How can a rebalance of power help re-energize your workforce?

The emerging “next normal” of work is rooted in the interplay of cyclical and structural pressures, and how those pressures are informing employee and employer decisions. For employers, this has meant basing decisions on the realities of high inflation; on economic slowing and weaker market demand; on geopolitical instability; and on the need to secure their talent pipeline.

Employee decisions are also influenced by the economic climate, with real wages continuing to face pressure in many markets through the first half of 2023. But employees are also reacting to the reality of an aging and shrinking workforce. By 2030, projections show the talent gap could reach 85 million jobs, as new roles and technologies like Generative AI increase the demand for new skills and reduce demand for others.

Interpreting present market conditions through different lenses may influence how employers and employees see one another’s challenges and likely course of action. Employers, for example, are more sensitive to the perception that organizations are facing financial challenges. Just 47% of employees agree their organization is under growth or profit pressure, compared to 61% of employers. That gap in perception varies greatly by region, industry, and generation, perhaps reflecting the sense of economic instability or health across demographics.

Employees and employers believe employers have reclaimed some ground in perceived balance of power, which has seen employees gain 8% of perceived power over the last three years. Employees also indicate moderately less confidence in their leverage in the labor market, with 31% believing labor market conditions are now in their favor, compared to 37% last year.

Despite the perception of having gained leverage, employers remain concerned by their access to talent and in-demand skills, and how to remain productive with increasingly distributed teams. Attracting new talent and retaining existing talent are first and second on the list of employer-identified workforce risks, with employee compensation coming in third. Employees cite compensation levels and increases as their main concern, followed by talent retention and addressing burnout and well-being. Addressing these risks depends on the ability of organizations to weave their approaches to hybrid and remote work, real estate use and new technologies and skills into a comprehensive strategy.

The “next normal” data shows the staying power of hybrid work, as there is little appetite for returning to a full work schedule in a physical office, and there is no single policy or practice to change that sentiment.

A sticking point is how “hybrid” work is defined.

For knowledge workers — whose work is traditionally based primarily on using analysis or subject expertise in a professional office setting — both employers (47%) and employees (37%) show the greatest preference for two or three days of remote work per week. Given a choice, however, half of employees would prefer no more than one day in the office per week, and 34% would like to be fully remote. Just a fifth of employers prefer fully remote work for knowledge workers.

Employee sentiment shifts significantly based on industry, region, age and gender. Women are more likely to prefer fully remote work (49%), with hybrid work as their second preference (41%). Men show little difference in preference between hybrid work (42%) and fully remote work (43%). The financial services and health and life sciences industries were all more likely to prefer fully remote work (52%) compared to employees in the energy industry (37%), for example.

Even with the shifts in hybrid and remote working, it’s not clear that employers are fully building the policy infrastructure to accompany the physical infrastructure.

A more distributed workforce can open employers up to unintended tax or compliance risks depending on how long employees are working remotely and from where. Only 14% of employers cited addressing tax risks connected to remote work as a top concern, despite governments showing increased movement on remote working legislation and compliance requirements. Even more tellingly, just 7% of employees cited the same tax risks.

The increasing sophistication of digital tools and virtual work environments is also affecting how employees and employers are weighing short-term business travel. Of employers, 56% envision moderate to extensive reduction in business travel and mobility spending in the future, linked to enhanced virtual approaches to work. Just over half (52%) of employees expect moderate to extensive business travel in 2023, compared to the 60% who want it.

As the expectations for further flexible, remote and cross-border work shift with the broader acceptance of new technologies, it’s important that the human experience of work is prioritized in a talent strategy which accounts for potential risk, while realizing the full potential of the workforce.

GenAI, which has only recently broken into the mainstream technology conversation, is a disruptive technology in a broader reimagining of digital work. GenAI can interpret and integrate disparate data streams and create a unique output in a particular style. One of the strengths of this technology is the potential to create a “first draft” of work, which can then be evaluated and progressed by people.

While GenAI’s potential is still being realized, it’s expected to have an outsized impact on the labor market, on career and learning pathways, and on the realities of work. With AI and machine learning specialist job categories expected to balloon in the next five years, employees and employers are also already building expectations and investments around the technology.

There is a 33% net positive sentiment of employers and employees who believe GenAI will boost productivity and new ways of working, and an even greater 44% net positive of those who expect the technology to enable greater flexible working. This overwhelmingly positive sentiment toward GenAI may be rooted in the promise of the technology, as opposed to direct experience, given how few employees (49%) actually are, or expect to be, using GenAI in the next 12 months compared to 84% of employers.

Perhaps unsurprisingly, technology, media and telecommunications sector employees (73%) and employers (91%) appear more likely to be using the technology in the coming year.

Despite the anticipation for the potential effects of GenAI on productivity and flexible working, this technology will not fundamentally change the imbalance between in-demand skills and labor market churn.

Even with the availability of a powerful tool like GenAI, employers are still having to consider how to upskill and reskill their workforce when employees could leave at any moment. Employees too are reassessing the importance of skills-building, both to be prepared for technological leaps ahead, but also to maintain attractiveness in a competitive job market.

With learning and skills development as top priorities for both employers and employees, organizations will need to prioritize areas tuned to how their workforce operates now and will operate in the future. Perhaps surprisingly, given the positive sentiment toward GenAI and the anticipated increased use of it, the bolstering of GenAI skills remains a low priority for all respondents. Just 17% of employees and 22% of employers name training in GenAI skills as one of their top priorities. Training to improve remote working skills and tools is the top priority for both employees (41%) and employers (52%). Even with the promises of the new technology, larger segments of the employee and employer groups are more focused on wanting to gain skills to improve the overall experience of work, as opposed to purely focusing on GenAI.

This new reality of work is one that highlights the need for agility and intention in workforce decisions. It requires organizations to assess their skills — both technical skills in fields like GenAI, but also soft skills like critical thinking and resilience — and measuring how their overall talent strategy is supporting business goals, commitments to diversity, equity and inclusion (DE&I), and an organizational culture built on trust.

The “next normal” of work is marked by complex internal and external pressures facing employers and employees alike, all requiring solutions that are deeply focused on the needs and experiences of people. 

It's in times of disruption and transformation that leaders most need to build toward a “we not me” approach, fostering collaboration, driving consensus and ultimately building a culture underpinned by trust.

Organizations that prioritize people in their workforce decisions report seeing markedly better outcomes. There is a subset of organizations (about 20%) who meet the criteria for success in key areas related to leadership, DE&I, skills-building and ways of working.

The indicators of success include having:

• Employees who trust leaders and feel trusted, empowered
• Leadership that cares about employees as people
• Employees who feel connected and inspired at work
• Employees who feel well informed
• A diverse workforce
• Efforts to building skills for the future
• A leadership team aligned on new ways of working

These organizations reported distinctly better outcomes compared to those who struggled on the same measures of success. This includes being 2.5 times more likely to have employees who feel connected to their teams and who are four times more likely to report having a balanced workload. As a sign of how these organizations are able to build resilience, their employees are five times more likely to agree their organization can adapt and build future skills, and twice as likely to be optimistic that the organization can attract the talent it needs. Productivity and culture metrics are also notably higher.

Improved outcomes for “Thriving” organizations