2024: The Year That Changes Business Forever (Podcast)
In this podcast I recap 2023 and discuss the big stories for 2024, and to me this year is a tipping point that changes business forever. Why do I say this? Because we’re entering a world of labor shortages, redesign of our companies, and business transformation driven by AI. We’ll look back on 2024 and realize it was a very pivotal year.
(Note: In mid-January we’re going to be publishing our detailed predictions report. This article is an edited transcript of this week’s podcast, so it reads like a conversation.)
Interestingly, the entire year 2023 people were worried about a recession and it didn’t happen. In fact, economically and financially, we had a very strong year. Inflation in the United States and around the world went down. We did have to suffer rising interest rates, and that was a shock, but it was long overdue.
I really think the problem we experienced is we had low interest rates for far too long, encouraging speculative investment. Now that the economy is more rational, consumer demand is high, the business environment is solid, and the stock market is performing well. The Nasdaq is almost at an all time high, the seven super stocks did extremely well: the big tech companies, the big retailers, the oil companies, many of the consumer luxury goods companies did extremely well. And the only companies that didn’t do well were the companies that couldn’t make it through the transformation that’s going on.
On the cultural front we had the Supreme Court overturning affirmative action in education, which led to a political backlash on diversity and inclusion. The woke mind virus by Elon Musk and similar discussions further pushed back DEI programs, which has made chief diversity officers life difficult. We’re living through two wars, which have been very significant for many companies. I know a lot of you have closed down operations in Russia, and anybody doing business in Israel is having a tough time. And we’ve had this continuous period where every piece of data about employee engagement shows that employees are burned out, tired, stressed. They feel that they’re overworked.
Despite this employee sentiment, wages went up by over 5% and people who changed jobs saw raise wages of 8% or more. The unemployment rate is very low so there are a lot of jobs. You could ask yourself, why are people stressed?
I think it’s a continued overhang of the pandemic: the remote work challenges, the complexities and inconsistencies in hybrid work. And something else: the younger part of the workforce, those who are going to be living a lot longer than people who are baby boomers, are basically saying I don’t really want to kill myself just to get ahead. I want to have a life. I want to quietly quit. If my company don’t take care of me, I’m going to work my wage, meaning I’m going to work as hard as I’m paid, no more than that. And that mentality has created an environment for the four-day work week, which I think is coming quicker than you realize. And unions, which are politically in favor, are rising at an all time increase in about 25, 30 years.
Inflation and the need to raise wages to attract talent leads to pay equity problems. This domain is more complex than you think. You can read about it in our research and in 2024 it belongs on your list. 2024 will also see enormous demand for career reinvention, career development, growth programs, coaching, mentorship, allyship and support amongst the younger part of the workforce. And that means that if you’re in retail, healthcare, hospitality, or one of the other industries that hires younger people you have to accommodate this tremendous demand for benefits. These are things that became very clear in 2023.
But let’s talk about the elephant in the room: the biggest thing that happened in 2023 was AI.
AI has transformed the conversations we have about everything from media to publishing to HR technology to recruiting to employee development to employee experience. As you probably know, I’m very high on AI. I think it’s going to have a huge transformational effect on our companies, our jobs, our careers, and our personal lives. AI will improve our health, our ability to learn, the way we consume news (note that the NYT just sued OpenAI and Microsoft for copyright infringement). Almost every part of our life will be transformed by AI.
I know from our conversations that most of you are trying to understand it and see where it fits. And many of you have been told by your CEO, “we need an AI strategy for the company as well as in HR.” And the AI strategy in HR is one thing, but the bigger topic is the rest of the company. So HR is going to have to be a part of this transformation: the new roles, jobs, rewards, and skills we need.
This year I’m very excited that we introduced Galileo™, which about 500 or so of you have been using. We’re going to launch the corporate version for everybody in the corporate membership in February, so corporate members stay tuned (or join). Galileo brings AI to HR in an easy-to-use, safe, and high-value way, so it will help you get your strategy together. It’s basically ready to go. Then later in the year we’ll launch a version to the JBA community and more. AI, despite all the fear-mongering, is already a very positive technology.
Where are we going next? Well as the title of this article states, I think this is the year that changes business forever. And I’m not trying to be hyperbolic, I really see a tipping point. Let me give you the story.
For about a decade I’ve been writing about the flattening of organizations, breaking down of hierarchies, creating what I used to call the networked organization. And this is now mainstream and we’ve decided to call it the Dynamic Organization.
And what we mean by this, as you read about in the Dynamic Organization research or in the Post-Industrial Age study, is that the functional hierarchies of jobs, careers, organizations and companies are being broken down for really good reasons.
The reason we have functional hierarchies, job levels and siloed business functions is because they’re patterned after the industrial age when companies made money by selling products and services at scale. The automobile industry, the oil and gas industry, the manufacturing industries, the CPG industries, even the pharmaceutical companies are essentially building things, bringing them to market, launching them, selling them, and distributing them in a linear chain. And that “scalable industrial business model” is how we designed our organizations.
So we built large organizations for R&D, large organizations for product management and product design and packaging, large organizations for marketing, large organizations for sales, large organizations for business development and distribution, supply chain, and so on (including Finance and HR). And all these ten or fifteen business functions had their own hierarchies. So you, as an employee, worked your way up those hierarchies. When I graduated from college in 1978 as an engineer, I went into one of those hierarchies.
For each employee you were an engineer, a salesperson, a marketing manager, or whatever and you worked your way up the pyramid. And at some point in your career you crossed over and did other things, but that was fairly unusual. That wasn’t really the career path. You worked about 35-40 years in that profession and then you retired.
And a lot of companies had another construct: management and labor. Management decided “what to do” and labor “did it.”
And all of these designs helped us build most of the HR practices we use today, including hiring, pay, performance management, succession, career management, goal setting, leadership development, and on and on. Today, if you look at how the most valued companies in the world, they don’t operate this way any more. Why? Because it slows them down like molasses. If you have to traverse a functional hierarchy to come up with a new idea it takes months or years to create something new.
Today value is created through innovation, time to market, closeness to customers, and unique and high-value offerings. The “hierarchy” wasn’t designed for this at all.
Here are a few dogmas to consider. We used to think that all new ideas come out of R&D. That’s crazy. Of course R&D is important, but some of the most innovative companies in the world don’t even have R&D departments, they have product teams. The Research Department at Microsoft didn’t even invent AI, the company had to partner with OpenAI, a company that has less than a thousand employees.
Here’s another one to consider. Deloitte consultants used to talk about “innovation at the edge,” otherwise known as “skunk works.” We used to advise clients to “separate the new ideas from the scale business” so they new ideas don’t get crushed or ignored. Well today all the new ideas come from the operating businesses, and we iterate in a real-time way. So there’s another industrial organization structure that just no longer applies.
So what we’ve been going through in the dynamic organization, and we’ve studied this in detail, is that we’ve got to design our companies to be flatter. We’ve got to simplify the job titles and descriptions so people can move around. We have to organize people into cross functional teams, we have to motivate and train people to work across the functional silos. We have to build agile working groups, we have to redo performance management around teams and projects, not around individual goals and cascading goals. We need to build pay equity into the system so you’re paid fairly regardless of where you started.
Let’s talk about pay. One of the problems with the hierarchy is you get a raise every year based on your performance appraisal. And after a few years your pay may have been quite a bit different than somebody sitting next to you simply because of your appraisals. But you may not be delivering any more than them. That wasn’t fair.
If you came into the company with a background in marketing, you made less money than somebody who came into the company with a background in engineering. But five years later you might be doing the same stuff but making different amounts of money. And then there’s gender bias, age bias, and other non-performance factors. In a “skills meritocracy,” as we call it, pay equity has to get fixed.
We’ve got to have developmental careers and talent marketplaces and open job opportunities and mentoring for people. And these people practices are the facilitation of becoming more dynamic. And the problem of not being dynamic is what happened at Salesforce, Meta, and other tech companies last year. Salesforce hired thousands of salespeople during the last upcycle after the pandemic, and then a year later laid most of them off. Meta did the same thing. Google’s probably next.
These companies, operating in the industrial mindset, thought that the only way to grow is to hire more salespeople, more engineers, or more marketing folks. But the quantity of people in one of these business functions doesn’t necessarily drive growth and profitability. What matters is how they work together and what they do, not how many of them there are.
This old idea that we’re going to grow the company by hiring, hiring, hiring is gone. It doesn’t work anymore. It’s still a part of the growth part of the company, you’re always hiring to replace people, to bring new skills, et cetera, and to bring new perspectives. But in a dynamic organization, a lot of the growth comes from within. People grow too.
Even the word growth mindset has become overused. We need to have an organizational growth mindset so that we can grow as an organization. A great example of this is Intel. Intel lost their way in the manufacturing of semiconductors and also in the R&D. Now they’re reinventing themselves internally and their stock is skyrocketing. They didn’t hire some guru to tell them what to do, they know what to do. They just need to get around to doing it.
Google has more AI engineers than OpenAI, Anthropic, and all the other little guys put together, but they didn’t execute well. Now they’re executing better. They brought their AI teams together into cross-functional groups and they’re sharing IP from YouTube with other business areas. I bet they stomp many of the others in AI once they get it going. That’s part of being a dynamic organization.
You as HR people know better than anybody how dysfunctional it is when there are multiple groups in the company doing competing things and they’re not working together because they don’t know about each other, or they don’t talk to each other. There’s no cross fertilization or they’re protecting their turf. All of these are the things that get in the way of being a dynamic organization.
And the reason it’s relevant in the next year is this has taken hold. Things like talent marketplaces and career pathways and skills-based organizations, skills based hiring, skills based pay, skills based careers, skills based development, et cetera… these are not just HR fads, they’re solutions to this big shift: making companies more dynamic. Despite their value in the past, hierarchical stove-piped companies don’t operate very well anymore.
Now this isn’t an A-B switch type of thing. This is an evolution, but it’s taking place very quickly. And the reason we came up with this concept of Systemic HR is we in HR have to do the same thing. The HR function itself operates in silos. We’ve got the recruiting group, the DEI group, the Comp group, the L&D group, the business partners, the group that does compliance, the group that worries about wellbeing. We’ve got somebody over here is doing an EX project, somebody over there is doing a data management project, a people analytics group.
Okay. Those are all great functional areas that belong in HR. But if they’re not working together on the problems that the company has, and I mean the big problems, growth, profitability, productivity, M&A, etc., then who cares? Then you’re at level one or level two in systemic HR. We built the Systemic HR initiative around business problems. And that’s how we came up with the new HR operating model (read more details here or view the video overview).
I think Systemic HR will be a very big deal for 2024, and there are many reasons. Not only are we living in a labor shortage but there’s another accelerant, and that is AI. For those of you that have used Galileo, and I hope you all get a chance to use it this year, it’s absolutely unbelievable how AI can pull together information, data, text from many sources in the company and make sense of what your company is doing.
You know as well as I do, if you’ve worked in sales, if you’ve worked in marketing, if you worked in finance, these are siloed groups. Few companies have a truly integrated data management system for all of their customer data match to their sales, data match to their revenue, data match to their marketing. Customer data platforms are a idea, but it doesn’t really happen very often, and it takes tens to hundreds of millions of dollars and many, many systems to do that. Well, AI does this almost automatically.
So when you pull together a tool like Galileo, and you use our research as part of the corpus, and you add data about employee turnover, for example, in your company, or pay variations, you’ll see the relationship between pay and turnover just by asking a question. You don’t have to go spend months doing an analysis and trying to figure out if the analysis is any good. And that’s happening all over the company in sales and customer service and R&D and marketing – everywhere.
So this more integrated, dynamic organization is happening before your eyes. In 2024, this is the context for almost everything we’re going to be working on now.
The other context is the labor market, which is going to be very tough. You’ve read about from us and others about how tight the labor market is now. Unemployment in the United States is 3.8%, and it’s not going to get much better. Even if we do have a recession, which is questionable, there aren’t enough people to hire. The fertility rate is low, and even if every company gives employees fertility benefits and they all have babies, it will take twenty years for these people to go to work. So all of the developed countries: US, UK, Canada, Germany, Japan, the Nordics, China, Russia, the fertility rate has been low for a long time. The World Bank sees working population shrinking within ten years in almost every developed economy.
Since hiring is going to get harder and we’ll see fewer and fewer working people, companies have to be much more integrated in hiring. And we all have to look the Four R’s: Recruit, Retain, Reskill, Redesign. This puts HR in the middle of a lot of job redesign, career reinvention, and a serious look at developing skills, not hiring skills, and using the tools we have as hr professionals to help the organization improve productivity without just hiring and hiring and hiring.
I measure the success of companies by two things. One is their endurance: how well have they fared over ups and downs? The second is their revenue per employee. Companies with low revenues per employee tend to be poorly managed companies relative to their peers. Of course there’s a lot of industry differences.
When we went through our GWI industry work: healthcare, consumer goods, pharma, banking, we could see the high performing companies were very efficient on a headcount basis. And we found out these companies are actually implementing Systemic HR practices.
The other driver that we’re living in a service economy. Interestingly enough, in the United States, more than 70% of our GDP is now services. So the people you have, the humans in your company, are the product. And if you’re not getting good output per dollar of revenue per human, you’re not running the company very well.
And this leads to many management topics.
- How are we going to build early and mid-level leaders?
- How can we rethink what employees really need? The topics of employee engagement and employee experience are really 25 to 30 years old. They need a massive update.
- How are we going to implement AI in L&D and replace a lot of these old systems that everybody kind of hates, but we’re stuck with?
- What’s going on with the ERP vendors and what role will they play as we replace our HR tech with AI powered systems?
- How will we implement scalable talent intelligence? In a world of labor shortages talent intelligence becomes even more important, whether you think of it for sourcing and recruiting or an internal mobility or just a strategic planning initiative.
- How do we all get comfortable with AI?
And then there’s this issue of Systemic HR and developing your team, your function, your operating model to be more adaptive and more dynamic.
So I look back on 2023 I feel it was one of the most fascinating and fun and enriching years that I’ve had. I am always amazed and impressed and energized by you, by you guys who were out there on the firing lines, dealing with these complex issues and companies with old technologies and all sorts of changes going on and how you’re adapting. I continue to be more impressed and more excited about the HR profession every year. I think a lot of people who aren’t in HR think we do a lot of compliance and administration stuff and we fire people. That is the tiniest part of what we do.
2024 is going to be an important year. You as an HR professional are going to have to learn a lot of things. You’re going to learn about Systemic HR issues, you’re going to learn about AI, and you’re going to learn to be a consultant.
There’s no question in my mind that over the next decade or two dynamic organization management is going to become a bigger and bigger issue – how we manage people and companies. And I don’t mean manage like supervise, I mean develop, move, retain, pay, et cetera, culture, all of those things.
I leave 2023 very energized about what’s to come with AI. And if you’re afraid of AI, just take a deep breath and relax. It’s not going to bite you. There’s nothing evil here. It’s a data driven system. If you don’t have your data act together, you’re not going to get a lot of good value out of AI.
I talked to Donna Morris at Walmart last week; I talked to Nickle LaMoreaux at IBM; and I talked with the senior HR leaders at Microsoft. They’re all seeing huge returns on investment from the early implementations, and seeing hundreds of use cases. We’re going to have a lot of new tools and lots of vendor shakeout. (Check out what SAP is up to and where Workday is going.)
Stay tuned for our big Predictions report coming out in mid January. That report is my chance to give you some deep perspectives on where I think things are going, recap things that have happened over the last couple of years, and give you some perspectives for the year ahead.
As always we would be more than happy to walk through these things with your team.
I hope you have a really nice holiday season and you take a deep breath.
The world is never perfect. It’s never been perfect. It wasn’t perfect in the past. It won’t be perfect in the future.
But the environment you live in and the environment that you create can be enriching, enjoyable, productive, and healthy, and fun if you decide. And I think we all have the opportunity to make those decisions.
It has been a pleasure and an honor for me to serve and work with you this last year, and I’m really looking forward to an amazing 2024 together.
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