They don’t all value the same products.
By John M. Bremen and Thomas O. Davenport
How do you define your people? Through the economic expansions and contractions of the past twenty years, executives have struggled to define and redefine the employer-employee relationship, using various analogies, metaphors, and sound bites to explain the complex, shifting connection.
Employees are no longer personnel, costs, or workers—they’re associates, assets, thinkers. They’re certainly not cogs in the industrial machine—today, they’re key links in the customer value chain.
And with corporate workforce increasingly global and diverse, HR departments are recognizing the ineffectiveness of dealing with every employee in exactly the same way. Just as companies are using technology and Big Data to aim products and services at ever more carefully targeted segments of customers, they’re starting to look closely at the different parts of their multi-varied workforces.
Employees are more mobile, educated, technologically enabled, and short-term-focused than ever. They also have become savvy consumers of their organizations’ brands, culture, and employee programs—compensation, benefits, and career development, to name a few. And with the first Generation Z employees entering the workforce, employee populations’ preferences and expectations continue to change.
Along with these changes has come a greater degree of employee choice, making corporate life a marketplace and employees its consumers. Consumerism is a common theme in the migration from traditional defined-benefit pension plans to employee-driven 401(k) plans, the evolution of flexible-benefit programs and cafeteria-style plans, and the recent transition of many U.S. organizations to private health-insurance exchanges. This trend also has inspired organizations to begin tailoring elements of the work experience to their increasingly diverse employee populations.
Faced with the new reality of today’s consumer-employee, leading companies have turned to consumer marketing theory to gain insights about and connect with their current and potential talent. They now view the employer-employee exchange as analogous to an interdependent exchange between a company and an external consumer, with consumer-focused practices playing a key role.
Segmenting the Employee Population
We frequently ask our CEO clients: “How often do you spend $3 billion to develop a product offering without first finding out whether it will sell?” The response is typically, “You know darn well that if I did that too often, I wouldn’t stay in this chair long.”
Yet every year the typical global organization with twenty thousand employees invests approximately $3 billion in employee programs that include salaries and bonuses, stock grants, healthcare and retirement benefits, training, and paid time off. These employers also invest in creating employee-friendly cultures and workplaces. And too often, organizations spend these funds without clearly understanding whether the programs align with the preferences and usage patterns of those who will consume them, or whether they’re likely to achieve their intended results.
This is where segmentation can play a valuable role. Just as organizations segment external consumer populations, they can segment employee groups to explore their values, attitudes, and preferences.
Some organizations begin the process with conventional demographic categories, such as Generation X, millennials, and baby boomers. Others use more fine-grained segmentation approaches that can provide more specific insight. These include:
Strategically critical jobs or locations. These can be specific roles, geographies, and businesses that make or are expected to make important contributions to marketplace success. To identify these, employers consider the employee knowledge, experience, skills, talents, and behaviors the organization needs to win against its competition.
Levels of performance or potential. These are categories of employees’ current or expected contribution—such as “high performer” and “high potential.” This type of segmentation can be effective when leadership has confidence in the accuracy of the performance-evaluation and talent-management systems.
Levels of sustainable engagement. Employees can be grouped according to their degree of attachment to the company, their willingness to give discretionary effort to their jobs, their perception of the local work environment as supporting their performance, and the levels of physical, social, and emotional well-being they experience at work. These factors correlate strongly with financial performance.
Life-stage segments. These are highly specific groups defined by a variety of characteristics, including health-related indicators, technology usage, and media preferences.
Talent profitability. Just as organizations segment their external markets by profitability or total customer value, employers can segment employees by the contributions they make relative to their cost over multiyear periods.
Attitudinal categories. Generally analogous to traditional psychographic factors, these groupings emphasize the clusters of rewards valued by employees who differ in their expectations of the work experience.
Creating the Employment Brand
Marketing sage Philip Kotler defines a brand as an organization’s promise to deliver a specific set of features, benefits, and services to consumers. A brand also functions as a complex symbol that conveys up to six levels of meaning: attributes, benefits, values, culture, personality, and user. When the consumer can visualize all six dimensions of a brand, his or her perception of the brand is deeply imbedded; otherwise, it’s shallow.
Organizations adept at developing and marketing their external brands were among the first to recognize that employees can feel strong connections to their organizations’ internal brands. Via the internal brand, employees can associate the company with a variety of organizational attributes (“our strengths/differentiators”), benefits (“what you get for working here”), values (“what we stand for”), culture (“how we operate”), personality (“who we are”) and user (“what kind of people work here”).
An Internet search of various organizations’ public career sites reveals strong links between these companies’ employment brands and their external brands. In some cases, the external and internal brand statements are the same.
The most sophisticated of these organizations incorporate their employment brands into the employee experience through their talent-management programs and compensation-and-benefits programs in ways to which their targeted groups can relate.
For example, on its website, Google expands its “Do cool things that matter” brand slogan to include three categories, used to explain various teams and roles to current and potential talent: “Build cool stuff; sell cool stuff; do cool stuff.” It’s how the employer appeals to employees and recruits in a more interesting way—and in a manner more aligned with the Google brand—than using conventional department names, such as Engineering, Sales, Customer Support, Finance, and Administration.
Similarly, Disney has cleverly branded its reward offering—including compensation, benefits, and the career-development program—as “Support beyond your imagination.” And instead of the traditional reward categories, the company uses sub-brand program slogans that include Understand Your Pay, Pursue Good Health, Build Your Career, Take Time to Refuel, Save for Tomorrow, and Enjoy the Magic.
As employers determine how to frame their internal consumer brands, microsegmentation analysis can provide information far beyond that gleaned through conventional demographic breakdowns. These approaches help employers sharpen messages aimed at various employee segments, as they address what matters most to targeted internal groups. They also help leaders understand how employees—just like external consumers—perceive greater value when they receive clear messages that speak directly to their interests. For instance, segmenting the workforce according to “life-stage profiles” (see “How Do You Live Your Life?”, page TK) can help employers develop even more compelling internal brands and employee experiences.
Designing Programs That Yield Results
At this point, senior executives often say, “This is all very interesting and inspiring, but does it actually have an impact on business results for these organizations?” The short answer is yes.
A recent Towers Watson survey of 1,605 organizations in more than thirty countries found that companies guided by an employee value proposition reflecting an integrated approach to decision-making regarding total rewards strategy, design, and delivery are five times more likely than their peers to have highly engaged employees. And they’re twice as likely to perform significantly above their peers financially.
To create an internal brand that is both deep and financially sensible, employers must combine information about current and potential employees’ preferences with data on the cost of delivering various reward portfolio elements. The objective is twofold: First, define the value proposition most appealing to key demographic groups; second, shift funds to high-value rewards and away from low-value programs that are too costly for the results they produce. For many decades, consumer-oriented companies have been doing this with their external consumers. They have conducted increasingly sophisticated market research to estimate how their target segments will respond to the features, prices, and packaging of existing and proposed offerings. It turns out that this approach works well for internal consumers, too.
Employers can conduct several types of research to examine how employees in various segments value “hard” programs such as compensation and benefits, as well as “soft” programs such as career development and the work environment:
Focus groups. Talking with small groups of employees about how they view the organization’s programs can provide insights about changes those workers are likely to value.
Data mining. By analyzing Big Data in the company’s HR information system, employers can learn how employees use such elements as healthcare benefits and 401(k) plans. For example, discovering that only 3 percent of a division’s high-potential employees younger than 30 contribute to the retirement savings plan reveals something about those employees’ perception of the plan’s value and their ability to harness it.
Employee surveys. There are many ways to engage employees in a formal research process to learn how they value and use programs. One high-tech organization asked employees how familiar they were with each element of the reward array, how valuable they perceived each element to be, and how they believed each element stacked up against competitors’ offerings. The employer compared these data with the actual competitive position of the company’s rewards and the commitment levels of employees in various segments. The results gave leaders important guidance on how to reallocate the company’s reward investments to improve employees’ commitment and how to communicate with employees about making the best of the rewards offered. The analysis then drilled into results for the company’s China-based workforce—a strategically critical and rapidly changing employee segment.
Trade-off analysis. Program trade-off analyses provide some of the richest data available on what employees see as the most and least valuable components of their reward packages. Such an analysis also gives them a sense of the decisions that leadership needs to make about where to put program investments. The information helps leaders make the right investment decisions to deliver a value proposition likely to foster the desired employee (read: consumer) behaviors.
Leading companies are taking cues from externally focused, consumer-targeted efforts—which have given rise to the popular concept labeled “consumer experience”—as they examine and reshape the employee experience. This means understanding the impressions that employees form across a range of experiences with the organization, from the talent selection process to onboarding, performance management, compensation, benefit programs, career progression, and retirement.
As the chief HR officer of one global life-sciences company said recently, “Just as the chief marketing officer has become the chief consumer-experience officer, I have become the ‘chief employee-experience officer.’ That’s a long way from being a personnel manager.”
To understand this employee experience concept, one need only consider certain signature consumer experiences today: the simplicity of finding and buying a book on Amazon.com; the welcoming experience at a Ritz-Carlton hotel; the look and feel of a brochure at a Lexus dealer; the helpfulness of the Whole Foods clerk who knows just where to find the local organic cheese that’s perfect for a dinner party; the essential app a user can seamlessly download to a smartphone to use on the train on the way to work.
Each of these experiences, and many more like them, set the bar today for what people expect when they engage with an employer. Employees evaluate the ease and appeal of their work experience not just by what they’ve come to expect from HR, but also by what they experience every day: culture, work environment, leadership messages, and reward programs.
To savvy employees, consumer grade means:
Coherent, consistent messages. Employees expect the content and look-and-feel of employee communications, programs, and the workplace to be consistent with the company’s brand, mission, and other promises. This includes email messages, websites, printed materials sent to employees’ offices or homes, leader presentations and videos, the design of the work environment, and the design of compensation and benefit programs.
Communication via multiple media and channels. Workers want information to be available on their terms, whether on paper or accessible on any device at any time. They also want support as needed from an HR professional, a help line, a vendor, or a manager.
Easy-to-navigate technology. This means minimal screens and clicking, along with appealing elements, such as whiteboards, video, and games where appropriate. Employees want tech tools to be fun and absorbing while also informative and useful.
Secure data with streamlined access. Employees do not want extraneous data requests, and they want assurance that their personal information is protected and kept confidential.
Continuous improvement. They want management to test and continuously refine technology, vehicles, and communications. The challenge for the employer is to deliver an employee experience that aligns with the experience of the organization’s external customers.
One global bank has taken this challenge to heart with an internal information campaign aimed at improving employees’ financial awareness. Leaders recognize the importance of being consumer-minded as they guide employees to make saving and investment decisions carefully. The bank believes it’s the right thing to do as an employer, especially given its position in the retail banking business. For a journalistic feel, the campaign uses whiteboards and mini-documentary videos, with employees talking about their lives and life plans. A peer organization is now doing the same with its choice-based healthcare programs.
Achieving a consumer-grade level of excellence also means setting employee expectations, not lagging behind them. Aviva, an insurance and asset-management company, kept this in mind in developing its pension-plan website. As employees navigate through the site, they participate in a game called Save Your Future. The game tests the user’s understanding of basic financial concepts and of Aviva’s retirement contribution plan. The user scores points for answering questions correctly: A low scorer is labeled a Retirement Rookie, someone who needs to focus more on saving for retirement and on understanding the Aviva benefit; a high scorer might be dubbed a Super Savings Whiz, a disciplined saver who must stay the course to ensure a comfortable retirement.
Aviva collects data on employees’ use of employer-provided retirement planning tools, and the information helps leaders upgrade the employee experience. Initial results from Save Your Future showed that many employees did not understand investment asset allocation. That finding led management to develop a series of short films on how to think about investment decisions.
Organizations that understand and act on employees’ needs and preferences are likely to have motivated, committed workforces. And they have found that even with reward budgets no greater than less market-oriented peers’, prudent and disciplined organizations can achieve these goals. Their employees will serve customers better, innovate more frequently and consistently, and protect company assets more conscientiously. Data and experience suggest that superior financial results will become part of the equation as well.
Internal Brand Statements
|P & G||Inspired by purpose: Have your career validated 4 billion times a day.|
|Disney||Where your work touches lives|
|We’re making the world more open and connected. Want to help?|
|Apple||Amaze yourself. Amaze the world.|
|BMW||Share your passion.|
|Medtronic||Be the Difference. Imagine a career improving lives.|
|Limited Brands||We are redefining what it means to be sought after.|
|JPMorgan Chase||Let’s build our legacy together.|
|Do cool things that matter.|
|Nike||We set the bar high. And then we raise it higher.|
|Miller Coors||Great People Make Great Beer.|
|Allstate||Don’t just work. Work for good.|
|IBM||Help us build a smarter planet.|
|Intel||There’s more inside Intel than you ever imagined.|
|Honda||The Power of Dreams is alive at Honda.|
|Cisco||Tomorrow starts here.|
|Kellogg||Grow with us.|
How Do You Live Your Life?
A Web-based travel company grouped its employees according to how they live their lives, how they view their work, what they value most in the employment value proposition, and how they prefer to receive information. One group was dubbed Young Achievers. The employees in this group work hard but also highly value time with friends. They know they’ll need to plan for retirement, but they don’t want to think that far out or deflect income away from their short-term wants. They try to stay healthy by exercising—though admittedly not enough—and they like wellness activities best when games are involved, perhaps with a social-networking element. Company leaders know they can’t reach this group with printed materials or even email. If the information isn’t posted on Facebook or accessible via a smartphone, the Young Achievers literally won’t get it.
A contrasting segment is the Affluent Empty Nesters. These folks have put their kids through college and now have time and money to spend on themselves. They go to the gym regularly. They are health-conscious, have regular medical checkups, and do the research necessary to manage their health intelligently. Affluent Empty Nesters highly value rewards focused on wellness. Though they have smartphones, they do read email alerts, download and absorb reports, and do in-depth online research.
Life-stage profiles and other schema for imaginative assessments of employee attitudes help an organization shape an internal brand that resonates with its workforce. They also tell leadership how best to reach employee-consumers with brand messages and delivery approaches packed with meaning and relevance. In Philip Kotler’s terms, this yields employment brands that are deep rather than shallow.
—J.M.B. and T.O.D.
Rewards vs. Rewards
One fast-growing social-media company used a combination of trade-off analysis and focus groups to understand its employees’ reward preferences. A survey revealed that employees highly value having a matching provision in the retirement savings plan. This finding surprised management: Why would a bunch of millennials value something as chronologically distant (and, frankly, old-school) as a boost to their retirement savings?
To test the result, management conducted a series of focus groups to explore employees’ underlying rationale. What they found surprised them at first but then made sense. Employees told them that, yes, they often don’t think much about retirement when they consider their financial strategies. But many had watched their parents lose big in the stock market during the Great Recession or in the housing-market crash. Hence, many Generation Y employees highly value a robust 401(k) plan. As one employee said, “Saving for retirement is the one thing my parents tell me that I actually listen to.”
When employees are asked to list the programs most important to them, they tend to highly rank prominent reward elements that include stock grants, incentive compensation and mobility. But when they are asked to take a dollar invested in one program and move it to a more appealing program, interesting results emerge. People in some segments tend to place high value on such security-oriented programs as base salary and retirement and healthcare benefits. Others go straight for lifestyle-related benefits and career-development opportunities. Knowing who falls into each group enables leaders to make high-impact program changes to boost employee engagement, retention, and performance.
Another company surveyed employees to determine their reward preferences; in a follow-up survey, they tested potential improvements and reductions to a broad set of reward elements, ranging from base pay to healthcare benefits and learning and career-development opportunities. Not surprisingly, employees saw increases to base pay and larger stock grants as adding value. More interesting: Employees perceived opportunities for additional training to be almost as valuable as incremental stock, though the company can provide that additional training for less than 10 percent of the cost of the larger stock grants: $600,000 for twenty additional training hours per year, compared with $6.5 million for stock-grant increases of 20 percent.
Had leaders been interested in reducing overall reward cost, they could have compared how employees perceived a potential increase in their medical-insurance premiums with how they would react to a possible increase in their out-of-pocket medical costs. In this employee group, those two changes would reduce perceived value by about the same amount. But increasing premiums would save the company $2.2 million—almost 50 percent more than the $1.5 million the company could save by increasing employees’ out-of-pocket costs.
—J.M.B. and T.O.D.
The Conference Board
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