and capacity. Know who has which skills today. McKinsey suggests building an “industry taxonomy” to compare skills with the market. This reveals gaps early.
  
• Set workforce choices. Decide on skilling vs hiring vs outsourcing for critical roles. McCreery notes Deloitte explicitly makes “workforce choices” – adjusting headcount, structure and skills in 12–18 month plans that align with long-term strategy.
  
• Embed SWP into business rhythm. Revisit the plan quarterly with finance and ops teams. Use scenario planning (what if AI adoption speeds up, or a big client delays projects?) to stress-test your plan.
  

The payoff: organisations with SWP can redeploy or hire proactively as markets shift, rather than resorting to knee‑jerk redundancies. As McKinsey argues, SWP gives “data-backed insights” for upskilling and aligns talent decisions with strategy. In practice, an SME might use quarterly planning meetings to flag that, say, new digital tech will require more software skills next year. That alerts HR to train or recruit early, smoothing the transition. Internal links: ChalonPC’s [Strategic Workforce Planning service] could help design such plans.

Strategy 2: Embrace a Skills‑First Culture

The era of fixed job descriptions is waning. Instead, forward-looking organisations prioritise skills and internal mobility. As the World Economic Forum and PwC note, “skills are the new currency” – focusing on competencies keeps firms agile. Practically:

• Expand job definitions. Rather than hire for one role, build overlapping skills profiles. Cross-train teams so employees can cover each other. PwC found nearly half of employees said opportunities to learn were key to staying at a company. Offering this keeps people engaged and retained.
  
• Promote from within. Before hiring externally, look internally for candidates who can be upskilled. The infographic shows many firms (47%) are redeploying staff instead of layoffs. This saves hiring costs and raises morale. Consider mentorships or stretch projects to build new capabilities.
  
• Invest in training. Even SMEs can partner with external providers or create bite-sized learning. Gallup research tells us engaged companies see better retention and productivity. Training programs show employees they’re valued – Deloitte found 94% would stay if employers invested in development. (A simple example: a retail SME might train floor staff in digital tools to give them new skills and responsibilities.)
  
• Build apprenticeship or partnership pathways. Some businesses team up with schools or apprenticeship schemes to grow talent pipelines (the HBR article on HR strategies highlights apprenticeships and education partnerships as long-term upskilling solutions).
  

These efforts tackle the “reskilling” and “retention” Rs head on, and they pay off. PwC notes CEOs who reskill employees gain productivity and preserve institutional knowledge. It also “shows a business to be an employer of choice” in tight labour markets.

Strategy 3: Boost Engagement and Wellbeing

High turnover and low morale amplify the 5R pressures, so culture matters. Engaged teams weather change better. Practical steps:

• Improve leadership and communication. The McKinsey study emphasizes doing “talent planning with the same rigor as financial capital”. This means leaders articulate vision and involve employees in planning. Transparency about changes (e.g. “Here’s how roles may evolve with AI”) reduces uncertainty.
  
• Recognise contributions. Simple but often overlooked, recognition fuels retention. Gallup reports engaged employees are more productive and less likely to quit. For example, build a peer‑recognition program or celebrate team milestones.
  
• Flexible work arrangements. Many SMEs find offering flexible hours or hybrid work boosts retention and broadens the talent pool. In a tight market, this can differentiate your firm.
  
• Health and wellbeing supports. When redundancies loom, offer career counseling or job search assistance to departing staff. This humane approach protects brand and the morale of remaining employees.
  

In action, an SME might start quarterly “pulse surveys” to catch emerging issues, or hold “town halls” where staff give input on future skills to learn. The result: employees feel part of the solution, not victims of change. A highly engaged workforce is 21% more profitable on average, giving bottom‑line incentive for these efforts.

Agile Firms Lead the Way

Large organisations like Deloitte are already using these integrated methods. Deloitte’s CHRO explains how their dual-horizon planning (long-term vision with near-term actions) avoids “big shiny strategies” that never get used. They break down roles into tasks with AI tools to guide redeployment, and they weave commercial insights into HR strategy. Smaller companies can scale these ideas: for instance, by doing a mini “tech audit” on key roles or piloting an AI-tool on one department.

Likewise, McKinsey notes that the companies leading in a fast-changing world “plan capacity and capabilities” and reduce traditional hire-fire cycles. This means keeping some slack in the system: having employees trained in more than one skill so demand spikes can be handled without frantically hiring.

Action Plan: Balancing Now and Next

In practice, tackle the 5R challenges with an integrated roadmap. For example, ChalonPC’s approach to performance consulting emphasizes root-cause analysis: understanding whether a turnover problem is really due to poor retention management, low pay, workplace conditions or unmet learning needs, and then addressing that root cause. Similarly, workforce planning starts by asking “What choices do we need to make now about our team’s skills and size based on the most likely future customer expectations and required capability needs?” – aligning recruitment, training and restructuring decisions with strategy.

Your action list might include:

• Conduct a quick skills gap analysis. What skills will you need in 1–3 years? Survey leaders and map against current workforce.
  
• Prioritise one cross-training initiative. Pick a critical shortage (e.g. digital skills) and launch a staff workshop or mentorship.
  
• Set up a workforce planning team. Even for a small company, a HR+Operations meeting monthly can track hiring needs and skill gaps.
  
• Measure engagement. Use a brief survey or informal check‑ins to see how change is affecting morale; adjust your plans accordingly.
  

Overcoming the 5R effect isn’t just HR’s job – it’s a whole-business effort. But by focusing on capability (skills, flexibility, culture) rather than just headcount, Australian businesses can turn disruption into opportunity. As Deloitte’s HR leader says: this is “a huge opportunity for HR to show the benefits of their commercial and business knowledge” in steering the company forward.

Data-driven planning, continuous learning and strong leadership will help SMEs and larger firms alike to emerge more adaptable and resilient.

References: hrmonline.com.au