So what is this this scarce resource that’s creating so much alarm? Essentially, it’s a measure of how checked in employees are at work. Gallup finds that only 32 percent of U.S. employees are "involved in, enthusiastic about and committed to their work and workplace.” Using another set of methodologies and parameters, Aon Hewitt finds the number is 63 percent, while PwC calculates that 10 to 15 percent of the workforce is “disconnected.”
That sense of disconnection is a big problem, the consultants say, because it leads to lower output and higher turnover. They’ve got piles of solutions for sale: The “engagement industry,” as it’s sometimes known, purports to help companies tap into dissatisfaction and turn it around by motivating employees to do their best.
Here’s the twist: Part of the problem may have been caused by another consulting fad from a few years ago. The practice of “flattening” organizational hierarchies — a way of improving efficiency by stripping out levels of bureaucracy, cutting costs in the process — has removed from many companies the ability to climb rungs in a corporate ladder, which used to serve as a primary motivation for high performance.
“The biggest driver of disengagement is people feeling like they’re stuck in a job, and there’s nothing for them there,” says Brian Kropp, HR practice leader at the Arlington-based CEB Inc., which surveys employees and corporate leaders annually. “It’s easier to quit your company and find a new job than find a new job within your own company.” If they don’t get a new job elsewhere, they might just stick around, doing just enough to not get fired — a meaningful drag on productivity.
Of course, a lot of things have gone into the broad sense that young people don’t expect to join a firm in their 20s and stay there for life. Pensions have nearly disappeared, lowering the returns to loyalty. The Affordable Care Act, and its guarantee of health insurance coverage, has decreased the risk of striking out on one’s own. Persistent wage stagnation has meant that the best way to get a raise is often by getting an offer from somewhere else. (Although it’s important not to overstate the magnitude of this trend so far; Census Bureau statistics show that median job tenure increased from five years in 1983 to 5.5 years in 2014.)
The disappearance of traditional career paths within a firm, however, may be weakening the incentives to perform well and stick around.
The flattening trend began in the 1980s with the management strategy General Electric CEO Jack Welch, who reinvigorated the company by dramatically simplifying its executive structure. The strategy gained broader adoption when the Boston Consulting Group developed a reform process called “delayering.” That had an effect: In one of the few academic studies of the phenomenon, Harvard researchers in 2012 found that the number of positions between division heads and CEOs declined 25 percent between 1986 and 1999.
According to CEB, delayering accelerated after the Great Recession, as firms laid people off to cut costs. That increased the incidence of management failure, since those who do get promotions make much larger leaps, without the benefit of learning through a progression of incremental steps in responsibility. Now, employees globally cite lack of future career opportunities more than anything else — even compensation — as the driving factor in their decisions to quit.
For their part, the people at Boston Consulting Group who popularized delayering think CEB is giving the strategy a bad rap. If companies don’t succeed, it’s because they went about delayering improperly — just by aiming to decrease payroll, for example.
"The classic one is, 'we need to get 10 percent of the costs out,' without thinking through the strategy of the company, what you need to succeed, what’s the target span of control,” says Boston Consulting Group senior partner Daniel Friedman, who leads the firm's corporate development and post-merger integration practices in North America. “Without any clarity about all those things, you end up with a mishmash of taking heads out left and right, but not really what we’re talking about."
Jeff Hill, Boston Consulting Group's global head of engineering and construction, says that firms with very hierarchical structures often got that way precisely in order to justify paying people more, creating excess administrative bloat. A properly delayered firm knows how to reward good performance without necessarily putting people in charge of larger staffs. (The federal government has a formal way of doing this with the General Schedule system, which sets out a clear progression towards higher ranks.)
“You have to really celebrate, really value, and highly compensate your most effective individual contributors," Hill says. “And you have to have an HR department that understands they need to create great career paths for people who may never be a manager.”
That’s where CEB and Boston Consulting concur: In order to keep people around, the flatter firm needs to reconceptualize a career as a series of experiences, rather than an upward trajectory of ever-fancier job titles. That can mean more training for different roles, and offering new jobs to people inside the company before looking elsewhere.
“Companies have to solve their internal labor market problem,” Kropp says.