by BEN PETERSEN
CEO and Co-founder of human resource software firm BambooHR, built specifically for small to medium businesses. Founded MingleMatch, Inc. in 2001 ,sold in May 2005 to publicly held Spark Networks, Inc. Co-founder of States Best, now Allegiance Technologies. Serving on the incubator board for CEDO (the Commission for Economic Development of Orem), a member of BYU's Young Entrepreneur Founders Organization, and a partner at the Utah Angels.
Specialties: human resources software, SaaS, online marketing and sales, business development, a little M&A, startups, some angel investing, etc.
Hello and welcome to Elevate 2015. I'm Ben Petersen, CEO of BambooHR, I want to thank you for being with us today. You're joining tens of thousands of other registrants today, and we're amazed at the response that Elevate 2015 has had. Every single organization here today has an asset that matters much more than anything else. Companies don't create value, people create value. That's what we're here to talk about today. We're here to elevate people.
We fundamentally believe that people have the capacity to be great and do great things. We also believe that doing great things requires focused meaningful work. Today we hope to elevate all of us by learning new ways to elevate ourselves, our people, and our businesses. This is the vision of Elevate 2015. So whether you're an HR professional, an executive, a leader, or somebody looking to grow, growth is what you'll find today.
We've been so incredibly impressed by the willingness of our exceptional speakers to share their time and expertise with us. We extend a huge thank you to them for such a valuable contribution. A lineup like this has never been seen before. I'm super excited about Dave Ulrich, who is just a stellar person and one of the first to catch the vision of Elevate 2015. Also Marcus Buckingham, Laurie Ruettiman, our good friend Mark Newman, and so many others. Special thanks as well to the sponsors of this event, Glassdoor and SkillSurvey. And of course our co-sponsor HireVue, as well as our media partners BLR and hr.com.
It frankly has just been a ton of challenging work to put on this event. The people on these teams and our speakers have been awesome to work with, and we appreciate their support to make Elevate 2015 happen. But the most important thank you goes to you, your jobs are difficult and complex, there's much to do and little time. The fact that you are willing to take the time to be here today with us is very meaningful.
Just think, with the thousands of us spending an hour, and most will spend more, we expect over 30,000 collective hours of focused learning. We love that Elevate 2015 can have such a positive impact. So quick housekeeping items, please don't forget to check out the exhibit hall where you can learn more about the great partners involved in making this even happen. And please engage with us and your speakers on social media. Tweet like crazy with #elevate2015. Follow your presenters on Twitter, LinkedIn, Facebook, and other social media. I promise they have more exceptional content that you'll definitely want.
And for the HR experts here today, this event is HRCI approved. Attend for at least four hours today and you'll receive a code for four hours of recertification credit. We are confident that you'll have an exceptional experience with us today. With that, I'm honored to kick off Elevate 2015 by discussing the business outcomes of strategic HR.
Before I dive in, let me share a little more of my background. My partner Ryan Sanders and I started BambooHR in 2008. We provide HR software to over 4,000 small and medium sized companies globally, including well known firms like Fitbit, Shopify, Stance, New Relic, and others. I write with the Focus on business and HR for Inc, LinkedIn, TLNT and we've been featured in Forbes, Entrepreneur Magazine, Time, The Wall Street Journal, and more.
We are passionate about growing people, and care about quality of life. We believe that there is always more to learn and improve, and we love helping businesses be better. So let's get rolling. We all know it's the people that create value, us, each one of us. And there's a department in every organization responsible for the nurturing and growing of this greatest asset. Unfortunately it's usually the most ignored, that doesn't make sense.
Strategic HR is the smartest and most powerful way to elevate people and every organization on the planet. If you've ever wondered what HR is responsible for and why it matters to your business now more than ever, it will be crystal clear after today. But before we hit the business outcomes, we need to understand the problem, and where a HR fits in the solution.
HR's facing a huge value perception crisis. In the Harvard Business Review alone, these are the titles of recent articles within just over the last year, "It's time to blow up HR and build something new." "Rethinking HR." "Why we love to hate HR." "What it will take to fix HR." "It's time to split HR." "HR faces a crisis of credibility in the boardroom." HR's our favorite corporate punching bag.
HR doesn't exactly sound like a great career choice after seeing this. This perception crisis is what we must change, because HR done right is crucial. Let's remember, organizations don't create value, people create value. And the department whose job it is to maximize the value of people is HR. The problem with this value perception crisis is that the perception is more reality not. Edward Lawler is a business professor at USC, author of multiple books about HR, and named one of HR's most influential people by Human Resource Executive.
He has found through his research that HR isn't involved in business strategy any more now than it was 10 years ago. That's 10 years and maybe longer without improvement, that's painful. In a recent Forbes article he said this, "HR spends less than 15% of its time as a strategic business partner." He said that HR spends its time dealing with HR policies and practices. But as he says, when HR is involved, organizations function better and are much more successful in implementing strategic change.
Please note, this sounds like it's looking really bad for a HR, and it is. But it is much worse for businesses, because HR's responsibility truly is the people. This is a business crisis, not just a HR problem. The high dollar cost of HR failure can be found in high employee turnover, falling sales, misaligned goals, low employee engagement, and more. On the flip side, financially higher performing organizations are strategic about their people and execute through their HR teams.
For the next 20 minutes or so we're going to have a crash course on what must be done to fix this perception, and who is responsible. We won't fix it overnight, but we can definitely get pointed in the right direction. Let me first point out that Gartner recently shared research calling out two large market opportunities within the HR space. First, strategic HR skills transformation and second, HCM technology to support HR strategy.
Really most of us wouldn't need to be here today if these gaps didn't exist. We all know there's a void to fill. Business leaders, recruiters and hiring managers, talent management experts, we all know business and HR needs to figure out strategy and fast. And we also know great technology exists to support our people, and it's getting better faster than ever before. But most businesses have their HR teams focused on the wrong things.
For example, BambooHR found in recent research that these are the top three activities where HR in small and medium businesses spend most of their time. First, employee management. Answering questions, resolving issues, recognition, et cetera. Over 7 of every 10 respondents said this was most time consuming. Second, second most time consuming is company policies and compliance. Health benefits, 401k management, unemployment insurance, and worker's comp. Over half of all companies said that this was the second most time consuming area.
Third is recruiting, but not recruiting strategy, listings and posts, resumes, reference and background checks, and interviewing. HR is living in the operational, the transactional tasks. Spending the majority of their time on low business value items, 99% of which can be automated. I realize that these tasks need to be done, and somebody needs to do it, but I am saying this is not strategic HR, it's not even close.
The measurement and optimization of these tasks can be strategic. The processes behind them could be strategic. The alignment of any of these tasks to the business's mission, goals, and vision is strategic. But businesses that have HR spending most of their time on these tasks is not strategic.
Let's run through a little exercise. As I briefly explain this chart, please determine where your organization fits. This chart will show how HR evolves through a company's growth. Check out the X axis, this represents company size by employee count, micro, small, medium and large. The Y axis represents the business value of HR activities. So you'll see strategic high value and operational low value HR tasks. You'll see that operational business values are obviously lower, strategic business values are obviously high.
Operational examples would be those tasks we just discussed, as well as processing payroll, open enrollment, time-off tracking, updating records, et cetera. Strategic examples would include activities like employee engagement, hiring strategy, culture, learning and development, performance management, et cetera. As you look at this chart and consider your business's HR activities, and what the role of HR looks like at your firm, what are they doing every day? What are they doing every week, every month? Where is the majority of time spent?
Most businesses will find themselves low on the Y axis, in the operational. And let me make a quick point, this chart is not solely applicable to HR, it's applicable to you regardless of role. Our time should be spent on our highest value activities. Managers, CFOs, support teams, all of us can plot our activities on this chart to determine where processes could be improved. So let's fill in the chart.
When a company is in its earlier stages, HR's activities are almost entirely operational. And generally speaking, more strategic activities only start to come into play as the organization gets larger. I don't know that many small companies worry about succession planning and position control, but large firms definitely do. And this makes sense, right? Large companies have more money and more people, they can afford the technology to automate as they scale. And more large firms have the skills and people to align HR and business strategy.
As we studied and built out this model, we consider the factor of trust as well. Both the trust that HR has in the business, and the trust that the business has in its HR team, and where on the strategic curve it happens. We feel that trust increases as strategic influence grows. So as companies evolve, they break through the operational barrier through automation and process improvement. Their payroll, applicant tracking, on boarding, performance reviews, enrollment, and everything else that can be has been automated. This leaves them free to engage in higher value activities.
Let's look at a few of HR's activities another way. Most HR professionals get really excited about the top of this pyramid, but many will never touch it. Every company, every industry is a bit unique, and you may need to add or move around specific activities to fit your company. But the goal of all of us should be to ultimately get HR to the top of the pyramid. But let's start of the bottom.
Until you can reliably pay employees, you really can't think of much else. And in the smallest of companies, payroll is really the first true HR problem we have to solve. BLR just finished a study showing that the piece of HR technology most invested in by companies was payroll. No surprise, right? And then once payroll is set up, and as you start to grow, you just can't do it all on post-it notes, paper, e-mail and spreadsheets. Processing resumes with your e-mail won't work, and applicant tracking system saves hours. New hire paperwork is a pain. Paperless on-boarding with e-signatures saves hours.
We often find ourselves with a bunch of data silos, data in different places and a tracking mess that slows business down and consumes our time. So as businesses invest the dollars, and we finally get some HR software to help us out, we're elevating our behavior and investing the time and money to have data to measure, track, and influence business decisions. And you get smarter and smarter until you're at the top of the pyramid. That is what should happen. But it doesn't in most companies.
You want to know what the most used HR software in the world is? It's Excel, and it's absolutely the wrong tool. CFOs get financial software, execs get dashboards and assistant admins, and developers have incredible tools to optimize their jobs, and HR gets Excel. There are hundreds of technology solutions out there, and most speakers today will touch on the role of tech in HR. Tech is getting better and better at doing the jobs we need them to do, and it's affordable enough for even the smallest of companies. We all should be using technology to optimize.
Anyway, if we're not pleased with HR in our organizations, it's because we're not investing in them and giving them tools to succeed. As we recruit and interview we often ask candidates, "How can we help you be as successful as possible here?" That is what businesses should ask HR, and frankly every business unit should be asked this question, "How can we help you be as successful as possible here?" But the point of this slide is to show that until the basic and general operations are taken care of, we won't get to the strategic.
Back to our chart, with a few additions, we've added how it HR's perceived, you'll see at the bottom left where HR is transactional and seen as a cost center, and the bottom right were HR has high impact and is viewed as strategic. But let me point out something important. Notice that HR's behavior leads to how HR is perceived within an organization. What we do, the value we add is reflected in how we're perceived. And because our behaviors or our activities determine our perception, as long as our HR teams only behave operationally, they'll only be seen as operational.
Let me repeat that point to drive it home. As long as our team is only behaving operationally, they will only be seen as operational. Smaller organizations don't typically perceive HR as a strategic investment, mostly because they don't yet behave like one. And that's not entirely their fault. They're still trying to get their operational foundation built, there's a lot to do, a foundation must be built.
But it's ironic, isn't it? That the ability to actually move up the value chain is significantly constrained by the very organization that needs it the most, it's like a self-fulfilling prophecy. Let's take a look at what we need to have happen in our businesses. This is what all businesses should be driving towards, higher business value sooner. Today it really is possible for us to begin elevating the value we provide, having those fundamental operational needs met, and inform the business strategy with key data insights and metrics that help grow the business.
Right now, today we can fill the gaps that Gartner revealed, and we all know exist. We can feel the HR skills strategy gap and the HCM technology gap. Businesses should feel great urgency to move the curve now, the market dynamics are going to demand it more and more, which we'll discuss a bit later. As we thought of a topic for this keynote, one suggestion was "Strategic HR; change now or die." But we felt it might be a little too strong. But we must have our HR teams add more value than simple operational activities. It must change to add high value, strategic value faster.
There are many who say HR should be split into two functions, one administrative and the other strategic. We could definitely argue that as we look at this chart. But if a split is the answer why hasn't it already happened? Why didn't we do it 10 years ago? I personally believe that in most businesses technology can satisfy the administrative and operational demands. Our HR teams do need to elevate their game to merit business trust. HR needs to move more quickly and understand business needs, business metrics, and business goals.
But we also need business leader buy-in a huge way. Our businesses have to support the profession that supports our greatest asset. We have to be patient and train up our HR teams in new ways. Okay, let's talk more specifically about strategic HR outcomes. Let's talk about what our HR teams need to work on to make a strategic leap.
These are the strategic outcomes that businesses should expect from their HR department. So if you've ever wondered where HR can have strategic influence, now you know. Quickly move clockwise. Culture. Culture is the secret weapon to a successful business. We have employee engagement, satisfaction, performance, retention, operational efficiency, overall organizational performance, employment brand, and internal influence. That's a lot.
These are the top of the HR pyramid, and in a perfect world HR could report and provide metrics and results on each one of these strategic outcomes. HR knows they don't exist just to process payroll. This is what an HR department should own. HR must know these outcomes better than anyone else. And if you're a business leader, now you know what you should expect HR to deliver, and both HR and business leaders are responsible to make it happen.
Let's take a few of these and show why the business value is so high. First, culture. Again, the secret weapon of business. I love culture. This is hands down my favorite outcome of great HR. I especially love that our culture mirrors our customer satisfaction levels. You want to increase your net promoter score? Work on your culture. And according to the Deloitte, the best companies are great at culture, and they typically experience as much as 65% less voluntary turnover per year. Another fun culture fact, we all need recession resiliency. Good times won't last forever.
Great workplaces perform at two times the market average in challenging times. But most importantly to me, and the reason I say culture is the secret weapon of business, is that culture touches every strategic outcome, and it is impossible to copy. It is your business's unique DNA. Too many companies simply give lip service to culture.
Next, employee satisfaction. Productivity, unhappy employees cost the American economy up to $350 billion per year. Loyalty, 90% of employees are willing to consider changing jobs, 90% will change jobs. And unsatisfied employees are 11 times more likely to move to a new organization in the next year. Performance, companies with happy employees outperform the competition by 20%. Profitability, companies with happy employees have 33% percent higher profitability.
Just ask yourself this question, "How much time in the last month did I spend working specifically on increasing employee satisfaction?" I'd wager it isn't much, if any time at all. But if you know that employee satisfaction would make you 33% more profitable, shouldn't you give it some serious attention.
Next, employee retention. This one is so painful to me, it drives me crazy losing great people especially after so much effort, time, and money to get them. $11 billion is lost annually due to employee turnover. Total cost of replacing an employee is estimated to be between 90% and 200% of his or her annual salary, that's from SHRM. But another study cited by TLNT and LinkedIn shares that entry level employees cost between 30% and 50% of their annual salary to replace. Mid-level, upwards of 150%, and high level or highly specialized employees, you're looking at 400% of their annual salary, 400%! And these costs are just going to go up.
It's harder than ever to find great people, and harder than ever to keep them. I wish these evasive costs were more closely tracked and reviewed by companies monthly, the real dollar cost. I think companies would be shocked. And of course we have one of the hottest topics of our day, "Employee engagement", and it's no surprise why. Look at these numbers.
Performance. Companies with engaged employees outperform those without by up to 202%. Profits, engaged organizations grow profits as much as three times faster than their competitors. And operating income, in one year, companies with low engagement had a negative 36.5% change in operating income. While engaged work forces experienced a positive 19.2% increase in that same year. So negative 36% to positive 19%, that's a 55% swing, that's amazing.
Basically, engaged employees lead to higher service levels, higher product quality, higher productivity, higher customer satisfaction, higher sales, higher profit, higher of everything good. But there isn't just one lever that you pull to elevate employee engagement. You can't say, "We're just going to focus on learning and development and that's the answer." Or, "We're just going to pay people more and that's the answer."
All of these strategic outcomes will influence employee engagement, all of these are connected. Let's look again briefly at each of these outcomes. And again, let's consider how HR in our businesses are spending their time. Most businesses aren't spending time on these, and we need to change. The reality is, it is painfully obvious why HR gets a bad rap. HR cannot expect to have a seat at the strategic table unless they're working on these strategic things. We need to upscale our HR teams to own these outcomes. And as businesses, we need to expect and support HR done right. Not just lip service, truly support them. And frankly, with the research and proof we have of the dollar impact of these outcomes, we would be fools not to.
We've discussed the negative market perception of HR, we've discussed the operational and strategic value map of HR in our businesses, and we've covered what our businesses should expect HR to deliver in the strategic outcomes and why. But I want to include another important factor to help us all feel even a little more urgency, as if we don't have enough already.
The changing workforce demographics. First, millennials. We've all heard this a million times but it's real. It feels like millennials are taking over the world. In 10 years they'll make up 75% of the workforce, and guess what? Ninety-one percent of them expect to stay at a company for less than three years. Average tenure for millennials is two years, compared to five years for gen-X, and seven years for baby boomers. Where did all the loyalty go?
And here are more stats, 89% of millennials would prefer to choose when and where they work, rather than being placed in nine to five position. Forty-five percent of millennials will choose workplace flexibility over pay. Ages of our workforce isn't the only problem, but also what matters to you workforce is changing fast. This means that there's pressure on every organization, regardless of size, to act now on culture, employer brand, performance retention ex cetera.
Another reason why it matters today more than ever, the exodus of baby boomers from the workforce really magnifies our problem. Within the next 10 years, 43% of the US workforce will be eligible for retirement. Just under a half of the knowledge and experience in the current workforce could be gone in 10 years. I believe that as life expectancy climbs, people will continue to work longer, but maybe I'm too hopeful. But we need people. With the growing gap of skilled workers, we really need people.
And it's not just the millennials jumping jobs. Forbes reports that among the jobs that 39 to 44 year olds began, one third ended in less than a year. Remember those turnover costs we shared, they're just going to get worse. There is an absolute necessity now for businesses and HR to be strategic. Our people will walk in our door and in a blink will walk back out. Turnover is just going to get worse. For business owners tracking LTV, or a life-time value of a customer, and trying to extend that customer life a month, a quarter, a year, we do so much to keep that customer as long as possible.
We need to show that same effort with our employees. We must dial in our time to productivity, learning and development, leadership training and more. We must invest the dollars and the time. If we don't move quickly we'll pay the price, and it won't be cheap. Here's a simple way to look at the demographic challenges our businesses and HR teams have. Look at the differences in communication about compensation, the differences in tenure, and the differences in how they think about their careers.
How do we treat all of these equally when we have to treat them so differently? Different needs, different wants, different cultures. How do we motivate? How do we retain? How do we keep them engaged? How do we meaningfully communicate the right things in the right way? And there's another group to consider, contingent workers. Contingent workers are on the rise. I'm talking consultants, freelancers, contract workers. Eighty three percent of executives are saying they're increasing the amount of contingent workers. A group projected to reach 23 million by 2017.
That's a 26% increase in just the last two years alone, and there's a surge as well in remote workers. With 34% of companies saying that more than half of their workforce will work remotely by 2020. That's half of your organization working from home. Those are massive changes. Think of this, you will have 75% of your work force as millennials, and 50% of them will work from home. And money isn't at the top of their list. You can't bribe them with just dollars, they care about your mission, your purpose as a company, and your employer brand.
Think of the turnover challenge, think of the challenge of engagement and satisfaction. I've got to be honest, it worries me greatly to think of the incoming workforce and not being able to influence them in the office, where we can guide and teach so much more easily. Achieving our strategic outcomes with half our teams at home, we won't make it happen doing what we're doing today.
So in summary, and another way to look at it, 18 of 20 of your employees will have been in your company for three or less years. Half of them will not be in the office, and many of your team will be contingent workers, contractors, and freelancers. And we have another problem that I'm sure others will discuss today as well. There is a growing worldwide shortage of skilled, college educated workers of more than 38 million predicted by 2020. And even if they do graduate, there is still the issue of being unprepared. Basically we'll all be competing for unskilled workers, and we'll still be short about 38 million.
So think about this gap, 38 million skilled workers and all of us will be fighting for them. And here we are talking about the skills gap in HR specifically. Where are you going to find your HR professionals? If you think you'll find that magic candidate out in the market, you're dreaming. There are too few to meet the demand. I really think the only way is to do it internally. At least planning on doing it internally we're covered when we don't find somebody from the outside to make it happen.
Who will really win the talent war? Nobody, we will all lose. I think it's a matter of who will lose the least. It really is time to step up now and make some meaningful changes to our businesses. Let's look again at our chart, this is really what we need to happen, and we need it to happen soon. Ninety-nine percent of us need to depend on our current people to make it happen, time for a paradigm shift of major proportions.
As we wrap things up, let's just repeat again what we've covered. We've discussed that the clearly negative market perception of HR and the aspects of this chart, the evolution of HR, also the strategic outcomes that business should expect HR to provide, and finally why the changing workforce demographics should light a fire under us all to make significant changes now. As well as the fact that we need to likely lean on our current teams to make it happen.
But I really hope that your takeaways from today are two things. First this chart, and secondly the strategic outcomes map. Please use this and expect these outcomes for your businesses. Have meaningful conversations about these topics to influence your businesses, to change and be better now. Focus on the most important outcomes first, but remember they're all connected. You can't have an exceptional culture and not enjoy the benefits of every other outcome. So I'd highly suggest starting there, it's the best place to begin, and it's much harder than you think.
You can't copy culture. So take the time, make the effort, make the investment, and do culture right. It will domino into the other outcomes. I do realize that this feels like an overwhelming task, but just do what you can now and get started, and be committed to change. Find the technology and the processes to invest in wisely, then take your HR teams and train them, trust them, help them grow and learn. It's one of the wisest investments we can make. The companies that do this right will win, others will fall further and further behind.
With that I think we're about done. To repeat a statement from earlier, every single organization here today has an asset that matters much more than anything else. Companies don't create value, people create value. And we also know people are capable of greatness, and sometimes they're held back. It's the business's job, teaming up with HR, to discover what is holding our people back and removing those obstacles. We want to free our people to do great work, and then our organizations will be great as well.
I hope that what I've shared today is somewhat helpful to you and your business. Also we talk all the time internally at BambooHR about paying the price to do it right. We have to pay the price. It will take time and mammoth effort, but when it's done and we've paid that price, we and our organizations will be so much better for it. Please enjoy the great speakers today as they invite you to change elevate people and yourself. We thank you for being here, and we wish you the best of success. Please enjoy Elevate 2015, thank you.