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Executive Education

Stewart Black
Stewart Black
Leading Change in an Age of Digital Transformation

Why you should be thinking of your employees as customers

Stewart Black

Professor of Management Practice in Global Leadership and Strategy Programme

Director of Leading Change in an Age of Digital Transformation

Customer choices have changed radically over the last decade. Digitisation has opened up information to consumers on an unprecedented scale, while simultaneously lowering the cost of switching should they change their mind about a purchase.

Take buying a pair of shoes.

At the touch of a button you can see what hundreds of other people thought of this pair. And that’s not all. People who bought these sneakers also bought these other designs. The options are boundless, and the cost to you if you switch is minimal.

For companies, of course, all of this consumer empowerment in an increasingly crowded marketplace means they have to work a lot harder to get in front of the right people’s eyes. It’s never been more challenging or more competitive to stand out from the crowd, build the engagement and seal the deal.

None of this is particularly surprising of course. We know a lot about evolving consumer behaviours. So, what’s the parallel with employees?

Welcome to the era of employee choices

If things have changed for consumers, the options in front of employees are also unprecedented.

Any professional with a laptop of smartphone can access and compare any number of opportunities in very little time and at virtually no cost. What’s more, we now have AI-enabled tools that can instantly match a candidate’s skills, capabilities, values and preferences (and even their personality) to the role and the culture of companies looking for staff.

Today’s employees also have greater access to information than ever before. Sites like Glassdoor, Great Place to Work, Comparability and Vault all provide ratings, employee comments, assessments of overall reputation, and scores on metrics such as diversity, gender, employee engagement, work-life balance, career promotion and advancement.

Easy access to this kind of data significantly reduces uncertainty. And again, there are virtually no switching costs to the employee.

But that’s not all.

Benefit versus contribution

In the past, most firms offered defined benefit plans. This meant that an employee’s retirement allocations were fixed and determined by the company. That company, in turn, was responsible for meeting the financial obligation. For workers, the trade-off was simple: leave the firm and leave these benefits behind too.

In recent years there has been a seismic shift away from defined benefit retirement plans. Today, most companies offer defined contribution plans – employers and employees both put in a defined amount, but it’s down to the individual employee to take responsibility for what he or she is left with at the end of the day. There are no more pension guarantees from employers. But defined contribution plans are totally portable – they can follow the individual from role to role, job to job, organisation to organisation.

This is hugely relevant in terms of employee mobility. Academic literature tells us that when the cost of switching decreases, switching behaviours increase. In my own research, I’ve found this to be true of employees in particular. As the proportion of defined contribution plans in retirement funds increases, the average tenure of employees at an organisation decreases. In fact, these two things have inverse correlation of -0.96, which means that they move in opposite directions in almost perfect unison. To put it simply, employees are switching jobs, taking their pension plans with them and incurring virtually no costs. And they are doing more now than ever before.

For organisations the message is clear. You have had to compete for your customers. Now you are going to have to compete for your talent too.

Getting and giving

The good news is that science can help.

We know from research that employees (and customers) behave in a certain way and that behaviour can be predictable.

People typically choose one value proposition over another by going through the process of comparing what they get and what they have to give in exchange.

Consumers get something in return for giving – a product or service usually in exchange for money.

For employees, the getting part of this equation is a little more complex. Science tells us that there are four buckets of benefits that matter most to employees: reward, job, leadership and the company itself. These are the things that they get from you as the employer.

Let’s break them down.

  1. Reward: Money matters, of course. But our research shows us that it’s not quite that simple. Money for the sake of money is not what people tend to want. It’s more accurate to think of remuneration or salaries as a fungible resource – a means by which people can meet other kinds of needs: food and clothing, cues about status or success, and simply satisfying ego, for instance. This is a more nuanced understanding of the role of pay in sealing the deal with a new employee.

  2. Job: People care about what they do. They want autonomy. They want a job that will interest and engage them, while offering them variety. And they want a job that gives them strength and stretch opportunities: matching their capabilities but also giving them a chance to learn new skills and develop their career. In my research, I’ve found that people consistently accept offers for jobs that map to these kinds of priorities.
  3. Leadership: People care about who will lead them. They need to know their boss will be fair, invested in them and their development and whether he or she will be inspirational over the longer-term. Again, I’ve established a close correlation between people accepting job offers and perceptions around their potential new boss.
  4. The company: We know that employees are highly influenced by how a company is seen. But it’s important to remember that reputation hinges on much more than just financial success. Factors such as corporate citizenship, action on environmental and social issues, corporate culture and the treatment of people have significant leverage when people come to choose who to work for.

So what about the giving?

Just like customers, employees will evaluate the overall attractiveness of your company by taking comparing what they have to give in return for what they get – what price they will have to pay to work for you?

The price of working can be measured in different ways: the hours that people work; how much time they spend away from family and friends; the amount of pressure or stress they will feel doing the job.

This matters more than you might think.

Typically, companies focus on what they give to their employees. Most satisfaction or engagement surveys are pitched around what workers get and whether this meets their expectations. But this is only half the picture. Again, the science tells us that we are twice as likely to be able to predict if someone will accept a job offer when we look at what they are expected to give as well as what they get – rather than just looking at what they get from an employer.

As the war for talent heats up, it’s important to look at both sides of the equation and factor in what your company expects from its people.

Winning the war for talent

Thinking about what your value proposition looks like to potential employees and being transparent about what you expect to give and get from them is a good place to start.

Be cautious too about over-thinking generational differences in the workforce. We’ve heard a lot about the Millennials and how they are at loggerheads with the so-called Baby Boomers. If you believe the popular press you’d think that Generation Y and people over 50 come from different universes: for Millennials it’s all about flexibility, while Boomers are looking for stability. Gen Y care more for values, while older workers are focused on the pay cheque and so on.

The reality is far more nuanced.

There are, of course, different patterns that distinguish the things that each generation expects to get and to give in return. In broad strokes, younger workers prefer workplace frameworks that enable collaboration: coffee bars or communal spaces where they can meet, mingle and network. They are likely to be less drawn to rigid hierarchies and they tend to prioritise life-work balance, sometimes blurring the lines between work and leisure.

But be careful not to give too much credibility to generalisations.

My own research has shown that the difference between generations is marginal at most. Everyone, regardless of their demographic, cares about the four factors of reward, job, leadership and company. We all prefer to work in something that enables us to live at a certain standard, that interests and challenges us, for a boss and an organisation that inspires us.

Be careful too not to over-rely on whistles and bells – trendy perks or fringe benefits to help tempt talent into your organisation. I recently published a paper looking at 7,000 employees and found without doubt that focusing on the basics and doing them well matters far more than games rooms, massages and yoga or dry cleaning services. On site dry cleaning might get you some coverage in the press, but no serious scholar has found that employees will switch one company that didn’t have a laundrette for another that did.

Employees leave all the time because they feel their job is not interesting, that their boss was not fair, that the culture of the company was not inclusive, for another company that they believed or hoped was better.

With unprecedented challenges ahead of all of our economies in the coming months, and a new era of volatility and uncertainty in store, it’s important to remember that people are your best resource in navigating the way forward.

In a post-Covid-19 world, talent is going to matter more than ever.

Forward-thinking companies would do well to think of prospective employees the same way they do about prospective customers, fashioning compelling value propositions to win and keep both.

Stewart Black is Professor of Management Practice in Global Leadership and Strategy at INSEAD. He specialises in leadership, strategy, change, globalisation, and stakeholder engagement.