This is a lot of common sense truth really, but what the heck, we can still read it. This is precisely why attrition control is an integral part of the HR performance criteria. However good we are and hard we work what ultimately counts is the difference we make to the organization (that is why working harder only makes sense if we are working smarter, which we should).
EMPLOYEE TURNOVER HURTS SMALL AND LARGE COMPANY PROFITABILITY
By Richard Galbreath, SPHR
Your profits are walking out the door literally. Every time you lose an employee, all the money you have invested in that employee walks out the door at the same time. To add injury to insult, a new employee must start the learning process at the very bottom of the quality and productivity curves. This profoundly impacts your business, causing you and your remaining employees needless suffering.
More importantly, your customers suffer with you. They wait in longer lines than would be the case if you could keep seasoned people. They get inaccurate information when they call. They are subjected to the type of indifferent treatment and lower quality service that a brand new employee, or one who has decided to leave your employ, provides. They share the cost of less than fully productive employees each time they make a purchase.
Your people will either make or break your business. Rarely will any other factors provide long-term competitive advantage. Technology is easily available to organizations of all sizes today. Novel product offerings are often copied or adapted. Market niches dissipate quickly as hungry competitors see exploitable opportunities. Individual leaders come and go.
Companies that rely only on these approaches survive only until the inertia that sustains them runs down. Competition is both intense and global in almost every major industry. Velocity, according to Bill Gates, is the key to success today.
Forward thinking companies will continue to seek out great leaders, use good technology and find new ways to entice customers through new product offerings. These companies know, however, that these efforts will not be enough. They recognize that the only true source of long-term sustainable competitive advantage is the people who work with them. Employees are the force that, properly motivated and directed, drive velocity, quality, innovation, the proper utilization of all resources, customer service and satisfaction.
Millions of jobs are going unfilled in the United States today. That number could reach 20 or 30 million in the next several years as our needs continue to grow, baby boomers exit the workforce and labor force growth diminishes. If turnover is a problem now, it will be increasingly problematic over time. Companies must develop turnover reduction strategies if they expect to prosper.
While most business people are concerned about the tight labor market and turnover, few fully recognize the extent to which they can control the turnover of their workforce. Many employers accept turnover as a given, something they have no power to change. Nothing could be further from the truth.
What Does It Cost?
The first and most important step in controlling turnover in your business is to better understand what it costs you today. Unfortunately, our accounting systems aren't designed to fully recognize turnover cost. As a result, you regularly see only recruiting and a few other costs. In reality, the true cost of turnover can be many, many times the amount you spend on recruiting activities. Several turnover costing models are available to help you compute these costs accurately.
You will be shocked to see the results! Estimates of the cost to replace supervisory, technical and management personnel run from 50% to several hundred percent of their salaries. Once you know the true cost of turnover, reducing it will become a high priority in your business. Knowing the cost of turnover has a second advantage you will know how much you can spend to fix it.
What Are The Causes?
The second step is to understand what drives turnover in your organization. Until you have dependable data on what causes turnover, you will not be able to apply resources effectively to combat it.
Managers routinely point to money as the chief cause of turnover. Managers' intuitive understanding of this issue, however, often leads them in the wrong direction. Money is rarely the most important factor in a person's decision to leave. Several studies bear this out. In 1999, the Hay Group surveyed 500,000 employees from 300 companies. Of the 50 retention factors cited, money was listed last in importance. Studies by the Saratoga Institute, MasterWorks Inc. and others also indicate that many other factors are more important to employees.
Employee opinion surveys, focus groups, structured interviews, turnover and retention analysis and a variety of other data gathering techniques should be done to pinpoint areas where change is needed.
What's The Plan?
Once you understand the costs and issues, you should develop a comprehensive retention plan. During this process, you'll look at numerous business systems, policies and practices which either directly or indirectly impact turnover. Some steps you might want to consider would be:
setting up a retention committee,
establishing measurement and incentive programs to ensure focus on the issue,
redesigning ineffective applicant testing, interviewing, and selection processes to prevent hiring people who are higher turnover risks,
looking carefully at the way employees are treated (respect, communication, work/life balance, etc.),
evaluating opportunities for learning and growth (training, position, pay, benefits)
What's The Result?
Reducing turnover will significantly and positively impact your bottom line. One large fast food company determined that stores with low turnover averaging 100% had profit margins more than 50% higher than those with turnover rates averaging 150%. A large retail chain determined that stores with less turnover had 22% higher sales per employee. A trucking company increased profits by 50% by cutting turnover in half. The connection is clear less turnover equals a lot more money.
Before your employees take their first steps toward the door, take steps to protect your business, your reputation and your profits. 7th March 2007 From India, Bangalore