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The Silent Profit Killer

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www.leadingedgeperformance.org
The Silent
Profit Killer
Understanding the
hidden risk to your
business
For some this means leaving the organisation.
Lost talent can cost businesses £millions p.a. and
causes significant busine...
7 Mistakes Most Leaders Make
Cracking the Engagement Puzzle
I believe all leaders truly want to solve the engagement puzzl...
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  1. 1. www.leadingedgeperformance.org The Silent Profit Killer Understanding the hidden risk to your business
  2. 2. For some this means leaving the organisation. Lost talent can cost businesses £millions p.a. and causes significant business discomfort through constant rehiring and the talent and motivation drain it creates. It’s possible that by the time you finish reading this report a disengaged employee has searched for a new job. If they are successful you’ve lost £thousands. The remaining group, who are also disengaged but stay, cause incalculable damage to profits, service and reputation as they resist, resent, underperform and undermine at every turn. Change is a bitterly contested notion. Relationship tension causes unnecessary conflict. Customer service levels are low and in doing so they erode brand reputation. That may sound extreme, but it’s alive and well in many organisations today Businesses today face a very real and often silent threat. It causes reputational damage, poor results and jeopardises long term financial survival: poor employee engagement. So the question we need to ask is why aren’t more organisations facing into the engagement issue? Why is it such a silent threat? Firstly, because most organisations aren’t effectively measuring the financial impact. The costs are seen as mostly intangible, but they are real nonetheless. Secondly, is the preoccupation with focussing on the group of employees who are leaving the organisation. But it’s the resentful- remainers who cause the real damage. It cannot be ignored. Business are at significant financial risk if the issue isn’t addressed. It is the difference between surviving and thriving. Successful businesses today can answer and address the question : ‘Why are our people disengaged?’ This report looks to illuminate the financial impact of disengagement and why you should act.
  3. 3. 7 Mistakes Most Leaders Make Cracking the Engagement Puzzle I believe all leaders truly want to solve the engagement puzzle. Firstly, who wouldn’t want to work in a vibrant and stimulating workplace? And constantly re-hiring and retraining new staff is a headache for leaders. Then there is the lost tribal knowledge and positive attitude of those leaving, creating a talent and motivation drain. For the people who are disengaged but stay, morale is so low that they underperform and merely exist, if you can even call it that. In addition, as an organisation’s reputation begins to suffer, it becomes harder to attract talent in the first place, so a vicious cycle ensues. It’s frustrating and exhausting. What compounds the problem is that in today’s age of social media, a new job is never more than a click away. Job mobility is rising as quickly as job loyalty is falling. Something must be done to stem to tide. When organisations try to measure the engagement issue, they usually have a good sense for the level of employee engagement (although a yearly survey is a very poor tool indeed), and HR can usually provide up to date staff turnover stats, but what most organisations consistently fail to do is wrap an accurate financial price tag around the issue. If they did, the shock alone would kick-start a period of intense activity, focus and resource allocation until the hitherto unseen financial risk was under control. So let’s begin there, with the ‘why?’ Why should you even have this on your radar? Why is this one of the biggest hidden risks in most organisations? Why should precious time, resource and budget be allocated to measuring and addressing engagement? Basically, why read this report? Louise Mallam Leading Edge Performance
  4. 4. 7 Mistakes Most Leaders Make Louise Mallam © 2017 All rights reserved. Under no circumstances should this document be sold, copied, or reproduced in any way except when you have received written permission. The author does not accept any liability or responsibility for any loss suffered from the reader’s use of the advice, recommendation, information, assistance or service, to any extent available by law.
  5. 5. “If you don’t already have a highly engaged and fiercely loyal workforce, that must be your full time job until you do. Your business depends on it.” Louise Mallam Director of Leadership Capability ~ Leading Edge Performance Report Part A The Cost of Staff Attrition
  6. 6. The Hidden Financial Risk To Your Business It’s widely acknowledged that high employee turnover is a significant cost and risk to many organisations today, but surprisingly few organisations understand the full impact or act upon the attrition problem. Instead they focus their efforts on being agile in responding to the ‘inevitable’ loss. Wouldn’t it make more sense to understand why people are leaving in the first place and keep them in the business? Tangible costs of attrition This includes advertising, recruitment fees, CV screening and interview time, signing bonuses for replacement staff, temporary/agency cover and the lost productivity and morale of the person leaving the organisation. Performance and results go down, attendance and commitment fall. Intangible costs of attrition This includes the cultural impact of the motivation drain, wider impact on other employees who begin to question their future in the business and the reputational damage impact on potential incoming talent. The hiring bar begins to lower as the available talent pool diminishes.
  7. 7. Understanding The Scale Of The Problem First and foremost, organisations must be able to quantify the scale of the problem; current attrition rates, the reasons for leaving and the likelihood and imminent risk of others exiting the business. No one data source provides all of the information needed. Driving retention should be a regular agenda item for senior leaders. “You’re only a click away from losing your heroes.” Andre Marcos HR Partners should be able to provide data on the rate of attrition and if exit interviews are held, the reasons people state for leaving HR Teams Employee forums provide a pulse for the feeling or general mood of the workforce, which is often hidden to senior leaders Employee Forums Responses to formal or ad hoc engagement surveys provide snapshots and trends over time. Take care if using data from annual surveys Engagement Scores
  8. 8. How Much Is Your Business Losing? Do you know the cost of staff attrition to your business? Does anyone? Do you have an agreed calculation method? Is it on the senior leadership team agenda like other risk and financial discussion points? What if the cost to your business was £millions p.a.? What if you were losing more money p.a. in lost talent than lost customers? What if the two were intrinsically linked? What if cracking the retention puzzle was the difference between surviving and thriving? What if your organisation measured leadership success by retention and engagement rates; what behaviour would that drive? How would that impact the bottom line? “In similar findings to previous years, just 15% of respondents report that their organisation calculates the cost of labour turnover. Nearly three-quarters reported they do not (72%), while a further 13% did not know if they do so or not.” CIPD Resourcing and Talent Planning Report 2015 The sad truth is that most businesses have resigned themselves to the fact that high turnover is an inevitable part of business life. They put their efforts, time and budget into having robust and agile plans to deal with the issue e.g. quick and responsive recruitment pipelines that necessarily exist to manage the problem. They are looking at the problem through the wrong end of the telescope. Rather than focussing on the downstream impact of attrition, successful businesses focus on the source of the problem.
  9. 9. There are various industry calculations used to measure the cost of losing people. Some refer to a specific £sum per lost employee e.g. Oxford Economics quote £30,614 per person. Others calculate the figure based on a % of salary depending on seniority within the organisation. This figure can be stated as high as 250% of salary for C level leaders. To even this out and provide a mid-point for examples, at Leading Edge Performance we apply 120% of salary. Using this calculation the cost of losing someone on £60,000 salary is £72,000 to the business. How many people has your business lost in the past year? Let’s be conservative, let’s imagine you’ve lost ten people and they each earned £30,000, that’s a hidden cost to your organisation of £360,000, and if that figure is one hundred people? it’s £millions lost revenue p.a. Oxford Economics cited the annual attrition cost (UK) to five key sectors; Legal, Accountancy, IT/Tech, Media/Advertising & retail as £4.13bn in 2014. It cannot be ignored. Attrition ~ The process of reducing something's strength or effectiveness through sustained attack or pressure. In the time it takes you to read through this report, it’s highly likely that at least one of your employees has searched for a new job. If that search results in the person leaving your business, you have potentially lost over £30,000 (many times more than that if that person is a senior leader).
  10. 10. Attrition costs are more than job posting fees and recruiter fees. Some of the hidden costs include lower productivity and effectiveness, training for new hires, lost knowledge and overworked and demoralised remaining staff. Ultimately this shows up as poor service and customer experience, so not only are your people leaving, but so are your customers. Although salary is a factor in people’s employer decisions, in the main as long as salary sits comfortably within the acknowledged range for the role, it is is only a factor when dissatisfaction is high in other areas. For the most part, attrition costs are intangible. Nobody writes a cheque, raises a purchase order or settles an invoice for low morale or the lost knowledge of an outgoing person. It doesn’t show up as a separate line in the P&L. Leaders aren’t usually held to account. Attrition costs so much because it’s mostly an unseen, unmanaged financial risk. Formal and informal training time and events. Role complexity and experience will determine the amount needed Training The person leaving the business becomes disengaged and the wider team has to cover if the position is vacant Lost Productivity Advertising, recruiter fees and interview time. Organisations with high hiring bars carry significant costs at this stage Recruitment It takes time to learn any new role and to become effective to move from a cost to an investment for the organisation Ramp Time Attention to detail suffers as outgoing people ask ‘why should I care?’ Customer service levels and ownership fall Accuracy & Service Others become demotivated and overworked and start to ask ‘should I stay?’ Motivation Drain Why Does Attrition Cost So Much?
  11. 11. Organisations that engage the workforce win “According to our data, 20 per cent of people expect to change jobs in the next year. For employers, this represents a huge challenge. They need to keep hold of the talented people they already have, and they want to attract the best people to help them grow. Failure to do this will have a financial impact on businesses because hiring people entails significant investment, and it will mean that your organisation could be losing out to a competitor.” Kate Shoesmith, Head of Policy and Public Affairs at the Recruitment and Employment Confederation Even your star performers’ productivity and effectiveness can decrease as they draw closer to leaving the business. This may have been happening for some time before they handed in their notice. During their notice period, people leaving can become more obstructive in their views and actions as any sanction becomes ineffective and somewhat pointless in all but the most serious situations. Those remaining become dissatisfied with having to bridge the productivity gap. Internal recruitment teams need to be larger for businesses with high turnover. Hiring external recruiters decrease time on task and salary costs, but the recruiter may charge 25-30% of one year salary for senior positions. Conducting interviews and screening takes time and focus from the business. Company leaders can spend hours conducting interviews and represents lost productivity. It also reduces the time the leaders has to spend with the remaining staff, further demotivating the wider team. Lost Productivity Recruitment
  12. 12. According to business expert Josh Bersin, of Bersin by Deloitte, a new employee can take up to two full years to reach the same level of productivity as an existing staff member. Even entry level jobs take time to master. To calculate the cost as a minimum use 100% salary for month 1, 50% for month 2 and 25% for M3. Adjust the calculation for more complex and technical roles. Constant hiring is like constantly hitting the reset switch on team effectiveness, it’s hard to get and maintain traction. Internal training costs include the training team’s salaries, room hire, catering, printing and materials and any technical support from subject matter experts and leaders who support the event. External events can be very expensive. In the first 2 years businesses typically invest 10-20% of an employee's salary in training. All of which is lost if that employee then leaves the organisation. ‘Tribal knowledge’ learned over many years is undocumented and may be lost forever if a key person leaves the business. Ramp Time Training “Losing talent is a constant issue for most organisation. I’ve always been fascinated by the link between attrition, overall engagement levels and leadership styles. Engagement filters down, not up. Some leaders just ‘get it’, sadly most don’t.” Louise Mallam ~ Director of Leadership Capability, Leading Edge Performance
  13. 13. Leaders and organisations that engage the workforce inspire loyalty, and those organisations win: fact. It doesn’t matter how great your products are, how fancy your marketing is, how shiny your offices are or how efficient you are at delivering on deadlines, if underpinning that is an ineffective, unproductive, disengaged, disloyal workforce ready to leap at the first opportunity that comes along. Employees who are leaving the organisation rarely have the right focus or positive attitude. As they take their foot off the accelerator standards slip. As they sense a new opportunity dawning, the current one loses its appeal. New hires generally do not know the answers to the typical questions they will face on the job. Their intention is good but they will probably take longer to resolve common issues. Customer expectations may not be met and service levels may decline while new hires get up to speed. Some staff turnover is inevitable, healthy in fact. High turnover becomes a red flag to those staying as they begin to wonder if the business is floundering and if they should still be anchored to it or look elsewhere. The gossip-machine begins. Those who stay often have the pick up additional tasks while vacancies are filled, and a little after while new hires learn the ropes. Leaders spend their time managing performance issues such as absence and attitude and not leading the business. Accuracy & Service Motivation Drain “Train people so well they can leave, treat them well enough so they don’t want to” Richard Branson
  14. 14. “If you don’t already have a highly engaged and fiercely loyal workforce, that must be your full time job until you do. Your business depends on it.” Louise Mallam Director of Leadership Capability ~ Leading Edge Performance Report Part B The Cost of Disengaged Remainers
  15. 15. What About Those That Remain? “There are organisations with such high levels of employee engagement that top talent seeks them out. Employees are fiercely loyal, operating at a very high level in self-directed ways and customer service levels are legend. These people are set apart by a love of Mondays.” Louise Mallam Usually, once the financial cost and risk of people leaving the organisation is highlighted to senior leaders, the conversation and strategic plans quickly move on, but there is an additional risk and cost to disengagement that needs to be considered. It’s more challenging to measure, and vastly more dangerous to organisations: the disengaged people who stay. The resentful remainers. They’re unhappy, but not active enough to look elsewhere. They cause incalculable damage as they resist, resent, undermine and underperform. They need to be managed rather than led as they fail to self-manage even the most basic tasks such as good attendance. It’s exhausting. “An ‘engaged employee’ is defined as one who is fully absorbed and enthusiastic about their work and takes positive action to further the organisation’s reputation and interests.” Employee engagement, (2016), Wikipedia
  16. 16. The Business Case for Driving Engagement The financial implications of the disengaged remainers are staggering; it defies logic that the issue isn’t a business priority. In addition to the cost saving outlined previously by reducing staff turnover, there are numerous business benefits to driving employee engagement for the whole business. 2016 Gallup research is shown below. What’s incredible, is that they go on to report that shockingly, 87% of people stated they were disengaged at work. If you’re a Customer Service leader, a 10% improvement in customer ratings would no doubt be of interest. Finance leaders would go to almost any length for a 22% boost to profitability. Operations leaders are always chasing greater productivity. HR and Resource teams benefit from reduced turnover and every leader is happier when absenteeism goes down. Gallup’s 2016 Meta-Analysis - the ninth Gallup has conducted since 1997 - examines the effect of employee engagement on organisations’ bottom line. “Works units in the top quartile in employee engagement outperformed bottom quartile units by 10% on customer ratings, 22% in profitability and 21% in productivity. Work units in the top quartile also saw significantly lower turnover (25% in high-turnover organisations, 65% in low-turnover organisations), shrinkage (28%), absenteeism (37%), safety incidents (48%) and quality defects (41%).” They go on to add that companies with highly engaged workforces outperform their peers by 147% in earnings per share
  17. 17. Facing Into The Engagement Issue Leading Edge Performance is helping businesses to transform employee engagement Businesses that can acknowledge reality, quantify the current state and financial impact of disengagement and face into the issue can make significant progress in a relatively short period of time. Plasters don’t work. What is needed is a fundamental change in the culture, starting with senior leaders. The aim of the culture shift is threefold; Retain Talent – stop good people from leaving. Improve Performance – drive engagement so high that ‘talent’ becomes the norm in the organisation rather than the exception. Improve Morale – create a vibrant place to work that people are fiercely loyal to and other talent eagerly wants to join. Our experts at Leading Edge Performance can help you to discover the source of your engagement issues and create a plan to solve it. We specialise in implementing programs across entire leadership teams that result in culture change and improved results that persists over time. Isn’t it time you finally resolved this issue? At Leading Edge Performance, we help leaders to discover the very edges of their capability and inspire them to be and do more than they imagined possible. We help organisations to save £millions p.a. by engaging and keeping their talent. We also help the workforce to have the level and style of leadership that they deserve and want to stand behind Contact us today for a free discovery session
  18. 18. What others are saying about our work “Louise is a master at what she does. Her way of engaging leaders is inspiring: she’s bold, direct, and on point with her observations and recommendations. She creates environments that bring out the best in people. For any individual or organization looking to make real changes in their way of leading, Louise will be an exceptional partner on that journey” Stephanie Seracka, Talent Manager, Amazon “During the time I worked with Louise, she delivered innovative, impactful and engaging leadership development workshops and coaching sessions. Her emphasis on crafting strong working relationships was at the centre of her consultative approach. I would recommend her to any team or organisation looking to significantly enhance performance and engagement.” Des Ryan, HR Manager, Apple “I can honestly say that you were phenomenal in your facilitation of the summit. You read the audience and guided the process as it needed to be. This kept the positive momentum going whilst still achieving the desired results. It has been a real pleasure dealing with you and the value that you’ve brought to our team has been invaluable. I cannot express how grateful I am to you for being the catalyst in the change in our team.” Senior Centre Leader, Amazon
  19. 19. Leading Edge Performance Ltd Email: info@leadingedgeperformance.org Web: www.leadingedgeperformance.org Tel: 07547 532 528

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