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The Advent of the Human Enterprise

This post was co-authored by Managing Director, Quentin Clark, and Catalyst Advisor, Lexi Reese.

Overview

We are experiencing one of the biggest changes we’ve seen in the modern workforce since the advent of the industrial revolution.  The underlying factors that have led to today's labor challenges will persist and worsen. While the war for talent has been raging for a long time now, we’re entering a new phase…and the nature of the battle is fundamentally changing.  

Understanding and responding to this shift is a business imperative - and one that needs to be elevated in strategic importance and investment priority.  Beyond lost productivity and the financial impacts of high turnover, it affects everything from organizational efficiency, culture and morale, institutional knowledge and customer loyalty.  

Employers will have to dramatically innovate their capabilities and systems (which are outdated or don’t exist) to attract, empower, develop, more deeply engage and retain the next generation workforce–who themselves have new and wildly different needs and requirements for advancement, acknowledgement, fulfillment, flexibility and purpose at work.

This reassessment is fueling the growth of an emerging, multi-trillion dollar market in workforce transformation.  At the same time, we have a unique opportunity to use this inflection point to reverse the decades-long trend of growing income inequality and create a new period of active economic inclusion – one where we cultivate a newly empowered, motivated and productive modern workforce – and a more vibrant and diverse American economy. 

Employers are best placed to be in the vanguard of positive change if they navigate the transformation of work intentionally and responsibly.  A new model for employment, one focused on the Human Enterprise, can allow business to meet the sea-change in employment while also catalyzing opportunities for more people everywhere to find and retain more productive and fulfilling work.

Talent:  The MOST CRITICAL PART OF THE SUPPLY CHAIN

We have written about the Stakeholder Aligned Enterprise  as the new framework for building enduring, scaled businesses. While all stakeholders are important, better alignment with the workforce is a growing business imperative.  People have been, and will continue to be, at the core of how businesses operate and innovate. But even despite recent economic headwinds, businesses will remain under unrelenting pressure to find, keep and motivate the workers they need, based on several macro and accelerating trends:

  1. Labor scarcity is here to stay, and demand for talent with rapidly evolving skills will continue to exceed supply, even in a potential recession. 

The ‘great resignation’ is a mischaracterization (see: The Great Resignation Didn’t Start with the Pandemic by Joseph Fuller and William Kerr).   In 2020, the resignation rate actually slowed, brought on by the uncertainty of the Covid-19 pandemic. While 2021 saw record quit rates, we’re now back in line with the pre-pandemic trend. The real underlying issue is not the ‘quit rate’ but the size of the labor market.  Population growth for Americans ages 20 - 64 turned negative last year for the first time in the nation’s history.  The potential labor force will grow a mere 0.3% to 0.4% annually for the remainder of the 2020s.  The result:  70% of employers cannot find talent they need

At the same time, the velocity of technological advancement is both shrinking demand for certain types of jobs and, yet, growing demand for others–both at unprecedented rates.  This means there’s a major need for reskilling and retraining in vast sectors like healthcare…where this dynamic is yielding dangerous talent displacement and shortages.   

  1. ‘Return to office’ is a pipedream:  remote, distributed and hybrid work is not going away.

Much to the dismay of some employers who are insisting on a full return to pre-pandemic patterns, the genie is out of the bottle; distributed, hybrid and remote work are here to stay.  At least 25% of all professional jobs in North America will be remote by the end of next year.  This has fundamental implications for how businesses get work done, yes–but also how they drive culture, loyalty, connection and community.

We’re also seeing greater prevalence of project-based (gig and part-time) models of working across all sectors, a recognition that full employment could come from a set of regularly engaged gig or part-time work.  Internal marketplaces for connecting talent to projects have been started in many large employers.

  1. The nature of work itself is changing –  as are the expectations and requirements of the next generation workforce.

Next generation employees–buoyed by the tight labor market–are demanding greater flexibility, more challenging and rewarding work, greater career mobility, a sense of belonging and purpose, as well as a redefinition of the benefits they expect to receive.  Reimagining modern workforce benefits is a massive opportunity area: while healthcare and financial services have seen tremendous tech innovation, corporate benefits that are the primary source of health coverage and savings for most Americans have remained largely unchanged for decades.   

Employees are also demanding more and different actions on social issues from their employers.  We’re seeing Increased calls to make real progress on representation, equity and inclusion within organizations, as talent demands to be heard and valued. According to Edelman Trust Barometer, workers expect CEOs to be the “face of change”, wanting more engagement on social issues rather than less.   By an average of five-to-one margin, respondents in the 28 countries surveyed want business to play a larger role on climate change, economic inequality, workforce reskilling and addressing racial injustice.

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Let’s be clear.  Solving for these challenges is not a ‘nice to have’ but rather a business imperative and priority - and not something that can be managed alone by even the most talented HR leaders.  Running the same old playbook will continue to lead to the leaky and expensive cycle of sourcing/hiring/training/churning talent.  There are direct costs to this vicious talent cycle;  the cost of recruiting, onboarding training, the higher cost of replacement talent, and reduced productivity and capacity are all directly measurable and significant.  But there are myriad indirect costs as well–including operational mistakes (due to under-experienced or overextended workers), poor customer service, labor inefficiency and resulting loss of business/repeat business, and employee demoralization–which in turn accelerates the rate of churn.  Businesses need to think more strategically about quantifying the business case for finding, keeping and retaining the right talent in the most effective and efficient ways, creating metrics like we have around customers.  Employers need to look at the equivalent of customer acquisition and lifetime value metrics for their employees–what we have termed PCAC (people cost of acquisition) or PLTV (people lifetime value).   Only by doing so can companies better evaluate their return on employee investment:  (recruiting costs + onboarding + ramp up) : (employee rev contribution * expected tenure).

 The Advent of the Human Enterprise

Against this backdrop, employers have to fundamentally rethink their role in the transformation of work.  Many forward leaning enterprise businesses are already evolving this way.  But we’re at a new tipping point, where every enterprise will have to become a ‘human enterprise’-–putting new talent acquisition, retention and lifetime value strategies and systems at the heart of everything they do.

The implications are significant:

The CHRO/CPO is the new Chief Growth Officer.  The Chief Human Resources Officer or Chief People Officer will become even more strategically essential, as people will become the most important yet perpetually constrained part of an employer’s supply chain.  Greater partnership between the CHRO and the CEO, as well as line managers, is essential–as talent strategies and initiatives become ever more integrated into the core business.  Enterprise businesses will also need to bring together disparate people, technology and real estate functions to create a consumer-grade employee experience.  This is a massive shift, one that will require new tools and strategies to address things like:  individual and organizational resilience, organizational trust and safety, creativity & innovation, data literacy, and human <> machine partnerships.

The new priority:  best-in-class ‘talent experience’.  Just as there has been a focus on ‘customer experience’ as essential to build a highly competitive, enduring business, so too will we see a shift to ‘talent experience.” The same way enterprises invested heavily in CRM, they will need to invest heavily in TRM (talent relationship management).  

The emergence of truly tailored career journeys.  Individuals will have agency on their careers and paths they take – and there will be many job designs and paths and less linearity, as people consider their individual circumstances, striving to integrate work and life requirements. Experiences at work will be more individualized for people’s abilities, opportunities and needs. 

A new FRAMEWORK FOR INNOVATION

All of this means rethinking strategies, systems and tools around three things:                   

1) Pathways (how companies source, train, deploy, and promote talent ‘through the funnel’ – in new ways, from new sources, with ever greater efficiency);

2) People (how companies retain, loyalize and fulfill talent–with a fundamental redefinition of what ‘benefits’ look like; a new focus on culture creation for a remote working world; and robust metrics around things like employee satisfaction and churn); and

3) Platforms (the data and technology stack that delivers on a comprehensive talent strategy tied to measurable business results).

Pathways:  Businesses must identify skills in individuals and the workforce at large and optimize for as many paths for people to follow as possible.  This has to occur across the entire lifecycle – where we source from, how we train, how we reskill/upskill and reward and promote talent – treating it as a “funnel” like we do customer lifecycles.  And all of this has to be done with better efficiency.  To maximize the funnel, we need to not only provide in situ skill development to keep up with the changing requirements of work, but we have to rethink the sources of talent to get on different pathways. This includes apprenticeship paths, recognizing that four year degrees are not required for as many types of work as has been traditionally assumed, and sourcing and development of talent from underutilized sources like community college, workforce training, bootcamps, certificate programs, military service or on-the-job learning. These pathways also support gig/part-time reconfiguration of work.

There are many great examples of how enterprise businesses are exploring new pathways for talent. Companies like Verizon and Cisco are working with one of our portfolio companies Multiverse, building tech apprenticeship programs that train individuals, many without degrees, in skills like software engineering, in order to close tech skills gaps and drive critical business outcomes. JP Morgan, Slack, Microsoft and McDonalds are working with organizations like Next Chapter and the Second Chance Business Coalition to hire from among the 80 million with criminal records and the 2.2 million who are still incarcerated.  

The business outcomes and metrics here are clear – jobs are filled and productivity/output rises; the costs of deploying the right skills goes down; and companies can retain more tenured people with institutional knowledge. Doing this well also means the approach to talent acquisition and onboarding will be more representative and inclusive. 

People:  Talent retention is driven very much by the experiences people have both on the job and in how their work integrates into their life.  This is about the culture, management, benefits, and working environment – with the aim of maximizing the opportunity to contribute and support them as people.  The working environment here spans both our new workplace realities of distributed work, more globalized and often asynchronous, as well as digital tools and physical environments and systems. 

GC portfolio companies AwardCo and Chief are great examples of new models of talent reward and recognition and community building.  We also see a massive opportunity to reimagine the benefits stack–to address the shifting needs of next generation talent and to meet the moment of more flexible and dynamic work.  We think this will be a significant innovation area in the coming decade. You need to look no further than the meteoric rise of Transcarent (the company has only been in existence for a few years) as evidence of the need for a new, different, and better health care experience for Members via self-insured employers.  Over 80 companies, including Delta, Albertsons and Target have selected Transcarent as they rethink their employee health and care experience, impacting millions of lives.

The business outcomes and metrics here are clear – reduced churn and rising employee satisfaction–but also better amortization of the cost of hiring and onboarding, and a more effective and fulfilled workforce at the individual and team levels.  Indirect impacts are on customers, partners, other employees, etc. as people are doing their best work.

Platforms:   Underpinning this all are platforms that give leaders the ability to make smart people strategy and operational choices that create value for customers, employees, and investors – the data and technology stack that delivers on a comprehensive talent strategy.  The platforms will allow employers to effectively manage the entire employee lifecycle (employer branding, recruiting, onboarding, listening, performance, career, skills, development, offboarding, alumni).  The organizational and leadership tools for supporting culture, diversity, equity and inclusion, and productivity are foundational to that lifecycle.  The platforms will also enable the new benefits stack – one that is tailored to individual needs – not blanket benefits with sparse engagement but the right benefits delivered at the right time to the right person, with more frictionless experiences.  

Our centerpiece investment in the platform space is Eightfold:  whose customers include Bayer and BNY Mellon.  These companies are seeing results such as reduction in job screen time by up to 90%; prevention of bias in recruiting; and a comprehensive system by which to have a macro view of all candidates, employees and roles to be filled. Again, we see room for many scaled businesses to be created in this platform space.  

Finally, there are new metrics to develop – the equivalent of customer metrics for talent like ‘People Cost of Acquisition (PCAC)’ and ‘People Lifetime TValue (PLTV)’ metrics applied to employment.

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Harmonizing across these three dimensions–pathways, people and platforms–will yield the tangible impact we are seeking: a more fulfilled workforce that is also serving the business better; a workplace with better employment efficacy that is better meeting everyone’s needs and providing pathways for growth; and work environments where people are doing their best work – all of these things leading to higher talent fulfillment.

Conclusion

We believe that there is an exceptional opportunity to build highly successful and enduring tech businesses that can meet the moment and these evolving needs. 

Doing so will require a rebalancing of the employer-employee relationship and a transformation of how enterprises identify, recruit, develop, equip, motivate and reward talent in ever more inclusive ways. By addressing the three core levers causing the labor market imbalance – job access, job pathways, and job quality – leaders can play a critical role in reversing decades-long periods of growing income inequality and create a new period of active economic inclusion – one where we cultivate a newly empowered, motivated and productive modern workforce – and a more vibrant and diverse American economy.  

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Many thanks to the thought partners who contributed to and inspired this work both directly and indirectly, including: 

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