I was pondering with one of my colleagues today the question of “how much turnover is good?”, after meeting with an organization that believed the long tenure of their entire staff helped certain processes run smoother. “Some” turnover is good. Companies who brag about 0% attrition are either not aggressive enough in hiring or they are holding on to people they shouldn’t. How to define “some” depends on the industry, function, company size and growth path, among other factors.
The more interesting question is “which kind of turnover is good?” Is it better to do layoffs when necessary or regularly purge the bottom performers? In either case, what’s the right way to identify the people to let go? Usually, the wrong people are let go. Companies down to the wire may send an edict down the chain to cut the same percentage across the board. They cut people in functions not critical at the moment. They cut the most recently hired. Or those who aren’t staffed on billable work at the moment the decision is made. These seemingly “fair” or “just” decision criteria rarely result in the best long-term outcome and usually alienate the remaining employees more. The hallways ripple with conversations related to the insanity of letting the best talent go – it seems everyone is in on the insanity of the decisions except the people making the decisions.
I know companies have been experiencing tough times and must respond to the pressures from their investors or the realities of king cash. It is too bad most companies have not planned an attrition strategy before it is too late to be strategic about it.
Thursday, September 3, 2009
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4 comments:
If you are saying that some attrition is good, aren't you by nature assuming that you aren't hiring the "best" people? I would make the argument that if you are truly holding out for finding the absolute best people possible, then you should be shooting for a 100% retention rate. The cost of replacing these people is incalculable.
Now, if you don't hold your hiring to such standards, then yes attrition is absolutely necessary. There should not however be an absolute rate (as seen by such companies such as GE). It should be more of a dial in order to better tune the actual make up and character of the workforce in correlation to the available pool.
Scott Francis
Scott, Fair point. I have a couple of points on that. First, I think organizations change over time and sometimes the best people in the early days aren't the best people for a mature organization. Good people may not have a good role as the company grows. Second, I think if your hiring is "perfect" (i.e. you never make a mistake) you probably aren't taking a little bit of risk you probably should.
Very interesting blog Lisa!! Here are some of my thoughts…
Scott, I think that organizations change and people change. Sometimes it’s just time to move on, either for the organization or for the individual, or both! However, even if you DO hire the “best”, sometimes there are just other factors to consider when looking at retention (by the way I like how you changed it to the positive retention vocabulary from the negative turnover vocabulary – slick). For instance, if nobody ever leaves (100% retention), how do you provide advancement opportunities to your current employees? Is this a good thing? If you are hiring the “best” it is likely that those individuals will not be satisfied remaining at their same job level for long periods of time. That employee will eventually accept a position in another organization with more responsibility and a higher salary.
You are right that turnover costs money. It is not incalculable, however. There is a lot of research that has been done in this area and there are accepted formulas used to calculate the cost of turnover for any given position. Obviously, the cost of replacing a manager is higher than the cost of replacing a receptionist. It also takes longer and there is a smaller candidate pool to choose from.
Don’t get me wrong, organizations should always strive to hire the best people. I just don’t think that this necessarily equates to 100% retention (or that if you have a retention rate lower than 100% it means that you do not hold your hiring to "such standards"). I think we can all agree that high turnover is a bad thing. I don’t have a magic number.
At my last job, all the CEO cared about was that we remained under a 3% vacancy rate. It wasn't zero, but they certainly bragged about it like a badge of honor. Given that the average time from recruitment to hire was approximately 12 weeks, this was sometimes hard to do. It was reinforced over and over (by upper management) that it was more important to hire somebody to "fill the vacancy" and retain the <3% rate than it was to take our time finding the "best" person for the job. Where did the CEO come up with this number? I have no idea. It was very frustrating to an Industrial Psychologist like myself to know that numbers were more important than proper selection.
Is it possible that some attrition could be attributed to successful mentorship? Granted, it's not as widespread as anyone would like and not altogether predictable, but in a well run organization or the presence of an exceptional leader, it does happen. Talk about putting a positive spin on turnover!
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