by Griff Hall, Griff Strategic Leadership
Imagine for a moment that $1 million dropped from the sky and landed in your company’s bank account. This money is completely legal and has no strings attached. The only stipulation is that you dedicate the entire amount to one area of your company. How could you spend the money so that it has the most significant impact on the health and success of your business?
Do you focus on equipment and upgrade tools and machinery? So much of your time and energy is spent on ensuring a safe working environment, so new equipment would facilitate your safety goals.
Would it be better to target performance platforms and purchase a dynamic software program? Technology is the wave of the future so it would make sense to invest in your company’s ability to estimate and project costs, better manage projects, streamline accounting, and accumulate real-time data. Better software saves money in the long-term.
Or should you focus on your people? Traditional practices suggest you hand out raises, but maybe a more competitive and robust salary structure would have a sustainable impact on retention rates and employee satisfaction.
Surely, whatever you choose, you will be better off tomorrow than you are today. But, the question still remains. What would be the best choice?
In 2014, as 24 leaders sat around the table to discuss the strategic plan for a $14 million organization, they considered this very quandary. Let me assure you there was no million-dollar gift at stake. But, the executive team entertained the question and discovered that it focused their attention on the most valuable asset to the organization—their people. As I was facilitating the planning process, I proposed this question of “what if?” At the time I was using it as a conversation starter, but the discussion that followed has had a dramatic impact on the financial health and value of the organization. The answers to the question took the organization on a new and exciting journey. Those answers led us to a fundamental shift in how they approach their mission and invest time, energy, and money. The team’s ultimate decision to invest in a different staffing model than their industry norm has set this organization apart and made it a model in its region. Not surprisingly, this organization’s retention rate increased 10 percent.
As a student of leadership, it is my mission to help people become better leaders. Of course, as a leadership champion I am going to encourage any company to look at how it can develop its people. When companies take a people-centric approach to running their business, it is the people that grow the business.
I am honored to be speaking at SUBExcel 2018 in Tempe, Ariz., this March. I want to use this opportunity to build the case for why developing your people is so critical to the success of your company. In March, I will discuss how company leaders can better harness the strengths of the their workers and better manage the people equation. Spoiler alert—traditional management practices don’t work here.
The answers to building a successful, people-centric company are simple. But, they are not easy. It has been over 25 year since the term “employee engagement” entered the workplace arena, yet companies still struggle to implement sustainable engagement practices, instead relegating engagement to include job satisfaction surveys, internal marketing communications, and awards programs.
The forces driving many organizations to perform are not necessarily focused on developing leaders at all levels. And there are good reasons CEOs look with skepticism on corporate-wide people development:
- It takes the time and dedication of the top leadership to step back from the day-to-day business of running a company and look at the big picture.
- Traditional management practices do not easily incorporate leadership models that require the scarce resources of time and money. Engagement models can be difficult to maintain over time.
- Employee engagement cannot be relegated to a program or a department. To be effective, engagement practices must incorporated throughout the organization.
- The return on investment is hard, but not impossible, to quantify. Without a clear ROI, it can be more difficult to bring decision-makers on board in a company-wide development program.
Regardless of the natural impediments to changing corporate culture, building new employee development programs, or aligning departments across the board with people-development best practices, companies that want to continue to grow and perform must look to supporting their biggest asset every step of the way. It is not enough to hire the right people, and then pat them on the back when they do a good job. The ability to attract, engage, and retain talent should be a No. 1 objective of every successful modern leader and company. With an aging population, a shrinking workforce, and a growing intolerance for the immigrant population that provides much of the unskilled labor in the United States today, there is a growing talent and labor crisis that is affecting highly skilled and the unskilled alike.
Why Putting All Your People First Is Good for Business
Let’s be honest about the “T” word. Turnover is a top reason to make an investment in how your company supports your workers. While the construction industry’s 20 percent rate of turnover is just under the national average, it was still high for the industry. Moreover, for workers 25 or under, turnover has been recorded as high as 38 percent, according to Construction Dive. We can expect this figure to remain high as the economy improves overall, and workers have more opportunities to leave for better paying jobs.
While determining a specific dollar amount for just how much turnover costs your company can be difficult, we can make a realistic estimation. Calculate separation costs, including administrative process time, vacancy costs (added overtime, lost productivity – downtime), search (advertising), selection and sign on costs (screening, interview, drug testing, orientation and on-the-job training). These don’t include soft costs, such as ramp-up time to bring a new employee up to speed. Add all of these up for each departing employee and the numbers start to look pretty expensive. For some companies, this can range from tens of thousands to 1.5 times annual salary per person. Imagine a company has a 20 percent turnover annually. If, with the broad support of the company leadership, steps are taken to reduce turnover to 10 percent, that savings drops straight to the bottom line.
A 400-employee janitorial company out of Cincinnati, Ohio, had a big problem. Their turnover was 107 percent. Yes, that is as bad as it sounds. In less than a 90 days, 428 employees had cycled through the company. Admittedly, this is just above the industry standard. The jobs are low paying, with little opportunity for advancement. Not surprising, team spirit and employee moral were low. But, there was a lot of work available, and the leadership team was very busy running the company. It wasn’t until they started losing clients that the owner and general manager sat down to address the issue.
By talking with their employees they were able to determine a solution that would affect a significant percentage of their staff. When the owner hedged at the $15,000 a month cost, the general manager handed him a breakdown of what their turnover cost—based on their current payroll, turnover was, conservatively, costing them $2 million a year. That’s almost $170,000 month, or $40,000 a week.
I will be speaking more about this company at SUBExcel 2018. The company spent three years solving their turnover problem, but the time and energy was well-worth the effort. They have had a 7 percent turnover rate for the last 5 years.
The big question is, how do you manage the people equation? Thanks to technology we have a lot of data at our fingertips. But data is only as valuable as the decisions it enables. The first step is talking with your employees, whether you have 25 or 2,500. Whether you choose to use a survey, focus groups or face-to-face, start small and act, publicly, on the information you receive. This show of good faith will help you more successfully identify many other pieces of the complicated puzzle of employee engagement.
Griff Hall has held three chief executive positions, been a commercial and social entrepreneur, and is part of an academic community studying and teaching leadership, strategy, and ethics. He has been on the faculty at Johns Hopkins University Carey School of Business for 19 years, focusing on strategy, leadership, and ethics. Three years ago he led a team researching high performance cultures in the technology industry together with successful practices for large scale organizational transformation. Hall will be a featured presenter at SUBExcel 2018, Feb. 28-March 3, in Tempe, Arizona.