Age Diversity - a management approach against the background of demographic changes

Bachelor Thesis 2011 64 Pages

Leadership and Human Resource Management - Miscellaneous


Table of Contents

List of Abbreviations

List of Figures

List of Tables

1. Introduction
1.1 Description of problem and aim of this thesis
1.2 Research methodology

2. Basics of age diversity
2.1 State of the Art
2.2 Explanation of basic terms
2.2.1 Definition of the term “diversity”
2.2.2 Definition of the term “managing diversity”
2.2.3 Definition of the term “age diversity” and its conception
2.2.4 Reason models according to Thomas & Ely
2.3 Framework conditions
2.3.1 Demographic changes
2.3.2 Political positioning
2.3.3 Legal foundations
2.3.4 Economic changes

3. Collaboration of old and young
3.1 Age-specific capabilities
3.1.1 Cognitive capabilities
3.1.2 Physical capabilities
3.1.3 Consequences for an age-specific work assignment
3.2 Mixed-age teams
3.2.1 Basics and scientific findings
3.2.2 Requirements for collaboration

4. Fields of action within the age diversity approach
4.1 Knowledge management
4.2 Personnel development
4.3 Career management
4.4 Culture and leadership

5. Competitive advantages of age diversity
5.1 Product and customer marketing
5.2 Creativity and problem solving
5.3 Cost reduction and increase in efficiency
5.4 Personnel marketing

6. Summary
6.1 Conclusion and outlook
6.2 Limitations
6.3 Further research

List of References

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: Age structure of the population in Germany in 2005 and 2050

Figure 2: Model for organizational change

List of Tables

Table 1: Learning features for employees of different age groups

1. Introduction

1.1 Description of problem and aim of this thesis

The topic of age and employment is increasingly becoming relevant due to discussions regarding the future of the working society in Germany as well as against the background of demographic changes.

These emerging demographic trends, characterized by a declining birth rate, a greater share of older people and an increasing life expectancy, lead to a future lack of younger employees, growing age diversity within the company as well as to older customers and employees. In order to maintain and improve their position in an increasingly competitive market, companies will need to bring in strategies and competencies that allow them to equally develop, remain and use the potentials of all age groups in the company.

Up to now, companies have not sufficiently recognized and used the economic potential that in particular their older employees can contribute to the working processes. On the contrary, the up to now existing legal simplification of early retirement together with false prejudices about the achievement potential connected with age discrimination have led to the dismissal of especially older employees in cases of necessary restructuring measures connected with staff reduction. The fact that the older employees’ potentials in combination with the potentials of the younger employees in the sense of a positive age diversity can generate competitive advantages, is however not yet sufficiently recognized.

In this context, an age diversity approach will be developed that demonstrates the interrelations in all its facets. Age diversity is thereby focusing on the integration of the various age groups in the company as well as on the appreciation of the skills and abilities of the young and old employees. A main goal is the effective conflation of the potentials of all generations.

In order to achieve this, it is necessary to develop respective measures of personnel management and to use them in various fields of action. Which measures are included and which competitive advantages can be achieved out of them, will be explained in the following based on a comprehensive approach towards age diversity in Germany while considering certain requirements and framework conditions.

1.2 Structure of thesis

This thesis is divided into five chapters dealing with the topic of age diversity. Chapter 2 starts with the explanation of the basics of age diversity. Therefore, in point 2.1, the state of the art will be exemplified, i.e. in what extent research has dealt with the generic term of “diversity management” yet and which role the dimension of age is playing in this context. Building on to this, important terms will be explained in point 2.2 in order to gain a broader understanding of the topic. This includes the term of “diversity”, describing a variety with regards to visible and non-visible characteristics, the term “managing diversity”, outlining diversity as a management concept of a company that helps generating certain competitive advantages, and last but not least the term “age diversity” introducing age as one of the dimensions of the general diversity management as well as elaborating on the age diversity approach and explaining first basic conditions.

Moreover, three different reason models (according to the academics Thomas and Ely) for implementing diversity management in companies will be given and analyzed with regards to the age diversity approach. In the last point of chapter 2, basic framework conditions in Germany influencing the implementation of age diversity in the company will be evaluated. These include, as one of the most important factors, the demographic changes with its challenges, but also measures of politics and legal foundations with respect to the discussion about retirement age, anti-discrimination and others as well as economic changes.

In chapter 3, the thesis will focus on the concrete collaboration of young and old employees in the company. For this, point 3.1 will firstly explain the age-specific capabilities with regards to cognitive and physical characteristics of the several age groups. In the context of the cognitive capabilities, especially the theory of intelligence by Cattell is being used in order to describe the individual differences between young and old. This knowledge will then be evaluated with regards to the consequences for the work deployment of the employees.

An important component within the age diversity approach is the deliberate use of young and old employees in the form of mixed-age teams. For this, the basics of successful cooperation will be explained, followed by the description of three on scientific research based models that picture both the positive as well as the negative effects of age-heterogeneity in work groups. The models include the “Similarity-Attraction-Theory”, the “Theory of Social Identity and Self- categorization” as well as the “Model for Information Processing and Decision- making”. Lastly, building on to this, specific preconditions will be defined that, against the background of the before mentioned potentials of the several team members, promote an effective collaboration.

Age diversity is a management approach which cannot be executed on an isolated basis. A successful implementation requires continuous measures within a broad variety of areas in the company, which will be explained in chapter 4 as fields of action. These include the field of knowledge management that promotes the knowledge transfer between old and young employees by means like mentoring, know-how-tandems and others, but also the field of personnel development in form of advanced training that needs to be adapted to the respective age group. Furthermore, the career management can be seen as another field of action that needs to be adjusted in particular with regards to age-appropriate employment biographies, compensation systems and organization of working time. Culture and leadership as a last field of action will then be described, with regards to its meaning for the implementation of age diversity, with the help of the “model for organizational change” developed by Cox.

Chapter 5 will afterwards focus on the question in what way and in which areas in particular the age diversity approach can promise an economic advantage for the company by generating competitive advantages. These include advantages in the area of product and customer marketing, in the area of improved creativity and problem solving as well as potential advantages in the field of cost reduction and increase in efficiency. Moreover, the competitive importance for the area of personnel marketing will be explained.

Finalizing, the last chapter will summarize and reflect the results obtained throughout the thesis and will give an outlook with regards to a future need for research. Furthermore, some individual points described in the thesis will be picked ]out and criticized.

2. Basics of age diversity

2.1 State of the Art

As the topic of diversity can be considered as still being at a stage of development in Germany, only few literature can be found compared to the United States of America for instance. The number of authors dealing with the general topic of diversity in Germany is quite manageable. A large percentage of research regarding this field has been conducted to evaluate the correlation between diversity and corporate success. There is, however, still considerable need for research with regards to framework conditions and requirements for developing competencies needed for managing diversity within the company.

Furthermore, it should be noted that, although the concept of managing diversity consists of a variety of dimensions, as will be explained later on, the research especially in the German-speaking areas is mainly based on the dimensions gender and culture respectively ethnical background. Only with great distance the dimension of age follows. This is a cause for concern inasmuch as the progressive demographic changes require swift action to be taken, however, the recommendations for actions given in the literature have not been sufficiently examined with respect to their effectiveness yet.

The literature, which has been published up to the present, dealing with the topic of age and employment, mainly focuses only on the ageing workforce, in particular on older employees and how to preserve their employability. The consideration of all groups of employees, including young and old which is the case within the age diversity approach, is hardly found in literature. And so, there are only a few articles using the term of “age diversity” in their heading or in the article itself, concentrating only on this topic. This is even more apparent as there is no official definition of the term or the concept of “age diversity”.

A review of the literature on age and work furthermore shows a clear theoretical emphasis on negative predictions. The predominant theoretical models are older worker stereotypes and age discrimination. Another topic that is addressed within this discussion is the potential for positive social relations within work groups in order to increase the positive effects of age diversity or respectively, to prevent negative effects like stereotyping.

Summarizing it can be detected that there is still a lot of research to be conducted with regards to age diversity. The basic results of research, given the progress to date, will be presented and explained systematically in the following parts.

2.2 Explanation of basic terms

2.2.1 Definition of the term “diversity”

Diversity describes the variety that occurs, when human beings differ in many respects, but at the same time also share common attributes (Sepehri/Wagner 2002, p. 124). In this context, a distinction has to be made with regards to visible and non-visible characteristics:

Next to the variable of age, also attributes such as gender, ethnic background respectively race as well as physical disability belong to the visible characteristics (Behrend 2002, p. 7). Among the non-visible attributes are for instance shared values, sexual orientation, education, religion as well as differences in terms of knowledge and skills (Sepehri/Wagner 2002, p. 131). Both attributes, visible and non-visible, are correlated, though.

Based on those characteristics, the German-speaking research has identified five core dimensions, according to which diversity is recognized and employees are being distinguished. These include: gender, race, physical disability, sexual orientation as well as age (Vedder 2003, p. 19), on which the thesis will focus in particular.

2.2.2 Definition of the term “managing diversity”

The theme of diversity has its origins in the United States of America. Due to a population, consisting of immigrants of numerous countries, cultures and religions, there was much earlier the need to deal with diversity and the resulting conflicts (Nolden 2008, p. 41). Out of this, a management concept was developed, which is known today as “managing diversity”.

This concept aims at valuing and promoting the existing diversity within the workforce as well as using it in the sense of economic success (Jablonski 2006, p. 192). Because of the concept of managing diversity, conditions have been created within the companies, under which all employees can unfold their achievement potential. This requires, though, that organizations are aware of their employees’ versatility and that prejudices against specific employment groups are being reflected and eliminated (Bender 2007, p. 189). At the same time, the concept also considers the diversity of customers, markets, suppliers as well as investors and tries to align the business to the specifics of all stakeholders. A well-elaborated and successful implemented diversity management ensures a non-discriminatory working environment, provides sufficient and adequately qualified staff and generates concrete economic benefits such as higher productivity, better exploitation of the employees’ creativity, enhancing innovation, easier access to new markets and customers as well as the improvement of the company’s image and employer’s attractiveness (Ivanova/Hauke 2006, p. 353).

Cox specifically describes “managing diversity” as “planning and implementing organizational systems and practices to manage people so that the potential advantages of diversity are maximized while its potential disadvantages are minimized … [and] the goal of managing diversity as maximizing the ability of all employees to contribute to organizational goals and to achieve their full potential unhindered by group identities such as gender, race, nationality, age and departmental affiliation” (Cox 1993, p. 11).

The important feature of this approach is that the individual employee groups are not being considered in isolation, but that the correlations between the different employees are being addressed through integrated measures (Böhne/Wagner 2002, p. 35).

2.2.3 Definition of the term “age diversity” and its conception

Age Diversity as a management approach relies on the above explained general concept of managing diversity and focuses in particular on the dimension of age. Becker defines it as a part of the personnel strategy, which aims at improving the efficiency and productivity as well as at securing the competitiveness, which is achieved through the optimum degree of age-related heterogeneity within the workforce (Becker 2005, p. 32). But this also means that all generations in the company need to be equally involved - neither can a group be excluded nor can the focus just concentrate on a specific one.

In this context, the demographic changes towards an ageing population tempts to concentrate on just the group of the older people. However, one must recognize the fact that the younger employees of today will be the older employees of tomorrow. Therefore, from the very beginning, the cultural process of change needs to include all employees of a company - starting from the apprentice to the employees of the middle and older generations to the already retired workers, still having a lot of knowledge and experience, that companies in the future will probably increasingly need to fall back on (Seitz 2008, p. 181).

Also Puhlmann underlines this relation, when stating that not only the older have an age, but also the younger and that at any age specific potentials and experiences as well as occupational skills complement each other in a special way. Because only the conflation of potentials, experience and skills as well as the personality of each generation leads to the economically best results (Puhlmann 2002, p. 113).

Therefore the objective of the age diversity approach is to integrate all age groups in order to combine and use the different potentials and qualifications of the employees of all ages in such way that the company can generate competitive advantages and is prepared for the consequences of demographic changes. Being an integrated and comprehensive approach for managing this demographic change, it is, however, not only limited to single activities, but tries to consider and integrate several fields of action. In addition to various human resource aspects especially strategic deliberations, such as new market opportunities, shall be included.

The basic conditions for the successful implementation of an age diversity approach are being summarized by Rygl and Puck (2007, pp. 296/297):

a) Neutrality with regards to age: The age itself must not represent a differentiation criterion. In principle, all offers shall be available to all employees, even if they are possibly tailored to a single age group. A specific age must never disqualify for programs or career options.
b) Flexibility: Companies as well as employees need to show a high degree of flexibility, meaning that the companies need to provide official, flexible offers and to guarantee the access to them. The employees need to be open to those offers and need to change their attitudes towards the typical vertical career, ascending from one hierarchical position to the next.
c) Performance orientation: The performance level needs to be at the centre of all actions. Offers for personnel development are only reasonable if the specific employee is eligible and willing to receive support - it should not be used to meet some kind of quota for specific age groups.
d) Individuality: Within an age group also differences in individuality are present. The age itself is only a number and the offers need to ensure equality of opportunity regardless of this age. This is also necessary to prevent any kind of age discrimination.

The need for implementing diversity, in particular age diversity, will be explained more in detail in the following section.

2.2.4 Reason models according to Thomas & Ely

For understanding the above explained concept of managing diversity, the authors Thomas and Ely (1996, pp. 79) have developed three perspectives, which, in scientific research, are considered as main reason models for the execution of diversity programs. In the following these three perspectives will be explained in general and afterwards analyzed with regards to the significance for the age diversity approach in particular:

a) Discrimination- and Fairness-Perspective

This approach identifies and names problem areas for possible discrimination, which are then dealt with within a conflict management. In this context, especially legislative framework and social demands, which the organization is taking account for through a conforming adjustment behavior, have motivating effects. The company tries to ensure that all social groups are adequately represented (e.g. through a quota) and that discrimination is being prevented. This perspective thereby focuses more on moral arguments, with economic aspects only playing a minor role (Böhne/Wagner 2002, p. 36).

With regards to the demographic changes in Germany, i.e. the increasing share of older people, this would mean, that companies would need to take greater effort in order to attract especially older people to meet the social situation. However, taking a closer look into the companies, an adverse development appears: While Germany is considered as an ageing society, the trend of rejuvenation of personnel in companies is continuing. Companies think that younger employees can better cope with the increasing qualification demands and therefore try to face the accelerated technical change with the help of an ever-younger society (Behrend 2002, p. 22). At present, one can therefore not talk about a deliberate representation of all age groups within the company.

b) Access- and Legitimacy-Perspective

This approach was developed on the basis of a market-based view. In this context, it is not tried to reflect the social demography, but the specific market-related demography. It is assumed that a diverse workforce can better perform in increasingly heterogeneous markets, than it would be possible for a homogeneous workforce. The company expects a greater development of ideas that help to be more successful in the market, as the supposed typical customer base reflects the group of employees. It has to be mentioned critically though that this approach reduces the employees to the belonging to a determined social group and that those are solely being functionalized. An individual appreciation of the employees is not given in this context. (Aretz/Hansen 2003, p. 17).

Referring to the theme of age diversity, it can be detected that companies try to make effort in order to attract older people to become buyers of their products. However, up to the present, this is only happening at a level of marketing, attempting to approach a group of older buyers with the help of older faces on commercials and advertisements. It is doubtful, however, whether those marketing strategies have been developed of employees, who have a similar age structure as the group of buyers (Böhne/Wagner 2002, pp. 36/37). Moreover, the group of older employees is not being regarded as a potential in German companies. This can be seen, for instance, in the dismissal of older employees in favor of younger employees in cases of promotion congestion.

c) Learning- and Effectiveness-Approach

This approach understands managing diversity as a comprehensive concept of organizational learning. On the one hand, this includes the economic point of view, but at the same time focuses to the same extent on the motivation and integration of different groups of employees so that their individual personalities can enable learning from diversity. To achieve this, it is necessary though, to adapt the organizational culture to changing personnel structured framework conditions. Those need to seek for a right balance between integration and differentiation in order to realize an economically reasonable potential of success out of the employees’ diversity.

Applying this, for instance, to the group of older employees, this would require a realignment of the, at present, mainly disintegrative staff policy, which is primarily characterized by measures of lay-offs in terms of early retirement (Grauer 1998, p. 36). An integrative approach on the other hand rather aims at older employees being no longer excluded from measures of advanced training, for instance, but being effectively integrated, i.e. in accordance with their specific and changed skills, into a advanced training concept that is adapted to the different groups of employees (old and young) (Böhne/Wagner 2002, p. 37). This way, the potentials of the younger as well as of the older employees can be retained and used for mutual learning processes.

Summarizing, one can say that all three perspectives include positive as well as negative aspects, however, the third approach describes the most plausible reason for implementing (age-) diversity, as it summarizes the two other perspectives in terms of combining both moral and economic aspects. Those aspects are subject to certain framework conditions though, which will be explained in the next part.

2.3 Framework conditions

2.3.1 Demographic changes

As mentioned before, age diversity is affected by several framework conditions, which a company needs to deal with. One of the main topics within this context is the already indicated demographic change, which only led to the consideration of the topics age and diversity within companies.

According to calculations of the Federal Statistical Office in Germany, the number of inhabitants in Germany will drop from nearly 82.5 million in the year 2005 to almost 69.0 million in the year 2050, if the current demographic situation will not change (DESTATIS 2006, p. 5). This is regarded as threat to today’s economic and social system - the decrease in population leads to a reduction of the labor supply and thus to the question, how the necessary labor resources will be retained in the future in order to secure and increase the company’s competitiveness (Kuhn-Fleuchaus/Bambach 2008, p. 33).

Moreover, the relation between young and old people in Germany will shift substantially within the next few decades. By the end of the year 2005, 20% of the population was younger than 20 years, the share of people being 65 years or older was 19%. The remaining 61% were so-called working-age people, being 20 years to under 65 years. In the year 2050, however, only about half of the population will be at working age, more than 30% will be 65 years or older and about 15% will be younger than 20 years (see Figure 1) (DESTATIS 2006, p. 5).

illustration not visible in this excerpt

Figure 1) Age structure of the population in Germany in 2005 and 2050 (DESTATIS 2006, p. 18)

Reasons for this development cannot only be seen in the rise of life expectancy mainly due to the progress in medical treatment, hygiene, nutrition, living conditions as well as improved working conditions (DESTATIS 2006, p. 36), but also in the decrease of the birth rate, meaning that the number of deaths is exceeding the number of births. This results in a rapidly growing birth deficit, which cannot be compensated any longer by immigration (DESTATIS 2006, p. 5).

The increase of the population’s average age inevitably also leads to an increase of the average age of the working population. Therefore, in the future it will be even harder for companies to rejuvenate their staff from the external job market to the degree deemed necessary to them. As there are fewer and fewer young people entering the workforce, the companies are forced to face an ageing workforce. They will be dependent on employing older employees for an extended period of time or also considering them for hiring. As a result, this will also lead to the fact that the workforce will reflect the society’s demographic situation in a more realistic way than in the past - the workforce will be much more diverse (Böhne/Wagner 2002, p. 33).

Summing up, the developments outlined above will cause to face three major challenges for companies:

a) It is mentioned already today that there is a shortage of high qualified and motivated young professionals, known as the phenomenon of “lack of highly-skilled workers”. As a result, the so-called “war for talents” will even more increase (Bruch et al. 2010, p. 42). The challenge for companies will therefore be to develop strategies aimed at using the potentials of the employees already working in the company in the best possible and effective way, especially in terms of combining the skills of the younger and older employees.
b) The inevitably increasing average age of the employees raises the question whether it will be possible for companies having an ageing workforce to cope with the increasing global pressure for innovation. Many companies are competing with countries that have a larger pool of young professionals. Therefore, personnel management and leadership measures will be necessary to retain the performance level, productivity and innovative capabilities of the ageing workforce (Bruch et al. 2010, p. 44).
c) Moreover, if an increasingly large number of older employees in the company is close to transition to retirement there is the risk of an immense loss of knowledge. The almost simultaneous leaving of those employees for reasons of age will eventually result in a loss of specific expertise, experience and even more important, customer relations (Morschhäuser et al. 2003, p. 106). Hence, it will be important to tie up the implicit knowledge of this generation better than before and to transfer it to subsequent generations.

2.3.2 Political Positioning

The demographic change clearly demonstrates how important it is to not only take advantage of the younger employees’ potential, but especially of the older employees’ potential. A comprehensive economic policy strategy is one of the key success factors in this context. Economic and financial policy as well as tariff-, labor market- and education policy need to be consistently geared towards growth (BDA 2003, p. 3).

Only about 30% of the people aged between 55 and 64 are currently working (DESTATIS 2006, p. 22). This low level of employment of older workers is the result of extensive early-retirement programs, executed especially in larger companies (Morschhäuser et al. 2003, p. 9). Such personnel strategies were encouraged in particular by socio-political framework conditions with regards to pension and unemployment insurances (Behrend 2002, p. 7). Measures such as the companies’ social plans and longer payment periods of the unemployment benefit I in connection with a flexible retirement age, led to the leave of numerous employees from age 55 (Müntefering 2006, p. 5).

For some time, however, a paradigm shift has been seen in the political context. Thus, recently it is tried to point out to the special skills of older employees, for instance through the political “Initiative 50Plus”. This initiative combines the German Federal Government’s activities in the different, relevant policy areas and actively seeks for the cooperation with all social groups. It primarily aims at a change of attitudes - it is more than ever required to consider and appreciate seniority as a productive phase of life (BMAS 2006, p. 2).

Additional political measures that especially promote the longer-term ability to work and have been implemented so far, include:



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Title: Age Diversity - a management approach against the background of demographic changes