In terms of global events, it’s been a challenging year.
Inflation hit double-digits in many countries around the world. Skyrocketing energy costs in Europe have made it challenging for businesses to stay afloat. Beijing’s zero-COVID policy paralyzed large swaths of the economy and added to supply chain distribution challenges. The big “R” we’re talking about now isn’t the Great Resignation—it’s “recession.”
Meanwhile, climate-related events have affected more than one in four organizations worldwide and roughly half of people across 23 countries experienced an extreme climate-related event—drought, wildfire, extreme heat, severe storm—in 2023. There’s more: The war in Ukraine; protests regarding Mahsa Amini’s death in Iran; British Prime Minister Boris Johnson’s departure; plus the overturning of Roe v. Wade in the U.S. And of course, we are still navigating a global pandemic.
These challenges are having a significant impact on both workers and employers. This year, UKG’s Megatrends campaign brought together an international team of researchers, thought leaders, and social scientists to reflect on current events, evaluate future implications, and predict how leaders can best serve their people and their businesses through these turbulent times.
Read on to learn about the three HR megatrends—navigating the human energy crisis, optimizing organizational plasticity, and the Gen X leadership effect—and steps organizations can take to prepare.
3 HR megatrends that will impact organizations in 2023
1. Navigating the human energy crisis
Psychological and physiological research on focus and willpower shows us that we have a limited resource of what could be called “human energy”—our amount of headspace or our ability to focus and think creatively or innovatively. Just as our bodies get exhausted from overwork, so do our minds.
Through our qualitative and quantitative research, we realized that most people are experiencing an undercurrent of chronic anxiety that is significantly impacting their lives. Biologically, our brains are designed to prioritize stimuli we perceive as dangerous—and while this enabled us to outrun predators and survive as a species, this negativity bias doesn’t serve us as well when we’re constantly barraged with fear-provoking headlines. The World Health Organization found that COVID-19 increased the presence of global anxiety and depression by 25 percent in its first year alone.
Chronic, generalized anxiety disorders are the most common mental illness in the U.S. and have become such a problem that the U.S. Preventative Services Task Force (USPSTF)—a panel of medical experts appointed by the federal Department of Health and Human Services—released its draft recommendation this year that doctors screen all their adult patients for anxiety.
What can organizations do? Improve the employee experience.
Psychiatric science believes stress triggers nearly all mental disorders, so the best treatment is helping people live less stressful lives. That’s nearly impossible to do in today’s world. Many of the areas causing the most persistent stress are out of employers’ control, but there are many areas where leaders and managers can make a powerful impact within the employee experience by better understanding their employees. In fact, in a 2022 Deloitte study on wellbeing, the top two hurdles that prevent people from prioritizing their wellness were all directly tied to their work: a heavy workload, high work stress, and long work hours.
My colleague Dr. Jarik Conrad developed a model called “The Employee Continuum of Needs” years ago that identified a wide spectrum of employee needs, from survival and security through actualization and fulfillment. Employees across income levels are increasingly concerned with foundational physiological and psychological needs, such as job security, compensation, and benefits.
Here are some meaningful ways we can address these common stressors throughout the continuum:
- Basic needs: Livable wages, affordable healthcare, retirement and pension matching/support
- Emergency support: Same-day pay, climate event preparedness, enhanced safety measures, risk reduction, etc.
- Employee wellness: Financial education, hybrid work arrangements, flexible work hours, community involvement, fitness classes, wearable devices that detect stress levels, etc.
- Situational support: Employee Resource Groups (ERGs), caregiver/social support, extended bereavement leave, additional flexibility, etc.
- Security: Data privacy, reasonable employee surveillance
- Protect against burnout: Reasonable project demands and deadlines
- Support career growth: Reskilling/upskilling, support passions by providing access to enrichment, mentoring, etc.
- Change support: Remote/RTO, technology adoption
- Team building and manager effectiveness: Clearly defined team goals and purpose, ensure meeting inclusivity, empower authenticity, encourage fun—annihilate “loneliness epidemic”
- Making a difference: Sustainability & ESG, volunteering/community involvement
- Investing in life-work technology: Leveraging HR technology that supports employees on their personal life-work journeys
As new challenges arise and existing ones persist, empowering the people tackling those challenges is more important than ever. The human energy crisis will require more than virtual happy hours or free yoga classes; we need to address the root causes, in whichever ways we can.
2. Optimizing organizational plasticity through culture
COVID-19 was a big wake-up call for organizations to realize they needed more adaptable business structures in place to withstand the enormous amount of turbulence we face today—be it economic disruption, changing employee expectations, or unprecedented global events like pandemics, war, and climate change. But this isn’t just a recent phenomenon; the average lifespan of S&P 500 companies has been shrinking for decades (from 61 years in 1958, to 20 years in 1990, to 14 by 2026), proving that organizations must continually rewire and adapt—or become extinct.
The most successful organizations are those that not only survive during unexpected challenges, but thrive, and weather the tumultuous chaos to become stronger. Challenging times can be incredible opportunities for both people and organizations to adapt and take risks. Organizations must learn to adopt a growth mindset and continue to move forward rather than reflexively fall back into pre-pandemic patterns and behaviors.
Pulling from the neuroscience phenomenon “neuroplasticity,” we realized there was a need for this type of agility in our businesses: what we call “organizational plasticity.” This combination of flexibility and adaptability makes internal organizational processes and networks malleable and open to change. Too often, organizations can become mired in the status quo and doing things just because “that’s how we’ve always done them”—and this can lead to paralysis and ultimately, extinction.
This is particularly important during economic downturns.
The average recession lasts about 18 months, which means that short-term, reactive thinking often has far-reaching negative consequences. Many organizations become so defensive in an economic downturn that they go into crisis mode, scrambling to reduce headcount and preserve as much cash as possible. While these measures are sometimes necessary, Harvard Business Review data found that companies that flourished during or just after the recessions of 1980, 1990, and 2000 balanced defensive actions, like reducing payroll and improving operational efficiency, with offensive actions that enhanced organizational plasticity, like developing new markets or investing in new assets.
What can organizations do? Further invest in people and culture.
During times of economic uncertainty, it may seem counterintuitive to invest energy and resources in culture and employer branding. But it is during times of change that companies reap the most benefits from their culture and lay firm foundations for the future. Strong employer culture and branding both supports companies through major challenges and sets them up for success during recovery. Research from Great Place To Work has shown that focusing on culture—particularly diversity and inclusion—helps companies thrive during a recession. In fact, their data shows that companies that value and invest in diversity and inclusion outperform other companies by as much as 400%. This is affirmed by Gallup, who found that companies with engaged workforces recovered from the 2008 recession at a faster rate.
A company’s ability to innovate, adapt and pivot is critical to organizational plasticity. GPTW’s “Innovation by All” research finds that an organization’s innovation capacity isn’t determined by how big their R&D department is, or by how quick-thinking their C-suite is in a crisis; rather, it’s due to how many employees consistently experience meaningful opportunities to innovate, with leaders who actively seek employees’ ideas and feedback about their experiences. Companies that build an “Innovation by All” culture generate more high-quality ideas, realize greater speed in implementation, and achieve greater agility—resulting in 5.5 times the revenue growth of peers with a less inclusive approach to innovation.
- The S&P 500 suffered a 35.5% decline in stock performance during the 2007-2009 recession, but the companies with the most inclusive cultures grew by 14.4%.
- Inclusive companies were also twice as likely to meet or exceed financial targets, three times as likely to be high-performing, six times more likely to be innovative, and eight times more likely to achieve better business outcomes.
- When the market recovered, these “thriving” companies outperformed the S&P 500 by a relative gain of 400%, while enjoying the significant benefits their positive employer brand awarded them.
3. The Gen X leadership effect
Just before to the pandemic, we were experiencing a changing of the guard as Gen Xers overtook Baby Boomers in the C-Suite, accounting for 51 percent of leadership roles globally. Our research shows that, whether out of necessity or a result of unique generational attributes, Gen Xers are leading their companies differently than their predecessors. Gen X directors are also infiltrating corporate boards and, while just 20 percent of board seats were held by Gen Xers in 2017, will eventually dominate corporate boardrooms around the world within the next five to 10 years.
There is significant research proving the impact an individual director’s characteristics such as sex, educational and professional background, and ethnicity/nationality have on the board. Now, a 2020 study from the Paul College of Business and Economics at the University of New Hampshire uncovered generational identity as a potential driver of directors’ ability to impact company performance. The research found there was a positive, statistically significant association between the percentage of Gen X directors and firm value, even when controlling for a significant number of other observable characteristics. This effect was also economically significant—a one standard deviation increase in the percent of Gen X directors reflected an increase in the market-to-book ratio equal to 6.4% of its mean value, or 7.8% of its median value.
What can organizations do? Prioritize ESG.
One factor that could be driving the value-enhancing activities of Gen X directors is their greater commitment to ESG (environmental, social, governance). Ample research, including previous analyses from Great Place To Work, has concluded that, on average, socially responsible firms have better performance and higher value—a phenomenon known as “doing well by doing good.” Researchers found strong empirical evidence that companies with Gen X directors engage in more value-enhancing ESG activities, and that having at least one Gen X director had a strong positive association between the firm’s environmental and social scores and performance.
ESG is a lens for decision making through which organizations can build trust, reduce risk, and create value over the long-term. But to companies who are just building out their ESG strategies in today’s operating environment, it can feel like managing change while the goalposts are constantly moving.
Here are four steps to establish solid ESG practices:
- Assess: To determine where your organization wants to go, you need an honest appraisal of where you are. Assessing the organization’s landscape, including risks, opportunities, and goals, is the crucial first step in the ESG journey.
- Integrate: ESG must be fully integrated into business strategy, operations, and daily decision-making to be effective. Integration requires a plan for addressing each of the material issues in a way that responds to stakeholder expectations, and that follows and advances corporate strategy. It’s the blueprint that bridges where you are to where you want to be.
- Measure: Once you’ve determined what to focus on, how to integrate it, and have moved into action, it’s time to measure the impact of the initiatives and interventions you’re making. Technology tools and other automated processes can help.
- Communicate: Stakeholders want and expect to hear about ESG efforts—but if you don’t own your own narrative, someone else will. ESG communications should seek to connect, inspire, and inform, while weaving an authentic narrative about how your organization is creating long-term value
The bottom line
Organizations and their employees are under pressure and faced with enormous challenges. As Gen X leaders continue to ascend to C-Suite and boardroom seats, they must operate in a manner befitting the current environment. They can lay a solid foundation for sustainable change by addressing the Human Energy Crisis to take care of their people and building Organizational Plasticity to ensure the long-term viability of their companies.