Online labor platforms make it easier to find—and harder to retain—talented people. They give companies a real opportunity to transform the way they recruit, develop, and engage their employees. In fact, LinkedIn and sites like Careerbuilder and Monster.com have changed the way employers and employees connect, and digital marketplaces such as Freelancer.com, Toptal, and Upwork have transformed the sourcing of contractors’ services around the world.
Governments around the world have struggled to increase employment in recent years. Online talent platforms show real promise for injecting more transparency and dynamism into job markets. As people come to connect with work opportunities more efficiently, even larger economic ripple effects could abound in the years ahead. To capture these benefits, regulatory frameworks, corporate practices, and individual mind-sets will have to change, along with technology. With the right investment, a thoughtful approach, and continued innovation from the private sector, the world could move closer to the goal of a labor market that works.
Digital labor platforms have also created a more transparent job market. What’s more, a lot of people now scour platforms such as Glassdoor to learn what current employees have to say about their job satisfaction, company culture, and lifestyle. Companies that don’t manage their workplace reputations carefully or engage their employees appropriately will find themselves on the losing side of an increasingly digital war for talent.
A new wave of digital tools can help companies to focus not only on hiring but also on managing, retaining, and developing employees. Digital labor platforms can pull these tools into an integrated whole as companies widen their labor pools, refine their recruiting and screening methods, and deploy their employees more effectively. Such tools, and the platforms that include them, can put the right person in the right job, identify gaps in skills, help employees as they gain new capabilities, chart career paths, and nurture the development of the next generation of leaders.
Some, like LinkedIn, Monster.com, and Indeed.com, bring together candidates and employers to fill traditional jobs. Others, from Upwork to Uber, create online marketplaces for freelance work. Still others are tools that use big data analytics to transform the way companies hire and manage talent.
But what does all this mean for the average worker?
For starters, it could mean empowerment. Outside of a few high-growth sectors, most individuals have faced diminished hopes and heightened anxiety in the job market in recent years. But technology is starting to swing the pendulum slightly back in favor of workers as online talent platforms give users more work options, more mobility, and a better sense of the wages they can command on the open market.
Talent platforms are gradually expanding to new occupations, industries, and geographies, but so far the clear winners have been educated and skilled professionals in advanced economies. In fact, the most sought-after talent may not need to apply for jobs at all. The opportunities may come to them as more companies recruit “passive” candidates rather than placing an ad and waiting to see who responds. Even workers who lack formal credentials can gather endorsements and build their reputations for soft skills such as customer service; they may also be able to find flexible and self-directed opportunities to add hours and boost their incomes.
Platforms such as Glassdoor and Vault—which publish anonymous reviews and salary information from current and former employees of specific organizations—are changing the game in other ways. They offer new visibility into what it would be like to work for a given company, increasing the odds that users will have the ability to choose an enjoyable work environment.
For employers, the news is mixed. Companies can now use sophisticated digital platforms to improve the way they recruit, assess, and train employees. This requires investment to build analytics capabilities in HR departments, but the early adopters are discovering that data-driven decisions about people can remove some types of bias and produce better business results.
But now that individuals have publicly visible profiles, the war for talent is heating up. Competitors can lure away valued employees (and even entire teams). Greater job mobility is a plus for workers and the broader economy, but businesses may face higher turnover. It will be more important than ever to treat employees well and create a compelling workplace. Companies will have to maintain their reputations as employers just as carefully as they maintain their consumer brands.
Online talent platforms have a unique ability to track the positions employers are filling, the skills required, and the career pathways that take people from education to employment. These insights can help individuals make better-informed decisions about educational investment. Educators and training providers will also need to use this data to shape their offerings—and there could be a new standard of accountability as the outcomes associated with specific institutions and degree programs become more transparent.
With their user networks growing into the hundreds of millions, talent platforms may reshape job markets in ways that we can only begin to imagine. Just consider what digital platforms have done in e-commerce. Amazon, for instance, started as an online bookseller but has introduced innovations and business lines that have rippled through multiple industries. Online talent platforms may similarly evolve and add new capabilities that we cannot predict today.
Online talent platforms can ease a number of labor-market dysfunctions by more effectively connecting individuals with work opportunities. Such platforms include websites, like Monster.com and LinkedIn, that aggregate individual résumés with job postings from traditional employers, as well as the rapidly growing digital marketplaces of the new “gig economy,” such as Uber and Upwork. While hundreds of millions of people around the world already use these services, their capabilities and potential are still evolving. Yet even if they touch only a fraction of the global workforce, we believe they can generate significant benefits for economies and for individuals (exhibit).
McKinsey Global Institute research suggests that businesses deploying digital labor platforms to their full potential could increase output by up to 9 percent, reduce employee-related costs by up to 7 percent, and add an average of 275 basis points to profit margins (exhibit).1
To date, many of the gains achieved with digital labor platforms have come through the external ones, such as LinkedIn. But to realize the full potential of the digital approach, it will also be necessary to use internally oriented platforms more effectively, so that organizations and employees can tailor their interactions and the information they share to their unique needs. In this article, we’ll highlight several of these newer, more internally oriented applications.
Matching labor supply and demand in the new era
Digital labor platforms make it easy for competitors to pick off the best people inside companies—and enable employees to be more empowered and to announce themselves to the world in previously unimagined ways. These platforms create new opportunities for employers to improve the way they assess and deploy their employees and, by doing so, to differentiate themselves as employers. But the platforms also create intensified competitive challenges and pressures from the external world and from employees themselves. Companies that have relied on large, closed internal labor markets will be under the most pressure. The increased restlessness and mobility of employees is good for individuals and for the economy, but tough for companies without compelling employee value propositions.
Digital tools can also help companies recruit candidates who are not actively job hunting. For instance, they can search GitHub, which hosts the largest repository of open-source code on the Internet, for examples of excellent coding and then contact its authors for recruiting purposes. TopCoder conducts regular online competitions that allow users, even those without formal training or experience, to showcase their technical skills to the companies that post challenges and award prize money. Codility, HackerRank, HireIQ, and TRUE Talent are additional examples of this emerging data-driven ecosystem, where the range of talent grows wider as subjective hiring biases fall.
Online tests, games, and analytics also improve the recruiting process. Good&Co uses online psychometric tests to assess whether a potential employee would be a good fit with a company’s culture and an effective match for a given job. And instituting a 30-minute online screening test comparing an applicant’s profile with those of top performers helped one leading company to reduce attrition among new hires and to raise productivity by 3 to 4 percent.
In fact, online labor platforms are already useful for more than just recruiting. Beyond the hiring process, companies can use digital tools to develop a pipeline of employees with diverse skills. As a result, organizations can not only get smarter about the workers they team together and deploy for specific initiatives and tasks but also address the capabilities they will need in the future.
Maximizing employee performance
Digital labor platforms help recruit and organize a company’s employees, maximize their productivity, and boost their performance in other ways as well. The efficiencies for the company are clear. Done right, the cycle can also be virtuous: workers become more engaged, more fulfilled, and more effective as their careers progress.
Onboarding and training
Labor platforms help create a more comprehensive, personalized, and rapid onboarding experience so that new employees add greater value more quickly. Appical (a Dutch start-up that uses digital games) and LearnUp (which offers digital training programs for job candidates) are just two of the companies that create tools to make onboarding more productive. Developing an onboarding agenda helped Google boost the productivity of its new hires by up to 15 percent.2
In a business environment where technology is evolving swiftly, it’s not enough to offer one-time training. Companies in knowledge-intensive industries need mechanisms that support ongoing, self-directed, and virtual learning. Training platforms such as Litmos and Mindflash enable companies to cut back in-person training sessions and create more effective online learning programs.
Raising employee engagement
What’s more, predictive analytics can identify employees likely to depart, flagging the need for mentoring, new jobs, or advancement to improve their satisfaction and engagement and thus decreasing employee turnover and raising productivity. Bank of America, for instance, has made its employees more engaged by using Humanyze’s sociometric badges (ID cards with embedded sensors that monitor interpersonal interactions) to gauge and improve the cohesion of call-center teams whose turnover dropped sharply as a result.
Wells Fargo has developed a predictive model to select the most qualified candidates for positions as tellers and personal bankers. Working with Kiran Analytics, the company identified the qualities that characterize engaged, high-performing employees in client-facing positions and then screened for those attributes in new candidates. By the end of the program’s first year, the retention of tellers and personal bankers rose by 15 and 12 percent, respectively.3
Strengthening leadership and creativity
Online labor platforms can help companies cultivate the next generation of leaders; 3M, for example, has created an integrated workforce-planning platform that increased its employees’ internal mobility and boosted productivity by 4 percent. Google has taken digital innovation in human resources even further. Its People Analytics unit seeks to answer both tactical and aspirational questions, such as what impact relations among team members have on results and how best to tap the creativity of engineers. The group uses rigorous testing and statistical analysis to inform (but not replace) human judgment about people decisions. Its proprietary analytics techniques have boosted the productivity of Google’s workers, both as individuals and as members of well-functioning teams.4
Illustrating the possibilities
The impact of digital labor platforms and tools is significant and measurable: on average, according to our research, companies can realize an increase of 275 basis points in profit margins. Of course, not every organization will reap the same advantages. The extent of a company’s benefit will depend on the mix of people and skills it needs in its workforce and on its specific operating model. The biggest winners will have a large share of highly skilled workers and a frequently shifting mix of project teams. But even companies with mostly low-skilled workers will benefit, since digital platforms improve the assessment, deployment, and performance of candidates and reduce attrition and the need for costly recruiting.
Industry example 1: Brick-and-mortar retailers
Typically, retailers that operate multiple physical stores hire in large volumes and suffer staff turnover as high as 75 percent a year. The majority of retail jobs do not require higher education but do call for excellent people skills. Moreover, seasonal spikes present a particular challenge: demand for workers rises by 50 percent or more during holiday periods. Throughout the year, these companies need to hire, screen, and train people rapidly and repeatedly.
Labor platforms can enhance the recruitment efforts, customer service, and back-office efficiency of such retailers, while predictive hiring can reduce their notoriously high attrition. These platforms also help such companies to identify high-performing workers for advancement and to provide them with tailored training—a priority in an industry where best-in-class organizations source 80 to 90 percent of their managers internally. In all, we estimate that online labor platforms can increase a given retail store’s output by 3 percent and reduce talent and HR costs by 5 percent, by enhancing the value of the brand and winning customer loyalty.
Industry example 2: Professional-services firms
Some of the largest gains online labor platforms generate will accrue to professional-services firms. Because they have so many client-facing workers and so few back-office ones, the productivity gains will be reflected mostly in increased output, which we estimate can rise by up to 9 percent, while employee-related costs can fall by up to 7 percent. The biggest impact will come from recruiting people with more appropriate skills and from helping employees to access internal knowledge. In global firms, where expertise is dispersed across offices and client work spans industries and functions, digital platforms can help catalog individual expertise at a detailed level. Team-formation tools also take knowledge, interpersonal traits, timing, and geography into account.
Embracing the opportunity—and addressing the challenge
Like any tool, a digital platform for managing people must be wielded properly. Most organizations lack integrated systems to manage their current employees—let alone to identify and engage with potential ones or to develop long-term plans for the needs of the workforce. With multiple systems and fragmented data, HR’s visibility into such issues is limited. Migrating data, establishing common standards and protocols, and simply becoming more adept with big data pose significant challenges. (For one company’s experience, see “How Ericsson aligned its people with its transformation strategy: An interview with chief HR officer Bina Chaurasia.”) Only a few companies, most of them new, approach these challenges in a digitally integrated way.
But companies that adopt digital labor platforms early and develop a more analytic and integrated approach to the workforce stand to gain significant advantages. Digital platforms could reduce the transaction and interaction costs of many day-to-day HR tasks; boost efficiency, innovation, customer service, and employee engagement; and reduce attrition.
Many companies have invested heavily to apply digital tools and big data analytics to other corporate functions but have hesitated at the doors of HR, where human judgment has always been central. They’re understandably skeptical about the idea that a more quantified approach to hiring can replace an interviewer’s “gut feeling.” But external studies and our own research reveal that the analytic approach reduces personal bias and, combined with human judgment, helps to land better hires. New technologies can demonstrably improve the customer experience while holding down the costs of attrition and training—and improving the workplace experience.
The shift to data-driven talent management
Brian Gregg, principal, McKinsey: It seems like we’ve just hit the precipice of a gigantic shift, where data analytics and how we think about evaluating and managing talent are about to change, or maybe are changing right in front of us. What big shifts do you foresee as data and technology start to change the landscape of talent management?
Anne Robie, head of human resources, StubHub: From an HR perspective, we’ve sort of been in the dark ages. We started as the personnel department, and now people are coming up with titles like “chief people officer.” Data helped the rest of the business leapfrog from a strategic standpoint. The next frontier is in regard to human resources. I look at data in terms of performance management and how we’re thinking about our talent and who we think can be successful, and big data can help me predict who will be a successful employee. But there is still so much that is incredibly important with regards to gut feel and cultural fit.
Kiran Prasad, vice president of engineering, LinkedIn: It’s definitely a balance of art and science, and probably more art than science. Every time we’ve looked at all the data and we’ve tried to predict whether a person’s going be successful or not, what we’ve generally found is that there is a sense of passion that is hard to measure.
Anne Robie: We’ve been looking at some really interesting uses of predictive analytics. For example, when does attrition happen and why? And can we then predict what’s going to happen 6, 12, 18, 24 months out, given historical trends? That really helps us if we can hire ahead or if we know that we need a certain skill set in the future. I can wrap my arms around those employees and help them to really want to stay.
Tim Anderson, senior vice president of product management, Glassdoor: We just implemented a sales tool that is supposed to do just that for accounts. It scores a bunch of signals—for example if a client hasn’t logged into their employer center in two months or just changed their job title on LinkedIn. You can score all those signals, so I can see how that would be applied to attrition.
Dianne Esber, associate principal, McKinsey: Think about a place like Google, which has their “Googley” score, which is this qualitative art that they care about. They’re still factoring in a number of different dimensions and have really changed their process over time. For example, they used to be very prestige based and cared about SAT scores and where you went to school. As they’ve done predictive analytics with those metrics, they’ve found that’s not what correlates with success. So they’ve changed some of those practices in response. It’s not that it necessarily predicts success or failure, but they’ve found things that don’t correlate, and they don’t spend time using those as screening criteria.
Newly empowered employees are already tapping today’s wired job markets. Competitive opportunities and easily accessible online tools allow those employees to gain a more informed sense of their external worth. Employers should take note and clearly articulate a value proposition for both present and potential employees. Labor-market fluidity is becoming a whole new ball game. Companies, new and old alike, cannot afford to sit on the sidelines.