Number$: Reversing or Optimizing Turnover Cost$? - Turnover and ROI series - Part II

From Normal to Dysfunctional TO

Whenever there is an organizational change, we reasonably expect some "coming" and "going." What is unusual is the fact that following peak hiring times and completion of all planned hiring, employees seem to be heading out to the door faster than the time it takes to get them on board. Can we reverse the situation or should we optimize turnover?
Stuart Miles - AR_HRCo TO Costs

Cost of turnover (TO)  is higher than usually thought or perceived. It is easy to say that TO is normal, expected, or good, if the departing employer does not deliver as needed. But how did we let that happen? What are your trends and your costs? Did you have time to get any return on investment (ROI)?

Revolving doors truly exist, in many shapes and sizes of organizations. In my previous post I mentioned that "normal" turnover is generally accepted to be around 10%. A survey by the American Management Association shows that nearly 50% of organizations consider that number optimal (AMA, 2013). And yes, there is a such thing as dysfunctional turnover. Do you calculate yours? Or is it so obvious that calculation is almost irrelevant, or because you think that high TO is "normal" in your industry?  Almost surprisingly I have witnessed dysfunctional turnover in a branch of a large, solidly-branded organization, as well as in a high tech division of another "prestigious" one. I observed the same scenario to a lesser extent in a small-scale business. Different sectors, places and times. Industry-related? Voluntary of involuntary TO? Those can become irrelevant or of little importance when you don't even break even and your ROI on hiring is nullified. The fact is that, no matter who you are, if the majority of your new and recent hires go out of the door within a few weeks or months, something must be seriously wrong, and it does affect your ROI.

Number$: TO I$ Costly

If you cannot figure out the why of the issue, you have a serious problem. Not only you are loosing people, but most importantly you are loosing money.  Numbers vary but remain high. Service-based industries have the highest TO because of seasonal hiring. Evidently, it is also linked to compensation strategy. Technology-based sectors are more affected when the economy improves.

A 2012-2013 SHRM benchmarking database gives us some highlights on the subject. With all industries averaging 13%, TO in Hospitality and Retail reached 30% and 19%, respectively, with $1,897 HR investment/FTE . TO in Biotech (20%) and Communications (18%) was slightly lower with HR investment of $ 4,009 and $2,726/FTE, respectively. The Arts and Entertainment industry has the lowest TO at 5% with $3,198 HR money/FTE, Similar in other industries requiring higher levels of skills such as finance. Overall, the average HR investment/FTE was $2,259 in all industries.

Basically the more training needed the higher the cost. But TO costs involve much more than rehiring, training, and other HR-related costs. More at stake here are business delivery and performance. Turnover costs 75% to 150% of an employee's annual salary (Dan Stravinski, SHRM 2014.) A cost/benefit approach sees the costs differently, as focusing on replacement costs vs. loss, in order for financial gains to outweigh the cost of TO (Recalibrating TO calculators, Workforce). Whatever the approach, this is a serious HR accountability. Blame cannot be put on hiring managers, or the site or general manager, let alone new hires for "lack of commitment". HR owns it: THIS IS basic HR metrics whether we like it or not, and the only way around it is to understand your company issues and to be strategic and proactive. Let's just review a few points here:

Reverse and Optimize TO

  • Understand the Trend

Globally, TO is to raise by almost 13% this year over 2013 data, per the Hays group. Meaning, if your TO climbs up, you are "ok" because this is due to improving economy. TO over the next five years is expected to rise to 20.6-23.4 %, according to the Haygroup. Scary numbers! Global data need to be nuanced by your location and industry trend, however. Regardless, any two-digit number is no good sign.
Mitigating the trend would require keeping in pace with employment trends, salaries, benefits, and your competition.
  •  Understand the Causes

All global and industry reasons considered, what is specifically causing attrition in your company? Is it particular to some functions or departments? If yes, have a closer look at leadership, group dynamics, and work process. If not, how is recruitment achieved? Do some job definitions need revising? When was the last leadership training? What is the focus of your business? Product delivery, customer service, accuracy and timely results of research, or recruitment methods, all can be narrowed down to employee - including those in supervisory or leadership roles- levels of training and commitment to their areas of expertise. Be thorough in your analysis. Be objective: have a look at your relevant policies and procedures. Get input from peers.
  • Understand the Cost

I would say there are two diverging schools of thought on TO cost approach. (1) One can think that TO is a necessary evil and cost reduction should be the focus considering a high standard TO rate in any given industry. John Boudreau cites a few striking examples (2010). (2) Or one could think that TO is the reason for the recruiting department: since cost reduction is not a focus, high TO is "matter-of-factly" accepted and somehow counteracted by an intensive recruiting process. Is the recruiting department to be a "quick fix" solution? No. They are to bring in the best possible people to meet business needs within specific constraints. This cannot be achieved if they are only an "administrative tool", a company mailbox.

Being a revolving door for employees is also being one for money. There goes your investment. How much? Yes, it affects your overall metrics. Cost of TO is not limited to hiring costs. Think disruptions, loss of opportunities, necessary overtime to cover business needs, inconsistency in product or service delivery, and so called intangibles such as low morale. Let the recruiting department, no matter its size and who does the job, do a strategic job of recruiting and hiring. On the other hand, it is not necessary to take over twelve months to fill a position: true story....Bottom line: it's a matter of company philosophy.

  • Understand Your Options

Matter of company philosophy? Here we are. Use your theory of constraints. You are the one who knows where you stand. You may control TO, and hopefully reverse it. The cost is staggering as even for a $8/hour employee, the average TO cost would be over $5,000, per a compilation of turnover cost studies. Or you may choose to optimize it, and make the best out of the situation. Maybe merger or restructuring oblige? How is your financial accountability? How much does ROI on hiring play a part in your organization? What is your full compensation philosophy? What are your options?
But that is not all. There is also your opportunity cost.

  • Understand Your Part

And true, it IS a matter of company philosophy. What's HR to do? HR can turn things around. You might be a HR of one and lack the time to do anything else than administrative- and compliance-related. You might be from a large corporation at a branch level and lack the opportunity to have your say. Or you could be in a medium-size organization focusing on operations. No matter the shape and size of the HR function, let's not lose sight of the fact that HR generalists are the people/process pros who should bring to the table HR sensitive issues and solutions that affect business results.

HR is no longer to see people as isolated, mere pawns. We need to look at the whole game board: people, operations, processes, financials and philosophy. If your TO is alarming, you as HR need to take the reins and not only reverse but also optimize it if little is under your control. Understand linkages. Communicate the facts and data. Be the new generation of HR.

En Synthèse... 

En Synthèse...

Le coût du taux de roulement est un sujet épineux parfois. Il y a différentes vues: l'une centrée sur le contrôle et l'autre sur l'optimisation.  Je vous référerais sur les billets d’Andrée Laforge sur le taux de roulement pour une bonne méthodologie et sur le rôle des VP RH pour une approche intégrée. 
Mais somme toute, il est vital d'avoir une vue d'ensemble de la situation. Une étude faite par SHRM révèle des data exorbitants (2012-13). En tous cas, la moyenne de 13% de taux de roulement coûterait $2,259/employé plein temps) aux USA. Ce coût est basé surtout sur le coût du training et ceux affiliés aux interventions RH. 

Mais le vrai coût de roulement ne se limite pas aux sujets de remplacement et de training. Il y a bien plus que cela comme enjeu. Considérez vore business process, vos coûts opérationnels et financiers, entre autres.
Vous devez être en mesure de considérer la situation dans sa totalité, avoir une vue intégrée du coût de roulement pour pouvoir trouver une solution adéquate.
Et je dis adéquate et non parfaite, et encore moins idéale. Cela suppose que ce sera la solution qui répondra aux besoins particuliers de votre organisation, et à la philosophie d'entreprise. participer pleinement aux échanges. Etes-vous en mesure? Tout RH n’étant pas égal, ceci s'applique tout au moins aux généralistes.

A la prochaine, et vos inputs restent les bienvenus! Devenez membres du blog, participez, partagez votre expérience RH.


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