Businesses are in the midst of a dramatic transformation generating significantly different operating principles from previous decades. While technology has long been considered the primary driver of these changes, another major cause is one that could be considered the opposite of technology: people. Because of technologies that inform and empower people both within and outside organizations, the role of organizations shifts from a position of control, where information and products are pushed on people, to one of service, where information and products are designed and delivered to satisfy people. A push economy is about managing resources to create mass-produced, mass-distributed and mass-marketed products. A pull economy, on the other hand, features flexible production platforms driven by customer demand and
which serve specialized needs.
This white paper is a summary of a 45-page report entitled Pulling Together: The Increased Role and Impact of People in Organizations by Frank Mulhern, cofounder of the Forum for People Performance Management and Measurement, and Professor of Integrated Marketing
Communications and Associate Dean for Research at the Medill School, Northwestern University. Based on a comprehensive review of academic research, business statistics, demographic changes, information on societal and technological trends, and historical analysis, Mulhern’s comprehensive reports suggests that People Performance Management is a pillar in the pull economy.
A Tidal Wave of Challenges
The change in the proportion of tangible assets to intangible assets in organizations is one reason for the new-found focus on human talent. In 1982, according to the Brookings Institution, tangible assets such as plant and machinery represented an average of 62% of a company’s market value. Today, recent studies place the average market value of tangible assets in many companies at about 15%, indicating that about 85% of a company’s expenses may be related to intangible capital tied up in knowledge, reputation and human talent. In this environment, the workforce’s performance will have an enormous impact on a company’s profits and the country’s economy. In the U.S. economy, where more than half of the gross national product is allocated to the information and service sector, knowledgeable people drive performance. Mulhern and his team explore a daunting array of changes and challenges facing the U.S. labor force in the coming years including:
- A slowdown in the rate of growth of the labor force very likely leading to an acute shortage of critical talent.
- An increase in the number of elderly people from about 19% of working-age adults in 2000 to a predicted 35% in 2050.
- An increase in women participating in the labor force and a simultaneous decrease in men’s participation, which closes the gender gap and equalizes workforce participation for males and females.
- A more ethnically and culturally diverse workforce. From 1980 to 2020, the white population between ages 25 and 64 is projected to decline from 82% to 63%. During the same period, the percentage of minorities in this age range is expected to increase from 18% to 37%, and the Hispanic/Latino portion is projected to almost triple from 6% to 17%. As a result, businesses will have to adapt to:
- Internal communications in multiple languages.
- A greater variety of secular and religious holidays.
- Workplace allowances for more varied dress and diet.
- Four generations of consumers and employees are coming together in the marketplace and office. Finding a way to successfully match these individuals, each group with its own very different attitudes and expectations, to the best work situation may be one of the biggest challenges facing today’s corporations.
- While in the past people were willing to accept unpleasant work for a good salary, this trend is changing. According to a McKinsey War for Talent survey, 59% of middle and senior managers said that the single most desired attribute of a job is that “the work is interesting, challenging.”
- Workplace complexity and talent requirements: jobs in which workers perform narrowly defined tasks in simple contexts are shrinking in number while jobs requiring greater interpersonal, technological and decision-making skills are increasing.
- Information technology, once an industry in itself, now is an integrated industry that blends with every other sector. As such, all organizations, to some extent, must manage information technologies and workers.
New Opportunities, New Strategies Arise in a Pull Economy
Dramatic changes taking place in the employment environment, such as demographics, attitudes, technology, and globalization, call for proactive efforts to rethink the relationship between organizations and the people who work for them. Below are examples of some ways in which leading companies are capitalizing on people performance management:
Talent Mindset and Employee Retention. In an environment where employees readily change jobs or careers, organizations can benefit by instilling a “talent mindset” philosophy at all levels. According to The War for Talent, a company operating with a talent mindset has “the passionate belief that to achieve your aspirations for the business, you must have great talent. To have better talent, you must have every leader in the company committed to that goal.” The talent mindset requires a comprehensive review system that evaluates employees’ strengths and weaknesses and determines key performers. Employees who are not performing at high levels are identified and programs are put in place to improve performance. For example, Deloitte Consulting designed a Develop-Deploy-Connect model that helps companies create successful programs that attract and retain talented employees. This model focuses on the development, deployment and connection of critical talent, rather than on more traditional recruitment and retention strategies.
Performance Evaluation. Employee evaluations and alignment processes play a significant role in reinforcing an organization’s overall goals and helping people improve their skills. Creating an effective evaluation and recognition program that seeks feedback from everyone involved is essential. Some of the more successful programs link individual goals with overall business objectives, creating plans with non-financial incentives, and involving employees in recognition programs and events. To assure that employees understand and improve organizational performance, employee evaluations and measurements must integrate goals for the organization’s strategy and success. Many companies find it difficult to quantitatively evaluate employee performance because of the difficulty in linking employee behaviors to organizational performance.
However, a company that uses the appropriate measurement tools will have a definite advantage over its competitors on many levels, including profits, customer satisfaction, and employee retention. Balanced Scorecards allow organizations to link customer behaviors, financial metrics, internal processes and organizational learning in ways that drive outcomes. Strategy Maps have also been used to align strategy with performance. Both Sears and GTE/Bell Atlantic/Verizon have used Balanced Scorecards and Strategy Maps to better enhance their processes with success.
Incentives, Rewards and Recognition. At the heart of People Performance Management is the idea that employees should be managed in ways that bring about a meaningful and rewarding experience. Employers must understand and manage both extrinsic rewards—salaries, benefits,
bonuses, etc., and intrinsic rewards—personal development and fulfillment, workplace experiences and a sense of community. Taken together, these elements comprise a Total Rewards Philosophy. Employers can overcome the challenges of fewer qualified workers, more diverse and demanding employees, and more complex work environments with a Total Rewards Philosophy. People are willing to make tradeoffs between work-related status and financial compensation, and personal lifestyle. Instead of simply rewarding employees for performing specified work, managers should also recognize their staff for working flexibly, showing personal judgment in the midst of change, and performing customer-pleasing actions. The pull business platform emphasizes self-development and learning opportunities for employees. Accordingly, a more outcomes-oriented approach to evaluations and rewards is needed. Companies should offer relevant and attractive compensation and benefit programs, including flexible work schedules and environments, project-based as well as long-term incentives, and competitive health packages. Incentive programs are powerful tools to engage employees and drive performance in ways that drive customer engagement. Today, many such programs underperform because they are designed and implemented at very tactical levels and are not integrated into a Total Rewards Program, or connected to strategic outcomes other than vastly oversimplified sales volume goals. Well-designed programs connect to an employee’s personal goals, career objectives, and lifestyle requirements, and, most importantly, to organizational objectives. People Performance Management recognizes that incentives, and similar practices such as recognition programs, represent core elements of an employee’s workplace experience.
Employee/Customer Connections. The interaction between customers and employees is critical to organizational success in today’s business environment. Recently, a great deal of attention has been placed on the role of employees in the customer experience and the ways organizations can engage, train and motivate employees to enhance customer experiences. Star Gas Partners, L.P., adopted this approach after receiving a poor rating for its customers’ experience. The company now empowers its employees within a “Zero Customer Defections” culture. Through incentives and education programs, employees learn to appreciate their role and value in satisfying customers. Improved employee engagement can result in increased productivity and customer satisfaction. It makes use of multiple statistics and surveys to track employees’ engagement as well as customer satisfaction, revealing a positive correlation between an Engagement and Performance Index and Customer Satisfaction.
Managers who are not connected to their employees are probably not connecting to their customers either. A survey of more than 570 customer service employees by the British consulting firm Prosell found that bad leaders negatively affect customer service. The research clearly shows that organizations which fail to treat employees well should not expect employees to treat customers well. A similar result was demonstrated by the AMA/Human Resources Institute Customer Focus Survey 2006, which found many Human Resources practices do not encourage employees to focus on customers. The survey results show that the HR practices provided most often are “expecting employees to anticipate customer needs” (ranked 19th overall) and “hiring customer-oriented employees” (ranked 23rd). Although companies want employees to anticipate their customers’ needs, the workers are often poorly prepared to do so. Interestingly, customer-oriented employee training is the number one HR practice that should be done but is not, according to those surveyed.
Training for Customer Service and Business Performance. Successful companies spend up to ten times more on employee training than other companiess. The effort lets them completely immerse employees in their organization’s culture and empowers employees to know and do what their customers want. Training and empowering employees assures a consistent product and customer experience. For example, Starbucks empowers its staff to address dissatisfaction by handing out free drink vouchers to anyone who waits in line too long. Similarly, all Ritz-Carlton employees are given “make-good” money that they can use to improve a customer’s stay. Companies that spend more resources and attention on customer-oriented employee training also benefit from increased employee retention.
Although most firms offer some level of customer service training, it accounts for a small portion of the total employee training. About 80% of U.S. companies surveyed provide customer service training, according to Training magazine’s Industry Report 2005. However, on average, only about 7% of employee training is spent on customer service-related topics, according to the American Society for Training and Development. In an attempt to improve their customer service training, some companies are immersing middle and upper level managers into hands-on situations. For example, Texas Instruments developed a training program for top management to improve customer service and teamwork The program was started in 2002 and has been instrumental in improving the company’s market share.
Pulling It All Together
People are now, more than ever, the source of competitive advantage. Organizations that embrace the new people-centered environment will not only succeed in the world’s new pull economy, but will flourish. When People Performance Management is the primary focus in an organization, competitive advantage becomes human capital management; employees become partners, not expenses; and compensation and incentives become total rewards management. The reward is a connection between employee engagement, customer loyalty, and profitability. In Pulling Together: The Increased Role and Impact of People in Organizations, Mulhern shares a compelling statement from Simon Caulkin of The Financial Times: “The new millennium marks a turning point in the history of organizations: For the first time ever it is possible to state with confidence that how organizations manage people has a powerful – perhaps the most powerful – effect on overall performance, including the bottom line.”
