EMPLOYEE EXPERIENCE: ENABLING YOUR FUTURE WORKFORCE STRATEGY Kristine Dery,Research Scientist Nick Van Der Meulen, Research Scientist Ina M

RESEARCH BRIEFING | VOLUME XVIII, NUMBER 9, SEPTEMBER 2018

EMPLOYEE EXPERIENCE: ENABLING YOUR FUTURE WORKFORCE STRATEGY Kristine Dery,Research Scientist Nick van der Meulen, Research Scientist Ina M. Sebastian,Research Scientist MIT Sloan Center for Information Systems Research (CISR)

Large, traditional companies are facing a perfect storm: respondents indicated drawing on both sources to varying People with the skills and capabilities required to develop degrees. In the IT unit—where respondents indicated that and execute a digital strategy—whom we refer to as digital the challenges in attracting and retaining digital talent are talent—are urgently needed, yet in short supply. In this brief- acute—we found that the majority of digital talent (60% on ing, we share ways that companies typically approach the average) is sourced externally. Yet while primarily drawing challenges of attracting, enabling, and retaining digital talent. on the marketplace may help to plug temporary skills gaps MIT CISR research has found that companies that invest in and provide rapid access to talent, we found that business building a great employee experience1 are able to attract outcomes generally suffer as a result: Companies with an more digital talent as full-time equivalents (FTE)2 and better external talent focus—those that fill at least 50% of their IT enable these people to do their best work, thereby realizing workforce needs with talent from the marketplace—have significantly enhanced business value. lower net profit margins, are slower to bring new products and services to market, are restricted in their ability to FINDING THE RIGHT TALENT SOURCING MIX change, and are less innovative (see figure 1). The alterna- In response to the shortage in digital talent, companies tive—recruiting and developing more digital talent on an typically attract and develop internal (FTE) talent while also FTE basis—is very hard for companies to pull off in a highly competitive labor market. BUILDING A GREAT EMPLOYEE EXPERIENCE Companies that invest in designing an TO ENABLE DIGITAL TALENT TO THRIVE employee experience are able to attract more Our research revealed that companies investing in a great digital talent as FTE and better enable these employee experience4 become more attractive to digital people to do their best work, thereby realizing talent. As a result, these companies not only have more significantly enhanced business value. choice in the talent with which they can engage, but also in how to do so (as FTE or via the marketplace). Figure 2 depicts drawing on the external talent marketplace (consisting of our measure of employee experience (EX), which consists of freelancers, contractors, and gig workers) to fill skill gaps, two components: (1) how well the workplace adapts to the build project teams quickly, and access new ideas. In an MIT needs of workers (i.e., the adaptive work environment), and CISR study of approximately 300 companies,3 94 percent of (2) how natural it is for employees to leverage the collective intelligence of the company (i.e., the collective work hab- 1 We define employee experience as the extent to which employees of an its). Companies with a great EX enable their employees to organization are enabled or constrained by its adaptive work environment do their best work, resulting in better business outcomes. and collective work habits to do their jobs today and reimagine their jobs of tomorrow. Ultimately, creating a workplace where digital employees are 2 Full-time equivalent, or FTE, is used here to describe anyone within the able to thrive is critical to building competitive advantage in organization who is considered an internal employee, as opposed to the digital world. those in more contingent work arrangements such as a freelancer, con- tractor, or gig worker. 3 This briefing is based on interviews with senior executives in twenty-eight large companies and on a subset of respondents to the MIT CISR 2017 Pathways to Digital Business Transformation survey (N=413)—specifically, 4 For more information on how to create a great employee experience, see those 279 respondents who provided data on their digital talent and K. Dery and I. M. Sebastian, “Building Business Value with Employee Expe- employee experience. rience,” MIT Sloan CISR Research Briefing, Vol. XVII, No. 6, June 2017.

© 2018 MIT Sloan Center for Information Systems Research, Dery, Van der Meulen, and Sebastian. MIT CISR Research Briefings are published monthly to update the center's patrons and sponsors on current research projects. 2 | MIT CISR Research Briefing, Vol. XVIII, No. 9, September 2018

Figure 1: Four Approaches to Engaging with Digital Talent

Source: MIT CISR 2017 Path- ways to Digital Business Trans- formation survey (N=279). Companies in the top 25% on the Employee Experience (EX) measure classify as High, with an average EX score of 70/100; companies in the bottom 75% classify as Low, with an average EX score of 38/100. Talent focus is classified as External for those companies with less than 50% of talent employed on an FTE basis, and Internal for those with greater than 50% of talent employed on an FTE basis. The percentage in parentheses in each quadrant indicates the percentage of our study participants in that quadrant.

• Employee experience is calculated based on a mean score for six adaptive work environment and five collective work habits questions that were measured on a 5-point scale and converted to a 0–100 score. The adaptive work environment questions cover the extent to which the work environment (1) connects people and ideas, (2) integrates activities and systems, and (3) governs with clarity and transparency. The collective work habits questions- as sess the extent to which employees are naturally (1) collaborative across siloes and hierarchies, (2) innovative concerning work and customer initiatives, and (3) empowered to make choices about work. • Net Margin is industry-adjusted; values are percentage points above or below industry averages. • Time to Market (for new product or service offerings) and Ability to Change are relative to competitors in the industry and reported as scores ranging from -100 to +100, where -100 indicates “significantly worse than competitors,” 0 indicates “about the same as competitors,” and 100 indicates “significantly better than competitors.” • Innovation represents the percentage of revenues from new products and services introduced in the last three years.

RETHINKING TALENT APPROACHES capabilities, or developing workforce flexibility to respond to FOR BUSINESS VALUE unpredictable work needs) without building a great employee experience. Companies taking the separated approach In figure 1, we illustrate four approaches to engaging with discover that extracting longer-term business value from a digital talent, based on choices across two dimensions. The transient workforce is hard if the employee experience does first dimension differentiates companies with an external not support people in working effectively together, sharing (i.e., marketplace) focus from those with an internal focus, knowledge, and working across organizational silos. Addi- depending on the percentage of digital talent within the IT tionally, our research interviews revealed that external talent unit that the company employs as FTE. The second dimen- in these companies typically faces a very different employ- sion depicts the employee experience delivered by the com- ee experience than internal talent, as evidenced through pany, distinguishing those companies in our study scoring differences in systems and training access, procedures, the in the top 25% on our measure of EX from the remaining ability to contribute to social networks, search capabilities, participants. The four approaches direct how digital talent knowledge sharing, and other capabilities that are critical for contributes to a company’s digital strategy, which has signifi- employees to do their best work. Freelancers and contractors cant impact on business outcomes. are often bound to verticals and/or restricted to project-spe- Separated cific information and experiences. This, in effect, creates two separate workforces with different motivations and levels of The separated approach entails relying heavily on the commitment to the company, harming business outcomes. marketplace to plug talent gaps (such as supplementing MIT CISR Research Briefing, Vol. XVIII, No. 9, September 2018 |3

Figure 2: Two Components of Employee Experience hard to tell which talent is FTE and which externally sourced. While they maintain a core of FTE (in our study typically employing 21% of digital talent as FTE), these companies also develop partnerships with vendors, foster relationships with talent networks, and invest in talent recruitment platforms to enhance their workforce. Integrated companies are constant- ly iterating to design workplaces that deliver value for their entire workforce—regardless of workers’ relationship to the organization. Digital capabilities that truly span organizational boundaries, however, remain a challenge for many such companies. While integrated companies in our research were doing markedly better than those following the separated approach—especially in terms of time to market and the company’s ability to change—it should be noted that an integrated approach can still be quite costly, with negative average net margins when compared to direct competitors.

Enabled Companies following an enabled approach generate the best business outcomes—on all four of our performance measures. These companies have built an employee experience that enables them to compete effectively with digitally born companies, and choose to employ the majority of their digital talent as FTE. Enabled companies are committed to investing MIT CISR's measure of employee experience (EX) consists of two components: (1) the adaptive work environment or how well the workplace adapts in their digital talent, and clearly articulate the need for their to the needs of workers; and (2) the collective work habits, or how natural it people to be FTE. By building a great experience for their em- is for employees to leverage the collective intelligence of the company. ployees, these companies are also able to make very deliber- ate decisions about the use of external talent. Such decisions Constrained tend to be less about supplementing existing teams with the Companies taking the constrained approach typically capi- same capabilities and much more about adding new skills and talize on a less competitive market for digital talent. Talent perspectives to enhance creativity for specified projects. has fewer options for employment based on the geographic FOCUSING ON EMPLOYEE EXPERIENCE location of the company, government regulations restrict TO BUILD VALUE FROM DIGITAL TALENT employment options, and market conditions are less competitive, all allowing these companies to maintain a primarily Despite the opportunities enabled by digital platforms to FTE workforce. But these conditions do not incentivize a increase the use of external talent, our research shows that a focus on great employee experience, and allow constrained greater focus on sourcing digital talent as FTE yields signifi- companies to maintain an employee experience based on an cant improvements on all measures of performance. This is outdated work environment and habits—those designed to particularly evident when we examine attributes among the be effective in a command and control organization and not most critical in the digital world: ability to change (a measure supportive of new ways of working. While they realize slight- of organizational agility) and innovation. If difficulty in com- ly better business outcomes than companies that follow a peting for digital talent is forcing your company to engage separated approach, constrained companies limit their digital increasingly with the external talent marketplace, we suggest talent in delivering business value, and the impact is evident that you invest in building a great employee experience. across all dimensions. Ultimately, this will not only enable your workforce of today, but it will also help you to attract top talent as FTE and serve Integrated as the key to a long-term workforce strategy for digital. Companies succeeding with the integrated approach typically describe themselves as having a workforce where it is MIT SLOAN CENTER FOR INFORMATION SYSTEMS RESEARCH Founded in 1974 and grounded in the MIT tradition of rigorous field-based research, MIT CISR helps executives meet the challenge of leading dynamic, global, and information-intensive organizations. We provide the CIO and other digital leaders with insights on topics such as business complexity, data monetization, and the digital workplace. Through research, teaching, and events, the center stimulates interaction among scholars, students, and practitioners. More than ninety firms sponsor our work and participate in our consortium.

CISR RESEARCH PATRONS BMW Group Insurance Australia Group QBE AlixPartners LLP BNP Paribas (France) Iron Mountain Raytheon Company Avanade BNY Mellon Johnson & Johnson Reserve Bank of Australia BT The Boston Consulting LKK Health Products Group Royal Bank of Canada Group, Inc. Ltd. (HK, China) Scentre Group (Australia) Huawei Technologies Co., Canadian Imperial Bank of Marathon Oil Corp. Ltd. (China) Schindler Digital Business AG Commerce Markel Corporation (Switzerland) ISACA Caterpillar, Inc. Mars, Incorporated Schneider Electric Industries LTI (India) CEMEX (Mexico) Monsanto SAS (France) 2018 as of September Information Microsoft Corporation Chevron Corporation National Australia Bank Ltd. Standard Bank Group (South Africa) PricewaterhouseCoopers CHRISTUS Health National Disability Insurance Advisory Services LLC Cochlear Limited (Australia) Scheme (Australia) State Street Corp. Suncorp Group (Australia) CISR SPONSORS Commonwealth New Zealand Government— Superannuation Corp. GCIO Office Swinburne University Aetna, Inc. CPPIB (Canada) Nielsen of Technology (Australia) Air Canada CSBS Nomura Holdings, Inc. (Japan) TD Bank, N.A. Allstate Insurance Company DBS Bank Ltd. (Singapore) Nomura Research Institute, Teck Resources Ltd. (Canada) ANZ Banking Group Ltd. Ltd. (Japan) Tenet Health (Australia) Equifax Nordea Bank Tetra Pak (Sweden) Australia Post ExxonMobil Global Services Company Northwestern Mutual Trinity Health Australian Securities and Investments Commission Fairfax Media (Australia) OCP S.A. USAA Australian Taxation Office Ferrovial Corporacion, S.A. Org. for Economic Westpac Banking Corp. (Spain) Co-operation and (Australia) AustralianSuper Fidelity Investments Development (OECD) WestRock Company Banco Bradesco S.A. (Brazil) FrieslandCampina Origin Energy (Australia) World Bank Banco do Brasil S.A. General Electric Owens Corning Bank of Queensland PepsiCo Inc. (Australia) Genworth Financial GlaxoSmithKline (UK) Pioneer Natural Resources Barclays (UK) USA Inc. The Hanover Insurance Group BBVA (Spain) Posten Norge AS Bemis Company, Inc. Heineken International B.V. (The Netherlands) Principal Financial Group Biogen, Inc. Procter & Gamble

MIT CISR is funded by Research Patrons and Sponsors, and we gratefully acknowledge their financial support and their many contributions to our work. Sponsorship and benefits:cisr.mit.edu/community/sponsor-and-patron-benefits Stay on top of all new releases of MIT CISR content: cisr.mit.edu/feeds

MIT Sloan School of Management Team | Kristine Dery, Christine G. Foglia Associate Director, Center for Information Systems Research Nils O. Fonstad, Amber Franey, Dorothea Gray-Papastathis, Cheryl A. Miller, Leslie Owens Executive Director, 245 First Street, E94-15th Floor Joe Peppard, Jeanne W. Ross, Ina M. Sebastian, Aman Shah, Cambridge, MA 02142 Nick van der Meulen, Peter Weill Chairman, t 617-253-2348 | e [email protected] Barbara H. Wixom, Stephanie L. Woerner

cisr.mit.edu |