Article by Dr. John Sullivan and Master Burnett If you’ve watched an hour of business news on television or picked up a business magazine lately, the mix of good and not-so-good economic news probably puzzled you. It’s been a real roller coaster lately, and no one can predict when exactly our economy might exit its current slump. Some analysts say we are on the verge of a major recovery; others warn that we should expect an economic hiccup; while yet another camp says the upturn is still months or even years away. But for those of us in HR, particularly in recruiting, the state of the economy plays a major role in how we do our jobs. While a few firms leveraged the economic situation to their advantage, most were forced to retrench, laying off employees they had fought so hard only months earlier to acquire. On message boards across the Internet relating to recruiting, the question repeatedly appeared: what do recruiters do when there is no recruiting to be done? Taking the Blinders Off Recruiters The very arrival of such a question points to the triviality with which most recruiters view their role in the organization. I was dumbfounded that professionals ó who routinely seek recognition as such ó would even ponder such a question. When sales drop, do sales people sit and twiddle their thumbs? Hopefully not! Recruiting is about much more than managing transactions that bring people into the organization. It’s about managing a mechanism that provides necessary talent to accomplish the firm’s business objectives. And in managing the supply chain of talent, you not only have to add resources, but retain and replace them as well. As the question about what recruiters should be doing was on the rise, another issue was emerging from a much broader set of professionals: how to keep employees not targeted by layoffs engaged and committed to the organization. Engaging employees simply means keeping them focused on the business objective at hand, rather than on the emotional departure of friends or feelings of uncertainty surrounding the future. While organizations led by HR weenies focused on trivial events like weekly parties to say goodbye to those leaving, leading organizations crafted strategies supported by data identifying key remaining players who might be at risk of leaving, and decision factors that might convince them to stay and help lead the rebuilding. In short, retention replaced recruiting as the hot topic. Why Retention Should Always be Job #1 Organizations that were more concerned with the impact of layoffs on the remaining employees versus the layoff itself demonstrated true business acumen. Each year corporations spend billions of dollars to recruit talent, and most experts would agree that it is the only resource left that can help differentiate your organization from another. But what is surprising is that while we spend billions to acquire it, we spend almost nothing to prevent it from walking out the door. Most HR organizations don’t even have a retention function, yet when you scavenge through almost any corporation, somewhere inside you will find a department that is focused on preventing loss of physical assets, from computers to $0.59 boxes of paper clips. If we try to prevent loss of a $0.59 box of paper clips, which probably does very little to differentiate our company from that of a competitor, why don’t we formally try to protect our most costly, most value-added resource ó our top performers? On a cost basis alone, there should be enough reason to invest in a formal retention program. Let’s not forget that for every employee who leaves an open position, a vacancy is created, a void in which no work is being completed. The existence of that void has consequences: we call the monetary consequences “cost of a vacancy” (COV). From delays in product development to reductions in organizational capacity, having a position open costs the organization daily. While the average cost per hire in America may be $7,500, the average cost of a vacancy dwarfs that number. For one Silicon Valley high-tech company I worked with lately, the cost of vacancy on one position in particular was calculated at $80,000 per day. Think about that. If you were to lose an average performer involved on an average project, the cost of that single turnover transaction would not only be the cost of replacing that individual, but also the financial impact of that position being vacant for the number of days it takes your organization to replace her. Let’s look at a very basic example, in which we are going to assume that the average employee contributes equally each day, and that revenue per employee is an indicator of his or her performance.
| Annual Revenue per Employee: | $250,000 |
| Contribution per Day*:
(Revenue per Employee / 220 Work Days) | $1,135 |
| Average Time-to-Fill: | 45 Days |
| Cost of Vacancy
(Contribution per Day X Average Time-to-Fill) | $51,075 |
| Cost-per-Hire | $7,500 |
| Average Impact of Turnover per Instance | $58,575 |
*Rounded to nearest $5 increment While the above example is over simplified, you can see that non-desired turnover can have a huge financial impact. Jump back for one second and pretend that you work for a 5,000-employee company, with 10% annual turnover. Retention is this case would be an over $29 million problem. Is that worth some attention? Top Performers Present an Even More Compelling Reason Losing an average performer is bad enough, but when we talk about losing a top performer, your troubles grow exponentially. From our research top performers contribute on average 12 times more than average performers. While many experts disagree about the multiple, they all agree that top performers do contribute significantly more to the success of the organization than average performers. This creates a situation in which when a top performer is lost due to undesired turnover, the impact is significantly larger, and may even be immediately visible. Imagine your firm losing its top salesperson overnight. Would the lost revenues this employee generated have a fairly visible impact fairly quickly? To make matters worse, top performers usually associate with other top performers, and often take them with them when they decide to leave a firm, exponentially increasing the financial impact on your organization. If the top performers were highly visible employees, then their departure could also raise the question among remaining employees as to whether or not they should stay or try to find something else. Four Steps to Building a World-Class Retention Function
Time flies when you are working hard, and often times resources don’t get used where most needed. Letting recruiters go inside the walls of your organization can identify where candidates are being underutilized, and serve as a feedback loop identifying who might be at risk of leaving. While it is somewhat political to recruit from one group to fill a void in another, we have to ask what is best for the company as a whole, and move forward based on the answer. Recruiters assess the likelihood of successfully hiring someone every day; maybe it’s time we let them assess the risk of someone hiring our own people away! Steps in the Re-Recruiting Process
Case in Point One company that I rarely mention does recruit internally in a way that could be considered a retention “wow.” The internal staffing group at Microsoft ó while spending the bulk of their time dealing with redeployment of resources post completion of a project or employees returning from medical leave ó also looks at the deployment of senior resources throughout the organization, and attempts to re-recruit these valuable resources to key groups that relate to the organizations evolving business strategy. These senior resources bring both experience and visibility to groups that have the greatest potential impact. While many organizations do have some form of redeployment function, the extension of this activity to continuously focus on key talent already occupying a role is a retention “wow.” Conclusion No other activity can impact the success of an organization more than retaining key players. It’s time to stop monitoring the loss of paper clips and act more strategically by protecting our investment in our people. While the numbers in this article are simplified for example purposes, please understand that they are also very conservative. Retention as a business problem can have a business impact, measured in full percentage points of total revenues, in excess of 5%. For some of the most well-known corporations in the U.S., we are talking about a business problem with financial impacts in excess of $1 billion.
