One in an occasional series on best business practices.
In a culture where management is king, unions are vilified, and the almighty dollar is more important than humans and human relationships, it’s not surprising that a good number of businesses give no thought to the impact of high employee turnover. But businesses ignore this issue at their peril.
High employee turnover is, in fact, one of the biggest impediments to positive business growth, no matter the industry. And even though HR professionals and defensive managers will argue, rightfully, that many indirect factors go into turnover, ultimately, the culture a business creates is a huge factor in productivity, loyalty, and cohesion, all of which contribute to a lower turnover rate. While a tight economy tempts management to replace higher paid employees with lower paid employees, this carries hidden dangers, too. Managers that either fire employees or see employees flee on a regular basis should sit down and ask themselves why this is happening, and at what cost to the business.
Here are five ways that high employee turnover is killing your business:
1. A culture of insecurity. In John Jantsch’s groundbreaking marketing book, “The Referral Engine,” he talks about the culture of the business, arguing that staff is integral to the business’ success. How? By being treated as co-creators of the product, even if their department is book keeping and the business sells sandwiches. Employees have to feel that they are invested in the overall product or mission in such a way that everyone is valued, which makes everyone an organic “salesman” of the company. Employees who feel insecure about how long their job will last, how safe they are in advancing an idea, or how much they are seen as a full and authentic human being will not feel inclined to innovate, participate, or drive the company image. High turnover makes everyone feel insecure, depressing morale, discouraging innovation, and ultimately, killing your business.
2. Loss of memory. If your business has a dismal culture, perhaps a loss of memory is a good thing (new employees can discover on their own that the boss is high strung and incapable of turning a profit). But in most cases the loss of memory means the loss of vital information. Learning from both mistakes and successes helps employees find better solutions on a new iteration of an annual project, or year-to-year sales comparisons. Reports only offer a snapshot of that information. Workers have to actively experience and remember losses and gains in order to be influenced by them. And, business contacts and deeper networks of connection are lost when every other year (or twice a year) you’ve got new department heads NOT because of promotions from within, but because you’re hemorrhaging workers. This loss of memory is killing your business.
3. The training lag. Training new workers for key positions in a company takes time. The first 90 days are really just a honeymoon phase even if you have no other choice than to hit the ground running. But it’s not like 90 days later it’s going to feel like old hat. HR pros say that it takes from 6 months to a year to feel completely at ease with a new job, understanding the business cycles and project rhythm trajectories. If your employees are cycling in and out faster than that, the business is perpetually in training mode. Or worse, employees are never actually trained, are making it up as they go along, doing their best, and then either getting the axe or getting the Hell out of Dodge. This is just a waste of everyone’s time, and it’s killing your business.
4. Your reputation. People talk, and in an age of social media, they don’t just talk at coffee shops and parties. They talk online. Even in a down economy—maybe especially in a down economy—if you suck as an employer, if the place is a madhouse of drama and illogic, if the biz is always in survival mode, and if the workers are constantly the whipping post for the business’ lack of direction and mooring, believe me, it’s being tweeted. But beyond disgruntled former employees ragging on your firm, your customers, local thought leaders, and business competitors get wind of your inability to retain a workforce, or your tendency to treat workers poorly. This damages your reputation, potentially depressing sales, and certainly making for less-then-favorable cocktail party banter. For publicly traded companies and non-profits alike, a worsening reputation imperils investment and/or annual giving. It’s a stance few can afford to risk, and it’s killing your business.
5. The bottom line. When you hire an employee, you don’t just “fill a seat.” You make an investment in personnel that, just like every other aspect of your business has a cost-benefit. You want talent, consistency, a palpable contribution to the firm, and to get to know and trust someone to perform a key role in the business. Every time you hire a new person, even if it was to cut costs and offer a lower salary, it costs you money. The money for training, familiarity, productivity, and innovative performance are all bankable costs, even if they don’t evidence themselves directly. If you’re bemoaning why the firm is constantly struggling to stay alive, and to make a buck, look no further than your high turnover rate to see where a good portion of your profits are going. High turnover is killing your business.
If your business suffers from high turnover it’s time to look at all the factors contributing to the changes, honestly assessing how, beyond the unchangeable (such as people moving, retiring, taking another job), management and the business culture bear part of the fault. Making a lower turnover rate an active goal, addressing how you can create the kind of business where workers not only want to stay with you, but they want to contribute creatively and help sell the brand more widely, is crucial to your long term vision for business growth. It’s possible to turn your losses around, but not without a determined strategy. From there you need the will to make it a priority, seeing it through to success.