Companies and the Workforcein a Transition Period

L O C K T O N M É X I C O

Jorge De la FuenteDirector Human Capital

jdelafuente@mx.lockton.com

Ana María MontesDirector Actuarial Consultancy

amontes@mx.lockton.com

As far as population is concerned, Mexico has a positive scenario known as “Demographic Bonus”

The number of people at a working age will be far greater than the population at a non-working age. Within the next two decades the country will reach its maximum level of people at a working age and this must be taken advantage of from different points of view, including macroeconomics and the business perspective.

One of the most important advantages is the fact that in the next few years companies will have access to a greater number of potential employees. This, however, will also represent a major challenge for them since that massive number of people coming into the workforce is part of two generations (Y and Z) with a certain conduct and set of characteristics that make them different from current generations.

While the future always holds a high degree of uncertainty, this population phenomena indicates that companies will face the cultural challenge of being more flexible, a lot more open and oriented towards results and less towards controlling people.

+

This process will be optional; however, those companies who do not evolve and

become more flexible will have to face a major competitive disadvantage.

3

The generations in the population are described in different ways but are generally classified according to the year when they were born.

EXAMPLE

All those who were born after the war (World War II) are known as Baby Boomers; nowadays many of them are in the early stages of

retirement or very close to reaching it.

Profile of the population

Those born from 1965 and up to 1981 are part of Generation “X” and today are an important part of the population in the working

age.

Those born from about 1982 and up to 1994 areGeneration “Y”, also known as the Millennials.

Generation “Z” is the post-millennial one, those born from 1995 up to 2004 which means that this generation is comprised today of

children and teenagers.

Nowadays, this last generation is a mass that represents a high percentage of the population at a school age, still quite young but in a decade or two they will enter the workforce and represent an extraordinary part of the country´s labor force.

4

Source: Prepared by Lockton based on CONAPO´s population projections.

Companies will have to open up to new ways of working so they can integrate these new generations, achieve greater productivity and retain this talent. (1)

This is why companies must learn to clearly identify the profile of each of these generations, they will have to understand their behavior, their interests and especially their values; they will have to make internal adjustments to take advantage of the characteristics of this workforce. When we speak of their values, we refer to what makes sense to them or what they value; in other words, each generation has different and specific characteristics which directly affect the way they work.

2015 2025 2035

Generations projections by age

5

In Mexico you can see that different companies are already applying more flexible practices, such as:

Continuous personnel rotation within different areas of the Company.

Or simply by allowing that their procedures are followed in a different way.

Flexible working hours.

Home office.Other ways of communication and virtual collaboration.

Truth is, however, that many companies still have a long way to go.

For companies, the availability of the workforce will increase although this will not necessarily mean there will be greater access to talent. This is why these generations will want to receive training and be continuously up to date so they can have the opportunity to choose the Company they want to work for and also to acquire the tools and capabilities to successfully manage their own business.

Mixture and transition

For companies, the process of changing is not a simple one. There is still an important number of companies that traditionally have had inflexible practices while at the same time the process of integrating a workforce with different generations, each with very distinct characteristics, has already started.

In other words, there is a major clash within the corporate culture in labor matters; the workforce has a very dissimilar work behavior according to their age group; this calls for a transformation that can reconcile company objectives with the behavior, needs and values of its employees.

6

We have seen a number of companies where recent college graduates or employees who come from more innovative and flexible companies have arrived only to find rigid control schemes that do not allow them to work in new ways. The result? They lose this talent.

In the technology sector we have seen a significant transformation in matters of flexibility at work. When you take a person who has worked in a technology company

and later joins another type of company, his performance will not be at its best because this employee will have to face a strong cultural shock.

As the Company is able to understand the mental structure of these new generations, the way they learn, their use of technology in the process of interacting and communicating, their behavioral patterns and -consequently – the way these work, they will be better able to reconcile the interests of both.

Therefore, change is imminent because these generations are the workforce of the future and they are also the future leaders; in some areas, today they are already the leaders.

In the future the workforce will necessarily come from the new generations of the population, therefore companies will be forced to evolve to more flexible schemes if they do not want to lose work talent.

7

It is important to ask ourselves:

How long will this process take?

We foresee it will take between 10 to 15 years, because this is the time period it takes for the Y and Z generations to reach a predominant place in the country´s workforce.

This time period was projected considering how the pyramid of the population evolves; by the year 2030 the population, on average, will be 35 years old (on average, generation Y will be 42 years old and generation Z, 28).

Today, generations with different backgrounds and values are already coexisting and they could come into conflict, because one will be leading the other. This is where there will be an important cultural shock.

During the coming years we will see new companies about to be born as a result of a greater number of young entrepreneurs, companies that will evolve as they integrate new generations which will interact in new ways, but other companies will also disappear because they did not overcome this generational change.

Finally, we must take into account that in the following 10 to 15 years companies will have a higher percentage of people who can retire or are closer to their retirement age than they have today. Therefore, starting immediately companies must plan to have a retirement scheme that enables them to assist their workers at retirement and help their colleagues to complement the pension they will receive from the social security. In the end this will help the company to effectively manage this generational change.

¿?

8

Where do companies stand today?

In 2015 Lockton México carried out a Survey on Benefits and Market Practices forNon-Executive/Non-Unionized Employees.

The sample was made up of:

Today, 56% of the companies have Flexible or Optional Benefit Programs; this confirms the process of transformation towards greater flexibility to meet the compensation needs of each generation. Companies that are paying attention to the needs of their employees will be better prepared to retain talent

It is important to point out that these Flexible Benefits refer to the possibility for each employee to choose, according to his needs, a package of different benefits such as medical care coverage, life insurance, retirement plan and cash benefits, among others.

However, there is less work flexibility in the number of extra days granted in addition to what is already determined by Law for maternity or paternity leave or sick days (only 14%).

Companies also do not have a formal practice of granting a leave of absence for a specific reason such as an employee´s birthday or community service.

The survey also measured home offices. According to the survey, 29% of companies indicated that they have a formal Work from Home program. However, 35% occasionally do allow their employees this type of flexibility and there is a very small number of companies that refund personal expenses when working from home.

COMPANIES DIFFERENT INDUSTRIES34 11

9

It will be very important to measure these indicators on a yearly basis so we can identify how companies are evolving on the

subject of time flexibility.

It should be noted that companies that allow this practice, typically allow employees to work at home one day a week.

In matters of Flexible Time, the companies surveyed by Lockton revealed there is small number of programs for working half-time or for time sharing. A very interesting fact is that 94% of companies who have flexible time (50% of those surveyed) allow employees to have flexible hours coming into work and for leaving at the end of the day.

32% of the surveyed companies offered a formal program of training assistance(from English-language classes up to doctorate degrees).

Conclusions

Companies that generate a competitive advantage based on their organizational talent capabilities in the medium to long term will be the ones that more quickly reorganize to be able to respond to work demands. At the same time they will face a major challenge: to maintain productivity while granting this type of flexibility.

It is extremely likely that companies will move towards a strong focus on results in order to allow the flexibility they will need.

10

Companies will definitely have to be able to visualize the characteristics of the values which persons from the younger generations have, while at the same time have the ability to successfully adapt to the flexibility which their employees will demand.

Companies will inevitably have to move towards a flexible working scheme or they will lag behind in productivity.

We foresee that companies will have many more people from which to choose; however if they also have work flexibility for the new generations, interesting schemes with professional challenges, they foster dynamic work schemes and rotation in different areas, the combination of these variables will give them access and the ability to retain this highly productive talent.

Companies can have a competitive advantage if once they put in place their collaborative and flexible schemes, their example permeates throughout the market as part of their brand positioning.

On the flip side, companies which in time maintain their traditional schemes, will also have access to a lot of talent, but it will be much harder for them to retain it and personnel turnover will make them inefficient and unproductive.

Employees from generation X who are in leadership positions and respond to the need for change, will be the ones that continue fostering the transition towards flexible working schemes. Finally, while there will be much from where to choose, talent will also have to be better prepared so it will be chosen. If a person wants to be in a flexible company and there is a lot of competition for talent, he needs to have a plus: he needs to be better prepared.

Companies will have to invest and work hard on a different set of values that are shared by all their colleagues and which contribute to productivity and results such as a personal responsibility, a winning attitude and being the best in the market, team work, collaboration, emotional intelligence, commitment and, above, all, the values that give a company its identity. The purpose of all this is to increase productivity and retain talent, regardless of where the employee is working.

11

(1) Notes

Baby Boomers

Men from this generation developed a feeling of pride for belonging to a Company and being able to grow within it while reaching the higher levels in the hierarchy. A cult of the all- powerful company was created, a mysterious being that rewarded those who were loyal and efficient with a sense of wellbeing. The executive became a stereotype to be imitated, because he was seen as part of a select social cast. In the case of women, there was a terrible internal war in the world of opportunities found outside the home, the social and professional success vs. the guilty feeling of having to “abandon” their children, their home, their husband and all they had learned was and should be their top priority. The strongest trend among this generation was change. Politically active, they were members of organizations that promoted social, legal and cultural change; they aspired to have a college education and considered the value of intellectual work to be far superior to manual tasks, among other characteristics.

Generation X

The “X” do not want to have anything to do with the values of their parents´ generation. However, the “X” do not have new values that substitute the ones they are rejecting. They threw out old values without having any substitute. The pressure to be successful at any price and climb the professional ladder as far up as possible, the poor perspectives of the job market and the lack of solutions led the “X” to the conclusion that in this game they have no opportunity of reaching “success”. In the work environment, the “X” take team work very seriously. The “X” give less value to hierarchy and likes to be treated as an equal, not as a subordinate. It is necessary to include members of Generation “X” in the decision-making process.They insist on balancing their life with their job. They also have a different style of communication than Baby Boomers. Those from Generation “X” tend to be more open and direct. The “X” are less loyal; they define loyalty as a willingness to stay with the company in good and bad times, they are loyal to their profession, not to their employer. Members of generation “X” are always on the run, they fight to achieve results and tend to side-step rules and procedures. They are willing to take risks and innovate.

Generation Y

Culture in the workplace is extremely important to them. They have continuous access to information and knowledge which represent a challenge and they challenge what is established. They seek balance between life and work. They are known for being trustworthy and self-sufficient. Generation Y dominates technology, it cannot conceive reality without it and this determines their perception of the immediacy of things, of “right this minute”. You cannot talk to this generation about patience, painstaking work and procedures, but rather about results.They seek an important balance between their personal life and their work, they feel work is not their life but rather a part of it. They are motivated by work that offers them flexibility as this allows them to act with autonomy and harmonize the different aspects of their life. Members of this generation tend to establish a courteous relationship,

not one of respect, admiration or love/hate towards authority. They feel comfortable when management sets a style of fluid and open communication in which initiative is rewarded. On the other hand, this generation is permanently connected with other persons through social media, so they are open minded, motivated by change and the possibility of traveling. Given these characteristics, it seems clear that the young members of Generation “Y” are moved by values that are more individualistic and demanding as regards what they expect from the company.

Generation Z

Their theme is: independence, variety, creativity, their own personality, participation in cyber networks. They are youngsters who are strongly tied to technology, since they were very young they used DVDs, Internet, cellphones, downloading files in MP3 format, social networks such as Facebook, Linkedln, Twitter and YouTube.They are restless because they want to get immediate results. Internet was always there for them and they take it for granted. They feel it is the greatest instrument for humanity.Personally they do not feel obliged towards friends and relationships; however they are capable of creating large communities and great collaboration through the internet without having met anyone personally. They do not handle themselves correctly when speaking in public since their means of communication are mainly through networks and privacy is a controversial issue for them.

www.uprm.edu/procuraduria/docs/Artviviendoentregeneraciones.pdf

www.gerza.com/articulos/aprendizaje/todos_articulos/comport_generaciones.html

es-es.facebook.com/ESTUDIODEMARA/posts/351031674998283

es.wikipedia.org/wiki/Generaci%C3%B3n_Z

12

www.lockton.com.mx

Our Mission

To be the worldwide value and service leaderin insurance brokerage, employee benefits, and risk management

Our Goal

To be the best lace to do business and to work

Lockton, Inc. All rights reserved.Images 2015 Istock. All rights reserved.c

c