Tuesday, April 13, 2010

Prediction: Unsustainable Employee Turnover Crisis

There is a lot of talk these days about sustainability. The general concept is simply about having the ability to endure.

I'm predicting a business sustainability crisis in corporate America that is going to require the finesse of some genius Human Resources professionals to prevent.

The crisis relates to unprecedented employee turnover rates that companies will not be able to financially endure.

I'm not referring to the turnover bump that we are going to face as we come out of the recession and jobs become more plentiful. I'll save that post for another day. I'm referring to the turnover that is coming based on the new mindset of the American worker.

Let me explain.

I think we all agree that it is becoming acceptable in the minds of employees to stay with their companies for 6 months to 2 years. The derogatory term of "job hopper" is fading fast. Yes? This is not a crisis at this time as there are still enough employees who choose to say with their companies long term to balance things out.

At some point, though, the balance is going to shift. Long service employees are going to retire. New employees are not going to consider staying a full career at one company. That is when the crisis begins.

Let's do the math.

Suppose that we are an executive at a company of 5000 employees. At this company the norm for all of our employees is to stay with the company for somewhere between 6 months and 2 years. This equates to voluntary turnover rates of between 50% (for those who stay 2 years) and 200% (for those who stay 6 months). This scenario leaves us with roughly 100% turnover per year.

What is the financial impact? Let's say that voluntary turnover has traditionally been at 15% per year. At 15%, our company of 5000 is losing and replacing 750 employees per year. If we are conservative and say that the cost per lost employee is $5000, that would make our traditional costs of turnover $3,750,000. ($5000 x 750 EEs).

What happens when our turnover rises to 100%? At this rate, we'd be losing 5000 employees per year. If we use the same cost per lost employee of $5000, our new cost of turnover would be $5000 x 5000 EEs = $25,000,000. per year.

Would you say that a company that is used to and budgeted for turnover costs of $3,750,000 per year would be able to handle turnover costs of $25,000,000?

The cost of turnover becomes unsustainable.

This is both highly frightening and incredibly exciting. Frightening for obvious reasons. Exciting because it's the first time in a long time (ever?) where Human Resources executives are going to be the most important business people in the organization.

There are two possibilities in how Human Resources will drive the changes needed for their organizations to become sustainable in this climate.

Companies will need to create work environments that will drive employees back to longevity. Corporate cultures will change, incentives will change, benefits will change, environments will change. The very nature of how we manage human resources will transform in order re-build the old concepts of employees staying with an organization until retirement.


Human Resources will re-think staffing and workforce management in completely new ways that will no longer create costs associated with employee turnover. Imagine if the ways of doing business change so uniquely that new employees came onboard at no cost, employees are productive from day one and employees terminate without leaving any gap in customer service or productivity.

If Human Resources Management and business in general evolve to the latter scenario, then we could have a world where all employees work at each company for 6-months to 2 years that would be sustainable. If we are not that creative or that is not realistic, then we'll need to sustain through some of the old tried and true employee retention methods. Either way, HR has a big job ahead of us. Are you ready?

Saturday, April 10, 2010

What Do You Not Understand About Private & Confidential?

I was browsing through my Twitter stream this morning and this tweet caught my eye:

The link brings you to a memo from Capgemini to one its employees regarding his bonus award for 2009. It then follows with the employee's presumed response. In a gesture of kindness or sarcasm (the tweeter assumes sarcasm) the employee requests that the company keeps the bonus to help with any future financial challenges that the company may face.

Cute post.


The letter from Capgemini to the employee is posted in full including a PDF download. At the top of the letter, it states in bold: Private and Confidential

At the bottom of the memo it adds:
Your compensation details are strictly personal and confidential and should not be disclosed to others.

It makes you wonder, doesn't it? Exactly what part of "private and confidential" does the employee not understand?

I realize that we live in a new world and "openness" and "transparency" (oh, how I hate that word) are the watchwords of today, but if you receive a letter from your "Chief People Officer" as Mr. Kumar did that says the information is private and confidential, should you really be posting it and spreading it all over the Internet?

If you were Cyprian D'Souza, Chief People Officer of Financial Services GBU and the signer of the confidential letter, how would you respond? Would you laugh it off or would you take disciplinary action? Or maybe something in between? What is an appropriate reaction from HR?

Wednesday, April 07, 2010

Stay Interviews are about the Individual; Exit Interviews are about the Organization

There has been a bit of PR recently about stay interviews so I thought it would be a good time to delve into the Noblog archives and dust off a post on this topic from back in 2004. In it I clarify that Stay Interviews are wonderful but they have nothing to do with exit interviews. They sound similar but in reality they serve two unique purposes. Enjoy.

Stay Interviews and Exit Interviews
December 1, 2004

In preparation for a meeting today I was thinking about exit interviews in comparison with stay interviews. As I understand it, stay interviews are about reaching out and touching (oops, bad word - let's make that listening to) each employee and showing that you care about their individual success. This is a very worthwhile endeavor and an important part of your employee retention strategy. Not to mention it being the human thing to do.

The exit interview, on the other hand, is not about the individual. You'll hear people outside of the industry say things like, "Why conduct exit interviews? It's too late once the person is already leaving." That would be true if the exit interview were about the individual but exit interviews are about the organization. The purpose of an exit interview is not to try and persuade an employee to stay. The purpose is to identify organizational strengths and weaknesses and the irritations that drive turnover. Irritations are unique to each organization and exit interviews are the most effective way to uncover them. **

Most companies (reportedly 97%) strive to do exit interviews because they sense that there is valuable information there. They are right about that but without a system in place it's a huge burden on HR to conduct exit interviews with each terminating employee. If a company manages to conduct exit interviews with a good percentage of employees who are leaving (which is a real challenge) it takes even more effort to manually compile, analyze and report on the data. Because of the huge amount of effort required, most companies that I speak with rarely come full circle to the point where they can use the information from their exit data in meaningful ways.

Today, with the advent of exit interview management systems (yes, like WebExit) HR can automate the process. With exit interview automation, HR staff can reduce time spent on conducting, compiling and creating reports and focus their time instead on actually using the data to solve organizational issues. Exit interview automation has come a long way since January of 2001 when we released WebExit. Today, at the click of a few buttons an HR Director can be identifying the exact irritations causing turnover in each department or location worldwide.

So how I see it is that we shouldn't be deciding between stay interviews versus exit interviews. The two serve unique and different purposes. The stay interview with its focus on the individual and retention and the exit interview with its focus on the organization and reduction of turnover.

** Most effective because
1) they take place when the employee has the least to lose and therefore can be the most candid (plus there is a strong psychological pull in most people to "say their peace" when resigning).
2) There is no added time pressure on HR to act on the data when it is received through exits as opposed to information received via focus groups and employee surveys.

Tuesday, April 06, 2010

First Impressions: How Our Unconscious Mind Deceives Us

You are a recruiter. You go into the lobby to meet your applicant. Your applicant is sitting next to a very large, obese woman. As you walk your applicant back to your office, you begin to formulate your initial impressions. Would you believe it if I told you that your first impressions were going to be more negative because the applicant was sitting next to the obese woman? Even if the applicant had no relationship or connection with the overweight woman whatsoever?

I was introduced to this fascinating brain phenomenon while listening to a radio interview with Shankar Vedantam, the author of The Hidden Brain: How our Unconscious Mind Elect Presidents, Control Markets, Wage Wars and Save Our Lives. Mr. Vedantam explained that most of the decisions that we make are affected unconsciously by many factors that we would never consciously consider relevant.

How could the biases toward obese people possibly transfer to a person who just happens to be sitting near by?

To find out, I examined the research study on which this information is based. Sure enough, in the laboratory, some completely irrational results were recorded.

Two studies were conducted by researchers Michelle R. Hebl and Laura M. Mannix of Rice University. In Experiment 1, Hebl and Mannix showed random individuals a dossier including a resume and a photograph of a presumed applicant. The photographs showed the applicant in a social setting (described as a work reception). In one set of photos, the applicant was seated next to a woman of average weight, size 8, of average attractiveness. In the other set, the applicant was seated next to the same woman but this time the woman was wearing a realistic prosthesis that brought her size to 22. They asked the individual to rate the applicant on a variety of factors including the extent to which they would recommend hiring. The results showed that people were less likely to recommend the applicant shown seated next to the heavy woman. They also rated the applicant next to the heavy woman lower on various Professional Qualities and Interpersonal Skills. The results were statistically significant.


In Experiment #2, they researchers took it one step further. They invited individuals to (ostensibly) interview applicants. They compared a variety of scenarios which included (but were not limited to):
- The male applicant sitting next to the obese woman
- The male applicant holding hands with the obese woman
- The male applicant sitting next to the average sized woman
- The male applicant holding hands with the average sized woman

The individuals were asked to provide a pre-interview opinion on the applicant.

Remarkably, the results were similar to Experiment 1. Those applicants in the proximity of the overweight woman were judged more harshly than those next to the average size woman. Perhaps the most surprising finding was that the results were the same whether the applicant was believed to be in a relationship with the overweight woman or complete strangers.

Hebl and Mannix suggest that when we form impressions, we take in a wide variety of environmental cues that go beyond the specific individual themselves.

What does this mean for HR?

Most of us are aware that stereotypes act as faulty shortcuts and may cause us to make poor HR decisions if we don't consciously set them aside. We might make false assumptions about applicants or employees based on their age, gender, race, attractiveness, height, etc. With this new knowledge, that we might unintentionally spread the stereotype stigma to others, we now have to be even more keenly aware of how we are forming impressions and how we are making decisions.

In a second interview that I heard with Mr. Vedantam, he was asked if these unconscious manifestations absolve us from the aberrant behavior since it's out of our control. Vedantam wisely responded absolutely not. He believes (and I concur) that regardless of the phenomena about how are brains (mis)function, we are still most assuredly responsible for our actions. Absolutely.

Monday, April 05, 2010

Mind Your Own Business

"Strategy is about creating next practices and not adapting to best practices in the industry." Vijay Govindarajan, Professor Tuck School of Business,Dartmouth College

Professor Govindarajan's statement perfectly sums up my approach to business. For the past 10 years I've done my best not to look at or care about what my competitors are doing with their products and services. While I admit to a mild (occasionally wild) curiosity, I recognize the danger in seeing the way another vendor approaches our business. Once I have seen their products, it's likely I will unconsciously (or consciously) be swayed to build ours to look and act like theirs. And what use in the marketplace is there for a product that already exists?

The strength behind a company is its unique approach to solving a problem or unleashing an opportunity. In my industry, rather than look at the "normal" way that HR vendors create and deliver products, I like to focus singularly on what would be most appealing, helpful, productive, cost-effective, easy and powerful for HR professionals (our buyers).

It perhaps sounds a conceit to say that I am not concerned about what my competitors are offering but it is only a liability if I take my eyes off the ball of what our buyers want and need. Successful entrepreneurship and mature company innovation require a healthy dose of the rebel rather than that of the good follower.

What do you think? Am I keeping my products fresh and innovative or am I missing opportunities and should be sent back to B-School?

Sunday, April 04, 2010

The Importance of HR: A Tragedy that Could Have Been Avoided

If any of your colleagues or senior management ever doubt the importance of the Human Resources function, tell them about the Tragedy at Mangatepopo Gorge.

On April 16, 2008, 6 students and 1 teacher died due to an amazing array of Human Resources failures on the part of Sir Edmund Hilary Outdoor Pursuits Centre. The tragedy happened on an adventure field trip in New Zealand but the Human Resources lessons are applicable to companies around the world including those in North America.

Sir Edmund Hilary Outdoor Pursuits Centre (OPC) describes itself as a provider of outdoor education and adventure. It's goal is to provide adventure activities to "develop people’s potential and instil concepts of environmental leadership." Programs include kayaking, canoeing, tubing, rockclimbing, snow and ice climbing, caving, tramping, skiing, snowboarding, river walking, gorge walking, camping and ropes course.

This story takes place on a canyoning trip at Mangatepopo Gorge, located in the Tongariro National Park in the Central North Island of New Zealand. Canyoning (also known as canyoneering) is a rigorous sport which requires climbing, jumping, and swimming and generally requires special apparatus such as ropes, helmets and wetsuits. It was raining when the students and teacher from Elim Christian College, a small school in Auckland set out for their adventure trip with their guide from OPC. During the trip, the rains turned to flash flood and caused the river to rise trapping the canyoneers on a ledge overhanging the cliff. They stood on the ledge for an hour until the heavy rushing waters were up past their knees. The guide made the decision to continue onward and she and one pupil jumped into the water. They made it across. She successively had each student in groups of two jump into the waters while she threw rope for them to grasp. The seven who died were unable to reach the rope or were unable to hold on due to the violent waters. They went over a dam where their bodies were recovered.

Had they chosen not to go out on that day or had stayed on the ledge, the loss would have been avoided.

Why is this a tale of HR misfunction rather than a story of a risky adventure going bad? Over the past two years, the parents of the deceased children requested examination into the tragedy that shattered their lives. The investigation revealed an alarming number of issues, all within the purview of HR that could have and should have been corrected. From what was discovered, the loss may have been avoided if someone was minding the HR shop at the Sir Edmund Hilary Outdoors Pursuit Centre.

Eight HR problem areas were identified:

1) Employee Turnover. Staff turnover at OPC was described in all reports as being very high. This resulted in inexperienced employees along with a loss of institutional history both of which contributed to the deaths.

2) Promotion "Creep." At the OPC, employees were being promoted to "Senior Staff" at just 2 years.

3) Safety Issues due to Poor Corporate Culture and Employee Stress. A safety audit in 1996 reported that 50% of the employees at OPC had a 50% risk of having a serious accident or illness. 11% had a 79% risk. According to the Sunday Star Times, the audit highlighted high staff turnover, non-compliance with agreed organizational policy and an "autocratic, unfriendly and demotivating" management dynamic as significant safety risks.

4) Ignoring Exit Interviews. In addition to the safety audit, Exit interviews (which is why this story came to my attention) warned that employees were "overworked, not supported and disillusioned."

5) Inadequate Training. The guide for this trip had only done the gorge trip 5 times prior to the tragedy. Her training consisted of:
  • a 12-week course
  • 2-weeks as a volunteer
  • FT employee for 2 months
She had been with the company for just three months. Yet with this limited amount of training she was still sent out as a solo guide for this challenging trip.

6) Poor Workforce Management. Whether it's due to money savings or lack of employees, the OPC assigns just 1 instructor to each adventure. The Coroner's report which included recommendations to prevent a future tragedy suggests a minimum of two guides per trip (each equipped with proper communication devices). On the OPC website today it still states, in the risk section I might add, that they continue to provide 1 guide per adventure.

7) Inadequate New Hire Orientation and Induction. The investigation report says that OPC provides a 3 week induction for newly graduated instructors which they consider inadequate due to the high risk nature of the jobs. After the tragedy, the Center Manager said "there was pressure to get new instructors into productive work mode as soon as possible." He also cited an "ineffective mentorship system for new staff."

8) Employee Silos and Communication Breakdown. A direct contributor to the accident was due to a communication breakdown between the guide (who survived) and the Program Manager. One of the Program Manager's job functions is to determine if it's safe for the guides to go ahead with planned outings. The guide said she received approval. The Program Manager said she never would have approved it. It later was revealed that the two had spoken and the Guide promised to not go very far up the gorge.

Luckily in most of our companies, high turnover, high stress, inadequate training, poor communication, insufficient onboarding and mentoring result only in a financial loss* and not a loss of life. I am reminded however of a set of exit interviews from employees in the Pharmacy of a hospital who all stated they were leaving because they didn't feel they received enough training and were afraid they were going to kill someone. (Unlike OPC, this hospital jumped on the information and improved training programs in this area.)

The work that we do in HR is important; vitally important. The impact that we have on minding the "people part" of the business affects every customer that interacts with every employee. For some companies it goes beyond our customers to the very health and safety of every person and every living thing on the planet. If you ever begin to doubt the importance of HR, think about the kids who died at Mangatepopo Gorge and how those death may have been avoided if YOU were in charge of HR at OPC.

* OPC was fined $40,000 and ordered to make $440,000 in reparation
You can read more in the Sunday Star Times article: A Tragedy That Could Have Been Avoided
Additional articles available through searching on the term: Mangatepopo Gorge