What is Employee Segmentation? Examples & Models

In today’s workforce, it is crucial to understand your employees' needs and wants. A one-size-fits-all approach does not cater to employee requirements anymore. This is where employee segmentation comes in. Employee segmentation looks at how to best group employees based on their characteristics, such as age, ethnicity, and gender to performance and benefit systems in organizations.

Employee segmentation can help you understand your employees and maximize their productivity. Different employees thrive in various environments. Providing development opportunities and employing recognition programs can be key to engaging different segments. Employee segmentation helps you develop your workforce, enhance productivity, and increase ROI.

Identifying similar employees in your workforce is important, as they share similar needs and goals. The main goal for nearly 80% of organizations is employee engagement and a better work environment.

The first step in any employee segmentation effort is to perform an employee attribute analysis. Employee attribute analysis is the process of identifying and describing employees’ personality traits and characteristics – it can help determine potential types of employee segmentation. Understanding employees' attributes creates a positive and productive work environment.

Employee segmentation plays a crucial role in enhancing efficiency and addressing their needs. Tailored approaches should be adopted when working with different employee segments. In this article, we will explore various models of employee segmentation, the methods employed, and provide relevant examples.

What is Employee Segmentation?

Employee segmentation is the grouping of employees based on their shared characteristics and needs. It is distinguishing employees based on common characteristics into distinctive groups.

These characteristics can be based on:

• Age
• Gender
• Skills
• Roles
• Motivation
• Preferred working style
• Communication style
• Performance levels
• Promotion rates and internal mobility

Employees are not all part of a single homogeneous group. They are motivated by different factors of success and variables. According to Gallup’s ‘State of the Global Workplace Report,’ only 23% of people are considered engaged at work, showing the need for employee segmentation. Organizations with high employee engagement can have 59% less turnover compared to others.

Segmentation can be implemented horizontally, where groups consist of employees with similar natures and levels. For effective employee segmentation, three key conditions must be satisfied: distinctiveness, reachability, and stability.

It's crucial to understand your workforce when segmenting employees. The next step is to identify key roles. This helps determine where you can achieve the most return on investment. To understand the workforce analyze the employee competencies and their dimensions. These dimensions can be hierarchy, experience, qualifications, training, memberships, and skill sets. Understanding their motivations, benefits needed, and preferred work environment is critical.

Segmentation is important in identifying the various types of benefits that different employee groups require. Benefits such as medical insurance or childcare and family benefits for specific types of employees can foster a better company culture, and enhance employee engagement, satisfaction, and retention. When segmenting your workforce, it is also essential to consider the organizational design and operational and financial structures – from the organizational level down to the team or group levels.

Why is Employee Segmentation Important?

Employee segmentation focuses on groups in the organization that have distinct needs and aspirations. Performance management methods are sometimes designed assuming that all employees are the same. This can lead to wasted resources and decreased productivity.

Enhancing the effectiveness of such initiatives relies on the customization and relevance of the initiative. The benefits can include career development, personalized benefits, and better learning programs. Redistribution of funds or resources from low-value to high-value sectors can be carried out to drive organizational success by segregating people.

Personalized and scalable support

Employees have different needs and preferences. It is essential to provide personalized support to address these requirements. A generic approach can end up wasting your company's resources and fail to meet employees' needs. Employee segmentation can provide tailored packages that meet the individual needs of different employee groups. From an HR perspective, this would be scalable and remove the unnecessary headache of addressing everyone’s requests.

Resource allocation

Your company’s resources can be allocated to reach employees who need them the most. Resources allocated properly can meet needs and help reduce costs.

Workforce planning

Using segmentation, you can analyze skill gaps and talent development needs. This helps predict future talent requirements and assist employees in fitting into different roles. Tableau, Visier, and SAP SuccessFactors WorkForce Analytics are some workforce planning tools for employee segmentation.

Diversity and inclusion

The needs and concerns of different demographic groups can be addressed via different segments. It is important to consider employees from all backgrounds and ethnicities. An inclusive workforce with the right kind of segments can ensure that the needs and wants of all employee groups are met.

Employee Segmentation Methods

Job-based segmentation

Grouping employees according to their roles and responsibilities will ensure they are aligned with their skills and strengths.

Performance-based segmentation

Classify employees based on their productivity levels to replicate best practices and areas of improvement.

Skill-based segmentation

Segmenting employees on their expertise and competencies to identify skill gaps.

Location-based segmentation

Location-based segmentation is based on where people work - at home or in an office. This allows us to see which modes of working would be best for which segments.

Engagement based segmentation

Here employees can be categorized based on engagement metrics and see how best to invest in the employee experience.

Persona-based segmentation

We look at the background variables on which segments differ. Using these insights we construct personas for different segments. Employee personas are semi-fictional representations of employees in each segment.

Select the most impactful variables when segmenting employees. Overarching themes can be identified from employee survey data sources. Once these themes are identified the variables are filtered and the most optimal ones can be chosen to segment the workforce.

Clustering-based segmentation

Clustering-based segmentation is using data analysis techniques to group employees into distinct categories through the application of clustering algorithms. This method can be used to identify high-potential employees and also address employee retention concerns. It is important to distinguish clusters based on characteristics that are very different from one another. Within these clusters, you will find employees who are more similar in nature and job roles.

Employee Segmentation Models

An employee segmentation model is a method by which the workforce is categorized into different groups based on functions. Factors such as employment conditions and rewards need to be tailored to meet the needs of different segments.

Demographic segmentation

Groups are segmented based on observable traits, like location, gender, ethnicity, and age. Demographic characteristics can be used to identify ‘benefit segments’. However, a deeper study on this would be required otherwise it might lead to demographic stereotyping. Although it is the most common approach, it is also the least effective. Demographics are poor predictors of behavior and would not be useful in assessing employee needs. They only represent the employees’ backgrounds and developmental influences.

Theme-based segmentation

Theme-based segmentation refers to grouping employees into categories based on a recurring theme that reflects their motivations, concerns, or aspirations. This allows for targeted interventions to address needs across segments.

Labels can be created for groups based on employee survey results. The purpose here is to identify specific employee needs. It is possible to identify themes from employee surveys and understand the needs of the employee segments.

Another popular technique is clustering based on written feedback/comments which identifies segments with similar needs. Grouping based on workplace attitudes depends on how many employees share these. One example is segmentation based on employee engagement and employee enablement.

The responses here are used to create a Quadrant Analysis chart.

There are four categories of employees here.

• Employees who are neither engaged nor enabled and unable to reach their full potential at work.
• Employees who are engaged face barriers preventing them from doing a good job.
• Then there are employees who are enabled to do their jobs but do not have any emotional attachment to the company.
• The last segment of employees are the ones who are engaged and enabled and doing their best at work.

Data from employee surveys can be used to evaluate specific quantitative results, such as engagement, retention, and well-being. In this scenario, cluster analysis can also be used to identify needs and preferences. Themes that have the greatest impact on the engagement and retention of your top player segments can be identified.

Talent segmentation model

Effectively utilizing your talent resources through segmentation is key. Recruitment tactics and methods can be adjusted to better align with the profiles, experiences, and skills of applicants. By doing this, you will attract more suitable candidates to your organization and enhance your employer branding among employees.

Applicants nowadays choose organizations based on the criteria that are important to them. Talent segmentation allows for the creation of subcategories, each characterized by distinct passions, objectives, and motivations. This enables you to refine your recruitment strategy to better engage with candidates.

Companies must consider employee preferences and needs when employing talent segmentation strategies. People can be grouped based on workforce criteria and behaviors. They are categorized into strategic and non-strategic employees assuming that employees who contribute to the organization should be prioritized more.

• Strategic employees are those employees who have a significant impact on your organization's business. They can be further classified into high-performing, employees with critical skills, recently promoted, and so on. Basically, these are employees who have a great impact on sales, growth, product development, or any other critical aspect of the business.
• The second category of employees would be those who perform consistently and satisfactorily. This segment would have a considerable impact on the business but they might not be the decision-makers or agents of change. They contribute to the organization in a positive manner where the responsibilities and duties assigned to them are done satisfactorily.
• The third section would be employees who are poor performers. This segment is a liability to the organization. The idea with this section of employees is to provide support to them through training or internally relocating them. If all else fails these employees would have to be let go.

Sentiment analysis and automated qualitative clustering techniques are used to evaluate all survey comments of your top player segments. In this model, the workforce is categorized based on the scarcity of skills and the business impact. An organization's approach to workforce segmentation must be aligned with business goals and objectives.

The talents of employees need to be fine-tuned to ensure they can do their jobs effectively. The drawback of this model is that it is not focused on the individual but more on the organization and performance of the employee.

Needs-based segmentation

Value propositions are provided to employees based on their segments and needs. This can help with retention rather than the employees looking at other options in other organizations. Here the target segment needs to be broken down into manageable sub-groups with similar needs and preferences. The needs-based approach has proven to be the more effective model.

The trick here is to see how many employee segments you would be able to provide value propositions to. It is important to prioritize needs and wants based on the urgency and value to the organization. Finding an optimal number of segments that the HR team can cater to would make the segmentation more impactful.

Further sub-segmentation can be done based on demographic characteristics such as gender, age, responsibilities, and organizational properties, such as type of work and job level.

Gender and age play a crucial role in the organization. The needs and requirements of a young female employee will not be the same as a middle-aged male employee. The former might require more training and advancement opportunities while the latter would require better benefits and incentives.

Challenges in Employee Segmentation

Employee segmentation poses its own unique challenges. Even though segmentation helps identify and address the needs of employees, it can also lead to perceived inequity and barriers. While segmenting employees it is vital to ensure transparency and the buy-in of the workforce in the process. In this manner, tailored approaches can have a better impact and acceptability by the workforce.

• Collecting workforce data is a major challenge and many employers feel uncomfortable using it. Trust is also another major issue. Many employees will be reluctant to segmentation as they fear bias and favoritism in the organization. So, balancing the need for personalized approaches to ensure that it is done fairly and consistently across the organization is important.
• When segmentation is newly introduced, there is likely to be some pushback from the employees' side. It is good to reassure the workforce of the purpose and ensure that segmentation is done properly.
• Effective communication and transparency need to be there for the employees to have better buy-in and trust. In the case of remote settings, it is important to ensure that digital benefits are provided. Any benefits like gym memberships or yoga classes would not be accessible to these employees.
• It is good to avoid any kind of perceived bias when it comes to benefit packages. A one-sized approach would be easier for HR teams, but in the case of customized packages for different segments, it will take more time and effort.
• Unorganized people data can be a major problem for an organization. Data over multiple systems and sources makes it difficult to organize data for segmentation. This can lead to data conflict and attribute inconsistencies with missing data.
• Bucketing data, commitment to data privacy, employees setting permissions and tracking are all practices to have better Protected Personal Information (PPI) in the company. Data salary ranges, addresses vs home office information can be bucketed to ensure privacy in internal communications.

Examples of Employee Segmentation

The first step involved in employee segmentation is gathering data. With the data in hand we can create all kinds of segments and here are a few examples.

Life stages

Here the segments are made on the basis of life stages, Millennials, GenX, and Boomers – each generation will have unique needs and preferences. They will also have similar interests and learning styles. The idea is to capitalize on these unique needs and interests and accordingly create segments.

Work styles

The work styles of people also differ across organizations. Some employees can be collaborative in their work whereas others may be more independent. Workforce segmentation helps to understand each of these groups.

Learning styles

It is important to consider different types of learners. Some learn more using visual mediums while others use lectures or podcasts. It’s all about identifying these segments and catering to their needs.

Segmentation can also be based on the skills of the employees and the roles they play. For example, whether a group of employees are tech-savvy or not. Company tenure is also another important component. The needs of the employee based on tenure will be different; for example, retirement planning, career growth, mentorship, and so on.

Here is a use case of employee segmentations: Starbucks surveyed its employees to find out what attracted and retained them. From 140,000 employees, they found that there were three types of segments within their workforce.

• People who worked to follow another passion
• Individuals who wanted to work for socially responsible employers
• Employees who wanted to make a career at Starbucks

The results were used in their recruitment campaigns to attract the right employees to the organization.

Wrapping Up

Employee segmentation is a major game-changer in addressing employee needs and wants. Employees come in all shapes and sizes – it is vital to address these basic differences. Some might prefer fast-paced working environments whereas others may like stable ones. Preferences can change from one segment to another.

HR teams need to ensure that segmentation is done with minimal bias or favoritism. A-players of organizations are normally prioritized and understanding how these employees contribute to your organization is also key. With employee segmentation, organizations can better understand their workforce and the critical roles they play in the company.