Workforce Segmentation

What workforce segmentation means

Workforce segmentation (تجزئة القوى العاملة) is the division of an organisation’s workforce into segments, each managed under a different policy of investment and attention. The basis of the division is what sets a segment apart in its impact and in how hard it is to replace, not the department it belongs to or the grade it holds.

Before it is a classification, workforce segmentation is a decision about how to allocate a limited resource. An organisation segments in practice whether or not it says so: a manager’s time is limited, the development budget is limited, and the attention of senior management is limited, and all three end up distributed in some way. What separates an organisation that segments from one that does not is therefore not whether a distribution exists. It is whether the distribution is declared and deliberate, or has built up over time.

The two dimensions workforce segmentation is built on

Segments are drawn on two independent dimensions:

• The impact of the role on the organisation’s results. How much does what the organisation produces change if this role is performed excellently rather than adequately? This is close to the idea of a critical role.
• The scarcity of people who can fill the role in the market. How long does it take to replace the person in it, and at what cost?

Both dimensions are measured on the role at a stated point in time, not on the organisation in general. The impact of a role is estimated from what changes in the output of the unit where the role sits. The role’s scarcity is estimated from how long the last hire into it took and from what was paid to complete that hire. Both are figures the organisation has, provided it keeps them.

Nothing in the definition specifies how the impact of a role is to be measured. That estimate varies with the nature of the organisation’s work, and it does not carry over from one organisation to another.

The two dimensions do not move together, and that is the reason for keeping them as two. A role with high impact may be one that plenty of people in the market can fill, while a role with limited impact may be held by someone scarce for a technical reason. An organisation that merges the two into one measure gets a single ranking and loses the distinction between two situations that call for different responses: the first needs investment in performance, and the second needs readiness for replacement.

A calculation showing what workforce segmentation does to the budget

Take an organisation with 400 employees and an annual development and retention budget of SAR 2,400,000. An equal distribution gives SAR 6,000 per person.

Now divide the workforce on the two dimensions into four segments, as follows:

• High impact and high scarcity: 40 people at SAR 24,000 each, or SAR 960,000.
• High impact and low scarcity: 90 people at SAR 8,000 each, or SAR 720,000.
• Low impact and high scarcity: 70 people at SAR 6,000 each, or SAR 420,000.
• Low impact and low scarcity: 200 people at SAR 1,500 each, or SAR 300,000.

Added together, the segment totals come to SAR 2,400,000, the same amount as before. What has changed is that each person in the first segment now receives four times the equal share, and each person in the fourth segment receives a quarter of it.

The figure that has to be stated openly is the last one: the fourth segment is 50 percent of the headcount and receives 12.5 percent of the budget. That figure, not the table of segments, is the decision. An organisation that adopts segmentation without stating that figure has taken the decision without discussing it.

The definition of workforce segmentation sets no standard for the number of segments or for the share each one receives. In the example, the four segments follow from the two dimensions of impact and scarcity, and the distribution figures are assumed in order to show the effect of reallocation. They are not a standard, and they are not a reference for how many segments to use or what share to give each.

The four segments and the response each one calls for

The segments are not four grades on a single ladder. They are four situations, and the response to each differs in kind rather than in amount:

• High impact and high scarcity. The risk here is double, since performance and replacement are both at stake. The response is investment in performance and preparation for replacement at once, which means preparing a possible successor for the position even when nobody has shown any intention of leaving. That preparation is the work of succession planning.
• High impact and low scarcity. Replacement is possible, so the focus falls on raising performance in the position rather than on keeping hold of the person in it. Spending on development does more good here than spending on retention.
• Low impact and high scarcity. This segment is risky to neglect, because its small impact hides the fact that replacing its people is slow. What it needs is not money but reduced dependence: documenting what the person in the role knows, and widening the circle of people able to do the work.
• Low impact and low scarcity. Efficient operation is the answer here: clear procedures, quick onboarding and a reasonably managed workload. This segment is not a place for neglect. It is a place where the tools meant for the first segment are not deployed.

The third segment is where applying the tool can go wrong. Reading the two dimensions together places it in the middle, while looking at impact alone drops it from view. The question that brings it to light is this: who in the organisation could do this work tomorrow if the person doing it were no longer there?

What workforce segmentation is reviewed against after a year

Workforce segmentation is adopted as a decision and reviewed as a set of numbers. Three figures are measured at the level of each segment rather than for the organisation as a whole:

• The departure rate in each segment. A single figure for the whole organisation hides what matters. Departures from the fourth segment are an operating matter, while departures at the same rate from the first segment are a different matter altogether.
• The time positions stay vacant in each segment. It is the practical test of the scarcity estimate on which the segmentation was built. If a position classified as scarce is filled in three weeks, it is the classification that needs revisiting, not the market.
• The share of actual spending in each segment against its allocation. A budget is allocated on paper and spent in practice, and the gap between the two shows where attention really went.

The third figure earns its place because it can expose one possible pattern: money allocated to the first segment being spent on the people closest to senior management rather than on the people classified in that segment.

In the sources we reviewed, we found no measurement for the Saudi market of the effect of workforce segmentation on results.

Workforce segmentation divides roles, not people

One risk of this tool is that its output can be taken as a verdict on individuals. A list stating that a named employee sits in the fourth segment will be taken, once people see it, as an assessment of that employee’s worth, and it is no such thing. A segment describes a position in the design of the organisation, and the person holding that position may be excellent in it.

For that reason segmentation is built on roles wherever possible. The segment is a property of the job: whoever holds the job inherits the segment, and whoever moves on leaves the segment behind. That is also what allows the segments to be made public, because describing a job as critical takes nothing away from anyone.

Whether the segments are disclosed to employees is not decided by the definition of workforce segmentation. A segmentation of roles can itself be disclosed, and the decision to disclose belongs to the organisation and to the practice it has established.

Where building on roles is not possible and individuals have to be considered, as happens in particular programmes, the rule is to keep that assessment apart from the segmentation and manage it with tools of its own, as programmes for high potential employees do, under the conditions that apply to those programmes.

What must not differ between workforce segments

Workforce segmentation covers what the organisation is free to allocate: the development budget, managers’ time, and the order of priority in retention and in planning for succession. It does not reach what is not open to allocation:

• Rules in the approved work regulation. They apply to everyone the organisation’s approved work regulation (لائحة تنظيم العمل) covers, and belonging to a segment creates no exception to them.
• Rights established for the worker. Their source is the provisions that establish them, not the worker’s place in the table of segments.
• Rules of evaluation and discipline. One scale applies to everyone. Evaluation rests on the same performance standards across segments, and discipline has its own sources.

An organisation that fails to separate what can be allocated from what cannot turns a resource planning tool into unequal dealing with its employees, which damages the tool and damages more than the tool.

What undermines workforce segmentation

• Too many segments. Four segments can be managed. Nine become a table that is filled in once a year with no decision built on it.
• No review. The scarcity of a role is a property of the market, and it changes. A role that was scarce three years ago may not be scarce today, so the review is tied to an announced cycle rather than left to whenever somebody notices.
• Impact confused with seniority. Placing the longest serving employees in the top segment turns segmentation into another picture of seniority, which other tools already record.
• Complete neglect of the fourth segment. A smaller share is not a zero share. Roles with limited impact still have to be performed, and leaving them without any investment produces a cost that surfaces somewhere else.
• An estimate with no written basis. A segmentation settled by impression in a single meeting fixes in place what the people present already believed, and two years later it becomes a reference that people cite. Estimation is acceptable, provided that what it was based on is written down so that it can be reviewed.

Workforce segmentation beside job families, talent management and the headcount plan

• Job families. They group jobs by how similar their content is, whereas segmentation groups them by how alike they are in the way they are managed. Two jobs can sit in one family and in two different segments, and the reverse can also happen.
• Talent management. It covers everything an organisation does to attract, develop and keep the people it needs. Segmentation is a tool inside talent management that decides where that effort is concentrated.
• The headcount plan. It decides how many positions there are and where they sit, while segmentation decides how the existing positions are handled. One is a question of quantity, the other a question of distribution.

Before a workforce segmentation is adopted

Four questions need answers. What exactly is being distributed, and is it a resource the organisation is free to allocate or a right already established? Which two dimensions is the segmentation built on, and are they genuinely independent of each other? What share does the lowest segment receive, as a percentage of the budget and as a percentage of the headcount, and was that figure stated in the meeting where the segmentation was adopted? And when will it be reviewed, and against what written basis?

Answering the third question in particular means taking the decision for what it is. A segmentation can be adopted after a discussion of the top segment alone, with the share of the bottom segment passing without debate. Its effect then surfaces two years later in figures that nobody connects to that meeting.

This is an explanation of the concept, not legal advice.

Related terms

• Succession Planning
• Retention Rate
• Attrition
• Job Classification
• Employee Value Proposition