CEO of Prialto Inc, the virtual assistant service for professionals. Headquartered in Portland, with offices in Manila and Guatemala City.
The value of a company goes beyond the basic infrastructure for doing business. Covid-19 has been a seismic shock wave, sending many workers home to their personal infrastructures. The shift exposed the shallowness of firms that fail to provide value beyond a basic foundation of salary and benefits. It also caused some employees to question the need for their companies and some companies to question their need for permanent employees.
The gig economy sparked soul-searching for some service firms and workers even before the pandemic. With labor marketplaces offering disintermediation, workers were already asking themselves, “Do I need to work for a company?” Company leaders were asking, “Do I need a permanent workforce?” The move to all-remote work made these questions even more relevant.
The gig economy and pandemic did not create the question of firm value. Why businesses exist is a question as old as economic theory. I think Nobel Prize-winning economist Ronald Coase posed the question most clearly in his essay, “The Nature of the Firm.” Coase asked why the economy centers around business firms rather than consisting of many independent, self-employed contractors.
Why Companies Exist
The question is even more relevant now. Given that “production could be carried on without any organization [firms] at all,” Coase asked why and under what conditions should we expect firms to emerge. If the market is so efficient, why don’t we have lots of great individual practitioners competing against each other? As Matthew Yglesias asks, “What’s with all the bosses and colleagues and meetings and internal office politics?” Who needs that? Great question. He presents leadership, teamwork and team spirit as benefits of the firm. Firms protect individuals from the brutality of the market.
Why Employees Need Companies
The Covid-19-induced work-from-home environment has shown that individuals now possess enough technology to operate on their own. But the pandemic has also highlighted how brutal the market can be for independent workers. McKinsey & Co. found that “contract, freelance and temporary workers would overwhelmingly prefer permanent employment.” These workers bore the brunt of the financial impact of the pandemic. For example, gig workers “were nearly twice as likely than others to say that they could not afford health insurance.”
The Value Of Employees
Let’s look at the value of employees to businesses. The Predictive Index surveyed 600 executives and found that they directly attribute 72% of their company’s value to employees. That seems low to me. For both product and service companies, employees and the culture they comprise are what drive a firm’s most sustainable competitive advantage in my view.
Moving forward, the odds of losing that value are increasing dramatically. Dubbed “the Great Resignation,” up to half of U.S. workers are expected to leave their jobs in 2021. The Society for Human Resources Management called this shift a “turnover ‘tsunami.’” The U.S. Chamber of Commerce predicts a “national economic emergency” that could disrupt multiple industries.
What Company Leaders Can Do
The clear message is that it’s not just salaries, free meals and nap pods that employees want from firms. A study found 46% of workers cited “lack of connection” to their companies and 42% pointed to “diminished culture” as reasons for leaving. LinkedIn found 94% of employees will stay with a company that invests in their growth. Gen Z and millennials told LinkedIn that learning and growth are what most makes them happy at work, and the lack of growth opportunities is the number one reason they would leave.
Here are a few suggestions to create a culture of learning and growth to attract and retain high-performing employees.
Measure employee retention. This might sound obvious, but few companies track turnover. Turnover is expensive and disruptive to workflows. We all know that you can’t manage what you don’t measure. Reward teams that maintain high retention rates.
Invest in a learning platform. Give employees access to courses through a platform like LinkedIn Learning or Coursera. (Disclosure: My company is a customer of LinkedIn Learning.) Not only will you provide the opportunities your employees want, but you’ll also see who is taking the initiative to invest in themselves.
Celebrate departures. Retention is awesome, but when an employee moves on to a new opportunity, you can be glad. It means your company gave them the skills and experience to grow. This can motivate your team and attract growth-minded candidates in the future. You can even create an “alumni” section on your career page to show prospective employees where they can go after a few years at your company.
Incentivize ownership. Employees and companies need each other. While you can invest in employee growth and learning, you can also reward employees who invest in the health of the business. Peer recognition is a terrific way to do this. Employees can nominate peers to receive anything from a certificate to a cash bonus for going the extra mile for the company.
Survey employees regularly. Is your company a great place to learn and grow? You won’t know unless you ask. And you won’t get honest answers unless you act on what you hear and connect changes in policy with employee feedback.
Make it real. If you don’t genuinely want your company to be a platform for employees to grow, you should do some soul searching. A mentor of mine once told me that to be a good manager, one must start by caring. And you can’t fake that. Investing in employee learning and growth as a gimmick to stave off departures will eventually catch up with you. People know when policies, incentives and rewards are meaningful and when they are window dressing.
Who will find higher ground?
As the tsunami waters eventually start to drain out, companies that have taken their workforces for granted will likely be those still on the beach, with shaky foundations exposed and disinterested management unprepared. But if you’ve already been investing in creating connection and meaning, your even stronger efforts may be rightly seen as sincere. You’ll rest on a strong foundation when the wave arrives at your shore.
Your firm, employees and customers will benefit from avoiding a constant state of energy-draining bargaining and the employee and customer turnover it causes. After all, that’s why your firm should exist in the first place.