Understanding progression - the one number you need to grasp.
For a long time, we have had an instinct that even small changes in the growth rate of a business’ headcount have an out-sized impact on how to design an effective talent strategy. Especially, how changes in growth impact promotion and career path opportunities.
Part of this instinct came from observing companies who made the shift from growth to consolidation mode and seeing the fall out as processes and systems that used to work, no longer do.
Part of this came from watching teams picking up good practice from “benchmark” companies, often fast growing tech stars, and applying it with limited or negative effects. What works for a fast-growing company does not work for a shrinking company and vice versa.
Part came from seeing how talent teams in fast growth companies spend their time, and how different that is to teams in companies that are consolidating.
Moving beyond the anecdotal and using talent data
We wanted to move beyond an anecdotal view, so we decided to use the data set we have to model the impact on a “typical” company as it moves from growth to consolidation.
What we found backed up our hunch.
Changing the growth rate of the business does have a disproportionate impact on the talent opportunities in a typical business.
For each 1% change in growth rate there is an approximate 8% impact on promotion opportunities. And this impact is slightly higher for senior roles, at just over 9%.
This means modelling, then grasping the implications of, changes in growth rates in headcount is critical to understanding the opportunities in your business.
What does this mean for career paths and progression?
As an example, a typically shaped, business of around 3500 people, growing at 3% per year we will see internal promotions opportunities for just under 900 people over a 3 year period.
Now if we shift the dynamic to one of negative growth, where the head count is shrinking by 2% per year, the number of internal promotion opportunities falls to around 550. A 40% decline.
This would mean 2 out of 5 of the people in each team, who would have got promoted, now don’t. That is the kind of change the everyone will notice as progression opportunities dry up and previous career paths become blocked.
As progression is one of the big drivers of engagement and retention, this degree of shift will play out into engagement and retention stats, particularly for high potentials.
Recent Glassdoor Economic Research note in the HBR blog “Why do employees stay? A clear career path and good pay for starters” uses data to quantify why people stay. It backs up the insight that lack of progression leads to higher attrition of good people and, indirectly, that companies compensate for reducing opportunities with higher pay.
So not only does a change in growth rates directly impact progression in the leveraged ratio of 1 to 8, it also sets off a set of secondary impacts around attrition and pay.
Avoiding a downward spiral
Unless the talent team intervenes quickly, when a business puts a squeeze on headcount the result will be a predictable and self reinforcing negative cycle.
The best people start to leave as they see no promotion options, the quality of management and leadership pipeline reduces, top management increasingly goes outside for new hires. This further reducing the opportunities for progression and the cycle intensifies.
The second order implications emerge as managers start to see flight risks everywhere and to argue for pay rises to keep people their good people. This ups the cost base, negating the whole point of the headcount squeeze to start with.
This impact of this spiral isn’t immediately visible, it starts to be seen after a year or so as people make new decisions as they stop seeing promotion opportunities.
Implications for Talent strategy
The implication of this work is not that business’ shouldn’t reduce headcount when they need to reduce costs.
It is that HR and talent teams need to have the mental flexibility to design and apply a different playbook for shrinking versus growing organisations.
They need to get on the front foot with an aligned and coherent shift in the talent system that impacts the talent flows to achieve the business objectives. For example,
to keep the same progression rate with a 5% squeeze in headcount would require around a 60% increase in the exit rate or reducing external recruitment to close to zero.
Talent teams also need to be looking across the organisation to notice how differential growth rates across functions are impacting relative progression rates and changing career path opportunities.
Talent is there to lead the process of change by making sure the organisation has the right people with the right skills in the right place. This is a forward looking activity, not a lagging one of control.
It has to take into account the impact of changes on the interlinked people system, how time lags distort perception and second order impacts on attitudes and behaviours.
To succeed it has to design, and implement, solutions that take into account these more complex challenges. There is no short cut for this.
But the trick is having done the hard work to use design thinking approaches to make the solutions as simple as they can be to work.
A suggested approach is
Create a model of how talent really works in your organisation today, that allows you to run "what if" scenarios
Develop a shared view on the future growth rates of the business
Understand the differences, which areas are growing and which are shrinking
Model the impact of projected changes on key talent flows
Design a talent strategy that reflects the business context, frames the challenges and identifies opportunities
Align the talent system and processes to the new strategy and adapt where necessary
Communicate the new strategy as part of the changes so people understand both what is happening and how the organisation is reacting to that change