There are two ends of the spectrum when it comes to compensation strategy. There is the ‘peanut butter approach’ where everyone gets the same treatment – the same pay increases and benefits for the same job. On the other end, there is completely personalized compensation in which each employee is analyzed and given a compensation package tailored to them. The trick is working out where your organization’s compensation strategy should sit on that spectrum.
Until recently, technology hasn’t allowed organizations to reach the latter end of that spectrum in any effective way. Today’s solutions allow businesses to have a completely bespoke compensation strategy for every person in the organization, if that’s the optimum approach. The days of ‘one size fits all’ approaches is over. Just as marketing systematically segments customers to target investments strategically, HR needs to segment talent to figure out what the optimum approach is and deploy human capital strategically.
We already segment the employee base in certain ways; most role categorization could be defined as segmentation – there is a difference between exempt and nonexempt, high-performance, engineers, salespeople, and managers. Segmentation is being done to the extent that it can be done in an Excel spreadsheet, i.e. it’s being done far too broadly. The broader your segments, the more you adhere to a ‘peanut butter approach’, the more waste you have in your organization. In order to optimize our talent and compensation spend, we need more specific segments, and segments within segments. We need to go further with how we define and understand our employee base.
For some companies, this means grouping employees according to their needs, and tailoring everything from terms of employment to incentives for different segments. Often organizations use workforce segmentation to help identify critical sections of the workforce, aligned with company strategy, taking into account long-term talent trends, external market influences, and company plans. In all cases, workforce segmentation empowers companies to improve financial performance, customer service and employee satisfaction, become more proactive, and develop a comprehensive understanding of their workforce. Most importantly, it provides a critical link between business strategy and HR, resulting in an aligned workforce and business success.
For one fast food retail company, the goal was to get a better understanding of their employee’s needs. The company needed to get an idea of what the market looked like and figure out the best way to make it work for their company. Conducting surveys on lifestyles, behaviors, and attitudes – as they would do with their customers – the company was able to create a view of their workforce consisting of five different segments. The segments included the social student (single, no kids), practical individualist (work is just a job to support other pursuits), transitional college graduate, community builder (inspired by the company’s charitable work) and the career enthusiast (a lifelong employee). These segments did not fall into age groups, racial groups, or regional groups; rather they fell into lifestyle groups. With this knowledge, HR leaders were able to adjust talent management tactics and processes to deliver the best results for their employees and for the organization. The logic is simple: people are motivated by different factors, need different things, and have different interests and segmenting your organization along superficial demographic lines won’t tell you these things. Each role must have an Employment Value Proposition that includes a mix of tangibles and intangibles, delivering a custom mix that motivates each group in the best way possible.
Using workforce segmentation to identify critical workforces is also vital. Your organization has portions of the population that are pivotal to creating value and are vital to its success. There are some jobs where resources and improvement are going to pay off a lot more and without which the organization would find itself at a strategic and operational risk. Hence, significant efforts must be made to recruit, retain, and develop top performers, without neglecting other populations. Segmenting and prioritizing can result in a 10% to 20% increase in your business impacts, without any additional budget. It is a matter of segmenting and modelling the workforce to find these employee groups, allocating resources where they are most useful, and focusing on opportunities that can produce the greatest business results.
John Boudreau uses the example of Disney’s street sweepers to demonstrate how prioritization of critical workforces, and a focus on how they are managed, is vital to talent strategy. Disney has obviously recognized the importance of Mickey Mouse, and their other characters, to their brand experience. They are the most recognizable faces of the company. Hence, Disney has controlled the role of Mickey Mouse to the point where the variation between good and bad performance is negligible. Street Sweepers, on the other hand, have the potential to make a huge difference to the customer experience and the variation between a good sweeper and a bad sweeper is substantial. When it comes to customer support, the street sweepers are the most accessible members of staff and it is they, not Mickey Mouse, that are directing people to the bathroom, identifying and resolving issues before they become issues. The sweepers are faced with customer interaction on a day-by-day, minute-by-minute basis, and how they respond to guests can make a much bigger difference to customer experience than Mickey Mouse, even though Mickey is more important than the sweeper position, in terms of average value.
We don’t need to tell you that the advantages of workforce segmentation are clear. Different employees do the same job different ways and different roles produce more value for different businesses. The more you can understand our workforce and its contribution to business success, the more you can tailor the way you treat and motivate these workforces, the better off your organization will be. Developing customized adaptable programs will benefit employees, customers and the company as a whole. Workforce segmentation must go deeper and further than it currently does. Rather than approaching workforce segmentation as simply a way to view current workforce demographics, use it as a method by which to comprehensively understand and address your organizations workforce and put in place strategies to optimize it. Chances are that in your organization today, there is either a huge latent capacity you are missing, or a wastage of resources. Look deep enough in your business with workforce segmentation and you’ll discover these opportunities to increase efficiency, optimize your workforce, and make a difference to your company and your employees.