• Thriving beyond boundaries: Human performance in a boundaryless world It’s time to trade in the rules, operating constructs, and proxies of the past. Prioritizing human performance can help organizations make the leap into a boundaryless future.
• work is no longer defined by jobs, the workplace is no longer a specific place, many workers are no longer traditional employees, and human resources is no longer a siloed function. These boundaries, once assumed to be the natural order of things, are falling away and traditional models of work are becoming boundaryless.
• a focus on the human factor is emerging as the bridge between knowing what shifts are shaping the future of work and doing things to make real progress toward putting them into action to create positive outcomes.
• that the more boundaryless work becomes, the more important uniquely human capabilities—like empathy and curiosity—become.
• This combination of human and business outcomes is what we call “human performance.” Because it is humans, more than physical assets, that truly drive business performance today
• In more recent years, those efforts have expanded to include attempts to make work better for humans. 3 We are on the cusp of the next step on that journey as organizations seek to create value for workers and every other human being they impact, including extended off-balance sheet workers, future workers, or people in their communities
• Most workers say their well-being either worsened or stayed the same last year . 4 And this isn’t a new trend: In 2018, over 40% of workers reported feeling high stress in their job, with negative impacts on productivity, health, and family stability. 5
• Thinking like a researcher by leveraging new sources of data and technology to create greater transparency in ways that foster workforce trust, and that are used in collaboration with innately human capabilities like problem-solving, creative thinking
• Cocreating the relationship by collaborating with workers to design people practices
• Prioritizing human outcomes by moving past the industrial-era mindset that led to a dehumanization of both work and worker—for example, viewing the worker as a number, a box on the organization chart, or a cog in the process
• Yet most organizations don’t have appropriate measures in place to capture human performance, let alone optimize it: Only 3% of respondents from our 2024 Global Human Capital Trends research say that their organization is extremely effective at capturing the value created by workers.
• a world where trust between workers and their employers is the currency of work, and where people are given opportunities to grow and develop those uniquely human capabilities that are so critical to human performance
• We’ve focused on creating a monolithic, one-size-fits-all corporate culture to define how organizations should operate, when in reality, most organizations are made up of an abundance of microcultures.
• what we should be measuring is trust—and metrics that benefit the worker. After all, measuring how much discretionary effort workers are willing to expend for their organization’s benefit helps a company, but whether it helps workers is far less clear.
• And we’ve relied on the idea of “productivity” to measure worker activity, without fully accounting for desired human and business outcomes and potential future value
• The shift to human performance begins here, at the intersection of business outcomes and human outcomes
• viewing humans as costs rather than assets, or business practices that reinforce efficiency of activity over value and outcome
• 1 But they were designed for a simpler world, a world of work that’s not constantly reinventing itself, and served as intentional abstractions of what “could” be measured when organizations didn’t have the advanced tools to evaluate what “should” be measured. Today, the proxies that once made it easier to structure, drive, and measure organizational activity are holding us back from applying the tools and learnings of the past decade to inspire the realization of new value in the boundaryless world
• Instead, internal constraints, such as capacity for change, limited resources, and lack of leadership alignment were consistently shared as the justification for organizational inertia.
• Moving beyond productivity to measure human performance. Leaders across industries are beginning to recognize the limitations of legacy productivity metrics in the current work environment.
• Balancing privacy with transparency to build trust. New advances in technology can make almost everything in an organization transparent to almost anyone.
• Embracing human sustainability. For many organizations, nothing is more important than its people, from employees, to external workers, to customers and community members.
• Making the shift to boundaryless HR. Work is increasingly demanding agility, innovation, and collaboration to achieve outcomes. A new HR operating model is not the only solution to respond to these shifts. Rather, a new mindset, along with a new set of practices, metrics, technologies, and more can transform HR from a specialized function that owns all workforce responsibility to a boundaryless discipline, cocreated and integrated with the people, business, and community it serves. Boundaryless HR can develop people-discipline expertise and weave it throughout the fabric of the business, creating multidisciplinary solutions to increasingly complex problems
• Creating digital playgrounds to explore, experiment, and play. As the pace of disruption accelerates, there is a growing need for safe spaces in which both organizations and individuals can imagine, explore, and cocreate a future that delivers better human experiences and outcomes at speed and scale. Deloitte calls these spaces “digital playgrounds.”
• Cultivating workplace microcultures. According to conventional wisdom, corporate culture should be one-size-fits-all—a fixed, uniform culture that ensures everyone is working in the same way. 12 In reality, organizations typically consist of a diverse set of microcultures—subtle variations in how work gets done in different functions, geographies, workforces, and even specific teams
• When people thrive, business thrives: The case for human sustainabilit y For true sustainability, organizations need to create value for all people connected to them. It’s not just a nice idea—it’s central to better outcomes for organizations and humanity
• human sustainability: the degree to which the organization creates value for people as human beings, leaving them with greater health and well-being, stronger skills and greater employability, good jobs, opportunities for advancement, progress toward equity, increased belonging, and heightened connection to purpose
• focus less on how much people benefit their organization and more on how much their organization benefits people.
• But human sustainability isn’t just another name for stakeholder capitalism: simply delivering a wider range of outcomes for a wider range of stakeholders. Some suggest that, in the name of stakeholder capitalism, for example, organizations may make a positive contribution to a stakeholder group to balance out some of the adverse impacts to that group, much as carbon offsets function. 5 These offsets can sometimes fail to address the root causes in the organization, and the positive impact in one area does not necessarily compensate for the adverse impacts elsewhere.
• According to our 2024 Global Human Capital Trends research, only 19% of leaders say they have very reliable metrics for measuring the social component of ESG. And only 29% strongly agree that they have a clear understanding of how to achieve it.
• This approach is in its infancy today. Only 10% of organizations say they are leading in advancing human sustainability
• While people can represent risks to an organization, they also represent great opportunities. Consider that intangible assets—the ideas, technologies, brand attributes, and other differentiators created by an organization’s people— made up 90% of US corporate assets in 2022. 22 Intangible assets approached comparable levels in other developed markets, though they were lower in emerging markets.
• People-related issues traditionally have fallen under HR. But managing human sustainability crosses almost all parts of an organization, including finance, information technology, and operations, so HR can’t do the job on its own.
• Human sustainability is a long-term play: The strategies put in place today will help determine whether workers, organizations, and society endure and flourish both today and for future generations
• A human sustainability perspective is grounded in a few simple principles: The people connected to your organization have the power to affect it in important ways.
• Your organization has the power to affect each of them. And by understanding and creating value for each other , your organization and its people can improve business, work, and life for everyone
• As human performance takes center stage, are traditional productivity metrics enough? In an era of human-centered work, new sources of data and artificial intelligence can help organizations shift from measuring employee productivity to measuring human performance.
• Profits increased 10%. Sales per hour at call centers increased 34%, and retail sales increased 15%. 3
• a shift away from traditional efforts of gauging and improving worker performance, which tend to focus on activity-centric productivity metrics such as hours worked, time on task, product produced, and revenue per employee.
• Instead, Hitachi focused on tracking a single, unexpected metric: worker happiness.
• New approaches, by contrast, can and should consider the worker as a human being, with a more nuanced perspective on how they contribute to the organization
• The once clear line that linked individual worker activity (for example, hours worked or calls completed) to tangible outcomes (customer satisfaction or commercial potential of research and development projects) is now blurred, replaced by a complex network of collaborations
• Only 17% of respondents said their organization is very or extremely effective at evaluating the value created by individual workers in their organization, beyond tracking of activities or outputs
• Even in front-line, logistics, and manufacturing environments where traditional metrics like minutes per call or widgets produced may seem most applicable, technology and AI are being increasingly used to automate such tasks. The workforce can then be free to undertake complex problem-solving that requires skills that are less technical and more abstract, such as creativity, critical thinking, and collaboration
• some organizations are looking beyond traditional metrics such as revenues and profits to consider how they can create shared value—outcomes that benefit individual workers, teams and groups, the organization, and society as a whole.
• Workplace tools and technologies, such as email, collaboration platforms, social tools, and shared calendars, generate passive data that can offer realtime insights
• Organizational network analysis can be used to measure connections and collaboration between people across an organization
• Sensors and connected devices, such as wearables, badging scans, neurotechnology, biometric sensing tools, extended reality headsets, and precision location-tracking technologies, can generate data on worker behaviors and interactions
• Productivity paranoia. During the COVID-19 pandemic, many organizations were quick to adopt new worker-monitoring tools that tracked keystrokes, mouse activity, and more to gain visibility into who was working on what and for how long—the same productivity standards they’d always tracked. But new ways of working require new metrics.
• AI-enabled voice or audio analytics generated from worker interactions with machines and AI systems, such as algorithms that assess code quality or the emotional tone of call center interactions, can offer valuable insights
• Lack of visibility into outcomes. Many organizations are still focused on measuring worker inputs and outputs rather than outcomes
• Pressure from external stakeholders. Despite their desire to find better ways to measure human performance, senior leaders are currently under pressure from external stakeholders to demonstrate improved productivity
• Uncertainty about what to measure. More data doesn’t automatically equate to better results.
• The new math involves a balance of business and human sustainability—
• After all, organizations essentially compete in two industries: the industry it works in and the industry of talent management. Leaders should leverage the connection between human and business outcomes to increase the likelihood of success in both these industries
• The analytics helped the organization make informed decisions that directly impacted worker well-being, while also improving areas such as capacity planning, quality improvement, workforce management, and process engineering—and the plant’s operation product manager also noted improved happiness, health, and productivity in line workers. 13
• While our recent Quantified Organization research shows a relatively high level of worker trust in their organization’s data collection efforts, it also shows that trust is tenuous:
• When it comes to the collection and use of work and workforce data, the typical assumption is often that workers are uniformly opposed to any type of monitoring and executives want to track every metric available, no matter how intrusive
• A majority (53%) of respondents agreed that their organization is in the early phase of the journey toward identifying better ways to measure worker performance and value beyond traditional productivity. Just 8% said their organization is leading in this area.
• Cocreate metrics and solutions with workers. Organizations can build trust in their use of worker data by providing workers with opportunities to provide input into which human performance metrics should be prioritized, as well as opportunities to respond to insights the data may reveal
• Implement these practices in your performance management approach. Traditional performance management can be a challenging process if there are unclear or unrealistic expectations for workers and opportunities for errors in human judgment.
• Measure what you should, not just what you can. The human performance metrics that matter most to an organization will vary based on industry, geography, workforce, and how the organization currently operates, and will likely require some experimentation to find the right balance of business and human sustainability outcomes.
• Integrate new metrics into the processes of other areas of the talent life cycle. As organizations transition to the use of human performance metrics, they should carefully consider how best to leverage this data to better the work, and the experience, of individual workers.
• Plan now to address tensions around the use of emerging technologies.
• Establish responsible data and AI practice
• The transparency paradox: Could less be more when it comes to trust? Greater transparency can help organizations build trust—or erode it. What considerations should leaders keep in mind to ensure transparency is helping and not hindering?
• Some organizations are discovering that mishandling transparency can severely undermine trust. In an organizational context, transparency is usually thought of as information flowing from a leadership team to everyone else. But new digital advances mean that transparency also exists inside teams, and worker information can be made transparent too.
• Eighty-six percent of leaders surveyed in our 2024 Global Human Capital Trends research say that the more transparent the organization is, the greater the workforce trust.
• As they increasingly interact with smart machines, workers leave an ever-expanding trail of data that can be analyzed using artificial intelligence and shared at negligible cost
• Sharing information about decisions, results, strategies, and practices freely with workers, customers, investors, and other stakeholders is generally thought of as a good thing
• a variety of newly transparent data can help to improve everything from worker performance and job satisfaction, to worker safety and career development, to improved innovation and organizational agility. 3
• should consider important questions around what information to make transparent, why, whose information should be revealed, and to whom and how
• Deloitte defines trust as the outcome of high competence and positive intent, underpinned by capability, reliability, humanity, and transparency
• Increasing uncertainty for organizations and workers: The less people know what to expect, the more they rely on trust to feel safe.
• Disappearance of traditional boundaries: As many traditional boundaries of work and the workplace continue to erode, trust, perhaps even more than culture, is emerging as a tie that binds—a means to keep the organization cohesive and mission-aligned
• Generative AI and other forms of automation: As technology automates rote tasks, human capabilities such as empathy and curiosity can increasingly differentiate leading organizations from the rest
• The flip side of transparency is privacy; greater openness is risky as developments in technology and society, particularly the rise of social media, have made it easier to share potentially harmful information far, fast, and permanently. Privacy can sometimes be a better path to trust than transparency.
• Whether the use of this newfound transparency is helpful or harmful will depend on how it is used; forced transparency that is used as surveillance, with punitive consequences, can damage trust.
• Gaming the system. Social scientists have identified various behaviors people undertake in response to demands for transparency, typically to protect themselves or manipulate a situation in their favor
• First, organizations will need to put transparency in conversation with privacy.
• Negative impacts on decision-making. Providing more data and visibility into decision-making processes may lead to information overload, endless debate, second-guessing, and accountability gaps
• Second, organizations should bring workers together in conversation with leaders about what and why information should be made transparent, to whom, and how.
• Hindering creativity. People who think their ideas and experiments could be made public may experience a phenomenon called “the spotlight effect.” They may avoid risk-taking and experimentation, and innovation can suffer .
• When workers see personal benefits to transparently sharing their data, they are more likely to embrace it; a study by Gartner found that 96% of digital workers would accept more data-monitoring in exchange for benefits like training and increased career development opportunities. 2
• What do organizations need most in a disrupted, boundaryless age? More imagination. Generative AI and other technologies may be exposing an imagination deficit. Scaling human capabilities like curiosity and empathy can help organizations replenish it.
• According to our 2024 Global Human Capital Trends research, 73% of respondents say it is important to ensure that the human capabilities in the organization keep pace with technological innovation, but just 9% say they are making progress toward achieving that balance
• While workers share concerns about the threat of technology taking over their jobs or worry about the new skills that will be needed to keep up with technology changes, 16 they also see an upside: 70% of workers would be willing to delegate as much work as possible to AI to free up time for other tasks and enhance their creativity. 1
• the effectiveness of generative AI can’t be measured in black and white terms. Generative AI can produce results with varying levels of accuracy and precision. It may make mistakes, and humans will have to devise methods to assess its reliability
• The success of these collaborations will likely depend on the degree to which organizations and workers can focus on developing curiosity, resilience, divergent thinking, emotional intelligence, and other human capabilities
• it has the potential to become a true creative partner for workers,
• What may be needed now is a new model, one in which people and technology come together to cocreate new knowledge, address previously hidden problems, and discover new opportunities to create value. This way of operating requires the deliberate scaling and cultivation of human capabilities.
• For example, in Japan, curiosity is sometimes considered a hindrance to flawless execution based on proven methods
• one Japanese pharmaceutical company, Shionogi & Co., experimented with an optional four day workweek to allow workers to use the fifth day as an opportunity to gain experiences not available to them within the confines of their job
• The global furniture company is using AI technologies to transform its global call center operations, intending to both increase efficiencies and turn each agent into a designer
• Investing in the development of human capabilities doesn’t just build organizational resilience: It improves worker resilience, well-being, and mental health—all important components of human sustainability.
• Operationalize human capabilities as part of overall workforce strategy. Start by assessing the current state of your workforce’s collective human capabilities, in particular, empathy and curiosity.
• Practice imagination in service of human sustainability. Today’s workers have increased agency and many are seeking greater meaning in their work
• Highlight for workers, teams, and managers the need to prioritize human capabilities. Workers should not be expected to transform their mindsets overnight from “What needs to get done?” to “What possibilities can I help unlock?”
• Provide opportunities and venues for workers to explore, experiment, disrupt, and cocreate
• collaboration with machines is ranked highest for workers and lowest for executives, suggesting that leaders may be underestimating the impact of AI on their roles
• his means hiring for faculties such as curiosity, creativity, and critical thinking; developing them throughout the workforce; providing safe spaces where workers can come together to experiment and practice; and rewarding workers who harness their autonomy to reimagine what’s possible for themselves, the organization, and its stakeholders
• How play and experimentation in digital playgrounds can drive human performance As technology continues to spark change in the relationship between workers and organizations, they need safe spaces to cocreate their common future.
• To address these challenges, the hospital began by launching an experiment with a single department— radiology—creating a digital twin of the department. In this virtual 3D environment, teams were able to explore different physical layouts and test new operational scenarios, workshopping them with staff and stakeholders.
• T o deliver on these outcomes, organizations will need digital playgrounds—safe spaces that encourage intentional play and curiosity—to experiment and explore new ways of working.
• A digital playground is not a singular place or virtual platform. Rather , it’s a mindset and an approach in which technologies are curated with intention and opportunities to use them are democratized. It’s a safe space for workers to build confidence, learn new skills, and hone their human capabilities. 2 S
• One size does not fit all: How microcultures help workers and organizations thrive Rather than striving for one common culture, organizations should enable a “culture of cultures” tailored to the needs of local teams while aligning to organization-wide values.
• This monolithic view of culture is no longer fit for purpose in a world where an increasingly diverse workforce seeks greater autonomy and customized work experiences
• When the culture differs from their expectations, the impact can be significant—almost a third of new workers leave their jobs within the first 90 days of being hired, 1 with unmet expectations from recruitment and culture being top factors.
• Culture is “the way things get done” in your organization— sustained patterns of behavior over time that are supported by the shared experiences, values, and beliefs of the or g aniz a tion. 4
• Culture includes both stated values, which are typically consistent across an organization, and the lived behaviors or artifacts—norms, symbols, language, and actions—where culture is manifested in practice. These lived behaviors are what can and should be flexible across an organization that embraces microcultures.
• 50% of executives report that an organization’s culture is most successful when there is a moderate degree of variation. Yet executives ranked this as the most difficult trend to address. This difficulty points to the importance of culture for workers—73% of people have left a job due to poor cultural fit 6 —and the “fuzziness” of defining an
• Taking a “micro” approach to culture can enable organizations and leaders to paint a more detailed picture of “the way we work around here” to drive different experiences and outcomes that mutually benefit both workers and the organization
• Some leaders may balk at the idea of intentionally cultivating different behaviors and practices to support workers. Indeed, some practices may need to be standardized to conform to regulations. However, attempts to root out all unique practices and behaviors may limit organizations’ agility and impact worker experience and retention.
• Our research shows that while senior leaders rate microcultures as less valuable, directors and workers who are closer to the work itself recognize the importance of microcultures to their success (figure 2
• When asked how organizational culture has changed since the pandemic, most leaders say it is better now (60%). One reason for this could be an increase in microcultures as a result of more hybrid or remote work.
• Advances in technology. New technologies are giving some leaders more visibility into ways of working across an organization, enabling them to feel some degree of control and thus more comfortable embracing local cultures
• Merger and acquisition activity. Many leaders recognize that a newly acquired company or merger may have its own unique culture. While there a
• The importance of empowering frontline workers with decision-making.
• Rising worker agency. Today’s workers often have more choice and influence over where, when, and how they work than ever before. 2
• Attract and retain in-demand talent. Creating and communicating about various internal microcultures that may vary from an organization’s perceived or primary corporate culture has the potential to attract different types of workers to fit in-demand skill needs.
• Define a microculture by focusing on the work. To define where and how you want to create a microculture, start with the work itself, as the work will often drive the development of a microculture.
• Tap managers, leaders, and boundary spanners to be “modular” across microcultures. While microcultures move some of the perceived locus of control away from an organization’s leadership, leaders have an important role to play in establishing and articulating guiding principles that apply to the whole organization and enabling managers to make connections across teams.
• Integrate microcultures into the talent life cycle. Talent processes like hiring, performance management, development, and deployment should be flexible to adapt to the unique culture of a team, function, or location.
• From function to discipline: The rise of boundaryless HR The future of work requires human resources to evolve, shifting from a siloed function to a boundaryless discipline integrated with the people, businesses, and community it serves.
• People expertise is the knowledge and understanding of how to develop, motivate, and deploy workers to achieve business outcomes (for example, productivity) and human outcomes (for example, professional growth) throughout the talent life cycle. At an individual contributor level, people expertise is an understanding of how to amplify your own and your fellow team members’ performance through providing feedback, seeking and supporting development opportunities, reinforcing culture, engaging in positive teaming, and other action
• Boundaries that equate the notion of “jobs” to work and “employees” to workers.
• Boundaries between HR and external organizations, customers, and other outside parties. HR thinks beyond the traditional internal “customer” of leaders, managers, and employees, and now also focuses on end customers, investors, and society
• Boundaries between HR and other disciplines. As people expertise is integrated across functional areas to jointly solve business problems, all functional areas (including HR) should work toward—and measure themselves against—common business and human outcomes.
• It’s worth noting that boundaryless HR is not an HR operating model problem or a neat remapping of who owns what. It’s less a matter of where people are in the boxes and lines of an organization’s structure, and more how the organization taps into the most skillful people
• Boundaries between HR, workers, leaders, and managers. All people in an organization—from the board to the C-suite to every individual contributor—need people expertise and to be mutually accountable for human performance. HR democratizes people management, serving as a platform aided by automation and AI that provides leaders, managers, and workers with the tools, information, and real-time data they need to perform more of the HR-related work themselves. Rather than owning
• From improving productivity to unlocking human performance.
• From managing employment to orchestrating work.
• From improving employee engagement to elevating human sustainability
• A majority of business and HR leaders (72%) believe that HR will shift beyond managing traditional employment activities to orchestrating work. 1
• From aligning HR practices to the business strategy to driving business transformation and shared outcomes.
• From ensuring worker compliance to managing and mitigating workforce risk
• Redefine the role of the manager to be a people leader.
• Create new metrics and analytics shared across functional areas
• Create cross-functional teams or cross-functional “integrator” roles to tackle business problems and people issues.
• Democratize people practices and data with AI and other digital tools, creating science-based processes that unlock performance
• Transform workers into producers of people practices, not just consumers.
• Pursue collaborations and partnerships with external entities.
• The CHRO has a critical role to play in this evolution, which demands a new way of leading. It may even be time to make the CHRO the chief work officer , responsible for a workforce that is now composed of internal and external workers collaborating with AI, and where the line between technology and people is increasingly blurred.
• Evolving leadership to drive human performance Organizational leaders and board members can play a critical role in the journey toward driving business and human outcomes
• Workers and leaders aren’t looking to make work more human at the expense of business outcomes and priorities, but as a path toward improving business outcomes and priorities. But while 76% of respondents to our 2024 Global Human Capital Trends research say that leaving every human the organization comes in contact with better off is very or critically important to their organization’s success, there’s a gap in how well leaders and executives are prioritizing this. Leaders and executives in our survey ranked this last in importance, behind priorities like reimagining work with digital tools and seeking better ways to measure worker performance
• Senior leaders have access to the organizational levers that can either help or hinder efforts to change: finances, governance, process, organizational values, and priorities.
• It is not the workforce that is resisting the change. It is often leaders who are resisting the change because we’re applying old paradigms to our new reality.” 1
• Our research shows that leaders are already keenly aware that these shifts need to happen. But few are making real progress in this transition—just 10% of all respondents say their organizations are succeeding at making the shift toward human sustainability: the degree to which an organization creates value for people as human beings, and a key to unlocking human performance.
• Replacing outdated metrics with new metrics that matter.
• But leaders can take steps to collaborate with workers on cocreating what should be measured—not just what can be measured.
• Tying leader and manager incentives to human sustainability metrics.
• Empowering managers to improve human performance. Many workers say that managers have a significant impact when it comes to human sustainability issues: in fact, in one global study, respondents said managers have as great an impact on their mental health as their spouses.
• Let microcultures flourish. For some leaders, embracing a new mindset that encourages worker autonomy in the way they work can be difficult
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• ompanies obsess over cost per hire but spend so little time trying to see if they make good hires? Why do they provide so little training when we know it improves performance and many candidates say they’d take a pay cut to get it? Why do firms delay filling vacancies and let work go undone? Why do they spend so much money leasing personnel from vendors rather than hiring their own?
• they’re categorized as a current expense, a type of fixed cost
• By transferring work away from employees, companies get rid of fixed costs and move employment costs into another accounting category. In short, the financial accounting system distorts business decisions in ways that are worse for everyone—investors, employers, and employees.
• In the United States public companies are required to report their financials using standards based on generally accepted accounting principles (GAAP) established by the Financial Accounting Standards Board. Those accounting rules say that items with value are assets—but only if they’re owned by the company. On that basis, employees are not considered assets—even though the tenure of a valuable employee is often far longer than the life of any piece of capital equipment
• But what happens with acquisitions of employees? Suppose a company pays a lot of money—for signing bonuses and so forth—to bring in a team of hot computer scientists who are central to its new strategy. Those costs are current expenses that have to be completely deducted from taxable income the year they’re hired, even though the business’s managers don’t expect to start getting value from them for at least another year or s
• A company also cannot claim to have made an “investment” in current employees on its books, because the accounting rules say it can’t invest in something it doesn’t own.
• Another way financial accounting rules screw up training and employee development is by aggregating outlays on them with other costs in the very broad “general and administrative” category. Are you spending a lot on training employees—or on carpet?
• The irony is that, unlike capital assets that steadily and predictably erode, employees actually become more valuable over time simply through “learning by doing,” which costs nothing.
• Many employee benefits—including vacation time, sick leave, and health care coverage—are accrued or earned by the workers and owed to them in the future. Under GAAP, those benefits show up on the liability side of the balance sheet as obligations that must be offset by current assets
• Drop pensions and move to defined-contribution retirement plans. A big liability goes away, and the company instantly becomes more valuable.
• By moving from an explicit commitment to a vague promise of unlimited time off, the firm removes the liability and immediately looks more valuable. This also helps explain why a growing number of companies are granting employees unlimited sick leave; that too helps them avoid an accrued liability.
• Arguably, a number of rules have been prompting a major effort by companies to move work to nonemployees. One involves treating wages and salaries as fixed costs. Such costs are a big worry for investors because if business and revenue decline and those costs can’t be cut, the profitability and value of the business collapse in a hurry.
• a company that has moved jobs to nonemployees, reducing its head count, instantly looks more successful.
• A company that can move costs from above the line to below it will improve its gross profit margins. Work done under contract by nonemployees that is below the line also looks more like a nonrecurring expense—which is a variable cost, not a fixed cost—than employment does. And a company that pays for leased employee contracts in advance can even include some of that cost in the assets on its balance sheet.
• ne manager noted, the buckets for costs were not the same, and the process and the bureaucracy involved in getting approval for a vendor were far less onerous than those for bringing on an employee.
• The size of the industry that provides outsourced HR services is now well over $500 billion. Some companies are also reducing internal HR payrolls by replacing people with software. HR executives often say that it’s much easier to get money for an IT solution than it is to get the equivalent amount of money for personnel
• 020 PwC survey found that C-suite executives, who tend to focus on priorities dictated by financial accounting, were 270% more likely to believe HR technology cuts costs than the line managers who actually used the software were.
• Research, including my own, has found that using temporary and leased employees hurts productivity and that such workers are less knowledgeable and less committed than regular employees are, make more demands on management, create coordination challenges with regular employees, and irritate regular employees, who worry about their own status and jobs and become less engaged.
• Operating managers often have part of their bonuses tied to their success in keeping their unit’s head count below the ceiling.
• Research conducted by Marshall Fisher and his colleagues at the Wharton School, however, found that this run-lean strategy often backfires because having more and better-trained personnel would boost sales and operating profits at many stores. (See “Retailers Are Squandering Their Most Potent Weapons,” HBR, January–February 2019.)
• Another example is the airline industry. During the pandemic, the government gave airlines substantial subsidies to keep employees on their payrolls. Yet in 2021 airline leaders told Wall Street analysts that they were intentionally bringing back fewer workers than they’d had before the pandemic so that they could run even leaner, according to Peter Coy of the New York Times. The result was a staffing shortage during the holiday season, when demand for travel predictably surged.
• The current treatment of human capital in financial accounting has no real defenders. Investor groups, believing that it leads to a lack of information that makes it more difficult for them to estimate the true value of companies, have led the drive for change. They have pushed companies, including those they hold significant ownership stakes in, to report more HR data—but so far with little success.
• responded to investor groups’ complaints by requiring that companies report on aspects of human capital that are material to understanding their businesses. But instead of stipulating what information companies had to report, the SEC gave each the power to decide what to disclose. The results so far have been discouraging: Seventy percent of companies reported hardly any metrics and seemed mainly to express platitudes about their commitments to diversity and inclusion or other socially desirable outcomes. Giving that much discretion to companies defeats a central purpose of accounting: to present information in standard ways to allow comparisons.
• If investors could see that a lot of “administrative expenses” were actually being used to improve employees’ ability to do their jobs, companies would look more valuable to them.
• he investment community needs to keep pressuring the SEC for change. It can point out that the new reporting requirements have had little effect and that there is an alternative model: the International Financial Reporting Standards (IFRS) used by companies outside the United States. Under those global accounting practices, companies can report more of the asset value of human capital. Arguably the best examples have been in valuing football (soccer) teams, whose assets are virtually all in players. IFRS practices allow their human assets to be amortized and the teams to be revalued when players are traded, released, and so forth.

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• Material offerings include compensation, physical office space, location, commuting subsidies, computer equipment, flexibility, schedules, and perks
• Opportunities to develop and grow comprise all the ways an organization helps employees acquire new skills and become more valuable in the labor market—for instance, by assigning them new roles, putting them through job rotations, offering them training, and promoting them.
• Connection and community are the benefits that come from being part of a larger group. They include being appreciated and valued for who you are, a sense of mutual accountability, and social relationships. Their foundation is an energizing culture that allows people to express themselves candidly and engenders a sense of belonging.
• Meaning and purpose are the organization’s aspirational reasons for existing. They align with employees’ desire to improve local and global society. They’re the answer to the core question of why employees do the work they do.
• the factors are either individual or collective
• Other studies, including our own ongoing work, have highlighted the perils of focusing too much on material offerings.
• Another body of research shows that people tend to prioritize satisfying their short-term individual desires
• Companies also tend to address the factors in sequence: They focus on offering competitive pay to hook recruits and then highlight their development opportunities to retain existing workers. That approach ignores how changes in one factor affect others.
• UNICEF arguably has one of the most compelling and motivating purposes anywhere: to protect the world’s children. Not surprisingly, that mission has long been a primary asset in recruiting and retaining talent. But investigations conducted in 2018 and 2019 revealed that the organization’s mission-related “results at all costs” culture had encouraged bullying and harassment and triggered many departures.

• 1. Assess what your company has and what your employees need.

   

  Start by understanding both the supply and the demand sides of the equation

• 2. Change the conversation.

   

  Once you have data on what your organization is providing and what your employees need, make sure managers and their reports are discussing the employee value proposition in an integrated way.

• 3. Continually update.

   

  Employees’ needs are dynamic and should be reassessed on a regular basis

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