Techniques for Managing a Workforce of One: Segmentation -- Full Text

By Susan Cantrell and Nicole Di Paolo Foster

Research Note

Issue 4—January 2007

Institute For High Performance Business
In the workplace, not every employee performs equally well or creates an equal amount of value for the organization. Yet for the most part, human capital management practices continue to treat employees much as they did in the industrial era – like cogs in a machine, as if everyone were interchangeable and everyone were the same. In today’s knowledge economy, an increasingly diverse and independent- minded set of employees drive a large portion of a company’s value. Clearly, organizations need a new approach to human capital management if they are to achieve high performance. Instead of managing its workforce as a single homogenous entity, an organization needs to manage it as a “workforce of one” by tailoring human capital management practices and policies to suit the needs of each and every employee.

This research note is one in a series of research notes that explores how an organization can achieve high performance by managing its workforce as a workforce of one. We have identified four particular techniques an organization can use to tailor human capital management practices and policies to individual employees. (See Figure 1, “Overview of Workforce-of-one Techniques.”) In this research note, we will explore the technique of segmentation.

What is Segmentation?
One way to tailor human capital management is to borrow a practice common in marketing: segmentation; that is, grouping people together based on commonalities. Grouping customers according to shared characteristics allows an organization’s marketing team to target them with tailored offerings – and that is just what the human resources function can do for the organization’s employees. Leading companies such as Procter & Gamble are now using their marketing expertise to improve human capital management. The company has developed tailored, targeted recruiting messages to be delivered when potential employee segments are most receptive. It targets MBA candidates, for example, at times like Christmas vacation when students are less busy with academic work and starting to think about the January intern season.

Segmentation breaks down the monolithic conception of a workforce into more granular, meaningful parts. Any meaningful categorization scheme may be employed; classification may be based on generation, geography, work type, temperament or learning style, or any other germane factor. The workforce of one does not advocate segmenting for the sake of segmenting, however; executives need to have thought carefully about how any segmentation scheme they adopt will make it possible to offer employees variations in human capital management practices, programs and policies that will serve the employees better.

Types of Segmentation Schemes
Let us now examine some different types of segmentation schemes organizations may employ – including those based on value, role or workforce, generation, personality and geography

Value-based segmentation. In recent years, it has become popular to segment employees based on either their current or perceived future value to the organization or based on their performance. Proponents of this human capital strategy argue that just as organizational investments, product lines, functions and strategies are not all of equal importance to the organization, not all employees are of equal value. That being the case, not all employees warrant the same level of investment or resources. As John Boudreau, an advocate of this approach, explains, the marketing function would never advocate a strategy to “provide 40 hours of advertising for every product,” yet many human capital management programs will do the equivalent for employees, promising “40 hours of quality training to all employees,” regardless of the level of impact a trained employee is likely to have on an organization’s bottom line.

Many companies (GE is one example3) use a forced ranking system to segment employees based on performance, placing employees into A, B and C tiers; these companies then offer different reward structures and development opportunities for each. The system is usually designed to recognize and motivate top performers while simultaneously either weeding out or stimulating improvement in weak performers. Many companies segment employees they believe will be valuable in the future and offer them differentiated treatment to ensure they develop to their full potential. At Campbell Soup, for example, only high-potential and promotable employees are given access to certain human capital management programs such as mentoring, and only the highest-performing employees can be nominated to participate in a selective two-year leadership development program led by CEO Doug Conant.

Other organizations segment based on roles deemed most critical to the organization.⁴ Many have recently argued for this approach; one of the authors of this research note has long argued that the employees that are most important to an organization’s success – its high-end knowledge workers – should be afforded more opportunities to further improve their performance.⁵ At the advertising company TBWA\Chiat\Day, for example, the artists and writers deemed to be most critical to company performance have, among other things, different reward systems are rewarded based on intellectual contribution, not just bottom-line results, and their work spaces are customized to accommodate their needs (for example, an artist and a writer working on the same project will share an office to enhance collaborative creativity rather than being assigned to cubicles, as is otherwise the norm). Likewise, at IBM, more rigorous performance appraisal and development systems are used for employees in the most critical job roles, or “A positions.”⁶ A variation of this approach is to identify employees whose expertise is crucial and in short supply; many companies now pay premiums and offer other advantages to such employees.

Role or workforce-based segmentation. Companies may also segment employees based on their role or place in the organizational structure. New technologies such as work space portals provide employees with customized information based on their job-related needs. At the pharmaceutical company Eli Lilly, for example, Web-based succession tools with information customized for each job are in use.

In addition, many companies provide differentiated rewards and development and learning opportunities based on the unique needs of their workforces. The global software company SAP, for example, has distinct hiring and rewards practices for its services delivery workforce. The delivery organization uses a team assessment methodology for hiring that includes a “total rewards” overview and initial role screen, managerial/ organizational screen, functional-product reviews and a consulting skills interview.

Accenture also makes use of role-based segmentation. Whereas the company used to have one approach to human capital management for all employees, its entry into the outsourcing business prompted it to vary its human capital practices depending on whether it was dealing with its consulting, outsourcing, or corporate function employees. Those workforces now have different career strategies (for example, employees in the consulting workforce are on an “up or out” model, whereas employees in the corporate workforce are not) and reward structures. Accenture recommends the practice of segmenting employees by role to its clients as well; the company has developed specialized offerings to help companies improve the performance of specific workforces such as call center employees or information technology professionals.

Generation-based segmentation. A less commonly used segmentation scheme is generation-based segmentation. Research reveals that employees of the same generation share similar values and orientations toward work.⁹ For example, it is commonly recognized that those born between 1945 and 1964 tend to be more oriented toward climbing a career ladder and motivated by visible symbols of success than those born between 1965 and 1977, who tend to favor a more balanced lifestyle and who tend to think of career development in terms of a web rather than a ladder.

Accordingly, many organizations, including the Campbell Soup Company, are now contemplating how to tailor human capital management practices to different generations. Nancy Reardon, the chief human resources officer at the Campbell Soup Company, notes, “We’ve long segmented potential employees based on generation-based preferences to help with our recruiting efforts. For example, if a person is graduating from college and looking for the best job, we know people of this age may value an ethical employer with a warm, team-oriented work environment over an employer with the best financial remuneration. We’ll target them accordingly. Now we’re taking this notion beyond recruiting and exploring how to build work environments that appeal to each generation. Our goal is to make our employee value proposition more customizable.” To further this goal, the company has been working with Institute for the Future on further defining generation-based differences and has started to experiment with offering reduced work hours, telecommuting and other flexible work arrangements to those nearing retirement age.

Personality-based segmentation. A workforce can also be segmented based on individual temperament or personality characteristics. By some estimates, at least 2,500 US companies now assess their employees on personality-based characteristics.¹⁰ Nationwide Financial has identified four types of prospective leaders, each with unique challenges and opportunities. The company has established specific year-long development programs for each type that include coaching, mentoring, observing others, hands-on management experience, training classes and regular feedback sessions. In the process of working with the four types of managers, Nationwide has reported, “We believe that had we not developed a tailored approach, we would be setting up our managers for failure. While one type of person responds very well to one form of ‘treatment,’ the same approach backfires with someone else.

Line managers we interviewed regarding how organizations can best maximize the performance of their people repeatedly mentioned the helpfulness of personality-based segmentation schemes such as the Myers-Briggs Type Indicator.¹² Tom Hennigan, chief operating officer of Swiss Army Brands, for example, reports, “I think the program that had the most positive impact on employee performance was a program that trained managers to recognize that there are different [behavioral and learning] styles and to adapt their management styles to them. If you are analytical, then sometimes you need to reorient your communication and management approach to fit someone who isn’t analytical, for example. This also helps managers match people with the right roles.”

Segmentation by personality can also be used to refine job descriptions. A leader of a research and development group at the network test equipment maker Acterna, for example, created separate roles for each engineer to leverage the personality-based strengths of each one. Some engineers are “parachutists” (experts who drop into projects for a short time to help with a particular issue), some are “ambassadors” (engineers who represent the work of the firm to the outside world), and others perform heads-down, concentrated work on one project at a time. In addition to helping managers tailor the type of work to the individual, personality-based segmentation can also be used to identify learning styles and preferences, so that learning programs can be tailored accordingly.

Geographic-based segmentation. In a global economy, many organizations are finding that they need human capital management strategies that are tailored based on geography to accommodate labor market differences or distinct behavioral or educational differences and approaches toward work. Eli Lilly’s operations in Japan overcame the hiring difficulties it faced (many Japanese prefer the generous benefits and more stable employment of Japanese firms) by tailored its recruiting strategy to target Japanese women, whose employment opportunities are more limited in the male-dominated culture of Japanese firms.¹³ Likewise, one global company in our study varies the types of training it offers in different parts of the world to take into account cultural differences: formal lectures work well in some regions, but the company finds that Americans prefer a more collaborative, active approach to learning.

Other types of segmentation schemes. Many companies are venturing away from the noteworthy segmentation schemes described above and trying more novel approaches. We encountered a few companies, for example, that segmented their employees based on their physical and technical work patterns; this allowed the companies to customize employees’ physical and virtual work environments. Intel, for example, has segmented its workforce into teamers, nomads, and sitters, each of whom might be tied more or less to one location by equipment or the type of work they do. And Procter & Gamble, in addition to creatively segmenting the types of people it wants to recruit, has developed a new predictive model that identifies employees who are likely to leave the company. Such behavioral segmentation is still in its infancy; just as marketers are beginning to learn how to segment customers based on past and predicted shopping behavior, we predict leading companies will eventually learn to segment employees based on past and predicted work behavior.

Not All Segmentation Methods are Equal
An important distinction must be made between segmentation approaches that focus on characteristics of the employee as an employee, such as the type of work he or she engages in, employment status, mobility, geography, value to the organization etc., and those that focus on characteristics of the employee as an individual, such as age or generational status, personality traits, gender etc. Segmenting on the basis of job-related characteristics may be less distasteful, less personal, and possibly less likely to inspire legal action than segmenting on the basis of employees’ personal characteristics. Why? First, job-related characteristics are not reflective of the self, and therefore decisions based on them are less likely to be taken personally than those that are based on personal characteristics. Second, job-related characteristics do not make people members of protected classes (as do race, gender, age, religion, national origin etc.) under Title VII, the ADEA, or other EEO law.

We know that there are gender-, generation and personality-based14 differences in the needs and preferences of the workforce. However, it is generally considered inappropriate to make employment-related decisions (i.e., layoffs, promotions, hires etc.) based on personal characteristics unless it can be shown that the personal characteristics in some way relate to the employee’s ability to perform his or her role. Further, it is positively illegal to make employment-related decisions based on gender or generational class (generational class being taken as a euphemism for age). Therefore, we recommend that segmentation based on employees’ personal characteristics result in suggested offerings and considerations rather than explicit direction to apply particular programs, practices and processes.

For example, armed with the knowledge that members of Generation X tend to differ from Baby Boomers in terms of needs and preferences, or that men and women may prefer or value different employment conditions, organizations can craft purposeful, tailored suggestions that take those differences into account while remaining within the realms of accepted organizational practice. Companies such as Thrive Networks, a high-tech consulting firm, thus administer personality-based surveys only to supplement information obtained from interviews. The company never hires based on test results alone; rather, it uses them as general guidelines to help managers identify potential strengths that may help them make hiring decisions.¹⁵ This helps companies avoid potential law suits, such as the one filed in 2004 against Rent-A-Center, in which a former manager who had not received a promotion claimed that the decision not to promote was based on a company-administered personality test.

Deciding When to Segment
Any organization seeking increased productivity, employee satisfaction and organizational effectiveness will want to explore the segmentation technique. Like other workforce-of-one techniques, segmentation achieves these business benefits by enabling an organization to move away from standardized best practices and one-size-fits-all approaches and toward more tailored human capital practices that better accommodate individual employees. In addition, employees are likely to react positively to segmentation efforts because those efforts signal that the organization cares enough to learn about what differentiates one employee from another.

Among the workforce-of-one techniques, segmentation has certain strengths. First, segmentation lets an organization provide a limited, manageable set of viable options while avoiding the complexity involved when line managers themselves tailor unique solutions to each worker or group (as they might do in the flexible policies technique). Also, since segmentation generally occurs in a centralized, top-down fashion, executive decision makers can maintain a large degree of control: they decide what form of segmentation to use and which practices and policies will be tailored accordingly. Executives can see exactly how talent is being managed, and employees easily understand the principles behind the practices. Segmentation creates an excellent opportunity for employees to create shared meanings about different types of workers.

When deciding whether to use the segmentation technique, executives will want to weigh these benefits against certain drawbacks, however. Although segmentation may be easier to manage than other workforce-of-one techniques and will help companies achieve a greater degree of fit between employee and practice than a one-size-fits-all solution, creating predefined categories of employees may offer less fit than the other, even more personalized, techniques. An organization is sure to risk oversimplification when it assigns people to large, generalized segments; there will always be employees who don’t fit neatly into any of the available classifications. One executive complained, “[The idea that] organizations [should] develop strategies around employee classifications like generation is to me dangerous and short-sighted! The reality is that there are a lot of age 55-plus people who use Blackberries and iPods just as heavily as the 25-year-olds!” Many may question the fairness (and accuracy) of classification decisions. Other techniques avoid such issues. Modular choice, for example, enables employees themselves to choose the options they feel fit themselves best, while flexible policies offer managers discretion in tailoring a practice to a given employee.

Fairness issues may also come up if employees feel that segmentation decisions are subjective or that other segments receive greater benefits than their own segment. When one financial services organization in our study started treating its employees from top MBA programs visibly differently by offering them special networking and development opportunities, for example, a cultural backlash ensued. One of the company’s executives explains, “Employees want to be treated equally; we’ve had difficulties communicating the message that we must treat people fairly, but not necessarily equally.” Careful communication and cultural change may be necessary if segmentation is to be implemented successfully. (For more on this topic, see the research note “Managing a Workforce of One: Confronting Organizational Challenges.”)

Segmentation is also somewhat less flexible than other workforce-of-one techniques. The defining characteristics of segments may become outdated as workforces change, forcing organizations to redo their segmentation approaches and practices. In addition, once employees are placed in a segment, it may be hard to re-segment them. When one company in our study segmented its high-potential employees, for example, they often included not only those who were ready for the challenge of a new position but also those who were simply good at their jobs—and once those employees were so classified, it was hard to remove them from the list.

Finally, although segmentation represents less customization than the other workforce-of-one techniques, it nevertheless will likely require more resources up front than one-size fits- all plan would. (The amount of resources required varies depending on how many segments are created and the degree of difference in policies and practices that go along with each segment.) To be successful, segmentation requires that decision makers learn and understand the nuances of their workforce and how it can be leveraged. Like marketing segmentation, workforce segmentation relies on extensive data gathering and analysis. Segmentation will most certainly add complexity to an organization’s systems, processes and the roles and responsibilities of the human resources function.

Conclusion
Despite the challenges inherent in the segmentation technique, it is a manageable way for organizations to achieve high performance by tailoring their human capital management practices to the needs of a diverse workforce. Many organizations have long used certain segmentation schemes, such as value-based segmentation, but the time is now ripe to capitalize on other types of schemes to further customize people practices.

Segmentation is just one of four workforce- of-one techniques that can be used to create a customized approach to human capital management, however. Other research notes in this series will explore the three other techniques: modular choices, flexible policies and management practices that recognize the individual.

About the Authors
Susan Cantrell is a fellow with the Institute for High Performance Business. She specializes in research on human performance and has been published in leading business publications such as Sloan Management Review, Strategy and Leadership, Strategic HR Review and Across the Board. For more information on the Institute for High Performance Business, contact eileen.m.moynihan@accenture.com

Nicole Di Paolo Foster is a doctoral candidate in industrial/organizational psychology at DePaul University in Chicago.

About the Accenture Institute for High Performance Business
The Accenture Institute for High Performance Business creates strategic insights into key management issues through original research and analysis. Its management researchers combine world-class reputations with Accenture's extensive consulting, technology and outsourcing experience to conduct innovative research and analysis into how organizations become and remain high-performance businesses.

Notes

¹Ronald Alsop, “Career Journal: M.B.A.Track,” Wall Street Journal, August 9, 2005.

²John W. Boudreau, “Talentship and the New Paradigm for Human Resource Management: From Professional Practices to Strategic Talent Decision Science,” Human Resource Planning, June 2005. For more on Boudreau’s approach, see: John W. Boudreau and Ramstad, P. M. (2005). “Where’s Your Pivotal Talent?” Harvard Business Review, April 2005.

³Anne Freedman, “Master of HR,” Human Resource Executive Magazine, October 2004.

⁴A slight variation on this approach is to segment by job roles that are deemed more important because they are difficult to fill or replace. See, for example, Peter Cappelli, “A Market-Driven Approach to Retaining Talent,” Harvard Business Review, January-February 2000.

⁵Thomas H. Davenport, Robert J. Thomas and Susan Cantrell, “The Mysterious Art and Science of Knowledge-Worker Performance,” Sloan Management Review, Fall 2002. A similar argument was made in Mark A. Huselid, Richard W. Beatty and Brian E. Becker, “‘A Players’ or ‘A Positions’? The Strategic Logic of Workforce Management,” Harvard Business Review, December 2005.

⁶Mark A. Huselid, Richard W. Beatty and Brian E. Becker, “‘A Players’ or ‘A Positions’? The Strategic Logic of Workforce Management,” Harvard Business Review, December 2005.

⁷Dorothy V. VonDette and Patrick Mosher, “Mission Critical,” Outlook Journal, January 2002.

⁹Ibid

⁹Richard A. Settersten, Jr., Frank F. Furstenberg, Jr. and Ruben G. Rumbaut, On the Frontier of Adulthood: Theory, Research, and Public Policy (University of Chicago Press, 2005). See also Warren G. Bennis and Robert J. Thomas, Geeks and Geezers (Harvard Business School Press, 2002).

¹⁰Annie Murphy Paul, The Cult of Personality (Free Press, 2004).

¹¹Natalie S. Griffin, “Personalize Your Management Development,” Harvard Business Review, March 2003.

¹²Isabel Briggs Myers, Gifts Differing: Understanding Personality Type (Davies-Black Publishing, 1995).

¹³Corporate Executive Board, “Recruiting from a Global Talent Pool,” Corporate Executive Board Report, May 2001.

¹⁴For gender-based differences, see Alison M. Konrad, J. Edgar Ritchie, Pamela Lieb and Elizabeth Corrigall, “Sex Differences and Similarities in Job Attribute Preferences: A Meta-analysis,” Psychological Bulletin, July 2000; for generation -based differences, see Settersten, Furstenberg and Rumbaut; for personality-based differences, see Adrian Furnham, K. V. Petrides, Ioannis Tsaousis, Konstantinos Pappas and Debi Garrod, “A Cross-cultural Investigation into the Relationships between Personality Traits and Work Values,” Journal of Psychology: Interdisciplinary and Applied, January 2005.

¹⁵Diane E. Lewis, “Companies Turn to Personality Profiles for Hiring,” Boston Globe, January 9, 2005.

¹⁶Ibid.