If You Want A Better Bottom Line, Check Your Turnover

As a former vice president of operations for a major multi-national company and now a consultant specializing in leadership, recruitment and team-building, I am always surprised when I come across employers who are willing to accept higher turnover rates as “inevitable”; “acceptable”; or “the norm”. Many executive and management groups seem not to understand that turnover is one of the single best metrics available to them to better understand the relative success or failure of any company or department.

High turnover rates are only normal in companies that do not understand the value of human capital and who generally feel that people are easily replaced. Much has been written about the financial cost of employee turnover but it is sufficient to say that each time an employer loses a staff member, the bottom line of the company decreases noticeably. Despite the inevitable loss of profit that employers experience when employees leave, many still bumble along losing staff day after day; month after month; year after year while paying other people to hire, fire and process new and departing human capital.

Let’s use 15 percent as an acceptable turnover rate. That number is high for many employers and very low for others but it might be considered an average for businesses that show mediocre profitability. If the operational and financial management areas of the company are highly efficient, profit may still be possible even if 15 people out of 100 employees leave the firm every year. When turnover moves above 15 percent the chances for an acceptable profit margin decreases. Companies that have 20, 30 or even 40 percent turnover are in a constant battle to maintain profitability and spend so much time and money on recruitment, hiring and training that acceptable profitability is often only a dream.

In order to avoid high turnover rates, employers must determine “why” employees choose to leave them. We must accept that an acceptable level of income is a factor in employee satisfaction. It is fairly easy to know how much a particular position is worth in the overall market place in which your business competes. Always be fair, never pay too much and never niggle over a few inconsequential dollars. In other words, “be fair, but never be taken advantage of”. Once appropriate pay is agreed upon, you must deal with the real issues of employee engagement that make the difference between high and low turnover rates.

The main challenge to acceptable turnover rates is management, or more specifically, “managers”. Whenever I find low morale and lagging employee engagement in any of the companies I work with, I am able to trace it back to a specific manager or a group of managers. Senior management or “upper management” of multi-department or multi-location companies often fall into the trap of setting up accounting and reporting systems that manage the financial side of the business so that they can determine if a manager is following corporate procedures, but seldom do they even attempt to measure the effectiveness of the “people-management” or “leadership” skills of their managers.

Turnover is based on “engagement”. You must know if your employees are loyal and interested in their jobs. Your staff members must be happy and engaged.  Your staff members must “like” their jobs and ideally even “love” their jobs. I have heard all of the excuses for poor employee morale. When challenged on high turnover rates, poor managers will generally say things like, “I can’t get good people”; “Young people these days just don’t care”; “We don’t pay enough”; “We have some trouble-makers here and I can’t get rid of them.” Poor mangers will never admit that they really have no idea why they have high turnover or that it is their own attitude that is driving people away. Corporate directives and people-driven mission and vision statements are nice but they only work at the board-room level unless they are driven down to the rank and file by working managers. We know from many studies that the main reason people quit their jobs is because of their relationship with their immediate manager. This fact is now irrefutable and it must be dealt with “head-on” in order to improve overall profitability.

Your managers must evolve and understand that nobody has to work for them if they don’t want to. They must accept that employees have options elsewhere but that they will stay with a good manager despite lower pay, a less-than-lofty title, tougher working conditions, longer hours or a plethora of other carrots that competing employers might dangle in front of them. So what makes a good manager and how can you change them?

Senior management must make personal development and leadership skills a top priority for managers at all levels of the company. They must give their managers the skills, to not only manage the business, but manage, or more correctly, “lead” their people. This can be accomplished firstly by making employee engagement a measurable, key performance indicator and then providing training that directly tackles the challenge of leading a diverse group of people.

Leadership training cannot be short-term or “hit-and-miss”. It must instead, be deliberate, consistent and ongoing. The challenge with leadership training often, is that employers and senior management will complain that they are “too busy” to attend sessions. Managers and executives will routinely avoid leadership training because they have to finish up a budget, meet with a client, go to an important meeting or join a conference call. While they are avoiding the leadership training sessions, they are setting a poor example, learning nothing about employee engagement and directly harming the bottom line of their company. I have seen it time and again. The only companies that improve due to leadership training have a CEO, an executive group, and a management team that is dedicated to the process and a will to buy-in for the long term.

While the ongoing training is happening, the entire employee force must know about it. They must be made aware that their management team wants to do better and that the time they spend at leadership training sessions is for the sole purpose of doing better for the workforce. That communication will have a twofold effect. Firstly, it will show employees that something is being done to improve morale and secondly, it will give them the opportunity to measure the effects of the training and discuss it amongst themselves. When handled well, leadership training will make the difference between an employer-of- choice and an employer-of-last-resort.

Secondly, managers must get in front of their employees. They must get up from their desks and interact in a real human way with every direct report they have, on a daily bases. Communicate, communicate and communicate some more! That concept too, will often be met with the protestation from managers that they are “too busy”. They must be made to understand they can never be too busy to make time for their most precious resource…their employees.

As an aside to communication, managers must trust their employees to be able to do their jobs and allow them to err or even fail from time to time. Micromanagement is one of the biggest killers of employee engagement. Leading is not about “telling, checking, and criticizing”…it is about, “teaching, supporting, and encouraging”. Any good a manager might do can easily be destroyed by his or her own micromanagement or by the interference of a head office or an outside department.

Employees do not expect their managers to be perfect…they only expect them to be human. They want them to be compassionate, caring and understanding. Workers want to know that they matter and that their manager is willing to go to bat for them. Employees will give their personal best for a good manager but conversely will do everything they can to do as little as possible for a poor one. People are not computers, stock, spare parts or tools. They are flesh and blood, deep-thinking, emotional beings that react positively to positive stimulants and negatively to negative forces.

If you want better bottom-line numbers for your company, check your turnover rates and target the departments or branches that have the worst numbers first. Study the departments that have lower turnover rates and find out what makes them different. Use what you learn to build a leadership training program that will take your company to the next level.

Turnover is a killer…Leadership can be the saviour!

Wayne Kehl is the President and Chief Communications Officer of Dynamic Leadership Inc.

www.dlionline.ca

Leaders: Succession Planning Matters

As a matter of age and evolution, every 10 to 20 years or so almost every business is forced to find new leaders to carry it into the future. As older leaders retire, replacements must be brought in to carry on their work. In some cases leaders quit, die, are promoted or transfer elsewhere. In all of those cases, they must be replaced if the business is to survive. Despite that inescapable truth, many businesses and organizations I work with are not properly prepared to replace their outgoing talent.

Often there seems to be a “head-in-the-sand” mind-set wherein, decision makers choose to leave well enough alone and hope that their current personnel structure will last forever or that a new, exciting leader will fall out of the wood-work on cue, when necessary. Unfortunately, wood-work is often populated by termites, ants and beetles...none of which offer any great organizational leadership potential.

In order to build a valuable and effective succession plan, decision makers must firstly, “always” be on the lookout for future leaders. They must be thinking at all times about perpetuation of their organization and what will happen when their current good or bad leaders move on. Succession should not be an emergency decision. It should be like a cougar on the hunt...ready, alert and waiting to pounce when the opportunity arises.

Here are some things to think about when planning for the perpetuation of your organization:

1. In order to identify your future leaders you must accept that it is not always a good idea to buy your talent at the head-hunter store. In many cases, people who register with head-hunters have issues that have prevented them from finding work through other channels. You might want to consider them your last resort as they may be your potential undoing.
2. Always try to promote from within. This is a commonly accepted business principle that is often avoided or overlooked. It takes much less time to bring an existing employee up to speed than it does an outsider. Current staff members know your business, your culture and your brand...and you already know them.
3. Always promote or hire leaders who already possess your corporate values rather than trying to teach them your values after the employment contract is signed. Perform some professional skills and talent testing and utilize solid investigative interviewing techniques before you give them an office and an email address.
4. Never promote people out of obligation. Organizations of all types tend to offer promotions to people who have hung-in-there the longest regardless of skills, talents or value. Tenure is NOT necessarily an indication of leadership ability and it should not be rewarded with a leadership position unless the person is actually a good leader.
5. Always be on the lookout for “keeners”.  Keeners are people who love their jobs and quite naturally encourage others to excel in theirs. These people often offer advice and counsel to other even when not in a formal leadership role. There are many of them in many organizations and they often go unnoticed by the decision makers. They may or may not thrive in an elevated leadership position but if they are ignored or passed-over they will never realize their full capacity for leadership. Be a talent-scout within your own organization.
6. Once you have identified a potential leader, talk to them. Let them know that you appreciate their work and that you see a bright future for them. Human beings of all personality types and skill levels love to be encouraged and they appreciate knowing that they have a future.
7. Put your future leaders on a “career path”. Most people of the current younger generation want to know where they are going and how long it will take them to get there. Work with them to create milestones and expectations so that when the time comes, they can easily slip into a new leadership position. Really-good future leaders want advancement and if you don’t provide it, someone else will.
8. Provide leadership training to future leaders. Although some people possess almost “natural” leadership skills there is a lot to be learned about leading that cannot be gleaned through osmosis or exposure to ones immediate supervisor or manager. Formalize your leadership training and offer it to anyone who wants an opportunity to learn.
9. If you hire a new leader from outside of your own firm, never hire based on your “gut instincts”. Your guts might help you in a fight–or-flight situation or when you are selecting an item on a restaurant menu, but they don’t work well for talent selection. Always utilize good talent assessment tools and have a panel of your peers and/or employees participate in the interview process so that your decision is not tainted by your guts. Job applicants almost always adapt their behaviour to the interview process and what you saw is seldom what you get a month or two after they have settled into a new job.
10. Never hire in your own image or enforce your own leadership style. Most of us tend to feel comfortable with people who are most like us. However, it takes many types of personalities to make a great team and one leadership style is not the “best” or the “only” way to lead. Take your personal feelings out of how a new leader should lead and allow them to deal with people in the way that works best for them. Give them an array of leadership tools and then stand back and watch them soar.

What have you done to ensure a successful succession process in your organization? If you have not started to build a leadership plan for the future, now is the time. 

In an increasingly competitive world you must have the best-of-the-best leaders if you want to have a commanding presence in the new millennium.

All the Best!

Wayne Kehl