As results from the recently-concluded Q2 US earnings season showed, firms are still struggling to find dependable sources of corporate growth.
CEB research finds that, in particular, the elusive goal of “intelligent growth” (simultaneous growth in top-line revenue and bottom-line profitability) is hard and getting harder: only 3 out of 10 firms in the S&P 500 have been able to grow and keep costs at bay since the start of the financial crisis.
For most managers, getting this cost/growth trade-off right boils down to one thing: increasing workforce productivity.
Between 1993 and 2011, revenue per full-time equivalent (FTE) has grown at a 3.23% compound annual growth rate (CAGR), compared to no growth in revenue per cost of goods sold the world (COGS; CAGR = 0.16%) and a negative return in revenue per invested capital (–0.61%).
So it’s not surprising that executives’ ambitious growth goals for the next 2-3 years have many demanding a surge in workforce performance and productivity. On average, executives globally believe they need a 20% improvement in performance over and above current levels to meet their financial objectives (see chart 1).
Chart 1: Executives Need More from Employees to Meet Current Goals: Percentage of Improvement Needed to Achieve Current Business Goals (n=2,046) Source: CEB Corporate Leadership Council High Performance Survey, 2012
Wanted: Double-Digit Gains in Employee Performance
Achieving 20%+ gains in workforce productivity will be harder than most business leaders anticipate. CEB tracked employee effort and performance levels since 1998, and recent trends are not promising. The discretionary effort employees put into their work rebounded after the global financial crisis but has remained relatively flat over the past two years. It is not likely that organizations can continue to drive growth by simply having their workforces work harder. Already, 80% of employees have more work and are working longer hours than three years ago. A troubling majority of employees (55%) also agree with the statement: “I cannot handle the stress of my job for much longer.” However, many business leaders believe employees can be more productive. For every executive who thinks his or her employees are fully productive, seven believe they could substantially improve. With employees stretched in their jobs, executives have to quickly figure out how to make employees work smarter, not harder, to achieve significant performance and productivity gains. CEB research has shown that there are three fundamental changes in the working environment (what we have called the “new work environment”) that must be understood to help employees make these performance gains; these are:
- Frequent Organizational Change: A persistent aspect of the new work environment is frequent, significant organizational change, both broadly defined (e.g., strategic objectives, markets) and narrowly defined (e.g., work teams, reporting relationships).
- An Increase in Knowledge Work: The introduction of “big data” to the workplace coincides with the proliferation of business appli- cations, process automation, and outsourcing of routine work. As a result, most processes are highly automated, and work in general has become more data and information intensive, less routine, and more “exceptions” based.
- More Interdependent Work: As reporting and teamwork relationships have become more “matrixed”, employees share more formal responsibilities, authority, and accountability for more work outcomes.
If managers want to ensure 20%+ increase in employee performance in this new work environment they must base their talent strategies on a new model of employee performance. Our research has looked in-depth at this. CEB Corporate Leadership Council members can find much more context, along with tools, templates and best-practice case studies on the dedicated website.
How Sears’ HR Team is Responding to the New Work Environment
Chief Human Resources Officer of Sears, Dean Carter spoke with us recently about how he and his team use technology to boost employee performance at a time when that boost is sorely needed for most of the world’s firms. In particular, he spoke about how the nature of work has changed at Sears and how this has affected employee and business performance:
“The factors driving the changing nature of work are probably the two that have been doing this for many years: technology and innovation. But they feel more significant and faster at the moment, especially mobile and social technologies. The nature of those two technologies, independently and also together, are changing every single thing that we do. The combination of mobile and social is changing the face of retail and how we sell to people. Customers can hold a mobile device in their hand while having a conversation with a sales associates, and the customer is on equal footing in terms of product knowledge. The customer has all the information, and sometimes more, than the salesperson. Consumers are the expert, and when they’re not, in about 10 seconds through a Google search, they can be the expert. That is a completely new dynamic that didn’t exist before.
“From a talent perspective, social and mobile technologies are changing how we train and learn and even what employees need to learn. If you have all the learning at your fingertips, why do you need a million binders on the shelf that are old the day you print and ship them to a store? These technologies are changing our engagement strategy and metrics, too. I can track social circles now, and we can know in our stores which employees are more or less engaged by whom they’re connected to in social circles and how that impacts performance and learning.
“Finally, we’re having big conversations on how mobile and social technologies can help us create a less hierarchical, more dynamic organization structure based on attributes other than reporting hierarchy and geography. In the past, you might organize a district around stores all in one city, such as Chicago, because of expense, commuting, and communication purposes. What we’ve come to realize is that there are other things that teams or clusters of stores have in common that have nothing to do with geography. It may matter more that stores are in a particular type of urban environment, so when you think of a district manager, it may be better to think more of a league than a geography.
“We now have the opportunity to divide stores up into whatever makes sense because we can communicate very differently and have a lot more data than before, both about the customer and what they are doing.”
The full text of this interview can be found in CHRO Quarterly magazine (Corporate Leadership Council members), which examines the most important issues related to managing human capital. Articles feature the latest insights from around the corporate suite, new trends in HR, and personal stories from heads of HR at the world’s largest organizations. Read More. Non-members can read the feature article of CHRO Quarterly to learn more about driving breakthrough performance in the new work environment.