Tag Archives: turnover

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.

How to Calculate the Real Cost of Turnover

What do your employee recruitment selection mistakes cost your business? In the course of my business, I have frequently asked this question of managers about specific positions for which they were hiring; for example, sales. Given the wide variety of jobs and industries, the considerable variance in the answers I have received regarding the costs associated with such hiring mistakes has not been surprising. What has been the real eye-opener, however, is my realization that the responses are most always conjecture!

Virtually everyone admits that turnover costs are exceptionally high, but the reactions I see tend to be more blasé and reflect little if any shock. In fact, I get the impression from many managers that they accept this as a cost of doing business and would rather not know just how expensive their turnover has become.

There are the simple cost guesstimates of which we have all heard; for instance, that turnover costs one times an employee’s annual salary, or something approximate. The DOL, obviously averaging all jobs, has said that it costs one-third of an employee’s annual salary or wages. Others make the claim that turnover costs 25 percent of the combined annual salary and benefits.

These estimates are probably not even close to the truth. Depending upon a number of variables, we can generalize for some jobs that turnover costs vary between 100 percent and 150 percent of the annual salary. From a slightly different perspective, an HR publication noted a while back that a major technology company calculated a minimum cost of $600,000 when an upper-level manager died, a number that would be many times higher today considering current compensation levels. The point I want to emphasize is that, although we can catalog some of the obvious line items, what is far more consequential is that turnover is a significant constraint on organizational performance, and merits priority attention.

If you really want to drill down and lay bare all your costs associated with turnover in your business, take into account this surprisingly long list of the cost factors.

You have costs associated with an employee departing or being terminated.

These include:

  • Temporary replacement costs, which may involve employing temporary personnel, or enlisting present employees to perform tasks of the vacant job as well as their own, and which may include overtime (less the salary and benefits that would have been paid to the departing employee).
  • Lost opportunities and lost productivity, as a result of either replacement personnel, or if the job remains vacant for more than a short period of time. This might vary from a 50-percent loss, with fill-ins to 100 percent for a vacant position. For sales territories that are vacant, multiply the quota gross margin by the number of weeks the job remains unfilled.
  • Administrative costs, including the costs of conducting an exit interview and terminating payroll, benefit deductions, benefit enrollments, handling government and legal compliance notifications and administration, and simply processing the paperwork for a resigning employee.
  • Additional management costs associated with the necessary work-arounds.
  • The cost of the training and education and even certifications, which are lost along with the departing employee.
  • The impact of the event on the entire department’s performance and productivity. A lot of wasted time and downtime often accompanies terminations and unexpected departures (this is very difficult to measure but is particularly expensive in more senior roles).
  • Severance costs and the continuation of benefits provided to employees who remain eligible for coverage under these programs.
  • The substantial costs of lost knowledge and skill sets. This might be the most significant cost of all, considering the impact on the company’s operations if there is no immediate way to fill this void.
  • The costs of unemployment insurance – a rise in premiums and/or time spent preparing for an unemployment hearing, or the costs paid to others who may handle the unemployment claim process on your behalf.
  • The costs associated with losing customers or clients that the employee may take with him or her, or the extra costs you will have to assume to retain those customers (another significant cost consideration that needs to be taken into account, yet one that you may only be able to estimate).

Then you have recruiting expenses…

  • Direct costs such as agency fees (15 to 30 percent of the annual salary), advertising, referral fees, job-board costs, and the like.
  • Pro-rated costs for the recruiting process, including the recruiter, clerical assistance, management and supervision in the department, which might require from one to two weeks per hire, given all the tasks associated with the process. Also include the time needed for résumé review and processing along with possible candidate travel expenses.
  • Costs related to interviewing internal candidates, along with the fiscal and opportunity costs associated with preparing for those internal candidate interviews.
  • The costs of conducting background checks, drug screens, reference checks, and employment testing for the short-listed 2, 3, or 5 candidates.

And now you have to train your new hires again…

These costs include:

  • All orientation expenses.
  • All training and certification costs, including time off the job, and associated costs, materials, programs, any related travel expenses, and instructor expenses. These costs generally run much higher in sales organizations and contact-management centers.
  • Take into account an expense factor for instructional equipment and materials needed, including company or product manuals, computers, or other equipment used in the delivery of training.
  • Supervisory or management costs linked to training, learning, review, etc. This can add up to the better part of a full day every week for the manager, for a number of weeks.

Of course, with new employees you will always have ramp-up costs, which include:

The new employee learning the job, the company policies and practices, etc.; the new employee is, as a consequence, not fully productive. Use the following guidelines to calculate the cost of this lost productivity:

  • Low productivity – the new employee is performing at maybe 25 percent for several weeks or a month, so the cost is 75 percent of the new employee’s full salary for that period.
  • For month two and possibly month three the employee is performing at a 50-percent productivity level. The cost is calculated at 50 percent of the full salary for that time.
  • During months four and five the employee is contributing at a 75-percent productivity level, resulting in a cost of 25 percent of the full salary.
  • The cost of coworkers’ and supervisors’ lost productivity due to their time spent on bringing the new employee up to speed.
  • The cost of mistakes the new employee makes during this elongated indoctrination period.
  • The cost, if relevant, of lost department productivity caused by a departing manager who is no longer available to guide and direct the remaining staff.
  • The cost impact, if relevant, associated with the completion or delivery of a critical project in which the departing employee was a key participant.
  • The cost of reduced productivity during a transition period for a manager or director who loses a key staff member or an assistant.

Don’t forget to account for your physical and materials costs too…

These can include:

  • the cost of putting the new employee on the payroll
  • establishing computer and security passwords
  • issuing identification cards and business cards
  • releasing internal and external publicity announcements
  • establishing voice and email accounts
  • other costs such as credit card accounts
  • leasing other equipment such as automobiles, cell phones, and pagers

Small wonder many managers don’t want to to know what employee turnover is costing their business! The costs generally add up to a lot more than what simple estimation methods suggest, and when revealed, would likely warrant moving the issue to the front burner, where there are already so many problems competing for management attention.

Turnover is most often expressed as an expense factor; for example, “It adds this percentage to our costs…” But what is a more dramatic statement of the costs of turnover and a real attention-getter is to express turnover costs as a percentage of profits. When it’s understood just how much of the bottom line turnover chews up, there’s a lot more incentive to address the problem.

If you want to reduce some of the calculation work, or even play around with the numbers, to estimate what your costs might be, we can help you. On our website, one of the tools we offer is a turnover calculator.

Go to http://2oms.com/2011/12/how-much-does-turnover-cost-your-organization/

_________________

For more than forty years, Frank Gump has been helping corporations become more productive and profitable by helping management teams identify and hire top performers and manage them most effectively. Developed and refined through extensive experience in more than 1200 organizations in the United States, Canada, England, and Australia, ADGI’s Organizational Management System (OMS) is a finely calibrated, technologically advanced decision-making process offering the potential for enormous payback. Contact ADGI for more insight and connect with Frank on LinkedIn. Follow ADGI on Twitter @ADGIGroup. Like ADGI on Facebook and follow us on Google+.

 

De-Linking Call Center Performance and Turnover

Originally published on LinkedIn

Call centers, especially outbound sales centers, pose one of the most frustrating recruiting challenges in business today. Many variables account for the high turnover of staff, and not all of them are within your control. In order to tackle the turnover problem more successfully, a smart first step is to distinguish between those problems you can do something about and those you can’t.

Unless your organization is prepared to make wholesale structural changes to the call center role, which is unlikely for most established businesses, the predominant causal factor driving high turnover is the job itself.

What It Means When a Job is Just a Job

Sit down and talk with a group of engineers about why they wanted to get into their field, and you will hear a variety of reasons:

  • It’s a professional job with good career opportunities
  • The pay is good and competition for graduates drives higher pay
  • They want to build things
  • They want to make a greener, more energy-efficient world

The list goes on. When we ask people in both education and healthcare why they wanted their chosen professions, we will hear altruistic motives – the expression of a personal need to care for others and help others, as well as expressed security needs met through either growing demand or tenure. What jobs like these have in common is that they require career forethought along with serious education – careers in these and similar fields don’t just happen.

Now, take time to discuss jobs and motives with a group working in call centers, and it becomes very clear why staffing a call center is like trying to bail out a badly leaking boat with a small bucket. It does not take long to realize that the best you can hope for is simply to keep the craft afloat. Systemic factors make call center jobs inherently unattractive, and there is little that even the most skilled recruitment team can do to address this turnover cause in a sustainable way.

Consider that people do not set out at the start of their working lives with the goal of working in call centers. Those who seek careers need not apply.

Continue reading De-Linking Call Center Performance and Turnover