Episode Transcript
[00:00:00] Okay. Good morning. I want to talk about a topic that's been on my mind for many weeks, maybe months. And that is a combination of two things going on in the world of work. The first is this extraordinarily low level of employee engagement in companies and the lack of trust that employees have with their employers at the moment. And I verified a lot of this amongst young people this weekend when I was with a wed. At a wedding with a lot of younger working people and talked to my nieces and nephews and others in the early stages of their career. And then the second is the impact of this massive affordability crisis or inflation that we're experiencing. So let's take those two things on because they're related.
[00:00:42] Now, we've studied employee experience for a long time. We have the irresistible framework which has 24 dimensions or contributions to employee experience.
[00:00:54] And right now, the main thing that CEOs and CFOs are primarily interested in is productivity and growth, because we're in a economic environment where the stock market is trading like a casino, in a sense, and if you're not growing, you're going to get hammered financially by your investors.
[00:01:14] And even though the GDP is not growing at a rapid rate, AI has opened up so many opportunities for new businesses that everybody wants to jump on this bandwagon in some fashion. So lots of companies are laying people off, redeploying people, trying to reorganize people, come up with new job titles, implement new systems, redesign customer experiences, change the way they develop software. You know, so the average working person, and you know, if you're a blue collar worker or you're a nurse, or you're a truck driver, or you're a retail worker, you're not seeing this directly, but you might be if a kiosk appears in your store, is a little freaked out.
[00:01:51] And there's constantly articles coming out from different journalists about the end of jobs, which we kind of know is not true, but we're still reading about it. Then there's the press about young people not being able to find a job, even though employers tell me they are not slowing down their entry level hiring because entry level workers are less expensive and oftentimes more skilled new technology than more senior people. There's a lot of data that seems to be spreading around that shows that the unemployment rate for young workers is twice as high as it is for the average worker in the United States. Now, I take that with a grain of salt because I think young people have always had a higher unemployment rate because they're looking for their first job.
[00:02:33] But nevertheless, that's there. Then there's the issue of income inequality and the fact that at least here, for the first time in my life, young workers are likely and expected to make less than their parents over their careers. They're unable to buy a house because of the high cost of housing in most cities. So they're postponing getting married and postponing having children.
[00:02:56] Then there's the political instability, of course, and political animosity that we live in.
[00:03:01] Then there's the issue of war. There are more wars in the world right now, simultaneously, than ever before, according to the research I've been reading. And then there's the general instability of our social norms, gender change, diversity, programs being crushed, and just all sorts of chaotic changes all going on at the same time. And of course, what happens when lots and lots of things change at the same time is people feel unstable and they hope that their employer gives them a sense of stability. Stability.
[00:03:33] And some do and some don't. I mean, if you work for a tech company, there's a good chance you're not getting that because there are a lot of layoffs on restructuring going on. And if you work for a more stable company, you might be. So we're in this situation where employee engagement data from Pew and Gallup and most of the surveys show that it's as low or lower than it was during the pandemic. And employers are doing everything they can to grow at the expense of their employees, if need be. Because we've been told by the tech companies that if we spend more money on AI, we can spend less money on labor, which I also have a big argument with. So this is all happening right now, 2026, and the result is low levels of engagement, somewhat lack of trust. I mean, you've seen the data. If you've seen that the Edelman Trust Barometer, the levels of trust in the United States are as low as they've ever been. Lack of trust in corporate leaders, lack of trust in political leaders, lack of trust in the Supreme Court, lack of trust in.
[00:04:33] So. So be it. Now, the strange sort of paradoxical thing about all this, in the middle of all these negatives, there's a whole bunch of positives. You can start a new business, you can build a website, we have new drugs to cure cancer, to help you lose weight, to help you lower your cholesterol, all of the. The peptides and infinite number of things are getting better at the same time. But if you read the data about engagement and sentiment. Most people aren't feeling that way. And I think the reason they're not feeling that way is, first of all, the income instability and the lack affordability, but also this sense of chaos that everything is changing at the same time. And so the resolution for that as a leader or a leadership culture, is focus is giving your company, your employees, your staff, a clear communication as to what we're trying to do and how we're going to get there from here and what's your role and what's in it for you. Now, I just had two spectacular interviews with chros last week, one with News Corp, one with Shark Ninja, and you'll be hearing those soon.
[00:05:34] And one of the things that comes up in both those interviews is the clarity of message and the clarity of communication that they're delivering to their teams. And that sounds a little bit odd, but because they're both in very rapidly changing, disruptive industries, but they're doing a really good job of that. So I actually think many Chros probably should have corporate communications either reporting to them or dotted line to them. So they're involved in the communications story that's going to employees and to customers, because this is all related.
[00:06:07] The second big part of this soup we're living in is inflation. And I wrote a long article on this. I spent a lot of time researching it. The inflation we're experiencing now is to a large degree a cause of the war and the tariffs and a lot of the behaviors in Washington, spending and so forth, but also a long history of, of policies going back to Ronald Reagan to move national resources from labor to capital. Now you can sort of read the Trump administration's story on this and the Department of Labor, we're here to protect labor and so forth. When you look at the actual behaviors of what's happening in Washington, the minimum wage hasn't been increased.
[00:06:49] It's still $7.50 an hour, which is almost like not even existing. The pushback against diversity programs, pushback against programs that promote women in the workfor, pushback against organized labor, pushback against pensions. I mean, there is a lot of discussion now about apprenticeships and better education programs for work. In fact, the merger of the Department of Education into the Department of Labor was positioned as a way to align education with labor. And if you read the article I wrote, you can see what's basically been happening is we've had a very strong series of administrations that have focused on the stock market, the financial industry, releasing or eliminating protections on financial fraud, opening up gambling, crypto Alternative assets. I mean, the number of alternative assets launched in the last five years is spectacularly huge. I'm going to write an article on that. You're going to. It's going to blow your mind. Prediction markets, a lot of focus on the U.S. economy, quote unquote, measured by GDP and stock market. But the funny thing about the word economy, if you're an economist, if you're a macroeconomist, that may be the way you measure the economy, but the real economy is actually the standard of living of the individual people in the economy. So for me, as more of a microeconomist, if we don't see wages increasing relative to inflation, the quote unquote economy is not good because only about 10% of Americans own something like 50 or 70% of the stock in the stock market. So just because the stock market goes up, it doesn't mean everybody is getting rich. And the stock market doesn't go up forever. It's been going up since 2008. And then we had, of course, a correction during the pandemic, but it's gonna, it's gonna correct. It's kind of at a fairly lofty level now. So the average worker in the United States is not seeing their center of living go up. You've seen this data, whereas a few people are. And that disparity is becoming very obvious in our political discussions about taxes. And again, this creates a sense of dissatisf at work. So what can we do about it? Forget about the politics. We can help with our pay and rewards. So if you look at pay and rewards as one of your many HR things that you think about, most companies regard pay as an expense, so they want to minimize it. And in a fast growing stock market where everybody wants to grow their profits and their earnings and their revenues, paying people more money doesn't always feel like the right thing to do. So we either postpone or delay the raises relative to inflation, we raise the price of our products faster than the raise the price of our wages. And of course, what we're doing is we're making it harder and harder for people to afford our products and services. Apple raised their prices by 20%. Airline flights have almost doubled in a lot of the flights, I take that literally doubled fuel prices, food prices. You've seen all this. And the people that are left behind are the working Americans or other people in the world who don't have large amounts of stocks in these companies. And they're just trying to pay for their education and their transportation and their health care. And their food. So in some sense, even though we're not the whole economy, businesses have to adapt too. And as I describe in the article I wrote, there's a lot of arguments to and fro on wages. My experience and the book I wrote, Irresistible, and you'll hear about this in the book Super Powered that's coming out in October, is that wages are an investment, they're not an expense. If you pay people well, they will spend more of their discretionary energy, they will be more adaptable at work, they will contribute in more innovative ways to your products, to your customers, to your services. They will stay longer, they're less likely to leave, they'll be more adaptable to take on new responsibilities, all those things. And if you compare the cost of a higher wage with the cost of losing people or losing productivity because people are unhappy or distracted with their pay, it's a small price to pay. So this is a huge topic. I'm not going to be able to do it justice in a few minutes. But if you're interested in that, read the article I wrote and it'll help you rethink your pay strategy. So there's that now. It's now July, it's the middle of the year, roughly. We don't know what's going to happen the second half of the year. There's a lot of inflationary bubble, types of things going on in various parts of the world, including data centers, electricity, AI expectations for software companies and so forth. But that's, you know, almost normal compared to these employee things. So in the middle of all of your AI transformation and your AI education and your shopping for AI tools and looking at HR 2030 and all of that, I think you need to take just a careful look at where you are in your employee experience. One of the ways to think about employee experience is how do we make people more productive by eliminating wasted work through AI. And that's a big, big app segment for AI. If you look at Galileo, for example, as an intelligence layer on top of your HCM system, and this is what we're working on in Galileo inside with a whole bunch of vendors, you can spectacularly change the experience people have at work on their technology experience in their day to day life. And I know this is a huge area for vendors and it's a huge area for frontline work and all sorts of different things. So that's one piece of it. But also you need to think about pay, you need to think about management rewards career and go back to this message of communications, clear Communications as to why we're here and what we're trying to do. And on that topic, just a couple of thoughts.
[00:12:31] I have a philosophy that I've learned over the years from all the research we've done, which is that if you look at a company that's fallen off the track for some reason, I mean, IBM took a huge hit last week. What happened at Boeing, what happened at Nike, what's happened at lots of iconic companies that have gone sideways for a while.
[00:12:49] Usually when you trace it back historically and try to figure out what's going on, it has something to do with drifting from their core. And the reason I feel this is sort of a big topic is if I think about the world of business and the world of competition and technology change and market changes and customer demand changes and economic changes, running a company is really like playing in a massively big, complicated game where lots of things are coming at you in different directions and you have to make many, many decisions to try to stay out of trouble and grow. You can buy companies, you can invest in things, you can de. Invest in things, you can trust people to do, extraordinary innovations and investment, R and D, if you're a drug company and so forth. But you got to bet on things that are uncertain. It's all about uncertainty. And in most bigger companies, and I think even small companies face this, the core of why you exist and why you've been successful and why customers like working with you and why you have a business at all goes back to some fundamental beginning of where you started. What Walt Disney did in the early days of Disney, what Knight did at Nike and so forth. And what I've found over the years is very few companies succeed wildly at things outside their core. Sometimes they do. I mean, there are conglomerates. Amazon's a good example. But you could argue that Amazon's core is not retail. It's innovation. It's customer centricity. That's really their core, is their ability to innovate and build new customer experiences. The retail business they're in was just one of the ways they do that. And if I think about Target, who I'm meeting with this week, whose core experience was bringing luxury to everyday life, other companies have similar core themes, is that when you drift from that and it happens inadvertently, you know, Starbucks drifted away from being the third place to being a place to just order a bunch of coffee as fast as you can and get in and get out, you don't always succeed because there might be somebody else who's doing what you're doing now and you've lost your competitive advantage. So one way to clarify communications is to remember or remind yourself as a leadership team, what got us to where we are today? How did we get here? Because usually what I found in the companies that I've run and been involved in is that core beginning story is usually true for a long, long time. Now I don't work at IBM anymore. I worked at IBM a long time ago. But I thought it was really interesting this week or last week when IBM stock dropped at a greater level than it's dropped in 60 years.
[00:15:24] Most of the press was talking about IBM's inability to forecast, but I was sort of interpreting it a little bit different was that IBM stands for International Business Machines. And when I worked there, we spent a lot of time talking about the machines and the Tabul machines and the Social Security systems and the punch cards and the mainframes and all of that old clunky stuff that nobody knows anything about anymore. And that was IBM's core. And there were massive amounts of R and D and expertise in chips and computers and mainframes and operating systems and data storage devices. And that IBM invented and pioneered and really made IBM a success. And then the PC was in a sense, IBM's ability to take that expertise and leverage it into open systems and small, low cost computers. And somewhere around the time when I left, I left in the 90s. The company decided to abandon that and get into software. IBM never really was a software company, it was an operating system company. But the application software that IBM developed was not the most successful in the world unless it was tied to the hardware. The AS 400 was the example of that. So they bought Red Hat and a whole bunch of software companies and they were following this trend that software and services were more profitable than hardware. Well, lo and behold, the world moved back to hardware. We're all about hardware now. We're all about memory and chips and AI and infrastructure and computing centers. I mean, IBM was building data Centers in the 1970s. That's what IBM did and somehow lost it. And I'm not trying to second guess all of the leaders that have been involved in IBM since then. But my kind of reaction when I saw what happened last week was here's a company that completely lost its core. I don't know what IBM's doing stands for. I don't know what IBM does. I don't know what IBM's mission is these days. I'm still not sure why they bought Red Hat. It doesn't quite Equate to me, because now we're in a world where hardware is the value add and software is developed automatically. Now, I don't think software engineering is going away, but the level of investment and money people are going to spend on software is going to be very different because we're going to be paying for software by the drink, not by the line of code. So IBM got itself into kind of a messy situation by drifting from its core. And I know there were lots of things that happened in the middle there where a lot of the computing devices they made just weren't selling and weren't that valuable and weren't that hot anymore. And so, you know, this is where we ended up. But that's just one more example of why learning and thinking and strategizing about what is our core is really important. And it affects you as a business person and really affects your employees and how they feel about coming to work and why they want to work there and why they love working there and why they're willing to do the extra things that we need them to do. Okay, I'm going to stop there. It's been about 20 minutes. I want to give you some things to think about. I have a long piece on wages, if you're interested in reading about it. And I'm going to be writing more on this whole topic of engagement and chaos and distractions going on in the economy. Based on the research that we're working on for younger workers and Frontline workers, we're going to be doing a lot more on Frontline in the fall. We're going to be part of a big event at Workday on Frontline Work. And those of you that are running Frontline, first, companies, retail, distribution, manufacturing, transportation, airlines, please keep in touch with us. This is a massive new area for us, and we've got some incredible things to show you and talk to you about. Thanks a lot. Bye for now.
