Tag Archives: employee retention

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.

The Costliest People Mistakes We Make

For as long as I can remember, executives and HR department administrators alike have struggled with the problem of turnover and the associated costs. For some companies, turnover is merely an annoyance, but for others, it’s a huge and costly problem. Whereas turnover is currently the headline grabber, a far more consequential issue involves poor people decisions, which never show up in the turnover metrics.

How Many Bad Apples Are in Your Barrel?

Many, if not most, organizations employ marginal performers in critical positions when they shouldn’t be there! Like the proverbial bad apple in a barrel, the entire organization pays the price when this happens. Understandably, the ramifications vary given the variety of different contexts in which they may occur, but the ensuing consequences dramatically outweigh the more clearly measurable costs of turnover. As immense as turnover costs are, the damage is minor when compared to the implications of keeping underperformers in place, a problem that undercuts revenues, growth, and profits today and tomorrow and can even challenge an organization’s business stability.

It’s not surprising at all that business and government organizations make questionable people decisions and, for a variety of reasons, continue to live with them. Sometimes underperformers are skilled politicians with well-honed survival talents; in other instances, there are blind –spots – performance and relationship issues that are plainly visible to subordinates but don’t show up on the radar of managers. The halo effect can also be a factor when reputation or past performance tend to color what the boss and others choose to see. Or, as behavioral experts tell us, many people simply cannot admit to themselves that they made a mistake, and they will stick with their choice, irrespective of the facts. Peter Drucker best summed up the pervasiveness of the problem in an article in the July-August 1985 issue of Harvard Business Review:

Executives spend more time on managing people and making people decisions than on anything else – and they should. No other decisions are so long lasting in their consequences or so difficult to unmake. And yet, by and large, executives make poor promotion and staffing decisions. By all accounts, their batting average is no better than .333: at most one-third of such decisions turn out right; one third are minimally effective; and one third are outright failures.

In no other area of management would we put up with such miserable performance.

We Have People Problems

To play with Drucker’s analogy for a moment… In baseball, a .333 average is pretty darn good, but a .200 hitter, a reliever with a 5.2 ERA, or a starting pitcher with a 3 and 9 won-lost record are not going to propel the team into the playoffs at season’s end. If the manager can replace any weak link to strengthen the team, he won’t hesitate for a moment. But with many jobs in business, it’s not nearly so obvious when someone may be a .200 hitter, or even if the person’s hitting ability should be suspect. Interdependent relationships mean that we operate with much less personal visibility than the players on a baseball team, and consequentially with less individual accountability. In business, there are more places to hide than there are on a baseball field.

Quite apart from the issues of why and how, dubious people decisions occur more frequently than we may be willing to admit, and that’s why so many things don’t work and we encounter so much apparent dysfunction in every aspect of business and life. My sense is that the ratio of these “minimally effective” decisions is even greater now than when Drucker made his famous remarks 30 years ago, and for predictable reasons… A dearth of qualified people (demand greatly exceeds supply), inadequate and misdirected candidate assessment, shortened tenure (read experience and knowledge), and insufficient management training likely account for most of these occurrences.

It is interesting to note that only one of the reasons above is primarily outside the control of the organization: the supply-demand problem, which is a huge issue. Organizations like to think that they hire the best people out there, but in fact, in some areas, managers often settle for the best they can find at that time. There are limits to how long they feel they can leave a key function unattended, so increasingly, employees are being hired out of exasperation rather than exuberance. Sometimes, just to move forward, it’s even a matter of settling for the best of the worst.

Causes and Solutions

If it weren’t enough of a challenge just finding quality people, hiring problems are compounded by the fact that a great many managers muddle around with their people decisions. Certainly, some are very perceptive and astute in reading people, and others have occasional insights, but across the board, most managers aren’t particularly knowledgeable about that which is at the core of their jobs: human behavior, motivation, traits, and how they affect job performance. For years, employee surveys examining satisfaction and engagement have made that very clear. These managers don’t really know why people are or are not successful, or what they should be looking for when they need to replace people or fill new jobs. What happens is that they simplify what they cannot understand, they seek quick, easy answers, and they generalize about and stereotype their job requirements.

Several years ago, I asked five sales managers in completely different industries to describe for me what they were seeking in their sales candidates. Among them, one of the businesses was technical sales, another an outbound call center, and a third involved financial services. I asked for as much detail as they could provide, but what came back were brief, remarkably similar general descriptions. Their responses indicated that they were seeking the same type of candidate, despite all the great differences in their products and services, the nature of their jobs, the sales processes and job activities, their buyers, their selling cycles, and their reward structure. The sales managers were experienced, yet they could only express generalized notions like “strong communication skills” and “closing ability,” apparently failing to see and articulate the behavioral subtleties and nuances of their sales roles.

The solution to this knowledge gap is training – giving managers a more scientific understanding of workplace behavior. In particular, managers need to learn how to understand the motivational and behavioral differences among individuals and how these differences affect job behaviors and performance. Such training can enable more accurate performance predictions. That’s what we offer with ourMaximizing Human Performance training. It’s not theory, it’s not about abstractions such as leadership. It’s empirical, it’s working knowledge about what makes people tick and why they do what they do.

Using the Right Tools to Get Better People and Productivity

Even if we arm managers with the knowledge that they need to better understand individual behavior, they still need the right tools to assess job candidates. Rigorous job analysis, to identify performance-relevant behaviors, is at least 50 percent of the hiring process and is an absolute must for identifying those behaviors that will likely improve job performance, and those behaviors that will prove to be counterproductive. But generating this level of specificity and detail for all jobs requires more time and collaborative effort than most time-pressed managers want to invest. This is why organizations resort to:

  1. simple functional descriptions, which are valueless in hiring
  2. lists of competencies that are too long and too vague
  3. behavioral profiles that are so superficial and general that everyone can fit in somewhere

As the phrase goes, the devil is in the details, and there is no substitute for having a clear picture of what’s important in a job, and how much is necessary.

Interviews Alone Won’t Tell You the Whole Story

Unfortunately, interviews just don’t help much when it comes to matching candidates to job requirements. They are useful for certain purposes, but we must understand their practical limitations. No matter how structured interviews are, or whether individuals or panels are involved, they are still subjective and open to the variances of personal interpretation. The interview atmosphere is often artificial and not necessarily job-relevant. Candidates play roles, and many are often very good at selling themselves; a smart candidate is generally more than a match for a smart interviewer. Responses, then, are often times embellished and can always be fabricated, with little opportunity for verification. An all-too-common outcome is that interviewers with only their general perceptions of what a job requires know to look for only a narrow range of attributes, and they make up their minds when they believe those attributes are or are not present. This is a variation of the halo effect, and it is a major factor in bad decisions. I am still looking, but I have yet to find any bona fide study showing meaningful correlations between interviews and subsequent job performance.

Somewhere around 40 percent of organizations augment their interviews with behavioral testing, but for various reasons, the testing process is hit and miss. Having some objective means of measuring and calibrating candidate behaviors is very beneficial, so long as the instrument is valid and reliable, can be linked to job analysis tools for job-relevancy, and has been developed for decision-making applications. This generally requires a normative design, as opposed to the ipsative personal assessment tools, such as Myers-Briggs or DISC or even simple raw score tools.

To avoid mistakes, combining quality behavioral assessments with job-relevant and appropriately administered simulation exercises is a particularly powerful one-two punch. Combining the two means that the assessor’s observation of behavioral skills and talents can either verify what the test predicts or show how the candidate’s experience and cognitive abilities augment performance potential. Going through the candidate evaluation process and being able to generate this type of insight is pure gold, and goes a long way toward eliminating mis-hires.

Will beefing up assessment procedures completely prevent the problem of hiring marginal performers? No, but it’s a start. At a minimum, there are two other areas to investigate and self-check:

  • Assuming that employees with sound-byte résumés have really gained the experience and know-how you are seeking
  • Assuming that candidates coming from a managerial background have the management skills necessary to be effective people managers

Job-hopping seems to be the new normal, especially with Millennials. According to the BLS, their job tenure averages 3.1 years as opposed to 4.6 for all employees, and over 5 years for Boomers. A quick look at the 500 largest public companies shows that about 100 have average employee tenure of 2 years or less! The issue here is knowledge and competence. Other than exposure to more people, how much do people really learn about industries, problems, solutions, carrying projects through to completion, living with the consequences of their actions and decisions, and developing their replacements, when they ride the bus for just one stop? Not much, I contend, and certainly not enough to be strong contributors in the brief interval they plan to remain with your organization.

What managers know today about management pales in comparison to what managers used to know, and this is not simply a maudlin look back to a bygone time. When people used to remain with companies for many years, employers invested significantly more time and resources in developing their managers, and they got payback. Today there is added emphasis on skill and technology training, and on such areas as managing change, critical thinking, and innovation, but the fundamental management skills like goal setting, coaching, performance management, and developing people seem to be assumed or taken for granted. Some people I have encountered actually believe that, in this supposedly more sophisticated era, such training is unnecessary.

There are two messages here: Look at your own management training (not leadership training!), if it exists at all, and see if you are really teaching your managers the fundamentals that are so vital to their effectiveness. Just remember, people leave managers, not companies. A sampling of articles from those who write about their work experiences carries the common theme of poor managers who don’t really understand what managers should do and how they should handle and communicate with their people. The results are employees who feel devalued, mistreated, and unrecognized. Bad people drive good people out the door.

We all like it when things work as they should, especially our own businesses and those organizations upon which we are so dependent – government, airlines, home builders, and manufacturers, to name just a few. But things don’t happen the right way when incompetent people avoid discovery and occupy important positions.

It was almost 50 years ago when Dr. Lawrence Peter wrote his famous “The Peter Principle,” which explained why people were promoted to their levels of incompetence and remained there. Back then, they tried to bury the problem and turn it over to someone else by bumping people upstairs. Today we allow marginal performers to walk through the front door, and increasingly, the consequences affect our customers. That’s hardly progress!