Thought of the week - Juniorisation
It has become a trend in financial services to replace older, more experienced employees with younger ones. I have seen this trend towards juniorisation happen in relationship managers at private banks as well as in financial and research analysts across the entire spectrum of banking, It is a trend that exists predominantly at larger banks and asset managers to save costs, but I suspect it also exists in all kinds of service industries. But does it work? To find out, it is helpful to look at the performance of truly junior salespeople, the Girl Scouts of America.
I have written a tongue-in-cheek article about the price of Girl Scout Cookies before, but this time I am serious. Tom Tan and Bradley Staats analysed the sales performance of some 30,000 girl scouts from 2016 to 2018.They looked at both individual sales performance and retention rates, i.e. the likelihood of an individual girl scout participating in cookie sales the following year.
What makes The Girl Scouts of America interesting is that it is a not-for-profit organisation and doesn’t pay the girl scouts to sell cookies. This means that the girl scouts cannot be retained or “motivated” by higher pay. Banks and other companies trying to juniorise their workforce do so in order to save costs, and clearly, they can try to motivate their employees with bonuses and salaries, but two things stand in the way of that approach. First, the entire point of juniorisation is to save costs compared to a more experienced workforce. Entering into a bidding war with other companies just leads to higher costs and cannot be sustained for long before cost savings become economically meaningless. Second, as I have shown here, paying people more does not motivate them much and has a small impact on overall job satisfaction.
The lessons we can learn from the performance of girl scouts are worth heeding, in my view. Tan and Staats find that more diverse girl scout troops are more successful in selling cookies and have lower turnover. Interestingly, racial diversity didn’t matter at all in that respect. Instead, what mattered were experiential and age diversity.
For one, girl scout troops with a more diverse range of scouts in terms of experience from youngsters to seasoned girl scouts had lower turnover and sold more cookies. Similarly, increasing the adult-to-girl scout ratio by one standard deviation (0.35) led to a reduction in turnover by 4.8%. Younger girl scouts benefit from interacting and learning from older, more experienced girl scouts and adults alike. And it is this knowledge transfer that makes the younger girl scouts more successful and return the following year.
Another factor that was important in determining success was the troop size. Larger girl scout troops had a higher turnover because, in a larger troop, girls felt more anonymous and were unable to form personal bonds with other girls in the same troop. Yet, what happens in banks and other companies succumbing to juniorisation is to turn their salesforces into massive factories of large teams that are instructed to provide a standardised product. This is exactly the opposite of what is required to create a high-performing salesforce. It should be clear from the above that I am not against junior salespeople or junior analysts. Quite the opposite. I am for a good mix between young and old, experienced and novice. A team of experienced but jaded salespeople is just as ineffective as a team of greenhorns. What a company needs is a good mix, where young employees can work with more experienced employees in small teams and learn from them. Meanwhile, the more experienced members of the team not only teach the young ones the ropes but also need to be challenged by them in their ways. After all, times are changing and what worked in the past may no longer work today. The young colleagues are often able to show the older ones a fresh trick or two in dealing with new technology or novel ways of communication.
Companies that get the mix right are able to improve sales performance but, more importantly, reduce employee turnover. And as I have explained here, high employee turnover has a material and direct impact on the profitability of a company.
Thought of the Day features investment-related and economics-related musings that don’t necessarily have anything to do with current markets. They are designed to take a step back and think about the world a little bit differently. Feel free to share these thoughts with your colleagues whenever you find them interesting. If you have colleagues who would like to receive this publication please ask them to send an email to email@example.com. This publication is free for everyone.