The Future of Organizational Practices: Four Forecasts for 2025

flickr_Tony Frantz

There are a wide variety of visions for how work and the workplace will change in coming decades. Some focus on technology — e.g., on how new devices or big data will change workers’ lives — while others analyze the way in which Millennials and other generations will mix to create the workforce of the future. One area often left out of the conversation is how changes underway in organizational culture will help transform work.

Edgar Schein, MIT professor and thought leader in the study of organizational culture, is quoted as saying, “The only thing of real importance that leaders do is to create and manage culture.” Organizational culture includes the collective values, norms, visions, language, beliefs, and habits that characterize an organization.

If an organization is to thrive in 2025, leaders will need to recognize and embrace organizational practices that are emerging today. They will need to create new cultures for the future, using the many new tools available now, such as data analysis, social media, and experimental trials of new HR practices and policies.

This brief presents four forecasts designed to illuminate how organizational culture and practices could plausibly look in 2025.

  • Successful organizations will address occupational stress.
  • Motivation will be both more important and more customized.
  • Women will be a tremendous force for change.
  • Annual performance appraisals will be abandoned.

3 KEY FINDINGS

  • Workplace analytics are providing valuable insight about what motivates employees and how to engage them in the job.
  • Many HR practices are relicts of past workplace trends and values and are in need of updates to meet today’s and future needs.
  • Women may be better attuned than men to today’s workplace challenges.

SUCCESSFUL ORGANIZATIONS WILL ADDRESS OCCUPATIONAL STRESS

Over the next decade, world-class organizations will focus more on reducing workplace stress as they seek to excel in a highly competitive global economy. Already, organizations are becoming aware of the high toll stress takes on employee performance — and on organizational outcomes and profitability. For example:

  • Most Americans are stressed at work. Some 83 percent of Americans who participated in a 2013 survey reported being stressed by at least one thing at work, a 10 percent increase from the same survey a year earlier.
  • Stress costs hundreds of billions of dollars. The World Health Organization (WHO) estimates that stress costs American businesses $300 billion a year. Stress is the leading cause of long-term sickness and absences for both manual and professional labor.
  • Pressure and workload dominate. The American Institute of Stress identified job pressure as the number-one cause of stress in the US in 2013. Led by workload (46%), the factors also included people issues, work-life balance, and job security. Money, the number-two reason for stress after job pressure, also included job-related issues such as loss of job and concern about adequately funding retirement.

MOTIVATION WILL BE MORE IMPORTANT AND MORE DIFFICULT

Organizations in every industry are becoming more aware that a skilled, motivated workforce is the distinguishing characteristic of success. In knowledge-based organizations, imagination and innovation are required to stay ahead. Service industries thrive or fail on individual client interactions, amplified quickly on social media, while manufacturing requires constant adjustments to optimize processes, materials, and “silicon co-workers.”

And the data bears out that motivation matters. Organizations with motivated employees — i.e., with an average of 9.3 engaged employees for every disengaged employee — reported 147% higher earnings than their competition (based on 2010–2011 numbers).

However, a 2013 Gallup Poll of the American workplace highlighted that just 30 percent of employees report being engaged at work, while 52 percent say they are present but not fully engaged, and 18 percent say they are actively disengaged. This suggests organizations still need to find novel ways to motivate and incentivize workers, partners, and other key stakeholders.

Motivation is a difficult topic because its sources are very individualized, but there are some general perspectives worth understanding. Going forward, organizations will need to rethink motivation and not default to what has worked in the past.

WOMEN WILL CHANGE ORGANIZATIONAL CULTURE

Women’s role in business and their influence on organizations of all types will intensify in coming years. In turn, women will change organizational culture. This will be driven by a variety of factors.

  • Women are attuned to today’s challenges. A number of studies from IBM, McKinsey, Accenture, and others highlight that for organizations to thrive in the future they will need to handle complexity, co-create with customers, create operating dexterity, and build effective and open relationships — and that women are more likely to excel in many of these skills. For example, Lise Eliot, a neuroscientist and author of Pink Brain, Blue Brain, has written that “Females of all ages outperform males on tests requiring the recognition of emotion or relationships among other people. Sex differences in empathy emerge in infancy and persist throughout development. The early appearance of any sex difference suggests it is innately programmed — selected for through evolution and fixed into our behavioral development through either prenatal hormone exposure or early gene expression differences.”
  • Education and organizational role. Women continue to move into positions of power, and the proportion of women receiving advanced degrees indicates that women will have more presence in organizations long into the future. In the US, women now earn 60 percent of master’s degrees and, in 2010, their share of doctoral degrees surpassed 50 percent.
  • Female inventors on the rise. The number of patents and trademarks granted to women has grown significantly over the last couple of decades. Patents awarded to women have doubled since 1990.

PERFORMANCE APPRAISALS WILL DISAPPEAR

Different stories credit the origins of yearly performance reviews with 1930s Western Electric factory work, Frederick Winslow Taylor’s time and motion studies, or the merit ratings adopted during the Second World War. Although the yearly performance review and merit raise are relicts of a very different period of work and employee expectations, they persist. The Wharton School of Business noted in 2011 that 97.2 percent of US companies and 91 percent of companies worldwide have performance appraisals.

The annual performance appraisal system will likely undergo significant changes — or may be totally done away with — by 2025.

  • No one is happy with the process. The Corporate Executive Board found that only 23 percent of HR professionals are satisfied with the organization’s performance evaluation process. And 85 percent either have made changes in the past year or expect to do so in the next year. Only 2 percent of those in HR think the reviews accomplish anything. And a national survey conducted by People IQ found that 87 percent of employees and managers claimed performance reviews are “neither useful nor effective.”
  • Appraisals are not accurate. The Corporate Executive Board’s research found the annual performance evaluation very inaccurate. “Two-thirds of employees who receive the highest scores in a typical performance-management system are not actually the organization’s highest performers.” Raters aren’t good at rating and can introduce a range of errors.
  • Appraisals don’t meet their objectives. The goal of an appraisal-based management system is to improve the overall productivity of an organization and quality of the work produced by an organization. It attempts to do this by providing feedback and guidance to workers and creating the basis for merit pay increases. Yet a survey of the literature finds no correlation between organizational effectiveness and performance reviews. Furthermore, this same research finds that workers generally don’t listen to performance coaching even when they realize that their pay is dependent on it.

3 BUSINESS IMPLICATIONS

  • Effective leadership will be data-driven. Data and data analytics are growing more and more important for leaders and managers. They will be used across the entire range of organizational functions — and increasingly be used to help manage people, e.g., to understand what is and what is not working in regard to workers, and how best to optimize worker performance. Google is shifting to data-based people-management in an initiative that could broadly reinvent HR: running applied experiments to determine the most effective management practices (such as rewards); developing predictive retention and effective hiring; and even calculating the financial value of its top performers.
  • Top talent will choose engagement. As described above, studies show that employees are most motivated when they are engaged and believe that their work matters to co-workers and customers. Southwest Airlines, which has a reputation for fun and savvy branding, likes to communicate noteworthy stories about its employees. REI uses social media to create online “company campfires.” Engagement is about social connection, and organizations need to use different communication forms to create the stories, messages, and culture that resonate with their particular workforce.
  • Personalize, personalize, personalize. Motivation is most effective when it’s personalized to the individual. Employees are motivated and encouraged by many different things, and organizations should explore ways to tailor recruitment, work assignments, rewards, benefits, training, and other elements of the work experience to individual employees. For example, Ernst & Young, consistently ranked as one of the top companies to work for, offers coaching programs for new parents. Deloitte has a tuition reimbursement program that offers employees up to $10,000 annually.