Is your company focused on putting out fires, or preventing them? The temptation to focus on the urgent is fierce, but if it comes at the cost of ignoring your company’s strategic development, panic will consume all innovation and forward movement, and severely (and negatively) impact employee morale.
Research from Inspired Leadership shows more and more that an organisation’s wisest strategic investment is in the development of their managers. Beyond “good practice”, it’s the point of greatest return on investment. Why? Because of the influence managers have over your employees.
Let’s take a step back and examine the data.
As a leader in your organisation you likely track various metrics:
- Customer ratings
- Profitability
- Productivity and quality
- Employee turnover
Let’s focus on the real cost of turnover and explore what can be done about it. (The downstream impact of taking deliberate action will improve customer ratings, profitability, productivity and quality.)
So, what is the real cost of employee turnover?
We all know that there is a cost of turnover, but we don’t always consider the real cost and hidden costs of attrition. In the current climate, with restructures around every corner, retaining key talent to keep the lights on is imperative.
When an employee leaves, there’s an exit interview and processing of the termination, including data to be entered into the benefits system.
Then the open position may be advertised, CVs reviewed and interviews done, with possibly testing to follow. In conjunction with the hiring manager, HR may work up an offer that goes backwards and forwards a few times and up the “chain” for approval, gaining valuable e-miles. HR or a training department may conduct orientation training, along with enrolment in benefits programmes, allocation of hardware, licences, and so on. So far, these costs can be estimated fairly easily, especially if one doesn’t expect an answer accurate to the cent.
However, much of the real cost is a hidden cost experienced outside HR, in the business unit or team where the new employee will land.
Ripple effect
Before the new employee is hired, the open position will probably be covered by other employees, diverting them from their regular work or requiring overtime, or at a minimum adding to their stress level and contributing to their general feeling of being overwhelmed. Or the activities and tasks are simply not done. If it’s a sales position, that’s a direct hit to the top line. In addition, an employee who resigns has psychologically bought out of the organisation long before they leave, resulting in performance and productivity reductions for months prior to their exit. Throw in a bit of stress to the employees near the vacant seat, some toxic corridor whispers, which impact team climate, and watch the negative impact on the remaining employee’s performance.
All aboard?
Once the new employee is hired, there will be on-the-job training on products, tools, processes. The manager will spend time guiding and supervising the new person. Co-workers will probably help by answering questions, lowering their own productivity. And the new worker’s productivity—both output and quality—will almost always be lower than that of experienced employees.
Companies can and should calculate this cost themselves, but most don’t have the capacity or skills to work it out. Let’s use these off-the-shelf estimates from Forbes:
- The cost of attrition of an entry-level position: 50% of annual salary;
- The cost of attrition of a mid-level position: 125% of annual salary; and
- The cost of attrition of a senior executive: over 200% of annual salary.
When you have the attrition data from your organisation for a 12-month period, you can plug the data into a table like this, with estimated average salaries to get a reasonably good total:
[table id=76 /]
Reduce attrition, save on your bottom line
If you reduced that attrition, you would create a cost saving. And, if instead of just retaining people, you work to actively engage your people, you could have a significant bottom line, impact because engaged employees drive performance.
Let me explore that a bit further.
The most direct way we can impact the bottom line is by increasing employee engagement. Gallup has discovered links between employee engagement at the business-unit level and vital performance indicators, including customer ratings; higher profitability, productivity and quality (fewer defects); lower turnover; less absenteeism and shrinkage; and fewer safety incidents.
When a company raises employee engagement levels consistently across every business unit, everything gets better. Why? Because an engaged employee is more productive, committed, creative and gives effort over and above what is expected.
On the other hand, according to Gallup, actively disengaged employees cost companies US$450 to $550 billion in lost productivity each year, globally.
First-line managers
There are various ways we can increase employee engagement. However, to get the highest impact, we need to focus on our first-line managers.
Why? Gallup has studied performance at hundreds of companies and measured the engagement of 27 million employees and more than 2.5 million work units over the past two decades. No matter the industry, size or location, one thing is consistent: Managers account for at least 70% of the variance in employee engagement. We need great managers to inspire engaged employees who drive business results and impact the bottom line.
Great managers are the key to employee engagement and the key to reducing attrition. According to the Predictive Index People Management Study:
- 94% of people with great bosses have passion and energy for their jobs; and
- 77% of people with bad managers are planning to leave their company in the next 12 months.
One of the roles a manager has is to clarify what is expected of the people in their teams, and yet globally only 50% of employees know what is expected of them. If we improved that to 80%, we would see a 22% reduction in turnover and 29% reduction in safety incidents and a 10% increase in productivity.
While none of this might qualify as “urgent”, businesses simply cannot afford to ignore management development any longer.
Employees come first
Richard Branson showed he understood it when he said: “Employees come first. If you take care of your employees, they will take care of the clients,” he once said. Managers are vital to the performance of their teams. Yet most managers are undertrained, uninspired, over-stretched and under-supported, while holding the key to unlocking the performance of any organisations most important resource: your people.
It is the people in your business who will innovate, create, build client relationships and lead teams. Don’t get caught up in the urgent “digital transformation conversation” and neglect the important “people power our business” imperative.
About Inspired Leadership
Inspired Leadership brings unique management development solutions that help you take deliberate steps to focus on the important and strategic subject of developing your managers. With measurable results and a disruptive industry-leading guarantee, this team of experienced experts can partner with you to develop and retain your managers and impact your bottom line. To find out how this works, join in an information session.
- Inspired Leadership journeys are accredited with the Services Sector Education and Training Authority
- The author, Angela De Longchamps, is CEO and founder at Inspired Leadership
