2014 global human capital trends

Beyond retention

Build passion and purpose

March 7, 2014

Survey respondents say retention and engagement is the second biggest human capital challenge they face (after leadership). What’s the secret to becoming a “talent magnet” in the coming years?

In recent years, large employers have learned the logic of improving employee retention. They know that as jobs in most sectors become increasingly knowledge-intensive, the cost of replacing capable workers is high. Human resources functions have focused tightly on attrition rates and worked to discover effective managerial interventions to limit turnover. Indeed, in an era of growing enthusiasm for workforce analytics, the very ease of objectively measuring retention has helped to make it a focal point.

Beyond the fact that retention metrics are a lagging indicator, though, the question is whether “retention” is the right place to focus. As some HR leaders are now realizing, focusing so intently on retention can lead to additional investments in some tools and initiatives that aren’t proving very valuable—while neglecting others that may be much more so. Part of the problem with today’s thinking about retention is that it seems to reflect a military-style model, with its assumption that people decide to “re-up” periodically—but infrequently and on a fairly predictable schedule.

Today’s reality is that people continually make choices, consciously or not, as to how committed they are to their work and the enterprise. Their levels of engagement and motivation are subject to constant fluctuation in response to micro signals—small indications of whether the company is committed to their growth, whether it really believes in serving a higher purpose, what kinds of behavior are rewarded, how much can be learned from working there, and more.

In knowledge-based businesses, people should increasingly be enticed to “re-up” every day—and HR leaders are in a position to reframe the retention and engagement challenge and lead the ongoing “reenlistment” process. The best of them already know this and are finding ways to continually monitor, encourage, and respond to people’s enthusiasm for their work.

The challenge of multiple generations in the workforce

Attracting and retaining Millennials is a vexing challenge. The younger employees who comprise the Millennial generation make up 34 percent of the global workforce and will swell to 75 percent by 2025.2 They also come to the job with a very different set of aspirations than their Generation X and Baby Boomer colleagues.

About 70 percent of Millennials want to launch their own businesses at some point in their careers. Only 20 percent want to work in companies with more than 10,000 employees. With corporate hierarchies flattened, nearly half (45 percent) are already in leadership roles, while their Baby Boomer and Generation X peers were likely to serve in less senior positions at this age.3

Just as with earlier generations, Millennial attitudes toward work are driven by their cultural and educational experiences growing up. They are comfortable with technology and have been raised with the tools of transparency, hardly remembering a time when instant messaging, Twitter, Google, and Facebook were not a part of their lives. They value and thrive on innovation, with more than three-quarters (78 percent) stating that they are strongly influenced by how innovative a company is when considering employers.4 Millennials also want to work for organizations that provide flexibility and that are purpose-driven, tackling broad societal challenges such as resource scarcity, climate change, and income equality.5

The influence of Millennials is already pushing companies to redefine leadership development programs and redesign the work environment. Sixty-six percent of the respondents in our global survey reported that they have “weak” capabilities when it comes to providing focused leadership programs for Millennials. Further, 58 percent of executives reported “weak” capabilities in “providing programs for younger, older, and multi-generation workforces,” underscoring that Millennials are not the only challenge.

Increased longevity and health, and the aftermath of the Great Recession, are encouraging greater numbers of older people to remain longer in the workforce. By 2025, the number of workers aged 55–64 is forecast to rise by 89 percent, while for those aged 65 and above the percentage is even higher.6 And Boomers, too, are subscribing to younger attitudes toward work, with 70 percent citing career-life fit as a top priority. This Boomer trend may be a silver lining, given concerns by HR and business line leaders about the looming brain drain.7 Employers across both private and public sectors express worry that a significant proportion (anecdotally, 40 percent is the most consistently stated percentage) of their workforce is eligible to retire over the next five years, taking with them the relationships, skills, expertise, and knowledge of the informal networks and systems that make their organizations work.

What’s (really) behind this retention-to-reenlistment trend?

Despite the unfortunate reality of high unemployment rates across many economies, most corporate employers would agree that there is still a talent paradox. In California, a global center for the technology industry, unemployment hovers around 9 percent—yet there are 840,000 jobs available.8 The highly educated knowledge workers employers require are in short supply. In light of this talent scarcity, companies have awakened to the fact that “unwanted attrition” is extremely costly and have begun the search for the keys to retention.

By their own admission, most executives have a long way to go. In our global Human Capital Trends survey, they tended to rate themselves as either “weak” or just “adequate” in several key retention capabilities. More than a third (38 percent) report they are “weak” at integrating social, community, and corporate programs, the same number as those who say they are “weak” at aligning employee and corporate goals. Four in ten (40 percent) state their organization is “weak” in helping employees balance their personal and professional lives (figure 1).

Figure 1

People today don’t choose whether to “re-up” their employment contract once every few years, or only when a life event unfolds. In the emerging open talent economy,9 employees—particularly those with highly relevant and contemporary skills—make that decision every day. Any workplace that lags in inspiring passion and purpose will suffer by losing key employees—and at an increasing rate as the global economy picks up momentum.

Metrics for business and HR

For the rapidly professionalizing field of human resources, retention is a particularly tempting goal because, unlike so many aspects of human experience, it is objectively measureable. Performance metrics within businesses can include retention numbers and trends that are as valid as any financial results. And now with the advent of human capital analytics, other measureable phenomena, such as compensation histories, performance ratings, and participation in training programs, can be correlated with retention trends. Most HR departments also use engagement surveys to better understand what factors people value most in a workplace and what might motivate them to leave. Statistical analysis can show how changes in these factors of engagement translate into higher or lower retention—and therefore guide thoughtful interventions. The challenge is to link retention and engagement insights to business results—for example, by finding a way to lower turnover in traditional high-churn but mission-critical teams, such as technical sales. This clearly requires more than an annual engagement survey.

Increasing flexibility

One of the earliest and broadest changes resulting from the quest for higher retention has been the corporate embrace of “flexibility.” There is no question that flexibility has emerged as a matter of utmost importance to many workers—both women and men. In a recent survey, professionals were asked what organizations could do to meet their career needs. Among generational bands from Boomers to Millennials, a top response was “provide flexible working conditions and better work-life integration.”10 Their voices add to a rising chorus, signaling important shifts in the cultural dynamics of the workforce. One out of every five employees, for example, now cares for an elderly parent.11 Women, who tend to report a preference for more free time over more money, now make up nearly 60 percent of the US workforce.12 Men’s attitudes about long hours seem to have changed as well: 80 percent say they would like to work fewer hours.13

“CFO asks CEO: “What happens if we invest in developing our people and they leave?”CEO: “What happens if we don’t, and they stay?”” Source: “Peter Baeklund resourceful leadership,”

The power of purpose

While increasingly important, a flexible work environment alone is not enough to ensure engagement. The 21st-century employee, at whatever level in the organization, is looking for more than the right balance between hours and pay. People now look for “good work” in the sense that authors and educators including Howard Gardner, Mihaly Csikszentmihalyi, and Bill Damon use the term—meaning work that benefits the broader society.

In other words, engagement isn’t only about doing work on acceptable terms. It’s the work itself.

A growing body of literature aimed at business practitioners reflects this change of heart. Conscious Capitalism, for example, by Whole Foods founder John Mackey and Raj Sisodia, makes a strong call for engaging in commerce only in ways that leave the world better off.14 Sisodia’s earlier book Firms of Endearment (with Jagdish Sheth and David Wolfem) offers compelling evidence that more socially responsible and valuable companies outperform their peers in terms of engagement and retention, customer service, and long-term profitability. The book’s subtitle sums it up: How World-Class Companies Profit from Passion and Purpose. 15 Today’s most talented people want to join organizations whose work engages their interests and deserves their passion. Companies endure when they manage to endear.

Executives around the world agree that making work matter drives employee engagement and retention. Yet only respondents based in the Netherlands, Switzerland, Spain, and Belgium report that their organization’s readiness to address retention—by redefining engagement to align with personal, corporate, and social purposes—is close to matching their sense of urgency in this area (figure 2).

Figure 2

Lessons from the front lines

Making flexibility pay off

In response to the need for flexibility, innovative companies have revamped schedules and invested in tools to open up possibilities for when, where, and how work gets done. Some organizations let employees take as much vacation as they want. Companies in high-demand industries routinely offer free food, onsite gyms and other wellness benefits, and even laundry services and ping-pong tables—all to relieve workers of personal stress because of the hours they put in at the office. (For an example of how flexible work arrangements pay off, see the sidebar on the previous page , “How a tax services provider sees returns on flexibility.”) In some firms, the “have it your way” ethos has extended to flexibility in surprising areas. Netflix famously allows employees to decide their own expense policies and select their preferred mix of salary and stock options.

A premium on personal development

People also value workplaces that contribute to their personal development as professionals. Young workers in particular—but Boomers, too—prefer working for companies that invest in developing their capabilities and keeping their skill sets relevant through constant learning and development opportunities:

Talented people seek out opportunities to grow, and they will flock to organizations that provide ample opportunities to do so. Retention also becomes a non-issue; if people are developing more rapidly than they could anywhere else, why would they leave? If companies are truly serious about attracting, retaining, and developing high-quality talent, they need to view themselves as growth platforms for talent where people can develop themselves faster than they could elsewhere. This, in turn, can create a self-reinforcing cycle as talent creates more opportunities for growth.16

Deloitte’s focused research on Millennials shows that this rising generation of business leaders has a relatively high desire to be entrepreneurial, to move into leadership roles, and to have the opportunity to innovate and create. Very few expect to work for any one company for a long time; they see work as a series of experiences that help them develop over time. Today’s most talented people of all ages want to work for employers that are committed to developing their skills and capabilities by providing continuous training as well as enriching “tours of duty”—to use a phrase being popularized by Reid Hoffman, founder of LinkedIn—that allow them to work on projects in different parts of the company.

The need for affirmation

People value being valued—and not only, or even primarily, in monetary terms. Companies are learning to reward and recognize employee achievement in more meaningful ways. While every employee would like to earn more money, research has shown that a more important driver of retention than above-average compensation is a “high-recognition culture.” Companies that have built a strong culture of “thank you” and “recognition” have a 31 percent lower turnover rate than their peers, driving higher productivity and tremendous savings in turnover costs.17

It’s a finding that Dan Pink, author of the best-selling Drive, would second. He asserts that high-performing employees want three things: autonomy, mastery, and purpose. Rigid goals and “pay for performance” plans, according to Pink, can in many situations actually lead to lower performance and less innovation. The company where people want to work allows employees to work independently, focus on their strengths, and align themselves with well-understood corporate goals.

Where companies can start

Building a work environment in which passion and purpose among employees can flourish is a noble though tricky business. Several new practices and priorities are emerging:

  • Ask your employees what matters: Survey employees regularly—not just annually about how they experienced the organization over the past year, but frequently and “in the moment” through pulse surveys and roundtables—to find out what makes them passionate about work and what parts of the environment are irritating or too bureaucratic.
  • Remember: It is the work: Make sure the organization is feeding employees’ needs for purpose and meaningful work. While there is a necessary focus on benefits, compensation, and workplace flexibility, research suggests that these are table stakes. A more important dimension for retention is the work itself.
  • Make development part of the job, not a perk: Opportunities for challenge and development may be the most overlooked element of retention and engagement. Give every employee—not only high performers or leadership candidates—opportunities to build networks within the organization, along with skills and career development opportunities. Chances may be that the organization already is, so be sure these opportunities are couched so individuals see them as such and value them more.
  • Study retention continuously: Keep your finger on the pulse of the organization—regularly, not just annually or periodically. Use exit surveys and manager interviews to understand what was missing. Provide open blogs and communication tools to help people talk openly about what they need—and what they particularly value.
  • Build a proactive retention model to identify potential problems before they occur: Adopt talent analytics to uncover the hidden drivers of retention. Several of our clients have now built statistically validated retention models that help predict why and when an employee will leave. Design work environment solution sets around the findings to drive greater performance, passion, and retention stickiness.
  • Collaborate with other top leaders: The CEO’s executive committee should play a role in developing and nurturing a compelling corporate mission, including determining how to integrate social and community goals into the work and daily activities of the company.
  • Challenge the performance management process: Is it timely enough? Does it provide actionable feedback? Is the focus disproportionately on areas for development, giving short shrift to strengths and contributions?
  • Understand and improve diversity and inclusion: People want to work in an environment that respects them and customers are looking for companies that reflect their diversity and perspectives as well.
  • Focus on your employment brand and talent experience: When competing for customers, companies relentlessly focus on differentiating their products, services, and customer experience. The same should be true for the talent experience—and, in today’s socially driven, transparent world, the line between the two is blurring. Challenge your business and HR leaders to structure work, jobs, and development so they are interwoven with what people do—and the company’s employment brand.

Originally published at Deloitte Insights

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