Throughout my career I have partnered with Human Resources Professionals to find the ideal candidate to fill their difficult and challenging hiring positions.
Normally those positions are available because someone is leaving or has left the company – in other words, recruitment is to replace the loss of talent in their corporations. Some of the losses are due to retirement; others are due to talent leaving for better opportunities elsewhere.
As a believer of organic growth, I think it is very interesting to dissect, analyse, and to reflect why this happened in order to prevent it from happening in the future. It is not cheap to replace an existing employee, but most organisations do not calculate the cost of hiring the wrong person.
In a recent workshop of CEO’s, my Group Chairman Rowan introduced some figures on The Cost of Poor Selection to the group. Have a look at the table below and consider what the cost of poor selection might be in your company. Complete the column on the right; you may want to adjust some of the categories or the figures if they do not suit your business:
|Cause; per candidate||Cost||Cumulative Cost||Your Company|
|Advertising: 3 ads @ $2000||$6000||$6000|
|Administrative costs to process candidates: 20 hours per candidate @ $20/hour||$400||$6400|
|Candidate Travel Costs: 2 trips @ $20 each||$40||$6440|
|Interviewer costs: 3 hours per candidate, 3 candidates @ $40/hour||$360||$6800|
|Lost opportunities from gapping: Revenue lost, lost sales, disrupted client service, others filling in etc.||$20,000||$26,800|
|Relocation costs: $10,000||$10,000||$36,800|
|Training: No of weeks training in first year where candidate is not earning: 15 days @ $40/day||$600||$37,400|
|Severance costs of poorly selected employee||$8,000||$45,400|
|Total Cost of one manager||$45,400|
|Total cost for number of managers in this category recruited this year: 5||$227,000|
Furthermore the time required finding such talent impacts on levels of productivity. In an article about Employee Retention by Josh Bersin, of Deloitte, a new person may take 1-2 years to reach the productivity of an existing person.
These figures on money and time spent to find the replacement of a good employee do not look beneficial to any firm/company. Just do the maths; if you have staff turnover of 20% that means 1/5 of your workforce is leaving every year. Is your company’s higher or lower than your competitors? Do you track these invisible costs? If not, perhaps you should.
Do you ask why your star player left? What is the cost to you of employees who have lost engagement? What about potential employees who see the high turnover rate and decide not to join? What about lost productivity, reduced brand power? High performing businesses have strong Employer Brands and attract talent. They strengthen market share against competitors; can you afford not to take notice of this?
I have recently spoken with an international shipping port operator on recruitment matters for their corporate governance team. They have very high turnover in the team; team members often quit within 1 year of employment. The top management saw the issue but never did anything to change the environment of low morale at work. More and more people started to leave and this resulted in even more pressure on existing staff.
So how can the HR team come up with a possible solution such an issue in any business?
One part of the solution is to invest in people in the long-term and to design the organization around a low-turnover model. This means a hiring strategy based on selecting the right people with the right personality traits and attitudinal characteristics. It also means building the right environment and including step-by-step on-boarding, coaching, training and team building.
Going back to the shipping port operator client, my colleagues and I coached their HR team to speak with managers and the department Heads frequently to ensure that they understood the negative impact of the Employer Brand of their company in the employment market. We helped them to set and manage expectations of candidates, and to brainstorm what could be done to promote a better corporate image and work environment.
The management listened; they limited the amount of overtime for team members and decreased workloads by creating more headcount in the junior level staff. At the same time they increased shuttle services from the subway station to the company, and started different team building corporate events to promote team and company morale.
Initiatives like this are needed in order to grow a company culture that recruits and promotes resilience, a sense of mutual respect, being innovative, and a sense of belonging to increase job satisfaction. In the end, the turnover rate reduced drastically, and their Employer Brand became much more positive for future talent to consider joining.
Apple is a good example of strong corporate culture. In a recent interview between Apple Retail chief Angela Ahrendts (ex-CEO of Burberry) for Fast Company, she announced that under her command, the Apple retail store chain currently has a 81% employee retention rate.
“We just ended the year with the highest employee retention rates we’ve ever had: 81%. And the feedback [from Apple Store employees is that it’s] because they feel connected. They feel like one Apple. They don’t feel like they’re just somebody working with customers. I don’t see them as retail employees. I see them as executives in the company who are touching the customers with the products that Jony (Sir Jonathan Ive, Chief Design Officer) and the team took years to build. Somebody has to deliver it to the customer in a wonderful way.
‘I now know why this is one of the most successful companies on the planet: Because the culture is so strong. The pride, the protection, the values.’ The company was built to change people’s lives…”
Whenever I talk to a client about a particular replacement position, I always ask HR if they know why the previous incumbent left the company. Many simply don’t know, they assume it is about career advancement. Research over many years shows employees don’t leave companies, they leave managers. The second reason is they do not know what is expected of them, and the third is they are not being given the personal development they seek. Pay is 7th on the list.
I ask this question because I have to assess their corporate values, interaction methods, and the level of confidence with their corporate culture.
In my next article we will cover what you can do to build and maintain a good corporate culture within your business