As 2023 begins, businesses and employees face an uncertain economy and labor market, as the twin dilemmas of inflation and interest rates weigh on forecasts. Harvard Business School faculty share the top trends that they believe will shape the workplace and markets this year, including new ways to build incentives, potential conditions for entrepreneurs, and how to make work-from-anywhere work best.
Boris Groysberg: Look to hire back top talent
While it may seem counterintuitive given the economic forecast, 2023 could be the year of powerful hiring opportunities.
For the past 12 to 18 months, we have witnessed the Great Resignation and record turnover rates. What we are hearing from many people now, however, is a sense of regret. Many people feel that they made a mistake in switching jobs, that they acted impulsively and are now disappointed with their new manager or new company. For many reasons, people switched jobs during the Great Resignation without doing their due diligence or discounted what their company at the time had to offer. In this coming year, companies may have opportunity to lure back former star employees they didn’t want to lose.
"As a possible recession looms, it is critical that companies ready themselves by having star talent in their most critical positions."
Over the past 50 years or so, many companies have changed their perspective on rehiring former employees, at least under certain conditions, such as the former employee was a high performer and left on good terms. As a possible recession looms, it is critical that companies ready themselves by having star talent in their most critical positions.
Strong talent is invaluable at any point in the economic cycle, but one could argue it is most important in economically challenging times. If companies need to strategically and selectively upgrade their talent to deal with the challenges ahead, perhaps they should ask themselves: Is there anyone we want to bring back?
Boris Groysberg is the Richard P. Chapman Professor of Business Administration.
Sandra Sucher: Employee trust is on the line
Companies will be pulled in opposing directions in managing the people who work for them in 2023, challenging their ability to maintain the trust that we know from research leads to better business.
One direction will lead companies to increase employee fears of job security, the top fear of 85 percent of employees globally, according to research by Edelman. Even as they cut back in some areas, companies will be hiring in others, whipsawing employees who won’t know whether their jobs are safe, leading to the well-researched drop off in engagement and risk-taking that accompanies fears of job loss.
The other direction will lead companies to put more demands on employees by pressing for a return to more in-person work and other actions to rebuild frayed company cultures. The pandemic was a game-changer for employee trust, and employees have responded to that wake-up call with a realization that their first obligation to themselves is to live a life worth living.
"In summary, employees will receive mixed messages from employers: you don’t matter at all—and—you matter greatly."
Inspiring these employees to abandon the flexibility they have come to rely on will be a tough row to hoe, and newly empowered employees will continue to push back on requirements that impinge on their view of what is important in their lives.
In summary, employees will receive mixed messages from employers: you don’t matter at all—and—you matter greatly. How they reconcile these tensions will determine the level of trust employees will give them.
Sandra Sucher is the MBA Class of 1966 Professor of Management Practice.
Julia Austin: Headwinds for entrepreneurs
In a year with more economic concerns and considering the downfall of several innovative unicorns last year, 2023 will bring more constraints to entrepreneurs than we saw in 2022. Entrepreneurs will be expected to be scrappier than ever by their boards and investors, requiring more detailed and thoughtful strategies around growth and doing more with less.
"Diligence efforts will be more thorough, and entrepreneurs should expect funding rounds to take longer."
While there will still be many investors writing checks this coming year, entrepreneurs should expect a higher bar to raise capital with more tranched rounds based on measurable KPIs. Prospective investors will be going deeper to understand the depth of progress made in earlier stage ventures with less leaps of faith than we have seen in the past; diligence efforts will be more thorough, and entrepreneurs should expect funding rounds to take longer.
Entrepreneurs must embrace new tools such as generative [artificial intelligence] AI to optimize their businesses, stay laser focused on core product offerings, and develop lean operational plans, resisting the temptation to overhire as a means for growth and maintaining at least 18 months of runway to ensure resiliency during these challenging economic times.
Julia Austin is senior lecturer at Harvard Business School’s Rock Center for Entrepreneurship.
Susanna Gallani: Incentives must change to lure quiet quitters
The pandemic years have highlighted the need to modernize how organizations incentivize and reward their workers.
Perceptions of lack of meaning in jobs and of not feeling appropriately valued at work are among the most reported reasons behind the Great Resignation of 2021 and the more recent “quiet quitting” phenomenon. Organizations across industries have faced unprecedented turnover rates and difficulties recruiting talent. Firms that responded to these labor market frictions by increasing compensation rates often discovered that such tactics are not financially sustainable in the long term and, more importantly, have yielded smaller benefits than expected.
In 2023, employers that want to meet the moment will profoundly rethink the structure of their incentive systems.
"We will begin to see a shift from pay-for-performance arrangements and gig-like engagements toward relational connections between firms and employees."
First, success in attracting and retaining talent will largely depend on employees feeling valued for their contributions beyond narrowly defined job descriptions. Thus, we will begin to see a shift from pay-for-performance arrangements and gig-like engagements toward relational connections between firms and employees, with greater decentralization of authority and utilization of worker skills at the “top of their license.”
Second, incentives will include greater non-monetary components, such as opportunities for development, recognition, meaningful work assignments, etc., thus rewarding employees in ways that respond to their preferences beyond financial rewards.
Third, organizations will begin to move away from one-size-fits-all contracting and offer menus of reward options (monetary and not) allowing each employee to personalize their reward package in response to their preferences. Acknowledging the variation in employees’ preferences and drivers of utility within the workforce will be the first step toward much-needed innovations in the design of incentive systems.
Susanna Gallani is an assistant professor of business administration in the Accounting and Management Unit.
Rosabeth Moss Kanter: Skeptical investors proceed with caution
In 2023, skepticism will dominate. It will slow the economy—skeptics are more cautious about investing and spending. And it will challenge large institutions to do more for people and society even while their resources may be constrained. Skeptics are willing to tap optimism and hope, but first they want proof that hope is warranted today, not in some distant future.
Skeptics will be ready to pounce at the slightest disappointment, and activists will enlist the media to amplify discontent. Polls such as the Edelman 2022 Trust Barometer show that business is the most trusted institution, but as domestic and global crises continue to fester, companies will have to go further to live up to the expectation that they can make positive contributions, and make money doing it or get pilloried for that shortfall too. Companies must narrow the gap between expressions of noble purpose and whether their actions have discernable, immediate, positive impact on big societal issues like climate change, diversity, equity, and inclusion, and community well-being. Employees and consumers will seek authenticity. Expect louder cries of greenwashing, tokenism, or failure to lead. And expect more unionization drives so that employees get goodwill guarantees in writing.
Tech companies, especially, face growing skepticism. Many iconic corporations are already sliding downward back to earth from their moonshot hype. Digital tools, machine learning, and AI will continue to develop, but they will increasingly be seen as utilities rather than stars of the cosmos, with their value determined by what they do for users now rather than by stock speculation. Exciting possibilities for climate tech, such as carbon capture or nuclear fusion, will not be enough to grow companies that can’t make near-term demonstrations. Startups will learn to make smaller, less-exaggerated promises, and show that they can attract customers and revenue.
"Steering funds toward quick wins and early successes in partnership with business could temper skepticism and restore confidence."
The distinction between internal and external will continue to blur. Traffic congestion, safe drinking water, or affordable housing won’t remain someone else’s problems if employees and their communities are affected. In the United States, progressive mayors promising attention to such issues are often surrounded by anti-capitalist staff and supporters. To avoid being isolated, business must shape a community agenda and bring it to the table.
That table could be set for business-government cross-sector collaboration. Government is already stepping up with funds for infrastructure upgrades, climate investments, domestic manufacturing, and job training, with childcare on the agenda in some states. Steering funds toward quick wins and early successes in partnership with business could temper skepticism and restore confidence. For optimists like me, listening to the skeptics is one way to ensure that problems get solved, and there’s reason for hope even in the Year of the Skeptic.
Rosabeth Moss Kanter is the Ernest L. Arbuckle Professor of Business Administration.
Prithwiraj Choudhury: Work from anywhere takes off
This year could be the year of the digital nomad.
The increasing proliferation of the work-from-anywhere model, where companies are allowing workers to work from their preferred locations for part or the entire year, is driving digital nomadism and a race between countries and communities to attract remote workers.
While several companies have fully embraced work-from-anywhere, other companies, such as Citibank and Cisco, have allowed workers to work-from-anywhere for a few weeks every year. For individuals, this represents an opportunity to travel the world, forge connections, focus on wellbeing, and gain experiences.
"Communities around the world can benefit from digital nomadism, but careful attention needs to be paid to mitigating adverse effects."
Digital nomads can bring in entrepreneurial ideas, lifelong connections, consumption dollars, and several other benefits to local communities. Communities around the world can benefit from digital nomadism, but careful attention needs to be paid to mitigating adverse effects, such as gentrifying housing.
For individuals here is an idea—think about a locale (or two) that would like to explore this year and talk to your manager on how and when you could work from there for a few weeks this year.
Prithwiraj Choudbury is the Lumry Family Associate Professor of Business Administration.
Hise Gibson: Operational strategy will be a c-suite imperative
Going back to blocking and tackling this year is on the minds of many chief operating officers and other C-suite leaders as they navigate possible recessionary times. Operational strategy should be front and center of this year’s approach, and smart leaders will be focusing on people, process, and technology as their objectives.
People. Leaders must lean into human capital and invest in people in ways they haven’t done before. In recessions, companies usually shed fringe; If a recession comes, this time leaders need to invest in their remaining people in order to retain them. This includes making hybrid work a priority for employees who want it.
Process. The reality we have learned over the past two years is that, similar to supply chains, process has to be reliable and responsive. The world is so interconnected, and leaders will be challenged to be loose in the way that they implement processes.
"Whatever the long-term vision is strategically, leaders need to operationalize it to drive revenue."
Technology. Leaders must understand the speed at which technology is implemented but also the technological lifecycle, customer experience, and employee experience. Executives tend to get excited by shiny objects, but if their employees don’t understand the technology, customers will ultimately have negative experiences that could impact the revenue stream.
Leaders tend to silo operations and strategy, but in 2023 and beyond, they’re not mutually exclusive. Whatever the long-term vision is strategically, leaders need to operationalize it to drive revenue.
Hise Gibson is a senior lecturer in the Technology and Operations Management Unit.
Jeffrey Bussgang: Venture capitalists will be more selective
Startupland is going to be a tale of two cities in 2023. The most promising startups in the most promising sectors—such as generative AI, climate tech, fintech, and proptech—are going to find it easy to raise capital and scale. Pitchbook calculates that the amount of venture capital dry powder is at an all-time high of $585 billion. VC is the only private asset class where dry powder is higher at the end of 2022 as compared to 2021 due to years of phenomenal fundraising.
"For entrepreneurs, that means both the investment bar and the cost of capital are higher."
But while there is plenty of capital for promising startups, investors are going to be more discriminating and tighter on terms than they were in recent years. The valuations of public tech companies are down 30-50 percent from record highs and that drop has finally rippled through to the private markets. For entrepreneurs, that means both the investment bar and the cost of capital are higher.
Jeffrey Bussgang is a senior lecturer in the Entrepreneurial Management Unit.
You Might Also Like:
- How to Live Happier in 2023: Diversify Your Social Circle
- The 10 Most Popular Articles of 2022
- Scrap the Big New Year's Resolutions. Make 6 Simple Changes Instead.
Feedback or ideas to share? Email the Working Knowledge team at hbswk@hbs.edu.
Image: Unsplash/David Clode