Number$: Reversing or Optimizing Turnover Cost$? - Turnover and ROI series - Part II
From Normal to Dysfunctional TOWhenever 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$: TO I$ CostlyIf 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
Mitigating the trend would require keeping in pace with employment trends, salaries, benefits, and your competition.
Understand the Causes
Understand the Cost
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
But that is not all. There is also your opportunity cost.
Understand Your Part
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.