Chronic turnover at companies isn't quickly fixed even when the
problem is readily apparent. Of course, there are times when
employee turnover is appropriate, such as unsatisfactory job
performance, a poor job fit, or a shift in business needs. But that
doesn't explain situations where high numbers of employees leave
jobs for which they are qualified.
If turnover were viewed as a priority by people at the top, they
would find a way to manage it, control it, and reverse it. The
remarkable thing is that the largest turnover is often in those
positions that have the greatest customer contact. Imagine every
year replacing 25, 50, or even 100 percent of the people who
represent the face of the company to customers. What costs, missed
opportunities, and lost revenues does that turnover represent? The
more complex the products, systems, and processes of the
company--and the longer it takes an employee to learn them--the
more it costs to train new employees and the more keenly their
absence is felt by customers who must get their problem solved
while a new employee is still learning. In the worst cases,
customers might end up educating a green employee about his or her
company.
If we know the problems, why don't we know the
solutions?
We need to dig deeper to understand the root causes of high
turnover and address them. In most cases, you will uncover more
than one factor at play. One cause that people often associate with
turnover is inadequate pay. While pay may be a problem for people
who have to stretch to meet basic living expenses, in many cases
money is not the underlying issue. Could one reason, then, be
generational, with younger employees showing less loyalty toward
their company? Could it also be that certain jobs aren't meant to
be more than a temporary stop on the way to something better? One
worker recently told me she began her job thinking just that, but
when her manager and colleagues made her feel appreciated and
valued, she decided to stay. (That was eight years ago.)
If we don't know the root causes, we need to find them. A key to
the answer definitely lies in manager selection, training, and
measurement of how well the manager develops employees.
Three leadership imperatives for improving
retention
The first and most important thing is to identify that retention is
a problem. This must take place at the highest levels in your
organization.
No problem gets solved if executives don't see it as a problem and
a priority. One of the best ways to get an executive's attention is
to show an impact to the business and the bottom line. While
turnover costs may be a small percentage of total expenses compared
to marketing, production, and other costs, no one likes to see
money not being put to its best use. One of the best ways to
illustrate this is to develop a business case summarizing the
problem, the effects, the benefits, and costs of solving it. Fleet
Bank (now part of Bank of America), which made enormous strides in
improving retention, ascribes the success of its initiatives to its
HR department's ability to "galvanize management."
You can do the same using a business case. If preparing one is not
within your expertise or comfort level, find someone who has the
expertise and enlist that person in the initiative.
Your business case should present, at the very least, an executive
summary and a definition and scope of the problem. Be sure to
include details about the impact both on the business and its
customers, alignment with business goals, values, strategies,
proposed and possible solutions, investments, costs, and returns on
investment (ROI).
How to develop a business case
Show "the numbers." Financial data, illustrated with examples, make
the case compelling for executives who are used to making decisions
based on financial facts. To demonstrate the effect of low
retention on the business, include items such as the costs of
finding and training new employees. These expenses can easily be
several thousand dollars, and much higher for technical and
professional positions. Total up the number of positions filled
times the costs to find and train replacements. This is an eye
opener for anyone who's never seen the total.
Also estimate and add the effect that turnover has on sales,
customer satisfaction, loyalty, and referrals by showing estimated
revenue impacts. Are there lost sales opportunities? What does it
cost to replace a customer, for example? What is the value of that
customer? How much more do loyal customers buy? (One study
estimates six times as much.) Estimate how much customer retention
improves when experienced and engaged sales and service people
handle customer opportunities, questions, and problems quickly and
correctly. (If this type of data isn't available, develop it for at
least a sample.)
Find the real reasons for leaving
Next, find out why employees really leave and why they stay.
In the movie A Few Good Men, Tom Cruise plays a Marine JAG
(Judge Advocate General) attorney defending two Marines against a
charge of murder. Going against the advice of his colleagues, he
calls the Colonel of the unit, Jessep, played by Jack Nicholson, to
testify. Cruise, after a crescendo of emotion trying to entice the
commandant to answer his questions, finally gets the Colonel to
declare, "You can't handle the truth!" It is quite a cinematic
moment, and learning the truth about the real reasons employees
leave can be just as demanding, and as shocking.
Employees may stay for reasons that are unrelated to the reasons
why others leave. New employees may quit because they are
overwhelmed. Experienced employees may leave because they no longer
feel challenged. In today's market, one of the best ways to retain
employees is to help them develop their skills and to help them see
that there is a progressive series of jobs available that they can
grow into. New jobs provide new challenges and growth. More
responsible jobs help people realize greater levels of
accomplishment. In addition, new skills give employees more
confidence and new opportunities.
Seek employee input about how to retain more of the best employees.
Listen to these suggestions and act on as many of the good ones as
possible. This goes beyond standard exit interviews. (How many
times do employees tell the real reason for leaving in an exit
interview?) Provide incentives for employees to refer their friends
and relatives who are hired and stay for at least six months. This
costs less than recruiting and is more likely to help you find
employees who want to be part of your team.
Improve employer image
Create a reputation as an employer of choice. Costco is a notable
example. Costco, which operates as a wholesale club, has a good
reputation for how it treats employees and has been cited as having
the lowest employee turnover rate in retailing. It pays more than
other retailers. It promotes from within. It is a highly successful
business model that some say can't be sustained as the company
grows; yet if employee productivity and quality more than offset
the additional salaries involved, the return on the investment is
well worth it.
Many companies are driven by Wall Street to produce short-term
profits, and Wall Street analysts have chided Costco for paying
employees as much as it does. Yet Jim Sinegal, Costco's CEO, sees
it as his responsibility to ensure that Costco will be successful
in the long term, not just the quarter. His goal is "to turn
inventory faster than people."
Hiring the right employees, providing better training, giving
timely feedback, and planning job assignments also helped Fleet
Bank lower its turnover rate during employees' critical first six
months. The turnover decreased by 40 percent for salaried employees
and 25 percent for hourly employees, which reportedly saved the
bank $50 million a year. Fleet also found that supervisor and
manager retention resulted in higher employee retention.
In another case, a fast food chain suffering from high turnover
found that employee retention was directly related to the caliber
of the store manager. When an effective manager moved to another
store, retention went up at his new store and down at the old one.
The standard for judging customer commitment is whether customers
are willing to recommend the company they do business with. When
you meet their needs and expectations, employees should be just as
willing to recommend your company as a good place to work.
There is no one right answer for what you can do to lower employee
turnover, but the first step starts with a commitment at the
highest levels to address the problem. Anything less than a solid
commitment to improving the situation through specific goals,
processes, and timelines is simply going to maintain the status
quo.
References
"How Fleet Bank Fought Employee Flight," by Haig R. Nalbantian and
Anne Szostak Harvard Business Review, April 2004
"The Things They Do for Love," by Leigh Buchanan, Harvard
Business Review, December 2004
"Creating new markets through service innovation," by Leonard L.
Berry, Venkatesh Shankar, Janet Turner Parish, Susan Cadwallader,
and Thomas Dotzel, MIT Sloan Management Review Winter 2006
"Costco CEO Finds Pro-Worker Means Profitability," by Alan B.
Goldberg And Bill Ritter, ABC News Original Report, August 2, 2006
"Company for the People," by Nina Shapiro, Seattle Weekly
December 15, 2004
2007 ASTD, Alexandria, VA. All rights reserved.