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To understand retention issues among 3M Corp.'s high-potential employees, HR professionals at the company used a technique called conjoint analysis. Market researchers have long used the method to identify segments of consumers based on their preferences for product features.

In similar fashion, the staff of 3M's HR Global Center of Expertise for Measurement identified eight segments of employees based on the employees' main motivation for working at 3M.

"We found, for example, a cluster of midcareer employees looking more for experiences, not money per se," says Karen B. Paul, manager of the measurement team based at headquarters in St. Paul, Minn. "We didn't know much about this segment, or the others, before the analysis."

3M is one of a small number of companies using segmentation to identify and understand employee groups in order to revamp or create benefits or development and other talent programs. Understanding segments can also be useful in employment branding and recruiting.

All of this is part of a broader HR trend that looks at employee segments in various ways, depending on the problem to solve or the question to answer. Behind segmentation is the explicit or implicit acknowledgment that not all employees fit into the same pigeonhole.

Definitions of segmentation "are all over the place," Paul says. "We look at segmentation as grouping employees by using data, data mining and statistical analysis for the purpose of better understanding our employee base. Segmentation can be helpful for a variety of purposes and, as such, increases our ability to strategically communicate with employees."

New Twist on an Old Marketing Idea

Employee segmentation—some prefer the term employee differentiation—has existed in one form or another since the first boss hired the first worker. Worker, manager, rank, tenure, function, equal opportunity—these are just some ways businesses have segmented workers for decades, with different benefits, programs and policies for each segment.

"Segmentation means figuring out the categories of something that matters," says John W. Boudreau, a management professor at the University of Southern California in Los Angeles. "Almost any sort of categorization of the workforce could be defined as segmentation. Organizations have understood different kinds of segmentation for some time—exempt and nonexempt, high-performance, engineers, salespeople, and managers."

The method 3M used is called market segmentation. Boudreau encourages HR professionals to adopt similar consumer-marketing methods and apply them to the workforce. Understanding the hopes, aspirations and needs on the supply side of human capital is the goal of market segment analysis.

Think of it as "how marketing professionals would look at employees as 'consumers of work,' " says Boudreau, co-author with Ravin Jesuthasan of Transformative HR (Jossey-Bass, 2011). "Marketing and consumer behavior have a lot to tell us about how we understand employees and employee segments."

Market segmentation is just one type of employee segmentation. Others are pivotal-role segmentation, high-potential segmentation and succession planning segmentation. Market segmentation and pivotal-role analyses are designed for understanding groups of employees in the aggregate; segmenting for high-potentials or succession planning requires delving into the characteristics, needs and performances of individuals. Small companies can benefit from segmentation, too.

How to Group Employees of Smaller Organizations You don't need to be an HR professional in a big company with lots of HR data to conduct segmentation studies or benefit from them. You don't even need an HR department. Just ask Megan Frigon, executive director of HR at Aaxis Commerce in Los Angeles, a technology consulting firm and systems integrator. When Frigon became the first HR director at the 200-employee firm last March, Aaxis had no HR function, not even an employee database. Benefits and compensation were all over the map with little or no consistency, and there were no career progressions, she says, adding, "We needed all of that." From previous experience working in a talent segmentation program at Accenture, Frigon was familiar with skill-group segmentation. She decided to combine that approach with an overlay of demographics to begin to understand employee clusters. By taking stock of the jobs in the company and then talking with employees, Frigon ended up with three skills groups. Those who held: • Technical roles, including web and Java developers. • Functional roles, including consultants, business systems analysts, testing types and project managers. • Professional roles, including managers, administrators and office staff. Each group had different needs in terms of training, developing, onboarding and billing procedures, Frigon says. She organized employees into two main demographic groups: Millennials and Baby Boomers. (There were only a couple of workers from Generation X.) She has been studying the best benefits for each group. She wants to have any revisions to benefits and compensation ready by year-end.

Toward a Workforce of One

The conjoint analysis at 3M, conducted in 2009, resulted in the creation of eight clusters among about 3,500 high-potential employees in a global workforce of 85,000. Four examples include employees who are:

• "In it for my life"—those motivated by alternative work arrangements, as in "I have a life."
• "In it to win it"—those motivated by a fast-paced, highly challenging, risk-taking environment.
• "In it to experience it"—those motivated by developmental stretch assignments.
• "In it as Alpine ascenders"—those motivated by rapid, regular promotions.

The clusters provide managers with the ability to tailor programs to various employee needs. And the HR staff now knows those needs with some precision.

"You have to relate to the different segments differently," Paul explains. She says retention has always been high among high-potentials and that the purpose of the study was proactive, not in reaction to a problem.

"3M took a unique approach in how to motivate, engage and pay these employees," says Rachele Williams, SPHR, a senior project manager at APQC, a Houston-based benchmarking organization. She says "customizing talent strategies maximizes retentions."

Older segmentation methods—using rank, tenure or function, for example—remain helpful, says Susan M. Cantrell, a fellow at the Accenture Institute for Higher Performance and co-author with David Smith of Workforce of One (Harvard Business Press, 2010).

"Ten years ago, there was a lot of buzz for segmenting around dimensions like generations, values, A players, B players and C players," Cantrell says. "In the last five years, there has been a lot of work around pivotal-role talent—that is, the employees most critical to the organization's success."

As the title of her book suggests, Cantrell foresees a day when human capital programs might be tailored for each employee.

Skiers, Artists and Careerists

In 2010, Starbucks Coffee Co.'s executive committee issued a mandate to seek a better understanding of the needs of store employees. The HR department had previously used other types of segmentation—including high-potential and pivotal-role research—to study more than 140,000 employees in more than 17,000 stores around the world. This time, the HR analytics team decided to take a marketing approach to uncover what attracted, retained and motivated employees, according to Melissa Graves, director of HR's Organizational Insights and Analytics Department, based at the company's Seattle headquarters.

Her team of five designed a survey that went beyond the annual 10-minute engagement survey. The new survey took more than 30 minutes to complete and asked questions "to understand where people are in their life stages," Graves says. "We also asked about what marketing calls 'needs states'—lifestyle factors, beliefs and attitudes that differentiate the partners [employees] and drive loyalty and motivation."

After being vetted by the legal department, the survey was posted and promoted on the company's intranet. Researchers invited only anonymous responses, and 90 percent of all employees worldwide participated. "We got more than 800,000 distinct comments in 10 languages," she says.

The comments were coded with help from university psychology students hired for the project. They targeted the top markets in the United States, Canada, China and the United Kingdom and conducted cluster analyses of the quantitative data to define three to five segments in each market.

Content analysis of the comments revealed stories around the segments. "We found partners who fit the segments and made videos around their true-life stories" that the company could use in recruiting, Graves says.

Examples of the clusters include employees:

• Working mainly to support other passions—art or skiing, for example.
• Desiring a community-oriented, socially responsible employer.
• Wanting long-term career advancement within Starbucks.

One surprise was the finding that common needs span groups. For example, schedule flexibility was important in all U.S. groups. Tuition reimbursement was also important; as a result, Starbucks invested more heavily in educational support for employees, Graves says.

Cantrell's book contains other examples of market segmentation. As use of analytics in HR has increased, so has the sophistication, she notes. "Now, with the rise of social networks, we can collect data on things like who you talk to." She sees a time when HR professionals will mine data on motivations, personality or creativity.

Another method of segmentation, pivotal-role segmentation, "identifies the roles that have a disproportionate impact on profitability," says Ranjan Dutta, a director in the McLean, Va., office of PwC Saratoga who helps clients conduct such analyses.

Identify Profitable Pivotal Roles

Pivotal-role analysis considers financial results and uses statistical techniques to identify the jobs that contribute most to the bottom line. The purpose is to make sure companies have effective ways to recruit, develop and retain the best people for those roles.

"This is about the roles, not the people already in the jobs," Dutta explains.

The assumptions are that pivotal roles have inordinate impact on an organization's success and that those employees should be dealt with differently.

In a restaurant group, for example, waitstaff could have the biggest impact on revenue by making customers want to return. Behind the scenes, however, commodities traders securing futures contracts for products the company uses in bulk—at the best possible prices—might have the largest impact on profits. In fact, one client that Dutta would not identify changed recruiting tactics after learning through pivotal-role analysis that commodity traders contributed the most to its profitability. It now recruits top Wall Street traders.

Most HR professionals don't ask Dutta about pivotal-role analysis when they come to him for help because the method requires more work, Dutta says. He often suggests it as part of broader workforce planning.

Pivotal-role studies are possible without extensive analyses. Several years ago, when Ian Ziskin was chief HR officer at Northrop Grumman Corp., he led an analysis of crucial roles and determined that the program manager function was vital to every business unit. To develop program managers, the defense and aerospace company created a vice president of program management, built a competency model and developed a profile of a successful program manager, says Ziskin, now president of EXec EXcel Group LLC, a talent management consulting firm in Sag Harbor, N.Y.

Segmentation to identify high-potential employees and segmentation to support succession planning are similar in at least one respect: They involve current employees.

Segments of High-Potential Employees

HR professionals at The Hartford Financial Services Group Inc. in Hartford, Conn., use both types of segmentation to improve talent management, according to Nikki Gonzalez, senior vice president for talent management. The Hartford, an insurer, has about 24,400 employees, most of whom are in the United States.

Now in year two of a three-year plan, Gonzalez has identified high-performing senior employees with promotion potential as well as high-potential early-career professionals.

"I prefer to call it differentiation. I'm trying to differentiate my top talent by performance and potential," Gonzalez says.

Performance is about what employees deliver and whether they demonstrate behaviors that mirror company values, she explains. For each employee, Gonzalez asks if he or she is a functional expert or the company's potential future CEO. After HR professionals identify the top 100 senior high-performers with promotion potential, business unit leaders, HR generalists and the talent management team consider the next experiences for these people, including what their next immediate assignments should be and how to improve their visibility across the company.

The Hartford’s leaders ‘differentiate’ top talent by performance—and potential.

At the other end of the continuum, The Hartford is now systematically developing about 150 high-potential early-career workers, most of whom are recent hires out of college, in areas including finance, technology, risk management, HR and actuarial, Gonzalez says. She and her team have devised early-career rotations and developmental experiences to accelerate their readiness for next-level jobs.

"This work is hard to do," Gonzalez admits. "That's why it takes a long time to perfect your process." HR analysts compare the performance and characteristics of high-potentials against the traits of about 400 vice presidents and higher-level executives. "This is subjective, but you need a common ground for determining who these people are. We have a common leadership model, and we know what those behaviors are," she explains.

For Deeper Insights, Mix and Match Data

Dutta says there is a bonus from mixing pivotal-role identification with high-potential and succession planning segmentation. "You might discover that you have high-potentials everywhere but not all of them are pivotal. If you have a high-potential in a nonpivotal role, you might be paying them more than needed and putting more into their development than will pay off," he explains.

Any segmentation tends to support the idea that one size does not fit all when it comes to benefits, development opportunities, retention and other talent strategies. The problem organizations face is "not can or should they customize for employee segments but how much should they customize," Boudreau says. "Most organizations are still fairly traditional. On the horizon is the ability to be more customized, but it won't happen until we have the mindset."

If your segmentation involves asking questions of employees, be straight with them, Ziskin advises. If you go to the trouble of asking—and secure enough trust to get useful answers—then you must listen and act.

"People need to know you won't hold their answers against them, and that you will actually do something about it. Companies known for their customer intimacy generally do a good job of listening to customers and what they need, and figuring out how to fashion solutions responsive to what they need. Employee intimacy is similar," Ziskin says.

The author is technology contributing editor for HR Magazine and is based in Silicon Valley.​​

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Additional Content

• SHRM video: In Examples of Differentiation, Susan Cantrell of the Accenture Institute for Higher Performance offers some examples of organizations that have successfully customized their practices to their benefit and the benefit of their employees.
• SHRM video: In Employee Differentiation, Susan Cantrell of the Accenture Institute for Higher Performance explains what employee segmentation is and why organizations should engage in it systematically.
• SHRM article: Greater Understanding (HR Magazine)
• SHRM book summary: Scroll down this page for a summary of Workforce of One (Harvard Business Press, 2010)
• Book: Transformative HR (Jossey-Bass, 2011)
• Article:Techniques for Managing a Workforce of One: Segmentation (Accenture)
• Web page: Workforce Planning and Performance (Business Performance)
• Webcast: Talent Segmentation in Workforce Planning (Human Capital Institute)