Employers of Tomorrow

Stephen Quick
Director
PricewaterhouseCoopers

The economic downturn has encouraged a knee-jerk reaction that concentrates on short-term savings. HR is no exception to this and companies should look at the workplace a decade from now, and think about the implications for decisions made today.

Focused on survival, the reaction of many companies around the world to the global recession has been to cut costs. For most companies, their largest business cost is people — up to 70 percent in some organizations — and expenditure on people is usually the first area to be scrutinized in the effort to reduce outgoings. But while slashing the work force may yield short-term savings, the potential long-term damage from reducing people investment can undermine the ability of a company to compete when the upturn arrives, endangering the long-term sustainability of the business.

Concentrating only on short-term survival also risks ignoring the important underlying trends, already underway in Russia and other countries before the crisis started, which will shape the future of employment in the coming decade: an ageing workforce, chronic talent shortages in many parts of the world, increasing need for global worker mobility and the organizational and cultural issues arising from the shift in economic power towards emerging economies. In turn, the crisis has raised fundamental questions about the institutions and practices of modern business life. Confidence in the ethics of business has been shaken and a new generation of workers is reassessing the balance of risk versus reward offered by employers.

The new report “Managing Tomorrow’s People — How the downturn will change the future of work” addresses these issues, using a scenario planning approach to analyze alternate views of the workplace a decade from now. It envisages three different “worlds” or business models for 2020, which could coexist in the future. Each world is illustrated through a fictitious international company.

The Green World

In this first scenario, the demands for greater transparency and social responsibility in business prompted by the financial crisis are illustrated through G-Bank.

In the Green World, companies have a powerful social conscience intrinsic to the brand and a “green” sense of responsibility, which is also enforced by governments and regulators. G-Bank employees engage with the company brand because it reflects their own values and the focus is on sustainable and ethical business and a strong drive to minimize and mitigate risky business practices.

But companies aspiring to this version of the future must be aware of the long-term impact of today’s decisions on the sustainability of their business model: short-term action that may appear to conform to an ethical and green agenda could have long-term negative implications.

Some companies, for example, will look at making radical changes to their reward/bonus programs and staff contracts because of the backlash against perceptions of excessive pay. But changes that are too rapid, or that are ill thought through, could result in a first-mover disadvantage if staff fell that there has been a significant reduction in key benefits compared with other organizations. This could seriously impact on the company’s ability to attract and retain talent over the long term.

Green motives are often used as the excuse for stripping back travel expenses to control costs as a result of the downturn. Many organizations that operate globally, however, rely on ‘social capital’ — the ability of the global network to work across borders to support the business and deliver products and services to customers. By limiting face-to-face contact, companies could risk undermining many years of investment in building social capital across their global operation.

The Blue World

Weighing up the long-term consequences of their reactions to the crisis is equally important for companies in the second scenario. Companies in the Blue World, illustrated by Yao, a Chinese-owned pharmaceutical company, embody big-company capitalism and individual preferences override belief in collective social responsibility.

This scenario imagines the performance and efficiency culture necessary for dealing with global companies larger than many individual countries, against the backdrop of the emerging economic superpowers of the developing world. Blue World companies have invested in size, technology, strong leadership and sophisticated metrics. They have highly engaged and committed work forces who are well-trained, skilled and operate globally.

In the Blue World, long-term investment in the “talent pipeline” is critical for businesses to remain competitive. Decisions on recruitment today can clearly have significant knock-on effects. For example, reducing graduate intake numbers for a couple of years could seriously affect the talent pipeline and limit the number of options for leadership succession planning in the long term. Training and development is also among the first areas to be cut when companies are in difficulty. As well as having a potential negative impact on customer service or product quality, cutting investment could mean the company lacks the right skills to compete when the upturn comes, incurring higher costs of hiring new people in, rather than using home-grown talent.

The increased emphasis in this scenario on metrics to measure people performance and productivity is partly a sign of sophistication and the trend towards making HR a “hard” discipline, but it also reflects the need for companies to deal with a long-term reality of having to do more with less. Having the right data, therefore, is critical. Few organizations tackle people metrics in a rigorous or structured way and many struggle with knowing what to measure and then how to interpret the data. A short term cost saving on paper might lead to a significant problem further down the line.

The Orange World

Beyond avoiding short-term decisions that will have negative repercussions in the long-term, the companies that emerge best from the crisis will be those that take a proactive approach to securing their long-term vision. It is essential that companies have a clear long-term strategy, particularly in relation to people and talent, which will be a commodity in short supply. These issues are tackled in the third scenario, the Orange World, which is the most radical departure from current models of big-company capitalism. In the Orange World the pre-existing trends of outsourcing and globalization of the workforce are taken to the logical conclusion permitted by technological advances. This scenario, illustrated by Data Honey, a fictitious market research and communications company, envisages a future of networked small companies, where businesses are fragmented and nimble, relying on an extensive network of outsourced suppliers. They have multiple clients and contracts and manage a globally diverse “work force” on a supply-and-demand basis, using communication networks supported by continual technological advancement and innovation.

Apple’s iPhone is an early illustration of a potential new way of working for technology professionals. In the first nine months after the launch of the iPhone, Apple sold a billion software applications for use on the mobile device. The vast majority were created by individuals, while Apple reviewed, tested and marketed the applications in exchange for a percentage of revenues. Based on this emerging trend, in the Orange World individuals providing professional services, such as programming expertise, will market themselves more like companies than freelancers.

But how do businesses prepare today for this radical vision of the future? Companies need to embrace the new currency of social networking sites and see them as a tool for developing contacts, new clients and promoting their services. The IT-aware new generation of employees expects employers to embrace technology and the flexibility it offers their working lives. Companies need to think through their strategy for attracting and keeping this “millennial” talent.

As in the other scenarios, cutting costs in response to the downturn can have positive and negative implications. Cost cutting, for example, can lead to a reduction in the number of external contractors the company uses as different business functions are brought back in-house. This might seem like a good short-term strategy to save cost, but may not be the best model for the supply chain over the long term. Similarly, expenditure on technological enhancements can appear to be a luxury when there are more pressing issues, but companies need to have a competitive technology platform, which will support the business when the upturn comes.

Conclusion

For employees, the future is likely to be a world where many different ways of working are on offer. The opportunity to experience different types of work in either one or many organizations will exist. Employees will seek to align themselves with organizations that fit their priorities and ideals more than in the current world.

For employers the challenge will be much harder. The competition for talent will continue to be intensely fought. Employee expectations will be far greater and organizations will face these challenges against an even more competitive global market. One thing is certain, the decisions taken today are already creating a legacy for the future and are shaping how organizations will look ten years from now.