How is Today’s Higher Turnover Hurting Your Business?

 

As more and more millennials enter the workforce, some of our traditional measures of corporate performance are losing their importance or even becoming moot. Certainly near the top of the list is employee turnover, which traditionally has been a leading indicator of employee satisfaction, the quality of work life, and the quality of management. Human resources surveys have frequently cited high turnover as an obvious symptom for a wide variety of corporate ills. In a more tangible way, turnover has always been considered as a profit improvement opportunity as well as an ancillary measure of HR effectiveness.

Why is Turnover Ratcheting Upwards?

We know that turnover is increasing, yet somewhat surprisingly, it is no longer a meaningful bellwether of corporate performance. What’s interesting is that the very reasons it is on the increase are also the reasons for its disassociation with corporate performance.

turnoverThe employment psychological contract that for so many years framed the employer-employee relationship has been dissolving for more than twenty years and now is little more than an affirmation of at-will employment. To respond to the cost and ever-changing competitive challenges, employers pursue greater workforce flexibility by focusing on today’s jobs rather than tomorrow’s careers. More and more people are hired to do jobs, with little consideration given to either their development or their careers. Call centers, driven primarily by economics, have transformed sales in a great many organizations, creating jobs with systemically high turnover along with minimal prospects for career advancement.

Another equally understandable tack to address the rapid, ongoing marketplace changes that companies face is to seek out new employees offering broader and more diversified experiences rather than emphasize internal moves and promotions as was previously the norm. While this expands the employer’s knowledge base and may add fresh ideas, the downside is that it chips away at advancement expectations and encourages current employees to then pursue external opportunities themselves.

As I write this, the Department of Labor’s official unemployment numbers are in the 5% range, but in real terms, unemployment and underemployment are at historically high levels. Despite the numbers, there has been such a rapid transformation of workplace knowledge, skill requirements and cultural values that demand greatly outstrips supply, and many, many companies cannot find the talents they need! It’s no small surprise then, that with today’s extensive communication options, people are readily aware of job opportunities and quick to move on to something they perceive as more advantageous.

A fourth causal factor is very much a generational phenomenon. Supported by an expanding framework of social services, millennials perceive work and the role of work in their lives very differently from preceding generations, including those of their parents and grandparents. The silent generation and the baby boomers in particular, having faced unemployment and retirement uncertainty without all of today’s safety nets, were motivated in part by insecurity that is alien to the experiences of younger workers in 2016. In fact, social conditions have altered values so much that a great many millennials seek out less structured, more situational types of jobs that are part of the gig economy, such as driving for Uber, doing contract work like coding and consulting, or holding down several part time jobs as opposed to one full-time job. They have less angst about their careers or how they will manage their retirement someday, and they certainly don’t fear quitting one job to move on to another.

What Are the Consequences?

With forces in motion that are pushing turnover numbers continually higher, we have to ask, what does it mean for business? Are we potentially better off, worse off, a combination of the two, or simply running on the spot? Since we’re still in a transitional phase with respect to many interdependent workplace changes, including the matter of turnover, there’s more conjecture than certainty in answering the above question, but some effects are apparent right now.

As people more frequently move to new organizations for money, hiring bonuses, additional perks, or advancement, the net effect is that work is evolving into a more transactional relationship. The “old” psychological contract is being replaced with a new tacit agreement in which the employer says, “I need you today, but won’t make any promises about tomorrow,” and the candidate responds with, “I understand, because I don’t know if I will be here tomorrow, either.”

What’s really in danger of being lost here are employee commitment and engagement, the holy grails of so many HR schemes and initiatives.  As they come down, they knock over the productivity domino as well. Going right back to Herzberg’s KITA (it’s fascinating – look it up!), we have always known that there are clear limits to what we can buy. Much as a passionate guerilla force has a powerful psychological advantage over paid mercenaries, employees with a longer-term commitment are a sure bet to outperform those with a resume that gets updated daily.

Another apparent casualty is the training, development, and preparation of future managers. Business organizations once upon a time made substantial investments in future management knowing that what they spent would have valuable and essential payback at some point in the future. Long before turnover rates accelerated, it was actually in the early 90s that major businesses began to send so many seasoned and longer term employees packing as they pursued major cost reductions. Not wanting to develop talent for their competitors, companies have never replaced what they discarded, and today hope they can acquire much-needed management knowhow in the marketplace. What they are really acquiring are people who may have been a lot of places, but who never settled in one spot long enough to receive the training and longer-term mentoring that is fundamental to grooming managers. With our current emphasis on greater collaboration, the nature of management is changing, but with almost 50 years of observations in 2000 entities, my personal view is that the quality of management today is not on a par with what it was twenty-five years ago. Most experienced executives I have spoken to feel the same way.

Perhaps even more disturbing, in many jobs where knowledge and genuine expertise can only be accumulated over time, competency is deteriorating. This is tough to prove, of course, but it comes down to common sense. Cognitively demanding jobs may not require the full 10,000 hours as Malcom Gladwell has purported, but it’s highly doubtful most can be mastered in a year or two. Whether it’s teaching, writing, undertaking statistical analyses, building cabinets and furniture, or rebuilding an old Ferrari engine, experience is a big part of success.

Increasingly, younger workers don’t stay in one place long enough to move far enough up the learning curve to develop the insights and understand the nuances that have such impact upon either decisions or the quality of the work. When someone’s resume shows many different jobs of short tenure, as so many do today, it is questionable how much expertise and knowhow the person has really acquired. But here’s the kicker: as the phrase goes, they only know what they know, and in their minds they actually believe they have mastered all they need to know to progress. Sadly, employers are facilitators! Hungry for talent, they are quick to hire, because just good enough is good enough.

How Do Companies Survive?

To remain competitive, or maybe just to survive, companies with high turnover, where much of it is systemic, for example, outbound sales call centers, need to decode what the high turnover message means about their business. Many such organizations do not differentiate between turnover they can and can’t control, wasting resources and time filling perpetual vacancies when they should in fact be analyzing every facet of their selling model to address the systemic problems. In some businesses, the recruitment tail is clearly wagging the dog, and no sales organization is able to sustain success when it can’t attract and retain a solid core of high performers. Systemic turnover is not the problem in itself, but rather, it is a symptom of bigger, more serious issues with the design of the jobs or with the organization.

We all know there’s no turning back the clock on change. As work relationships become more transient, there are certainly employers and workers who will embrace the changes that are happening, particularly new businesses employing mostly younger people. Work plays a less prominent role in the lives of Generation Z, and primarily through social media, they are finding new ways of building relationships at work and maintaining them when they depart. They are coping well. But, for others, the overall quality of the work experience is becoming less satisfying and less meaningful as they lose the sense of community at work that has been an important part of their identity. It’s not a question of right or wrong, but transformations with such consequential impact need to be understood if they are to be managed successfully.

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