The Empathy Chasm

“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic. Turbulence is life force. It is an opportunity. Let’s love turbulence and use it for change.” – Peter Drucker

Andy Brown CEO Sand Hill East
Julie Lyle Advisor, Board Member, Investor
Lisa Nelson C-Suite, Director, Product expert
Kelvin Thompson Founder & CEO Monta Rosa

Thesis : A chasm has opened up between value and growth stocks with average multiples almost double in growth stocks. In general, growth stocks are digital first, digital led or digital hybrid businesses, whereas value stocks are more established or Industrial Age businesses. Typically market rotations occur between verticals and between growth and value as different financial conditions alternate between favoring each business model. We believe that the digital revolution is happening across all verticals at various velocity, and that the same outcome that occurred to the previous competitors of Amazon or Walmart in retail is occurring to companies that don’t embrace digital.

We have observed some leaders of Industrial Age companies exhibiting some of these behaviors :-

1) exhaustion of being responsible for steering through two years of crisis
2) confusion of not knowing what to do next
3) fear that competitors’ are continuously driving technology and digital/data to “uber-ize” their business and gain market share.

4) uneasiness as they watch their workforce having enjoyed working from home — reject the notion of the 5 day work week vs. 9–5 with 2 way commute.

We have defined the “The Empathy Chasm” as the gap between the employee expectations and the employers ability to grasp the good/flexibility that came from the pandemic and incorporate it into their business models. In particular, those whose voices that previously have not been heard as loudly in Industrial Age companies (<40s, females, diverse groups++) are important to win over.

Embracing diverse talent across the Empathy Chasm is required for forward thinking companies to be successful and drive to transform to digital businesses.

“Returning to work” is happening for many people in the next 3 months; particularly in the next couple of weeks. People’s expectations of a healthy, holistically rewarding employment environment has fundamentally changed during the pandemic. They now realize that commute time is essentially wasted time that could be spent on more meaningful things (family, children, community, hobbies and more), and for certain kinds of work-related activities, these can more efficiently be completed from home. They also miss the workplace, interaction with team and social activity. Leaders that fail to adapt their business model to incorporate this hybrid outcome are seeing significant outflow of talented people.

Female workers have been disproportionally impacted, with statistics citing that in the USA, anywhere from 1.8M — 3.5M fewer women in the workforce within the first year of the pandemic (higher estimate includes extended Leaves of Absence), and the number has increased since. For women, the demands of the pandemic extended far beyond the stress of adeptly carrying out work responsibilities, as female workers were three times more likely to meet the majority of the demands for childcare, eldercare, children’s education and household needs. Coupled with disenchantment over pay equity and lack of leadership opportunities, many have downshifted their careers, or have opted out of the workforce entirely.

The lack of bonding of 100% remote working to managers, leaders, mentors, coaches, brand and workplace has caused anxiety and mental health issues for many people. The sense of not “belonging” essentially zeros out the concept of loyalty and makes it much harder to build culture and retain talent. This is more pointed in the younger workers where often “growth” comes from interactions not necessarily related directly to “doing the work”.

Leading organizations need to reimagine what the employee work environment looks like and avoid a one-size-fits all mentality in order to effectively compete with the benefits that employees have realized through working remotely. The open office environment was already a challenging sell to software engineers and working remotely through Covid has shown that they can be productive and successful from home. Individuals have spent nearly two years perfecting their home office setup and so if they are asked to return to the office organizations that can provide a similar level of efficiency, such as a quiet and focused workspace, in addition to traditional meeting rooms, will be an employer of choice over those that continue as before.

Advisory companies such as compensation consultants, employment attorneys, et al have relied on historical data and multi-year trends to give best advice to organizations on strategic planning for employees and executives. The Covid pandemic has not only accelerated digital adoption, it requires leaders to engage with employees to define a future of work that is mutually beneficial and to define new metrics for employee engagement and satisfaction.

Over the past 40 years or so best-in-class companies, organizations and operating models have morphed from :-

A) Command & Control, often with Geography or location as a primary axis — and were disrupted by

B) Product-led Organizations (usually global) that often started off disrupting by listening to customers. After some years and success, they stopped listening to what customers were saying (often stopped asking) — and were disrupted by

C) Customer Centric Organizations who built capabilities by audience / customer type sometimes with an audience of 1 (e.g. build-to-order) and always listen to customers — and are being disrupted by

D) Flex-work Organizations, which are built around employee satisfaction and flexible agile working. They are often both product centric and customer centric as well, AND their culture has been designed to attract the new generation of employees by offering them an employment solution that is built around their life and location of choice rather than forcing them to move location and build their life around their employer — to eventually

E) Talent-Centric (Virtual) Organizations where the bifurcations between employee/customer/owner/advisor are realized as always temporary and it’s about the individual in whatever frame of reference they are in and what matters to them.

Many previously successful companies have not embraced D) and E) and even with the changes that the pandemic brought, they believe that they can “go back” to a business model of A) through C).

Yet there are many examples of companies who embodied early thinking of D) and E) (above). One example is Virgin Atlantic, whose leaders have led with empathy, setting an example for customer-facing employees, building a values-based culture, and creating a truly customer-centric and empathetic travel experience. Details matter!

Different thinking is required from leaders, executives and board members to make the leap from a combination of A), B) and C) to thinking more of D) and E) as a success criterion for companies. In fact, we believe the best companies will blend all of these elements (A-E) together. It is essential that leaders not only make this leap themselves — but also thoughtfully guide their teams to make the leap as well, arm-in-arm with colleagues and fellow employees who come from every stage of awareness, age and experience on this continuum.

We are delighted to see a number of conscious, empathetic business leaders rising to the challenge with creative and intentional strategies for women, diverse groups and young workers to stay engaged while navigating post-pandemic transitions for themselves and their families. Companies are creating support structures and transforming benefit offerings to include things like work from anywhere, childcare subsidies, flexible work schedules, paid leave, temporary downshift opportunities, job sharing, unlimited personal days and robust hybrid/remote policies at all levels of the organization. Sometimes these “benefits” can have negative consequences, such as unlimited personal days being viewed as having not time off when you don’t have to work. It is important to talk to employees about these pros/cons and be a “listening” culture. There are also new tools that support reskilling, e-learning, certification and pathways to career growth . There are infinite solutions when you are willing to think beyond the traditional toolbox. It is also essential to engage all workers to define the culture they want to work in, as the war for talent is now global, virtual and highly-competitive. Indeed, skills shortages are the new employer famine.

While some businesses are starting to grapple with how to formally disclose the risks associated with employee expectations in this Digital Age, many more are not even recognizing that these new expectations create risk (e.g. via Proxy, Annual Reports et al). Failure to do so will fall short of requirements to keep stakeholders informed, and could create costly governance issues.

In summary, this transition is much like the shift from the Great Industrial Age of assembly lines, efficiency operations and such…to the digital, distributed age of creative collaboration and employee engagement that fuels the most innovative companies of today. The change is happening. It is rapid, and it is permanent.

The question is…will you cling to the past and become the “rust belt” of yesteryear — or will you be able to make that leap forward to lead the dynamic, team/community and tech-enabled enterprise that today’s talent pool and consumers demand?