Performance management in agile organizations

Performance management is tough enough in traditional organizations;
in agile organizations, three changes are essential to success.

The evidence is clear: a small number of priority
practices make the difference between an
effective and fair performance-management
approach and one that falls short. Organizations
that link employee goals to business priorities,
invest in managers’ capabilities, and differentiate
rewards for the extremes of performance are
84 percent more likely to have performancemanagement approaches that their employees
perceive and recognize as being fair. Furthermore,
these practices are mutually reinforcing:
implementing one practice well can have a positive
effect on the performance of others, which leads
to positive impact on employee and organizational
performance, which, in turn, drives organizations to
outperform peers.
But how do these priority practices work in the
context of agile organizations, which feature
networks of empowered teams and rely on a
dynamic people model? Colleagues rightfully ask a
number of related questions:
— Why do I need individual goals when the locus of
organizational performance is my squad, chapter,
and tribe?
— Who will coach and evaluate me when I have no
boss? How can my evaluator understand my
performance when he or she doesn’t see my
work day to day?
— How can we maintain a team spirit while still
fairly differentiating the highest- and lowestperforming colleagues?
The good news is that there are answers to these
questions—and, going further, agility can be a
springboard to improve performance-management
practices that traditional organizations struggle with
What defines an agile organization
“Traditional” organizations, designed
primarily for stability, involve a static,
siloed, structural hierarchy. Goals and
decision rights flow downward, with the
most powerful governance bodies at the
top. These organizations operate through
linear planning and control to capture
value for shareholders. Although such a
structure can be strong, it is often rigid
and slow moving.
In contrast, agile organizations
are designed for both stability and
dynamism. They are made up of a
network of teams within a peoplecentered culture that features rapid
learning and fast decision cycles
enabled by technology and guided by a
powerful common purpose to cocreate
value for all stakeholders. Such agile
operating models allow for quick and
efficient reconfigurations of strategy,
structure, processes, people, and
technology toward value-creating
and -protecting opportunities. Agile
organizations thus add velocity and
adaptability to stability, creating a
critical source of competitive advantage
in volatile, uncertain, complex, and
ambiguous (VUCA) conditions.
Five trademarks distinguish these
organizations:
— a North Star embodied across
the organization
— a network of empowered teams
— rapid decision and learning cycles
— a dynamic people model that
ignites passion
— next-generation-enabling
technology

2 Performance management in agile organizations
(Exhibit 1). Nearly all organizations, for example, feel
the need for more frequent feedback. Working in
agile sprints of a few weeks each creates a cadence
into which collective and individual feedback
naturally fits. Similarly, a culture of more autonomy
and risk taking opens opportunities for employees
to stretch, take on more responsibility, and find out
quickly how they can improve.
Agile organizations will, however, need to adapt each
of three core performance-management practices
to make the recommendations actionable in the
agile operating model (Exhibit 2).
Linking goals to business priorities
Transparently linking employees’ goals to business
priorities and maintaining a strong element of
flexibility are core practices of agile ways of working.
They are also significant practices if employees are
to have a sense of meaning and purpose in their
work. But agile organizations may worry about
how the emphasis on individual goals marries with
the autonomous teams that characterize agility.
There are three approaches that can help agile
organizations to adapt and ensure that goals remain
meaningful and linked to business priorities.
Introduce team objectives in addition to (or
instead of) individual targets
Empowered and autonomous teams are central to
agility. It therefore makes little sense to manage
performance solely—or even primarily—on an
individual level. Successful agile organizations
focus on team performance when setting goals and
evaluating performance, often allowing teams to
define their own goals to drive ownership. At one
bank, for example, performance objectives are a
combination of team goals, individual contributions
to the team, mastery of competencies required

The five trademarks of agile organizations have profound relevance for
performance management.
Trademark Changes aecting traditional performance management
Leadership sets broad direction and priorities, against which teams dene their own
objectives, iterating at pace
Flat organizational structure with limited hierarchy and no middle
management
Empowered and autonomous teams, with end-to-end accountability and
clear purpose
Risk taking, failing, and learning fast are encouraged
Continuous people development aimed at improving the level of performance
Culture that empowers the agile way of working
Craftsmanship (ie, development of expertise) as a cornerstone
Performance management isn’t materially di…erent just because of enabling tech
North Star embodied across
the organization
Network of
empowered teams
Rapid decision and
learning cycles
Dynamic people model that
ignites passion
Next-generation
enabling technology
Performance management in agile organizations 3
at the level of individual jobs, and alignment of
professional behavior to the bank’s values. The
weighting of these components varies by role, with
specialists, in particular, more inclined toward team
performance to encourage collaboration. Another
financial institution experimented with replacing
individual objectives in contact centers with team
objectives. Within a few months, it saw productivity
gains of more than 10 percent, compared with
control-group centers, in addition to a noticeable
increase in teamwork and cohesion.
Set objectives as a team, discuss results
frequently, and pivot as required
Teams in agile organizations work autonomously
and at pace, with a clear focus on output. They
follow broadly set directions and strategic priorities
rather than detailed, top-down instructions (Exhibit
3). Agile organizations typically rely on a tightly run
process—often a quarterly business review (QBR)—
to ensure alignment among the autonomous teams.
This is where objectives and key results (OKRs),
popularized at Intel in the 1970s and now used in
many organizations, from the Bill & Melinda Gates
Foundation to Google, come in. Every quarter, a
clear cascade from strategic priorities to objectives
at the team level is created, while performance
versus key results is made transparent and
discussed. To allow for changing priorities coming
out of the QBR, team and individual objectives
need to be dynamic, rather than fixed in a once-ayear exercise. Setting objectives collectively can
have other benefits, too, particularly with regard
to engagement and ambition. Unsurprisingly,
commitment to goals that you have set for yourself is
typically stronger than to those set for you by others.
At a B2B sales organization, shifting to bottom-up
goal setting (versus top-down setting by executives)
resulted in 20 percent higher overall targets.
Create transparency of targets and performance

Adapting three core performance-management practices will be crucial.
Performance-management practice What agile organizations may want to do
Introduce team objectives in addition to (or instead of) individual targets
Set objectives as a team, discuss results frequently, pivot as required
Create transparency of targets and performance
Clarify the roles that leaders play in development and evaluation
Focus on continuous feedback and ongoing development conversations
Frequently collect input from multiple sources when evaluating performance
Dierentiate individual contribution to team performance based on desired values,
mind-sets, and behaviors
Increase the emphasis on intrinsic motivation and nonmonetary rewards
Linking goals to
business priorities
Investing in managers’
coaching skills
Dierentiating
consequences
4 Performance management in agile organizations
creates a risk that devolution and empowerment
might drift into chaos. One way to avoid this is to
introduce extreme transparency of objectives and
performance. At Google, all OKRs, starting with
the CEO’s, are visible to all other employees. At
LinkedIn, the CEO’s executive team reviews OKRs
weekly. This kind of transparency also has several
benefits: surfacing interdependencies among teams
and units, creating urgency and “mindshare,” and
reinforcing the nonhierarchical culture and mind-set
that characterize truly agile organizations.
Investing in the coaching skills
of managers
Our prior research shows that managers—
typically, line managers—are important stewards
of effective performance management. Investing
in their coaching skills to help them become
better arbiters of day-to-day fairness is often
the most powerful intervention in performancemanagement transformations. The agile
organization, however, challenges the traditional
model of the line manager. Who, then, acts
as the day-to-day arbiter of fairness? And
whose capability needs to be built? Agile

Businessexpansion
goals are
assigned to
one tribe
Project is
assigned to
chapters and
squads
Project is
assigned to one
squad
Product owners
translate the
project into
OKRs1
Chapter leads or
product owners
meet with individuals to
set goals
Executive board
sets goal
to expand
business
into China;
communicates
strategic
direction to
chapter and tribe
leads.
“We will be in
China next year”
Tribe leads
provide
feedback and
further shape
organization
goal.
“We will achieve
xx sales in
China by end of
year; Jason will
lead this”
Tribe and chapter leads
translate project into
tribe, chapter, and
individual OKRs.
“We will have our oce
opened and our rst
customer in China by
end of quarter; Mary will
take care of
opening oce and John
of business
development”
Product owners
provide
feedback and
further shape
tribe and
chapter goals.
Mary:
“We will
open our
rst oce by end
of quarter”
Tangible OKRs
are set.
“We will hire x
people in y
functions, have
regulatory
requirements xyz
fullled, have an
oce space rented,
and all IT
infrastructure
bought and set up
by end of quarter”
Assess individuals on impact against
business goals and desired
behavioral attributes.
For „ow-to-work and
mono-skilled teams, chapter leads
meet with all part-time members to
set goals.
For the cross-functional squad for
opening the o‡ce, product owner
meets with individual squad members
(eg, sales, government relations,
supply chain, HR, IT) to set goals.
Performance management in agile organizations 5
organizations can address these questions
through three approaches.
Clarify the roles that leaders play in development
and evaluation
In a prior publication, we described three different
types of managers in agile organizations. In the
context of performance management, each
performs different roles. Chapter leaders evaluate,
promote, coach, and develop their people. Tribe
leaders set directions linked to business priorities,
match the right people to opportunities or squads,
coach their teams on how to enable collaboration
across organizational boundaries, and empower
people. Squad leaders strive to maintain a cohesive
team by inspiring, coaching, and providing feedback
to everyone. The common theme across these
leaders is active coaching for ongoing development
and arbitration of day-to-day fairness.
Focus on continuous feedback and ongoing
development conversations
As in any organization, individuals in agile
organizations develop through receiving feedback
and being exposed to development opportunities.
In successful agile organizations, feedback is
the heartbeat in a culture of taking risks,
failing fast, and pursuing continuous personal
development at all levels. These organizations
encourage employees to ask for and give feedback
constantly. Making this happen is often hard.
Managers and nonmanagers alike may need to
overcome mind-set and capability barriers to
giving and receiving feedback more frequently—
not just up and down the hierarchy, but also to
peers. A European financial institution, for example,
invested in dedicated capability building for teams
on how to have courageous conversations in a
peer-like way.
Frequently collect input from multiple sources
when evaluating performance
Agile organizations need disciplined rituals for
continuously gathering feedback and evaluating
performance (Exhibit 4). The line manager has
traditionally been the conduit for all information
about the employee. But without the line manager,
who acts for the employee? This requires a single
person to gather feedback on an individual from
several sources, synthesizing it, and working
with other peers to make sure that evidence and
decisions are calibrated. At a telco, for example,
a chapter lead1
evaluates the development of
an individual within the chapter, gathering and
synthesizing input from the product owners, team
members, and agile coaches that the individual has
worked with. The chapter lead then presents the
individual’s case to a people-review board made
up of chapter leads. The board makes a collective
performance decision and provides advice to the
individual on how to develop further, which is then
relayed by the chapter lead. Technology can help
here. A leading e-commerce player developed an
app for its employees that facilitates feedback and
allows employees to share feedback with others
after every interaction, the aim being for each
employee to collect more than 200 feedback points
during the year.
Differentiating consequences
Employees are more likely to view their
performance-management approach as fair if
outcomes are differentiated, particularly at the two
extremes of performance. In some ways, this can be
harder in agile organizations, at which collaborative
and highly interdependent teams mean that it is
difficult to trace results to individual efforts. Two
practices can help maintain differentiation and the
accompanying sense of fairness, without detracting
from the team spirit.
Differentiate individual contribution to team
performance based on desired values, mind-sets,
and behaviors
Successful agile organizations embody agile
methodologies and ways of working that are
tangible and visible in day-to-day work. Less
tangible, but a critical stable practice of agile
organizations, is culture—the strong, shared
1 Chapters are groups of employees with similar functional competencies who share knowledge and further develop expertise. The chapter lead
typically coordinates performance evaluations of the chapter’s members.
6 Performance management in agile organizations
values, mind-sets, and behaviors that underpin
and enable those methodologies and ways of
working. Successful agile organizations evaluate
and manage performance of individuals not just
against hard targets but also by the extent to
which the individual has shown and “lived” the
desired values, mind-sets, and behaviors. Potential
rewards or consequences should be well aligned
with these goals. In the case of a telco, for example,
rewards for sales teams are based on achievement
against individual and team targets in addition
to how well and how often employees offer
coaching and mentoring to their team members.
These contributions should be well codified and
recognized because they both motivate individuals
and create “pull” for the next opportunity.
Conversely, organizations should make clear
choices with employees who don’t actively live and
show the desired values, mind-sets, and behaviors,
as in the case of a fintech company at which
individuals not aligned with its core cultural values
and defined associated behaviors are simply let go.
Increase the emphasis on intrinsic motivation
and nonmonetary rewards
Work at most successful agile organizations is
characterized by a sense of fulfillment and fun: it
is common to hear employees describe how their
daily activity “does not feel like work.” Netflix offers
flexible benefits, such as unlimited vacation days.
Employees stay because they are passionate about
their work and the unique culture. While individuals

Mary compiles exposure list from
people she had signicant
interactions with during cycle in
review; her list includes some
description of the type of
interactions, and her chapter
lead approves the list
Mary holds regular one-on-one
interactions with her chapter
lead to discuss achievement of
OKRs.1
“…it is taking longer than
expected to hire people as the
HR lead had to leave due to a
family emergency…”
Mary’s chapter lead
sources feedback
from her exposure
list, ensuring leaders,
peers, and subordinates provide input
“Can you tell
me about your
experience working
with Mary? What
impact did she have
on the team?”
Chapter lead
summarizes Mary’s
performance and
recommends a rating
“…in summary, Mary
opened the oce with a
1-month delay. However,
she retained the same
contractors and our next
oce will be open ahead
of time.”
Mary’s chapter
lead presents her
case in calibration
meeting and
updates her memo
accordingly
“Is this enough to
justify a top
performer?”
Mary receives
executive feedback
when her chapter lead
presents calibrated
results to her
“Congratulations,
you achieved your
goals in the cycle!
Let’s go into the
details …”
Performance management in agile organizations 7
expect to be paid fairly for their contributions,
offering flexible benefits gives agile organizations
an opportunity to place greater emphasis on
intrinsic motivation and frequent nonmonetary
rewards—including special assignments,
opportunities to present externally or attend special
events, high recognition in the workplace (awards
and celebrations), and time for pro bono work. For
example, a North America–based fintech company
offers unique leadership-exposure opportunities
and mentorship programs to reward performance
and increase retention.
Organizations embarking on agile transformations
cannot afford to ignore performance management.
Even teams undergoing pilots need to be ringfenced from traditional approaches to ensure that
agile practices and mind-sets have the freedom
to take hold and are appropriately recognized and
rewarded. Done well, performance management
that is customized to the agile goals and context
of an organization will enable full capture and
sustainability of the benefits promised by agility.

Source :https://www.mckinsey.com/business-functions/organization/our-insights/performance-management-in-agile-organizations

Blockchain Realities in Recruitment

Every HR professional tasked with finding the best talent for their companies is looking for tools to aid them in the charge. Some are turning to AI. Others are employing a change in their benefits strategy that makes the company more attractive to job candidates. Of course, those are just some of the more popular ones.

Then there are those options that are more “pie in the sky” concepts, at least that’s what they seem to be at the moment. Among them: blockchain.

More than likely the word blockchain conjures up thoughts of cryptocurrencies such as BitCoin. While that would be an appropriate thought, blockchain technology represents more to the HR professional than a way to track monetary changes online. It represents a new tool in their recruiting arsenal.

Blockchain in Recruitment
For recruiters, reading and looking through resumes is a long and arduous task. It involves a fair amount of verifying education, certifications, work experience, and applicant skills. Imagine now if those same resumes were in a blockchain.

Once information is entered in to a blockchain, it cannot be edited. Users can only add information, and even then it must be approved by those with access to the chain.

When put in context of recruitment, the path is clear. Once a person creates a blockchain resume, it cannot be altered. This gives recruiters a chance to verify a candidate’s credentials in a secure way. It also reduces the chances those credentials can be altered or faked. Put simply, it impairs the ability of a person to exaggerate or flat out lie on their resumes.

 

It also allows for real candidate history to be recorded.

“It would force people to rethink not giving notice, starting a job, but then they leave after a few days, all kinds of crazy things we see candidates do but it never ‘hits’ their permanent record,” Tim Sackett said. He’s the President of HRU Technical Resources, a leading IT and Engineering Staffing firm headquartered in Lansing, Michigan. “What if your blockchain profile would show the times you accepted an interview, then no call/no showed it!? Oh boy! I would sign up for that!”

At least two companies are looking at using blockchain in the recruiting space. Recruit Technologies and Ascribe are developing a prototype blockchain resume authentication service for job hunters. It would allow for digital verification of certificates and resumes.

Blockchain Reality Sets In
According to McKinsey & Company, “The potential for blockchain to become a new open-standard protocol for trusted records, identity, and transactions cannot be simply dismissed.”

But there are some concerns. Verifying a person’s education is one thing. Looking at employment history and the details involved there is something completely different.

LinkedIn John Jersin suggests thinking about the average resume for a moment. If the potential employer wanted to see were the last five places a candidate worked, the resume would be quite short. But most recruiters want to see the candidate’s story. What did they do while they were employed in a particular job? What successes did they have? There is so much to convey. While that information can be shared in a blockchain, it is very hard to change.

Additionally, how many employers want employees sharing information about a position that may be considered “proprietary” if you will? It could conceivably lead to the company’s top talent being poached by competitors. And even if that information is made public, how would it be verified? It would be difficult to prove whether or not the information being provided is accurate or truthful.

There are also legality concerns.

Today’s blockchain technology does not “play well” with the General Data Protection Regulation (GDPR) in the European Union. GDPR sets forth rules that state a person must be able to change or delete any personal information at anytime. That goes against blockchain’s most fundamental benefit. It is practically impossible to change or delete information once it has been entered into a blockchain.

 

That’s not the only legal blow to the technology. Just like GDPR, the United States has its own rules outlined in the Fair Credit Report Act. It specifically details the rights a person has when being considered for employment. Again, if a person is unable to alter the information in the chain, they could be very easily misrepresented and that could broach legality concerns.

In summation
Don’t expect blockchain to a big player in the recruiting field anytime soon. The technology is still limited by a lack of regulation. It also lacks sufficient standardization. Until that happens, it’s going to be very difficult to apply the technology to recruitment. Again, it just needs some refinement.

With all of that said, blockchain does have its uses from an HR perspective.

HR deals heavily in personnel and financial data. As such, this makes HR departments a prime target for hackers and other cyber criminals. Because of blockchain’s attributes, it severely cripples cyber criminals’ abilities to hack and cause mayhem with this type of personal data.

So, don’t count on blockchain now, but don’t count it out in the future.

Source : https://www.hrexchangenetwork.com/hr-talent-aquisition/articles/blockchain-realities-in-recruitment

How HR Handles Complaints Against Managers

Another employee has come to Human Resources complaining about poor management in their team. This individual is the third employee to register a complaint against the same manager in less than one month.

I know you investigated the first and second-time allegations. For discussion purposes, I will make a couple of assumptions:

A trained/qualified HR investigator followed your documented investigation procedure checklist. (Note: Do you have a written investigation procedure HR follows? If not, you need one.)
Your investigator spoke to all involved parties (employees, “witnesses,” and the manager). These conversations were documented for the file and reviewed by at least one other HR manager.
The investigator or HR leader spoke to the alleged “poor “manager’s manager. This leader reported that they had never had cause to expect that their employee (the manager in question) was anything less than professional.
In both cases reported earlier, no findings of fault were identified.
HR Complaint Investigation
Well, now you have another allegation. Do you suspect that you have disgruntled employees rather than poor management? Maybe this is no one’s fault; perhaps you see a very serious communication issue, potentially a challenge to authority or a case of clashing personalities. Here’s the key: action needs to be taken. The organization will suffer (decreased productivity, a decline in employee morale, perhaps even undesirable attrition) unless demonstrable steps are taken to substantively address the now stream of complaints.

Start by conducting another fresh investigation. If possible, have a different HR investigator assigned to seek statements, check timetables, and observe (fresh eyes). HR is not called upon to “find something” rather, they should be the source of solutions for problems when identified. HR is also not “on my side” or “their side.” HR’s function is to review, analyze, and synthesize the evidence, the symptoms, the personalities involved. What if all your efforts to get to the facts results in a “he said, they said” case? Be vigilant to consider the following possible root cause: Is this a case where the manager isn’t trained or ready to manage?

I keep a now dated Gallup Business Journal article in my top desk drawer. It’s title: “Only One in 10 People Possess the Talent to Manage (April 13, 2015)”. My head spun when I read this article the first time and still experienced the same response when reading it for the 20th time. One key finding resonated so loudly:” Companies fail to choose the candidate (for management, emphasis mine) with the right talent for the job 82% of the time.” After your head stops spinning, think of the consequences an 80%+mismatch in role responsibilities means for an organization. Managers, especially front line and mid-managers, play an essential role. They are often key to change initiatives, vital to production fulfillment, key contributors to quality programs, formidable brand ambassadors, and they are indisputably the heart of employee engagement and satisfaction. Underestimate front-line managers impact and value at your peril.

 

The burden for resolution rests with the organization selecting these individuals to serve in such a critical role. And then we learn most companies choose incorrectly. Now, what do we do? A large, rapidly growing technology organization was expanding its manufacturing footprint and needed team leads as the floor teams grew by leaps and bounds. HR sought candidates with technical expertise; many of the new team leads were recent college graduates. They were bright, knowledgeable, from world-class universities and enthusiastic new hires. The problem was that they were hired to lead teams without any requisite management training. HR and company management alike assumed that they would grow into their roles. Unfortunately, learning the role of manager, embracing a new company culture, grappling with new engineering processes all while settling into their own “space” prolonged the path to becoming a good leader of teams. Undesirable attrition began to spike. This data-driven company looked at employee engagement surveys and found a glaring issue: front line managers were not serving their teams or the company well.

Responding to the data, HR and executive leadership created clearly defined roles and expectations of managers, very carefully aligned to company values, mission, and culture. They designed and conducted five-day residential training programs where students were admonished to choose the role of manager, along with its responsibilities. For those who opted out of the management track, individual contributor roles were found. The key here and the very foundation of the success of the program was that the company articulated management expectations, trained on them and were explicit on the responsibilities of people managers. This organization was highly successful in turning around employees’ perception of managers concomitantly with these new managers embracing their roles.

So, when you repeatedly hear complaints about managers, remember Gallup’s research findings on the five talent dimensions attributed to successful managers:

ability to motivate teams and individuals to continually improving performance;
appropriately assert themselves in the face of challenge and adversity;
stand accountable for team performance and success;
build relationships;
decisively make decisions in a balanced and data-driven manner.
Dive into complaint investigations with an unbiased perspective, yet remain vigilant to see whether management needs your assistance on becoming better managers. This issue doesn’t align with an overnight “fix” nor an inexpensive one. It does, however, offer the potential for real change, real growth, and better management. Start today; there is much to be lost and so much more to be gained.

Wishing you learn something new each and every day!

Source  : https://www.hrexchangenetwork.com/hr-talent-management/columns/how-hr-handles-complaints-against-managers

Key Factors to Manage Employee Merit, Bonus & Incentive Plans Effectively

There are many ways to incentive performance in an organization. Typically grouped together under the umbrella term “pay for performance plans,” employers may choose among merit programs, bonus options, and individual or team incentive plans. In order to manage employee merit, bonus, and incentive plans effectively, however, it’s important to first understand the key differences among these types of pay. Below is a brief description of each.

Bonus Plans: Bonus plans can be based on any number of metrics, which may incorporate factors such as how long the employee has been with the organization, their role and responsibilities, and their job level. For instance, a manager might receive a bonus for keeping costs down in their department. In addition to individual bonuses, team bonuses can be given to reward and incentivize accomplishments across a group of employees. Sales bonuses are also used frequently to reward sales staff for meeting specific goals within a given period of time.
Merit Pay Plans: Merit pay plans aim to motivate employees to perform their best. This form of pay consists of a raise in the salary and is typically based solely on the employee’s performance, independent of other factors such as a promotion or time spent at the company.
Incentive Plans: Like pay-for-performance plans, “incentive plan” tends to be used as an umbrella term to describe any plan used to motivate an individual or group of employees. With that said, there are specific types of incentive plans, including 401(k) incentive plans in which the company contributes to the employee’s retirement plan up to a certain amount.
Which is Right for Your Company?

Determining which type of pay for performance plan is right for your organization will require you to consider a number of key factors. If high levels of motivation are required, for instance, merit pay can be useful. Yet, over time, this option can become very costly, as the value of the merit-based raises carries forward cumulatively. If long-term costs are a concern, short-term motivators, such as bonus and incentive plans, may be a more fitting option.

Source: https://hrsoft.com/blog/key-factors-to-manage-employee-merit-bonus-incentive-plans-effectively/

 

Quick Tips to Measure Training ROI

The end goal of every enterprise is to earn profits. Revenue is what drives a business. With this vision in mind, business leaders make decisions about investments and expenses. All investments are carefully planned in a way that it will generate ROI in the future. So, when an organization sets aside a certain budget to invest in employee training, they expect a return on training investment too. Employers expect their employees to be well trained so that they can effectively contribute to the growth of the organization.

As most of the training programs these days are being delivered on mobile devices, enterprises have a better chance of getting accurate information about the actual returns on training investment. This has been made possible with the help of back-end tools which collect employee engagement data, analyze it and displays it in a comprehensive format. Apart from numerical data, there are certain other factors which help in determining the training ROI. All this data combined, helps the employer plan their budget and make informed business decisions.

Let us have a look at how you can measure return on training investment:
1. Data Analytics
Businesses work on numbers and statistics. There has to be a visible record of all the transactions and activities undertaken in the organization. So, for employee training, merely creating and delivering courses isn’t enough. There has to be a report to validate the effectiveness of the training program, where analytics can help. A lot of training delivery platforms have an analytics feature which lets you view the performance of the employees. With a clear visual representation of the engagement levels, assessment scores, and overall performance, enterprises can make informed decisions about the further course of action. Based on the findings of the report, one can redesign or modify certain elements of the training module. So, a detailed analytics report can help you measure the ROI in terms of training effectiveness.

Related: Employee Training Metrics: 7 Ways HR Experts Use Them

2. Client Satisfaction
A happy client is always good for your business. But, apart from increasing revenues, this criterion can also be leveraged to measure the training ROI as well. When employees are well trained in providing good quality service or developing a robust product or application, it shows the effectiveness of the training program. What they learn is what they implement. So, if the employee is doing everything right, eventually addressing all the client needs and delivering a quality product/service, it can be considered as a validation of a training program done well. So, client satisfaction can also be considered as a factor for measuring the return on training investment.

Related: How to Empower Frontline Employees with Mobile Training

3. Assessment Scores
Assessments are used to evaluate the employee’s knowledge of the course module. How does this help in assessing the return on training investment?

When employees score well in their tests, it reflects that they have understood the concepts and are ready for the job. The sooner the employees pass the assessments or the higher the scores they get, the better the training program is considered to be. After investing in a mobile training program, employers wish to see its effectiveness and engagement value. And hence, assessment scores are considered quite useful in measuring training ROI.

Related: [Infographic] Accelerate Employee Engagement With Mobile-Based Corporate Training Program

4. Knowledge Retention
This one’s linked to the earlier point. Knowledge retention determines the effectiveness of the training program and can be ascertained through assessments. All your efforts are futile if the employee is unable to remember the information learned. So, to ensure that employees retain as much information as possible, you must create an engaging training module, which includes interactivities and other features. This will help employees in retaining and recalling the information when required. From an ROI perspective, the sooner and longer the employee is able to remember the training information, the sooner they are able to deliver results and ensure higher productivity.

Related: 7 Most Effective Ways to Make Corporate Training Engaging

5. Employee Turnover Rates
High turnover is an indication of dissatisfied employees. Either they are not receiving suitable training and development opportunities, or they are unhappy with the work environment. Employees mostly leave an organization due to a lack of growth opportunities.

An added advantage of creating mobile training programs is that you can create multiple courses in different domains and make it available to your employees. It could be related to the work at hand, or skill development courses. Once the employees are done with their recommended course modules, they can browse for additional courses and enhance their skills or learn new skills. This provides them with an opportunity to enhance their knowledge and capabilities, which will lead to growth opportunities in the organization, and thus reducing the number of employee turnovers and increasing return on training investments.

Related: 8 Best Employee Engagement Strategies

6. No More Spending on Physical Training Materials
No more training booklets and manuals, or training room resources. People carry mobile phones and tablets in person every moment. So, delivering training on these devices removes the need for you to provide physical training resources, maintaining a training room and all the associated costs. All those resources that were earlier used to print manuals, recruit trainers, etc., can now be redirected for other uses. Now all you need is an employee training platform or software to create and deliver training modules. This practice has given rise to the BYOD trend. As the company is not required to pay for the mobile devices used for accessing training, it results in cost savings, thus increasing your ROI.

Conclusion:
Today, although companies are willing to spend on training and development programs, the calculations have to be supported with estimates of the potential benefits of investing in learning programs and technologies. In order to justify one’s investment, there has to be positive results as an evidence. Delivering mobile-first training content helps in analyzing the effectiveness of the training program with the help of measurable data. All the strategies mentioned above can be utilized to calculate the ROI of the training. To increase the training ROI, enterprises must first invest in a well-designed training plan, which will help them achieve improved productivity, cost reductions and increase in customer satisfaction.

Source : https://www.humanresourcestoday.com/?source=kitaboo—employee-training&open-article-id=10565905&article-title=quick-tips-to-measure-training-roi&blog-domain=kitaboo.com&blog-title=kitaboo—employee-training

How Objective Setting Can Fit Into Your Performance Management Strategy

Every company has metrics and KPIs in place to regularly observe and measure performance, but when it comes to assessing people, quantitative analysis is only half the story. The other half of analyzing employee performance and team dynamics involves listening to employees to get a complete picture of the health of a people-centered organization.

Managers often look at data in a vacuum instead of taking a step back to see what employee behaviors influenced them. It can be dangerous to run a business by removing the story of what’s really going on and why, from the numbers you see.

The OKRs platform is meant to be used in tandem with a Weekly Check-in that provides visibility into the world of each employee. Managers can uncover employee challenges so that they can offer support, and even find out what’s going on in an employee’s personal life that might be affecting work performance. Together these two practices offer managers an elegant solution for receiving employee feedback and responding in a way that re-aligns employees with their quarterly Objectives.

This post includes excerpts from our latest eBook: 15Five’s Comprehensive OKR Guide: How To Launch, Track, and Achieve Your Objectives & Key Results. Below we’ll discuss specific steps you can take to leverage OKRs in your performance management strategy.

“[Performance management] practices are mutually reinforcing: implementing one practice well can have a positive effect on the performance of others and leads to more effective performance management overall.”
– McKinsey & Company

Communication is key
To paraphrase the Scottish poet Andrew Lang, don’t use data as a drunken man uses a lamp post – for support rather than illumination. Without supplementing the numbers with context, leaders are just guessing about the future of their company.

Company leaders who communicate with employees to discover their challenges and ideas are better equipped to take specific action to remedy ailments like low output. Managers need to hear the in-depth story behind performance issues or see what is working so that you can replicate it elsewhere in the company.

The quantitative by itself doesn’t provide the full picture, but when managers have conversations early enough, so much can be addressed before breakdown. When people can share openly because they don’t feel that their jobs are at risk, managers learn where they are struggling beyond their capacity and become aware of the things that need improvement before it’s too late.

Standalone Objective setting is insufficient for producing strong results. To be most effective, OKRs must be part of a complete performance management system that includes a Weekly Check-in and 1-on-1 Meetings.

By asking the right questions every week, managers obtain deeper insight into the motivations, distractions and other issues that influence or hinder results:

• Managers can see where employees are challenged and offer just enough support to allow them to grow into their roles and achieve their goals.
• Employees have the opportunity to share triumphs and be acknowledged by management. Acknowledgements help motivate employees to perform and boosts morale.
• Managers can quickly and easily discover misalignments and make weekly course corrections.

Check out our Best-Self Management Podcast to discover best practices and philosophies that can help unlock the full potential of your business.
Using feedback to establish trust
Check-ins are not just about information gathering, but also aid in the establishment of trust. Asking team-members “How do you feel?” or “Where are you challenged?”, elicits valuable information like, “I am stressed because we re-oriented departmental procedures and it feels like there are still gaping holes in our new process,” or “I am getting run down and can’t do my best work.” Managers can then respond to employee needs before the issues get out of hand.

When company leaders connect performance on key Objectives with communication, they tap into the human element of performance. People move naturally towards doing their best work and becoming their best selves.

Mihaly Csikszentmihalyi wrote in his bestselling book Flow: The Psychology of Optimal Experience, “The more a job resembles a game – with variety, appropriate and flexible challenges, clear goals and immediate feedback — the more enjoyable it will be regardless of the worker’s level of development.” Set goals, measure them, and then have the conversations to replicate triumphs and remediate challenges.

Gallup shows that only 34 percent of employees strongly agree that their manager knows of the projects or tasks they’re currently working on. When managers keep track of goals and key performance projects and milestones, the feedback they provide improves.

In the Check-in, managers move beyond results and through the use of questions, blend qualitative feedback into the OKR process. During 1-on-1s managers obtain deeper insight into their team members’ work and the factors that influence or hinder progress.

A note about compensation: When we talk about Objective setting in relation to Reviews, the most common question we hear is whether goal completions should be linked to promotions and pay increases. If goals are high stretch goals, don’t link them to pay. Research shows extremely high goals combined with economic incentives lead to unethical behavior, since tying rewards to goal achievement can create a “results at all costs” mentality.

Which OKR system should you use? Aspirational or Commitment based
Google is known for setting overly ambitious Objective setting, and many companies followed suit. Other organizations use a different strategy by having teams and employees set more attainable Objectives and use OKRs as a method for goal tracking. Success will then be benchmarked by 90-100 percent completion, rather than 60-70 percent.

We recommend that companies decouple stretch Objectives from pay decisions, and when assessing performance for compensation decisions, to use data from as many Objective performance measures as possible, including both behaviors and results. For example, with sales teams, measure calls made and revenue growth. For managers, measure team results and employee retention and promotion rates.

Overall, Objective setting should be used for establishing direction and setting a context for work that motivates employees. By linking their efforts to company priorities, you will imbue high leverage tasks with greater purpose and meaning.

Source: https://www.humanresourcestoday.com/?open-article-id=11294339&article-title=how-objective-setting-can-fit-into-your-performance-management-strategy&blog-domain=15five.com&blog-title=15five

How To Improve Your Employee Experience with Employee Personas

With HR teams looking to create more personalised, tailored experiences for the workforce, employee personas are becoming a popular tool.

To equip you with the capabilities needed to leverage employee personas in your workplace – and drive business growth through improved productivity, retention, and engagement – we’ve outlined everything you need to know about employee personas in this article.

 

Employee personas are a useful way to build a narrative around different groups within the workforce, helping HR teams to get closer to their people and to design experiences tailored to meet their needs.

Why have employee personas?
To give an example of why employee personas are important, think about your own team. How many of your colleagues have the same career goals, expectations of the organisation, or behave in the same way? Now extend that across the entire business and it’s immediately clear how much differentiation there is across the workforce.

Employee personas help you to design experiences around a handful of distinct employee types, making it much more efficient and cost-effective to create personalised experiences that are likely to resonate with employees. And this in turn often leads to a better employee experience.

How do I build employee personas
Employee personas can be developed in 6 steps:

1. Gather feedback across the business
Most organisations choose to combine qualitative and quantitative research to build out their personas.

Begin with a listening strategy to gather feedback at scale. This allows you to take the pulse of the entire workforce, providing plenty of data to spot trends that will form the basis of your employee personas.

Your employee listening program should link to your company’s strategic objectives, and focus on asking questions that focus on people’s goals, motivations and pain points. It’s also useful to collect insights at different stages in the employee lifecycle, This allows you to create a complete picture of the different moments that matter for different personas.

2. Identify Potential Cohorts
Now you have the data, you can apply analytics to identify the most common pain points, expectations and behaviours.

RELATED: 7 Ways to Improve Your Employee Experience

At this stage you should be able to see clusters of shared attributes. These are the foundations of your different employee personas, showing you the shared goals, motivations and pain points among different groups.

3. Add demographic information
Once you know the different cohorts, it’s time to understand what demographics these groups share.

The most efficient way to do this is to link your survey tool with your HRIS. Doing so allows you to integrate experience data captured by your listening strategy with operational data, such as age, role, time in the company, training, and promotions.

Once your data is analysed, you’ll be able to spot commonalities between the cohorts in the previous step, adding more colour to your employee personas.

4. Deep dive interviews
Conduct face-to-face interviews to supplement the data you’ve collected, and to explore further common trends and patterns you’re already noticing..

Based on your data so far, identify a handful of people from each cohort (try to include a diverse range of ages, role and seniority) and interview them to explore some of their answers in more detail.

5. Bring it all together
Bring together data from all of your research to create a selection of employee personas. This is an important step that personifies the different cohorts and brings them to life for people around the organisation.

These typically include all the relevant information from your research, such as career goals, frustration, and expectations, as well as fictional details like name, back story and even a picture. All materials should be informed by your face-to-face interviews and should represent the cohort as a whole rather than mimicking just one person you interviewed in the process.

6. Validate your personas
A great way to make sure you’re on the right track is to validate your employee personas by sharing them with your employees to feedback on. To validate your employee persona you could survey the entire organisation again to see which personas resonate best, or you could create smaller focus groups and gather feedback.

How to use your employee personas to improve the experience
Employee personas are most effective when paired with an employee journey map.

Employee journey mapping gives you insight into the moments that matter most throughout the employee experience. By installing feedback mechanisms at these moments targeted at the employees it’s most relevant to – based on your employee personas – you build a better understanding of the actions you need to take to improve the employee experience.

WHITEPAPER: Translating Brand Promises into Employee Behaviours

Developing employee personas are a powerful way to improve your employee experience. Employee personas help you to better understand your workforce and identify the actions that will have the biggest impact on engagement, productivity, retention and of course, deliver maximum impact back to the business.

To learn more about personas, access a complimentary copy of Forrester’s May 2019 report, Create Employee Personas To Power EX Strategy.

v2_create_employee_personas_to_power_ex_strategy

ABOUT QUALTRICS

Qualtrics is the technology platform that organisations use to collect, manage, and act on experience data, also called X-data™. The Qualtrics XM Platform™ is a system of action, used by teams, departments, and entire organisations to manage the four core experiences of business—customer, product, employee and brand—on one platform. Over 10,000 enterprises worldwide, including more than 75 percent of the Fortune 100 and 99 of the top 100 U.S. business schools, rely on Qualtrics to consistently build products that people love, create more loyal customers, develop a phenomenal employee culture, and build iconic brands.

Source: https://www.hrexchangenetwork.com/people-analytics/articles/assessing-your-hr-analytics-capability

Assessing Your HR Analytics Capability

Over the last decade, “analytics” has become a widespread buzzword in HR (and elsewhere) and an increasingly important concept for HR’s future. When talking about analytics, we use many different terms or concepts: scorecards, dashboards, predictive analytics, data science, evidence-based decisions, metrics, human resource accounting, cloud (or big) data, forecasting, or workforce modeling. At times, all these diverse ideas overwhelm us and actually impair our progress that could come through using analytics. For these ideas to have sustainable impact, we must organize them by answering three relatively simple questions.

Why analytics? Analytics is a way to access and use information to make better decisions. In a digital, connected, and transparent world, people have nearly unlimited access to information. In a business setting, we want to turn this ubiquitous information into improved decision making, and that requires analytics. This analytics process is a bit like turning the thousands of words in a dictionary (information) into a well-worded, cohesive story or essay with real impact (sound decisions). Thanks to work by Dick Beatty, we have seen decision making through analytics start with a focus on an HR scorecard and evolve into insights, then intervention, then business impact. Without analytics, unlimited information is fruitless in improving decisions and actions. HR professionals wisely invest their budget, time, and energy on analytics because they can improve decision making.

What analytics? In our research (see Victory Through Organization), we have found that HR analytics—that is focused on assessing only HR work through HR scorecards—has only moderate impact on both customer and investor outcomes and business results. In fact, the book my colleagues and I published in 2001 (HR Scorecard) would be out of date today. HR professionals should focus less on measuring HR and more on analytical tools and methodologies that have business impact (e.g., predictive modeling, statistical insights). Business impact comes from focusing on the results or value created from an HR activity.

In a recent seminar, I asked HR participants to write what they wanted to learn from the workshop. Their answers centered around HR practices (e.g., succession planning, career management, agile talent, workforce planning, culture change, leadership development, and so forth). Many wanted “analytics” about these HR practice areas. To probe for impact, I asked them to fill in the phrase after “so that . . . ” behind each desired learning. The “so that . . . ” query required them to think of the impact of the HR activity on stakeholders outside the boundaries of the organization (customers or investors). This shifted the analytics focus from activity to impact.

 

Analytics without impact is a like writing a story or essay without an audience. The story or essay may have good words and even sentences and plot line, but unless targeted to an audience, it lacks purpose and impact. Likewise, HR analytics needs to provide information that has impact by focusing on key business stakeholders. As HR analytics moves beyond scorecards on HR practices and insights from big data to real business impact, the information is more focused on improving the business.

For example, measuring employee engagement moves to impact when it is linked to customer engagement and financial results. Too often, some of the enthusiasm for employee experience is about the experience and not the real value: the impact of this experience on key stakeholders such as customers and investors. This logic for all HR practices is shown in the following figure.

How analytics? If analytics matters (why) and links to business impact (what), the challenge is to make analytics happen (how). My colleagues and Ihave worked with dozens of companies endeavoring to create analytics capability that delivers business value. Often the desire to perform analytics for decision making with impact lacks focus because so many things to measure and actions to take make knowing where to start unclear. As we have worked to implement analytics for impact, we have identified ten actions or criteria HR professionals could take to assess their HR analytics. These ten criteria and actions help HR professionals focus on a starting point and know how to move forward with analytics work. While a total score over 70 indicates a good analytics capability, this assessment can also help HR professionals identify specific actions that could improve their organization’s analytics capability.

Assessment of HR Analytics Efforts

Obviously, information-rich decisions are more likely to be effective than information-poor decisions, but navigating the firehose of knowledge available requires analytics. And knowing how to use the right analytics to turn information into improved decision making comes from answering the why, what, and how questions of analytics. The how question is certainly difficult to answer for each organization with all the ways of talking about analytics. So the ten-item assessment helps HR professionals determine their overall analytics capability and identify improvement areas to truly make better decisions and enhance business results.

So, what analytics do you do on your HR analytics?

Source : https://www.hrexchangenetwork.com/people-analytics/articles/assessing-your-hr-analytics-capability

Can artificial intelligence help society as much as it helps business?

In 1953, US senators grilled General Motors CEO Charles “Engine Charlie” Wilson about his large GM shareholdings: Would they cloud his decision making if he became the US secretary of defense and the interests of General Motors and the United States diverged? Wilson said that he would always put US interests first but that he could not imagine such a divergence taking place, because, “for years I thought what was good for our country was good for General Motors, and vice versa.” Although Wilson was confirmed, his remarks raised eyebrows due to widespread skepticism about the alignment of corporate and societal interests.

The skepticism of the 1950s looks quaint when compared with today’s concerns about whether business leaders will harness the power of artificial intelligence (AI) and workplace automation to pad their own pockets and those of shareholders—not to mention hurting society by causing unemployment, infringing upon privacy, creating safety and security risks, or worse. But is it possible that what is good for society can also be good for business—and vice versa?

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To answer this question, we need a balanced perspective that’s informed by history. Technology has long had positive effects on well-being beyond GDP—for example, increasing leisure or improving health and longevity—but it can also have a negative impact, especially in the short term, if adoption heightens stress, inequality, or risk aversion because of fears about job security. A relatively new strand of welfare economics has sought to calculate the value of both the upside and the downside of technology adoption. This is not just a theoretical exercise. What if workers in the automation era fear the future so much that this changes their behavior as consumers and crimps spending? What if stress levels rise to such an extent as workers interface with new technologies that labor productivity suffers?

Technological social responsibility (TSR) amounts to a conscious alignment between short- and medium-term business goals and longer-term societal ones.

Building and expanding on existing theories of welfare economics, we simulated how technology adoption today could play out across the economy. The key finding is that two dimensions will be decisive—and in both cases, business has a central role to play (Exhibit 1). The first dimension is the extent to which firms adopt technologies with a view to accelerating innovation-led growth, compared with a narrower focus on labor substitution and cost reduction. The second is the extent to which technology adoption is accompanied by measures to actively manage the labor transitions that will accompany it—in particular, raising skill levels and ensuring a more fluid labor market.

Exhibit 1

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Both of these dimensions are in sync with our previous bottom-line-focused work on AI and automation adoption. In our research, digital leaders who reap the biggest benefits from technology adoption tend to be those who focus on new products or new markets and, as a result, are more likely to increase or stabilize their workforce than reduce it. At the same time, human capital is an essential element of their strategies, since having the talent able to implement and drive digital transformation is a prerequisite for successful execution. No wonder a growing number of companies, from Walmart to German software company SAP, are emphasizing in-house training programs to equip members of their workforce with the skills they will need for a more automated work environment. And both Amazon and Facebook have raised the minimum wage for their workers as a way to attract, retain, and reward talent.

TSR: Technological social responsibility
Given the potential for a win–win across business and society from a socially careful and innovation-driven adoption strategy, we believe the time has come for business leaders across sectors to embed a new imperative in their corporate strategy. We call this imperative technological social responsibility (TSR). It amounts to a conscious alignment between short- and medium-term business goals and longer-term societal ones.

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Some of this may sound familiar. Like its cousin, corporate social responsibility, TSR embodies the lofty goal of enlightened self-interest. Yet the self-interest in this case goes beyond regulatory acceptance, consumer perception, or corporate image. By aligning business and societal interests along the twin axes of innovation focus and active transition management, we find that technology adoption can potentially increase productivity and economic growth in a powerful and measurable way.

In economic terms, innovation and transition management could, in a best-case scenario, double the potential growth in welfare—the sum of GDP and additional components of well-being, such as health, leisure, and equality—compared with an average scenario (Exhibit 2). The welfare growth to 2030 that emerges from this scenario could be even higher than the GDP and welfare gains we have seen in recent years from computers and early automation.

Exhibit 2

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However, other scenarios that pay less heed to innovating or to managing disruptive transitions from tech adoption could slow income growth, increase inequality and unemployment risk, and lead to fewer improvements in leisure, health, and longevity. And that, in turn, would reduce the benefits to business.

At the company level, a workforce that is healthier, happier, better trained, and less stressed, will also be more productive, more adaptable, and better able to drive the technology adoption and innovation surge that will boost revenue and earnings. At the broader level, a society whose overall welfare is improving, and faster than GDP, is a more resilient society better able to handle sometimes painful transitions. In this spirit, New Zealand recently announced that it will shift its economic policy focus from GDP to broader societal well-being.

Leadership imperatives
For business leaders, three priorities will be essential. First, they will need to understand and be convinced of the argument that proactive management of technology transitions is not only in the interest of society at large but also in the more narrowly focused financial interest of companies themselves. Our research is just a starting point, and more work will be needed, including to show how and where individual sectors and companies can benefit from adopting a proactive strategy. Work is already underway at international bodies such as the Organisation of Economic Co-operation and Development to measure welfare effects across countries.

‘Tech for Good’: Using technology to smooth disruption and improve well-being
Read the discussion paper
Second, digital reinvention plans will need to have, at their core, a thoughtful and proactive workforce-management strategy. Talent is a key differentiating factor, and there is much talk about the need for training, retraining, and nurturing individuals with the skills needed to implement and operate updated business processes and equipment. But so far, “reskilling” remains an afterthought in many companies. That is shortsighted; our work on digital transformation continues to emphasize the importance of having the right people in the right places as machines increasingly complement humans in the workforce. From that perspective alone, active management of training and workforce mobility will be an essential task for boards in the future.

The successful adoption of AI and other advanced technologies will require cooperation from multiple stakeholders, especially business leaders and the public sector.

Third, CEOs must embrace new, farsighted partnerships for social good. The successful adoption of AI and other advanced technologies will require cooperation from multiple stakeholders, especially business leaders and the public sector. One example involves education and skills: business leaders can help inform education providers with a clearer sense of the skills that will be needed in the workplace of the future, even as they look to raise the specific skills of their own workforce. IBM, for one, is partnering with vocational schools to shape curricula and build a pipeline of future “new collar” workers—individuals with job profiles at the nexus of professional and trade work, combining technical skills with a higher educational background. AT&T has partnered with more than 30 universities and multiple online education platforms to enable employees to earn the credentials needed for new digital roles.

Other critical public-sector actions include supporting R&D and innovation; creating markets for public goods, such as healthcare, so that there is a business incentive to serve these markets; and collaborating with businesses on reskilling, helping them to match workers with the skills they need and with the digital-era jobs to which they could most easily transition. A more fluid labor market and better job matching will benefit companies and governments, accelerating the search for talent for the former and reducing the potential transition costs for the latter.

There are many aspects to TSR, and we are just starting to map out some of the most important ones. But as an idea and an imperative, the time has come for technological social responsibility to make a forceful entry into the consciousness and strategies of business leaders everywhere.

Source: https://www.mckinsey.com/business-functions/mckinsey-analytics/our-insights/can-artificial-intelligence-help-society-as-much-as-it-helps-business

‘True Gen’: Generation Z and its implications for companies

Gen Z: Consumption and implications for companies
The youthful forms of behavior we discuss here are influencing all generations and, ultimately, attitudes toward consumption as well. Three forces are emerging in a powerful confluence of technology and behavior.

Consumption re-signified: From possession to access
This more pragmatic and realistic generation of consumers expects to access and evaluate a broad range of information before purchases. Gen Zers analyze not only what they buy but also the very act of consuming. Consumption has also gained a new meaning. For Gen Z—and increasingly for older generations as well—consumption means having access to products or services, not necessarily owning them. As access becomes the new form of consumption, unlimited access to goods and services (such as car-riding services, video streaming, and subscriptions) creates value. Products become services, and services connect consumers.

As collaborative consumption gains traction, people are also starting to view it as a way to generate additional income in the “gig economy.” Another aspect of the gig economy involves consumers who take advantage of their existing relationships with companies to generate additional income by working temporarily for them. Some companies are already embracing the implications.

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Car manufacturers, for example, are renting out vehicles directly to consumers, so that instead of selling 1,000 cars, these companies may sell one car 1,000 times. The role of sporting-goods businesses, likewise, has shifted to helping people become better athletes by providing access to equipment, technology, coaching, and communities of like-minded consumers. Similarly, traditional consumer-goods companies should consider creating platforms of products, services, and experiences that aggregate or connect customers around brands. Companies historically defined by the products they sell or consume can now rethink their value-creation models, leveraging more direct relationships with consumers and new distribution channels.

Singularity: Consumption as an expression of individual identity
The core of Gen Z is the idea of manifesting individual identity. Consumption therefore becomes a means of self-expression—as opposed, for example, to buying or wearing brands to fit in with the norms of groups. Led by Gen Z and millennials, consumers across generations are not only eager for more personalized products but also willing to pay a premium for products that highlight their individuality. Fifty-eight percent of A-class and 43 percent of C-class consumers2 say they are willing to pay more for personalized offerings. Seventy percent of A-class and 58 percent of C-class consumers are willing to pay a premium for products from brands that embrace causes those consumers identify with. And here’s another finding that stood out in our survey: 48 percent of Gen Zers—but only 38 percent of consumers in other generations—said they value brands that don’t classify items as male or female. For most brands, that is truly new territory.

Although expectations of personalization are high, consumers across generations are not yet totally comfortable about sharing their personal data with companies. Only 10 to 15 percent of them declare not to have any issues in sharing personal data with companies. If there is a clear counterpart from companies to consumers, then the number of consumers willing to share personal information with companies goes up to 35 percent—still a relatively small number.

As the on- and offline worlds converge, consumers expect more than ever to consume products and services any time and any place, so omnichannel marketing and sales must reach a new level. For consumers who are always and everywhere online, the online–offline boundary doesn’t exist. Meanwhile, we are entering the “segmentation of one” age now that companies can use advanced analytics to improve their insights from consumer data. Customer information that companies have long buried in data repositories now has strategic value, and in some cases information itself creates the value. Leading companies should therefore have a data strategy that will prepare them to develop business insights by collecting and interpreting information about individual consumers while protecting data privacy.

For decades, consumer companies and retailers have realized gains through economies of scale. Now they may have to accept a two-track model: the first for scale and mass consumption, the other for customization catering to specific groups of consumers or to the most loyal consumers. In this scenario, not only marketing but also the supply chain and manufacturing processes would require more agility and flexibility. For businesses, that kind of future raises many questions. How long will clothing collections grouped by gender continue to make sense, for example? How should companies market cars or jewelry in an inclusive, unbiased way? To what extent should the need for a two-speed business transform the internal processes and structure of companies?

Consumption anchored on ethics
Finally, consumers increasingly expect brands to “take a stand.” The point is not to have a politically correct position on a broad range of topics. It is to choose the specific topics (or causes) that make sense for a brand and its consumers and to have something clear to say about those particular issues. In a transparent world, younger consumers don’t distinguish between the ethics of a brand, the company that owns it, and its network of partners and suppliers. A company’s actions must match its ideals, and those ideals must permeate the entire stakeholder system.

Gen Z consumers are mostly well educated about brands and the realities behind them. When they are not, they know how to access information and develop a point of view quickly. If a brand advertises diversity but lacks diversity within its own ranks, for example, that contradiction will be noticed. In fact, members of the other generations we surveyed share this mind-set. Seventy percent of our respondents say they try to purchase products from companies they consider ethical. Eighty percent say they remember at least one scandal or controversy involving a company. About 65 percent try to learn the origins of anything they buy—where it is made, what it is made from, and how it is made. About 80 percent refuse to buy goods from companies involved in scandals.

All this is relevant for businesses, since 63 percent of the consumers we surveyed said that recommendations from friends are their most trusted source for learning about products and brands. The good news is that consumers—in particular Gen Zers—are tolerant of brands when they make mistakes, if the mistakes are corrected. That path is more challenging for large corporations, since a majority of our respondents believe that major brands are less ethical than small ones.

For consumers, marketing and work ethics are converging. Companies must therefore not only identify clearly the topics on which they will take positions but also ensure that everyone throughout the value chain gets on board. For the same reason, companies ought to think carefully about the marketing agents who represent their brands and products. Remember too that consumers increasingly understand that some companies subsidize their influencers. Perhaps partly for that reason, consumers tend to pay more attention to closer connections—for example, Instagram personas with 5,000 to 20,000 followers. Marketing in the digital age is posing increasingly complex challenges as channels become more fragmented and ever changing.

Young people have always embodied the zeitgeist of their societies, profoundly influencing trends and behavior alike. The influence of Gen Z—the first generation of true digital natives—is now radiating outward, with the search for truth at the center of its characteristic behavior and consumption patterns. Technology has given young people an unprecedented degree of connectivity among themselves and with the rest of the population. That makes generational shifts more important and speeds up technological trends as well. For companies, this shift will bring both challenges and equally attractive opportunities. And remember: the first step in capturing any opportunity is being open to it.

Source : https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/true-gen-generation-z-and-its-implications-for-companies