Workforce productivity is, quite rightly, a near-constant topic in business news. It’s frequently on the front pages of the leading financial and economic publications, and is a topic of regular debate among executives around the world. Organizations across industries struggle to attract and retain the right talent, particularly in critical segments, and once the right people are on board, struggle further to maintain a culture of engagement and well-being that drives a high-performance workforce.
This is not a new problem. Companies have faced stagnating workforce productivity for more than a decade. By one estimate, lost productivity costs U.S. businesses $1.2 trillion annually. More to the point, the average organization with 5,000 employees stands to lose nearly $50 million this year alone — because it doesn’t have the right people with the right skills doing the right work.
We sat with Willis Towers Watson leaders Ed Mactas and Emmett Seaborn for a closer look at the actions business leaders can take to make workforce effectiveness a competitive and financial advantage.
Moderator: What challenges do businesses face with respect to improving their workforce effectiveness and productivity?
Seaborn: More and more, organizations are striving to improve their efficiency and really to improve their key performance indicators, or KPIs, in virtually all areas. And with today’s financial pressures, it’s no longer just efficiency — it’s also quality, service, innovation and branding. What brings all these KPIs together is the effectiveness and productivity of the workforce.
Mactas: Workforce effectiveness is not a new topic, but it’s gained importance — and urgency — due to a heightened competitive landscape. First, companies face more traditional competitors globally now that we’re in a much more interconnected world. Second, they face competition from new entrants that are disrupting their industry through technology and innovative practices. Every company needs to find an edge. And, given that human capital is often a company’s most valuable asset, it logically follows that there’s an opportunity for companies to use human capital levers more effectively to create that edge.
Organizations are looking for ways to improve their financials, their operations, their customer loyalty and wallet share — and some industries are under more pressure than others. Health care organizations, for example, are under scrutiny to improve their patient satisfaction and quality of care. Meanwhile, in the construction sector it’s a constant struggle to improve cost predictability and on-time project performance. Every industry has its triggers, but what nearly all companies have in common is that they risk lower financial performance if they let their time to market and ability to innovate slide below that of their competitors.
Seaborn: Companies have made great efforts to achieve better results through technology. Unfortunately, many are finding that their technology investments haven’t resulted in significant improvements in those business outcomes. You can have the best technologies and processes in the world, but it still comes down to the people who are going to use them to make them work.
Moderator: How do we talk to organizations about making their workforces more effective?
Seaborn: I see many of our clients grapple with how to improve key business measures. Yet, in many cases, the workforce hasn’t been a consideration or it’s been only loosely connected to how to improve those business outcomes. It’s easy to understand why. The direct connection between talent, productivity and financial results has not been easy to pinpoint.
The good news is that human capital metrics and tools are now becoming increasingly sophisticated. They can quantify the impact of the workforce broadly on business KPIs, and with that information, organizations get more insight into how critical workforce segments and specific employee behaviors improve those results. The transformation allows for a stronger focus on the role the workforce plays in improving results. That, in turn, implies that HR will do much more in the area of human capital analytics.
Mactas: Exactly. It’s the next evolution, as HR moves from being very compliance-focused to being talent-focused. And as that talent focus becomes more quantitative, it’s changing both the role that HR plays with respect to driving business performance and how the business overall thinks about the workforce as a critical lever in driving business results. Of course, focusing on analytics doesn’t mean a company has to give up thinking about employees as individuals. Quite the opposite; by understanding what drives employee engagement and well-being, companies can also do a better job of addressing individual worker needs.
Seaborn: To that end, HR can help the business by segmenting the workforce and looking much more carefully at how critical segments of the workforce and pivotal roles drive business outcomes, and crafting talent initiatives and rewards to engage and retain those key groups. It’s new territory for HR, but it’s yielding much better results even in the early days.
Look at an industry like financial services, which is going through a huge transformation due to threats from fintechs and the need to move to mobile technology. These sometimes 100-year-old companies are saying, “We can’t have future success by looking in the rearview mirror; we need to look forward to what we’re becoming. We need to be realistic in our assessment of our current talent. We may have huge segments of the workforce that aren’t relevant for our future, and we may need to invest in training or hire for roles we haven’t even considered today.”
It’s a real transformation. Companies have to ask which employee groups really matter to the business’s success, which ones are pivotal, which have needed proficiencies, and which are needed to operate the business but don’t require high levels of performance or are not directly related to better business value. They have to focus differently on the pivotal groups to retain them and keep them engaged. That, in turn, is leading to much more tailored HR solutions.
Mactas:: Yes, a one-size-fits-all approach to talent initiatives and investments just doesn’t work. Companies need to target investments in the areas where they’re going to get the highest lift. First they need to decide where to focus. Maybe an organization is trying to improve its time to market with new product releases. Then, as Emmett said, it needs to look at the roles that are critical in driving time to market for these products. Using a combination of data and qualitative evaluation, the organization can start to identify the key gaps: Do they have the right people with the right skills? Are their incentives and rewards aligned with performance goals? Is their culture supporting innovation or inhibiting it? They need to identify — and pull — the levers that will improve their business outcomes the most.
Seaborn: Absolutely. For years companies have focused on how to reduce their people costs. They’d look at all their programs: retirement plans, health care plans and compensation programs. How competitive are they and how can we redesign them to lower costs and lower risk? Today, it’s a much more nuanced conversation. Companies are looking at the value of a portfolio of HR programs. What relative value do they bring collectively and individually? Which program gets us the most lift relative to what we’re trying to achieve? Do they help us attract and retain the best talent? And the answer might be to increase the cost and value of one program and decrease or eliminate another. Focus on the programs that we know actually drive effectiveness for the most critical segments of the workforce. It requires putting everything on the table — a look across an organization’s entire reward and HR portfolio of programs
Moderator: What are the other key areas in our framework [see figure below] that can impact workforce productivity and effectiveness, and how do employers determine which is likely to have the largest impact on their organization?
Willis Towers Watson’s Workforce Effectiveness and Productivity Framework
Source: Willis Towers Watson 2016
Mactas: One area is having the right talent and the right skills in place. That includes how you attract, hire and onboard talent; how you assess employees’ potential; and how you develop your existing talent to fill any talent skills gaps. It also includes how you manage employees’ careers, and how you pick people for promotions. We call this having the “best talent.” Many companies go straight to technology, automation and process redesign to improve their effectiveness. We see these as enablers to better performance, but as I said earlier, these don’t have the intended impact if you don’t have the right people with the right skills to use them.
The second area we call “winning culture,” and by this we mean creating a culture that is aligned with your business strategy — whether that’s innovation, quality, efficiency, service or brand orientation — and engaging your employees within that culture. We use quantitative measures to understand how engagement levels differ in critical workforce segments and how the drivers of engagement differ. If we improve the engagement of that group, how does that impact critical KPIs for the business? This builds off of some great work on engagement that’s been going on over the last decade, but it’s the next step: moving from just measuring results to impacting results.
Seaborn: We also focus on “right rewards.” First, we have to understand what measures are important to the business — the KPIs. Then we identify the workforce segments that are pivotal to success in those areas. Next we look at which parts of a reward program are the most important areas to this pivotal segment and why they’re important. This is a movement away from that notion that “one size fits all” is good for everybody, to the concept that Ed mentioned that “one size fits all” can actually be destructive. And finally, managers have to be effective at enabling employees to achieve their goals and drive to the right results.
Mactas: Another key area is workplace well-being. This is critical, and it’s about more than physical health and benefits. It also includes emotional well-being and financial well-being. Is your workforce not as productive as it might be because of health issues, or is it because of financial concerns, or emotional concerns and stress at work? We’ve found that stress is a huge concern. By understanding the issues and putting solutions in place, you can help bridge those gaps.
Seaborn: In the last few years there’s been a general acceptance from business that it’s not just a good thing to care about employee well-being but that employer actions can make a difference to people’s productivity and business outcomes. What’s more, the areas of well-being are interconnected and shouldn’t be looked at in isolation. Am I so weighed down by financial worries that I can’t concentrate on my work or that my physical health suffers?
Moderator: Turnover continues to be a huge cost to companies. How do organizations reduce their turnover rate as well as time-to-productivity?
Mactas: The vast majority of companies’ Financial Cost of Turnover ™ — which stands between talent strategy and improved business measures within our framework — is lost productivity. Our latest research shows for example that it takes five to nine months, on average, for a new employee to become fully productive. The time depends on the role, with employees in professional, support, sales/service and operations roles coming up to speed faster than managers and executives. For most employees, lost productivity costs run about 45% of compensation. Assuming average compensation of $50,000, the lost productivity cost per 100 new hires amounts to $2.25 million per year. For 1,000 new hires, that can amount to $22.5 million per year.
But we know that certain activities can improve time to productivity — such as using assessments to recruit, onboard and develop employees when they start a new job. These activities can reduce your time to productivity by 30% to 50%.
Most organizations we have worked with focus their time-to-productivity efforts on critical workforce segments. The first step is to identify the segment(s) of greatest importance to the organization. For example, for organizations focused on Innovation, R&D staff, engineers, and agile software developers are often among the critical workforce segments. The second step involves fielding a survey to actually measure time-to-productivity for the selected segment. Finally, we recommend an action-planning approach to capture the available productivity gains.
Moderator: Are there other areas that impact workforce effectiveness?
Mactas: Human capital risk is another aspect. Specifically, risks to talent and risks from talent. Risks to talent include not having the right people in the right roles, or losing key people and not having ready replacements, or problems in the workplace that cause accidents or health problems. On the other side of the coin, but directly related to this, are risks from talent, which include problems that arise from employees not having the right training, which might result in accidents or opening a file that results in a cyber-attack, or employees or leaders involved in unethical behavior. Managing and mitigating those risks is another important component to achieving an organization’s business goals.
Seaborn: That’s a really important point. We just had a discussion with a risk operations manager at a large financial services organization. His view is that all risks come down to people, and he plans to partner with HR to look for new kinds of risk analytics that will let him look broadly at the risk of the culture they have and the behaviors that are going to lead to bad outcomes so they can start to predict them.
Mactas: The partnership aspect is very important. HR leaders will need to partner with their counterparts in risk, finance and the lines of business to be successful. To improve business outcomes, they all need to understand the business issues and how employees in different roles can move the needle. One leader or function can’t do it alone — it’s got to be a team effort.
One other important piece here is creating a talent strategy for your organization. One piece of the strategy is deconstructing job roles and understanding how the work gets done: Should it be done by an employee, a contractor or freelancer? Or should it be automated? The nature of work is changing dramatically — just look at the growing use of talent platforms. Look at the use of robots and artificial intelligence in just about every industry. There are some fundamental shifts happening in how work is getting done — and increasingly it’s not by employees.
Moderator: Any final thoughts?
Seaborn: To sum up, workforce effectiveness can be crucial to an employer’s financial performance. In today’s global economy, any boost from enhanced workforce productivity can provide a real and significant competitive advantage. Yet, while some of the focus areas — talent, culture, engagement, rewards, well-being — might not seem new, there are new ways of looking at them. There are new ways to measure them, integrate them and reflect a cross-section of operational, financial, risk and HR perspectives.
Mactas: Organizations cannot realistically tackle every lever at the same time; in fact, I might say that wouldn’t be an effective or productive approach. Each company can start by identifying its greatest pain points, or, in other words, identifying the areas where an increase in productivity will have the biggest impact.
Then it’s important to develop a well-defined approach to achieve the desired results — one that’s regularly assessed by efficiency, quality, sales/service, innovation, brand or other measures. And one that keeps in mind that there are connections with the other levers and that each can have a different business impact.
At the end, though, we come back to our basic premise: A more effective and productive workforce will lead to better business results. And that’s a straightforward and powerful proposition for any employer.