Great business leaders create a culture within that is driven by growing the involvement of their people in the processes of the business. Otherwise, with the pace of change sped up by technology, they risk being left behind by faster, more adaptive, more responsive organisations where staff involvement is increasingly the norm.
One of the biggest risks of low-involvement is employee dissatisfaction. And it follows that good people walking out the door to go and work for the opposition. The cost of replacing staff is significantly higher than it often appears, and that too is a significant business risk.
Identifying the true cost of replacing staff
The hidden costs of replacing staff are surprisingly high. Figures most often quoted are in the vicinity of 60 – 150 per cent of the salary of the person being replaced. Think about the loss of an individual’s knowledge and the time to train a new person in your specific systems and processes.
Even the most conservative studies come up with big numbers. British consultancy Oxford Economics completed a study a couple of years ago that placed the average cost of replacing a staff member earning £50,000 at £30,000 – 60 per cent of the annual salary figure. They divide that figure into two parts. Around ten percent of annual salary for logistics – like agency fees and advertising. The cost is much greater than simply the cost of a $250 ad on TradeMe Jobs, for example. Oxford estimated the biggest portion of the replacement cost of an employee is the lost productivity while someone learns their new job and builds up their steam to optimal productivity. They found the average loss to a business through having a new person in a skilled role was the equivalent of 28 weeks lost productivity.
These results are also relevant in a New Zealand context. In 2011 Waikato University looked at the true financial investments firms make during recruitment and the first year of employee training for entry-level positions. They found the true investment in recruitment and training new staff was 241% of the new employees’ annual salary. This is reason enough to make you want to inspire loyalty, right?
How do you inspire loyalty?
So how do you create a culture that inspires employee loyalty? It comes back to building a culture that gives your people the holy trinity of empowerment: Control. Competence. Connection.
Shifting the culture of your organisation from management for engagement, to leadership by involvement, is a critical factor. Helping your senior leaders to understand that they are an integral part of the change enables them to acknowledge the value of other people’s ideas and input. Plus, it facilitates their understanding that part of their job is to build a stage for others to perform on.
The times they are a changing
A recent Forbes Human Resource Council article purported that millennials were three times more likely than non-millennials to change jobs in the last year, and 91% don't expect to stay with their current organisations longer than three years. In a Workforce survey, 80% of respondents agreed that their definition of loyalty in the workplace had changed over time.
Retaining the top performers in your organisation must be ranked highly. According to Forbes there are three keys:
1. Knowing your employee value proposition (EVP) for each role and make sure it aligns with the employees in that role.
2. Make sure that employee reviews include time spent understanding how your employees see their own careers developing.
3. Know upfront that three years is long-term planning for your employees and preparing accordingly is imperative. If you can’t see where your employee will be in three years, assume they will be working for someone else.
Understanding this new reality of employee loyalty and encouraging a culture of involvement in your workplace can keep you and your company ahead of the game.
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