Over 25 years, we have experienced deep and lasting levels of geo-political, technological and social disruption. The consequences of 9/11, the 2008 global recession, the gathering pace of globalization and the increasing digitization of everyday life are well documented and largely understood by business leaders.
One crucial area of disruption that is often overlooked and mis-understood is the silent demographic shift taking place that will see under 25-year-olds (also known as Gen Z) account for 25 percent of the global workforce by 2020.
As a direct result of the changes in geopolitics, society and technology, this cohort of future employees and consumers will display very different characteristics to their predecessors. In particular, the pace of technological change over the last two decades has acted as a catalyst, making this generation true ‘digital natives’ with the power, and the ambition, to invoke challenge and change. So, in light of this cocktail of rapid technological, political and socio-economic change, how do business leaders successfully engage with and attract the next generation of talent and customers?
While the world has been preoccupied with understanding and criticizing Millennials (those born between 1980-1995), and most often lampooning them as ‘entitled snowflakes,’ Gen Z are following quick on their heels. Of course, the traits and characteristics of Millennials and Gen Z aren’t rigid, and Gen Z in particular, are largely under-researched. Nonetheless, there are a number of emerging themes worthy of consideration by business leaders.
To this end, Teneo commissioned a series of focus groups with young Millennials and Gen Zers in London to better understand their values and attitudes to business and business leaders. We asked them about the characteristics of their dream employers, which (if any) business leaders they admire, and explored their thoughts on their ideal workplace culture. The insights gleaned from these sessions have been combined with other independent research to inform this article.
Gen Z and Activism
For decades, CEOs and business leaders across the world have struggled to engage with and remain relevant to the ‘youth.’ Often seen as out of touch with the rapid changes taking place in society, many of these business leaders have faced continuous criticism over pay, a lack of diversity, environmental performance, and for being blinkered in the pursuit of company profits - and personal gain - above all else. Unfortunately for those business leaders unwilling to engage and adapt, Gen Z and many young Millennials are already demonstrating increased interest and even activism in these areas – a trend that is only likely to intensify.
The gap between the world’s business leaders and the world’s latest generation of workers and consumers has never been greater. On the one hand, Gen Z’s interests and technical capabilities make them the most effective campaigners and activists the world has ever seen, creating a potent threat to businesses unwilling or unable to change. But on the other, there is a precious opportunity for astute and future-gazing business leaders to step up and engage, and in doing so, help to ensure the long-term prosperity for their organizations. It is an opportunity to build enduring competitive advantage by attracting and retaining future talent; by becoming a preferred partner to new and innovative companies; by enjoying lower cost of Gen Z customer acquisition; and by winning greater permission within this cohort to innovate.
Perhaps unsurprisingly, the strongest and most disruptive characteristics of Gen Z stem directly from their own experiences. In their brief lifetimes, they have grown up in a post-9/11 world, lived through the worst recession since the 1930s and are the ‘guinea pigs’ of the first truly digital age. This combination of geopolitical unpredictability and rapid technological advancement have created a generation who have never known anything but constant volatility and transformation.
Having spent their whole lives in a constant state of flux and change, Gen Z crave a sense of stability and balance in their lives – both at home and at work. Growing up amid fierce competition, they are not only innovative, but seek to be self-reliant and solutions-focused. Unlike their Millennial predecessors, their experiences to date have left them realistic and cautious rather than idealistic and optimistic. Our focus group participants called themselves “anti-establishment” and “challengers” – they don’t just want to follow the status quo, they want to make their mark.
Described by some as ‘Millennials on steroids,’ Gen Z have built on many of the passions and values of young Millennials which give a good indication of their trajectory. Gen Z are even more focused on diversity, even more committed to social responsibility, and absolutely believe that work should fit with life – not the other way around. Most importantly for Gen Z, they want to have a job they love and a job that makes them feel like they are having a positive impact on society.
Z-Power at Work
Technology, and crucially the smart phone, has given Gen Z unrestrained access to information that once seemed distant, complex and irrelevant. Today, Gen Z can read about civil unrest in the Middle East, ocean plastic pollution, persecution of LGBTQ communities, and other causes that they care passionately about, anywhere and anytime. Technology has empowered this new generation and given them the agency to affect change. They can now mobilize groups, launch campaigns and influence communities, all with the tap of a screen.
This powerful ability to mobilize groups remotely - ‘Z-Power’ - was recently illustrated by the ‘March for Our Lives’ movement, organized by students following the tragic shooting of 17 students and staff at the Marjory Stoneman Douglas High School in Parkland, Florida. The events in the weeks immediately after the shooting demonstrated the speed (and effectiveness) with which Gen Z can mobilize to make the case for change. Within weeks of the tragic shooting, this group of young people had organized a Washington march of more than 200,000 people, raised millions of dollars via GoFundMe, and inspired more than 800 other groups to protest gun laws in cities across the U.S. and internationally.
For Gen Z, this theme of social justice and meaningful impact isn’t confined to their personal lives, but also influences their attitudes to the world of work. Deloitte’s Millennial Survey 2018 provides a useful insight into young people’s attitudes towards business. Although focusing on Millennials rather than Gen Z specifically, the results provide a telling insight into a topic that we know is important for Gen Z and will only intensify. As shown by the graphs below, Deloitte’s survey found that attitudes towards business among Millennials has declined on each key indicator, which include topics of particular interest to Gen Z, such as contribution to society and ethics.
Less than 50 percent of those surveyed believe that corporations behave ethically or that business leaders are committed to helping improve society. Meanwhile, over 60 percent believe that business has no ambition beyond wanting to make money[1]. Knowing what we do about the values of Gen Z and that Gen Z are like ‘Millennials on steroids,’ makes for worrying reading.
The Battle for Talent
As Gen Z moves into the workplace, the first challenge for business leaders operating in this new environment is the battle for talent. Traditional strategies for employee recruitment and retention will not be sufficient to attract and retain the next generation of bright, young graduates. There are already reports that some well-established, blue chip companies, perceived by the Baby Boomer generation as offering ‘golden ticket’ jobs, are now struggling to appeal to this new cohort of talent.
When asked to rank the importance of work values, Gen Z ranked ‘interesting work’ first, followed by ‘pride in the organization,’ and then ‘passion for the work.’[2] For the first time, this shows a desire by Gen Z to prioritize the purpose and value of their work, over other factors like salary. No longer will a competitive salary be sufficient to entice these ambitious employees. Instead, companies will have to take a more holistic approach. Prudent business leaders anticipating this trend, such as BlackRock Founder, Chairman and CEO Larry Fink, have already spelled out to business the importance of company purpose and the creation of social value.
In many ways, Larry Fink’s Letter to CEOs in 2018 could have been written by a member of Gen Z. Highlighting the importance of “social purpose” in business and the need for companies to benefit all stakeholders, including the communities in which they operate, Fink called on business leaders to prove their purpose and social value (beyond profits) or risk losing BlackRock’s support. If business leaders listen to Fink’s call on businesses to ask themselves “What role do we play in the community?”, we might see a significant uptick in the perceptions of business among young people.
High Expectations
When we asked our focus groups about what they wanted from their future employers, one participant said the idea of having a job and just “slogging it out” was outdated. Instead, they argued, it was important to enjoy coming to work and to be proud of your employer.
This sense of pride and fulfilment also influences the types of companies Gen Z want to work for. Research into the career aspirations of Gen Z in Canada by the Lovell Corporation last year found that entrepreneurship, public service work and healthcare were the most popular career paths, demonstrating a clear shift towards occupations providing a social and meaningful impact[3]. Meanwhile, in one of our focus groups, we heard that the reason why so many young people want to work for charities is because: “you are proud to work for them and their business strategies are based in value.”
When asked about their dream employers, our focus group participants largely rejected many of the traditional and well-established companies, favoring instead disruptors and challenger brands like Tesla and Netflix. This desire to work for new and disruptive companies might seem counter-intuitive for a generation scarred by a history of instability and volatility, however the groups agreed the risk now lies in working for the established and static companies, who are currently being disrupted by more innovative and agile challenger brands.
The graph below clearly illustrates the perception among young people that business is falling short of their expectations. Whilst over a third of those surveyed expected businesses to provide employment, improve society and protect the environment, less than a quarter felt that these were priorities for the organizations they worked for[4]. This gap between the expectations of businesses and their employees will become a critical factor for businesses trying to recruit and retain future talent. Business leaders willing to take concrete steps to close this gap are likely to be rewarded by attracting the next generation of highly-motivated, committed and innovative employees.
Leadership Principles
One of the most poignant comments to come out of our focus groups was from one young woman who said: “I don’t expect a company to be perfect, but I expect a company to be honest.” This is reinforced by research showing that honesty and integrity are Gen Z’s two most valued leadership characteristics[5]. Young people are tired of opaqueness and untruths from businesses and politicians, which has unsurprisingly led to an erosion of public trust. They want to know what has gone wrong and what you are doing to put things right.
This is an important lesson for business leaders in general and reflects much of the counsel we give to clients in dealing with issues and crises. It doesn’t always feel like it, but the general public understand companies and their leaders aren’t perfect. And they are much more willing to forgive if a leader puts their hands up and admits to a mistake.
Our focus groups named Elon Musk as one of the world’s business leaders they admire most. They called him a “maverick,” a “visionary” and a “challenger.” They felt that he wasn’t part of the status quo and that he was willing to look at things differently. They admired his efforts to make a positive contribution to society. However, ultimately, they admired his tenacity to challenge the establishment and not conform to its orthodoxies.
The Battle for Customers
The impact of the shifts in the values and attitudes of Gen Z aren’t limited to the recruitment and retention of employees, but also has ramifications on the purchasing decisions and behaviors of Gen Z consumers. Some estimates predict that Gen Z will make up almost 25 percent of the American population by 2020, meaning their impact on the consumer environment will be material.
One of the strongest traits of Gen Z, the desire to have a meaningful and positive impact on society, will translate into their purchasing decisions. Research by Ipsos MORI in 2018 found that 26 percent of school children in the UK have avoided purchasing certain products because of the conditions under which they were produced[6]. This contrasts with just 19 percent of Millennials when surveyed at the same age. If true, this demonstrates a surprising level of societal and ethical awareness among school children that is already having a tangible impact on their purchasing decisions.
Even today, sustainability and ethics pledges are too often highly polished CSR programs. We are now seeing a growing demand from consumers for corporate responsibility to be built into the operating model of companies. More so than previous generations, Gen Z are highly informed about issues ranging from sustainable cotton to modern slavery; and research suggests this awareness is having a tangible impact on purchasing decisions. A global study conducted in 2017 found that 55 percent of Gen Z explicitly choose brands that “are eco-friendly and socially responsible.”[7] The resurgence of sustainable brands like Patagonia illustrates this trend. Ultimately, there is a growing expectation that companies should operate sustainably and at scale, day-in, day-out, rather than using CSR projects as a ‘bolt-on’ to business as usual.
Whilst research currently shows that price is still the most important factor for shoppers, some studies are starting to show a shift in mainstream attitudes that questions this trend. A report by Nielsen found that 66 percent of global consumers are willing to pay more for sustainable brands, a 55 percent increase on the previous year[8]. When Millennial respondents are isolated, this number rises to 73 percent[9]. Although the results aren’t comprehensive, they provide a good indicator of where the purchasing habits of Gen Z could be heading.
This growing trend offers a prime opportunity for those business leaders able to transform their business models to close the expectation-reality gap of their Gen Z customers. Amid intensifying scrutiny from the media, activists and regulators, business leaders that successfully meet this challenge will build accelerated reputational and commercial value.
Co-Creation
The result of growing up in a world of easily-accessible online shopping, customized user experiences and fast-changing trends means that Gen Z is becoming increasingly demanding of their service providers. They want products to be delivered quicker, services to be customized and interactions with companies to be frictionless.
This generation of consumers demand instant gratification – be that bingeing on a Netflix TV series or receiving next-day deliveries. Companies, including Amazon, have implemented business strategies specifically to try and meet these changing demands. Clothing brands, like ASOS for example, offer customers fast delivery times and free returns in an effort to win over these hard to impress customers.
There is no easy answer to meeting the demands of Gen Z, however the answer may actually lie in collaborating and co-creating with these hard-to-please consumers. We are seeing a growing trend of Gen Z wanting to engage more with brands and seeking to help companies improve their products and services. IBM’s study found 44 percent of Gen Z would submit product design ideas, if given the chance, and 36 percent would create digital content for a brand[10]. This shows that whilst they may be highly demanding, Gen Z want to work with business and solve problems together. Business leaders needn’t try and guess (and fall short) of what Gen Z want, instead they should engage and involve them in the shaping of their products and services.
Demanding Consumers
So, you’ve followed every rule. You’ve demonstrated your brand’s sustainability credentials, the value of your company to society and worked with Gen Z to create products and services they love. But don’t expect gratitude. After all of this, business leaders will still be faced with the difficulty of an increasingly disloyal customer base in Gen Z.
Gen Z are the world’s first ‘digital natives’ who have all grown up with online retailers like Amazon and eBay at their fingertips. As a result, they are highly-informed and canny consumers, using an array of tools and channels to find the products and services that are best for them. A study conducted by EY found that Gen Z are less loyal to retailers than other generations, and that even the use of traditional loyalty rewards programs and cards doesn’t make Gen Z any more loyal to retailers[11].
Despite this, brands that successfully engage with and connect with Gen Z can expect to earn greater loyalty, with 66 percent saying that once they find a brand they like, they will continue to be repeat shoppers[12].
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In a world of seismic change taking place before our very eyes, it’s easy to miss the equally seismic, yet non-physical, changes taking place demographically. Those companies led by short-sighted business leaders who overlook (or worse, ignore) the demographic changes taking place in society will undoubtedly pay a price.
Gen Z has already started entering the workplace and the market place. Businesses must act with urgency to understand and engage with a new generation of citizens, employees and consumers. Gen Z will soon become one of the largest and most active consumer groups in history. It is fast setting out its expectations and will punish companies and organizations that fall short.
The battle for talent and for customers has never been as fierce, and only those leaders brave enough to step up and meet the challenge of Gen Z will reap the reward. Those standing still risk waking up to find themselves outdated and irrelevant.
Actions for Business Leaders
- Take the time to consider the characteristics and attitudes of Gen Z and how they contrast with Millennials and the Baby Boomer generation. What are the implications for your leadership style?
- Ensure your organisation has a clear social purpose and can demonstrate social value to the community in which it operates, over and above driving profit.
- Examine your corporate and organisational culture. Make changes that better reflect the needs and values of prospective employees to both attract and retain new talent.
- Adapt your recruitment and marketing activities to reinforce the key traits that Gen Z seeks in employers and businesses: social value, flexibility and authenticity.
- Harness the innovative and entrepreneurial qualities of Gen Z to help co-create and improve products and services offered to an increasingly vocal and active consumer group.