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Improve Profitable "roe" With Retention
By Phil McCutchen, Sat Dec 10th
"R.O.E.: Return On Employee -- A measure of corporate businessperformance as determined by the gross revenue achieved perstaff employee." by Phil McCutchen Marketing Manager, VCG, Inc. As the definition above points out, ROE (Return On Employee)focuses on your staff, the people who generate the revenue thatmakes your operation profitable. For any business withabove-average employee turnover, ROE is a critical component ofsuccess that is too often neglected by management. For thepurposes of this article, we'll focus on the staffing industry;temporary employment and recruiting agencies that provideimportant personnel-related services to the business community,yet typically suffer from above-average staff employee turnover.We will show you the challenges and offer some tips andtechniques to improve the turnover situation and thus, ROE. Inour analysis of available operational data, the average ROE forcommercial staffing firms is a bit under $400,000. We've alsoseen some firms (many of them VCG staffing software clients)with ROE's that exceed that by 50% or more. Why do some staffingand recruiting firms settle for average or less, while othersexcel? One key to success is staff employee retention. Accordingto data from the ASA 2002 Staffing Industry Surveyby Mercer Human Resource Consulting Inc., the average annualturnover for staffing industry jobs was 48 percent. In fact, inprevious years, turnover was as high as 70% for some positions.As might be expected, the impact of such high staff turnover --for whatever reasons -- can be tremendous. One case study in"Continuity Management" by Hamilton Beazley, chairman ofStrategic Leadership Group, an Arlington, VA-based consultingfirm, pointed out the potential cost with this true story. Alarge company delayed a major product launch by nine months asit struggled to resolve a technical issue. The delay allowed acompetitor to introduce a similar product first, gaining acompetitive advantage among customers. As a result, the firm'sproduct never reached its projected volume and revenuepotential. In investigating the launch, it was discovered thatthe solution to the technical issue that caused the delayalready existed as the firm's intellectual property based onresearch that had been done 15 years earlier! Knowledge of thatresearch was lost due to staff turnover. Total cost to the firmin duplicated research and lost revenue was $1 billion. Similarlosses happen on smaller scales every day, and that includesyour staffing firm -- all because 'head knowledge' was lost.Such quantifiable losses however, are just the most easilyquantifiable part of the problem. Among the more obvious issuesof turnover are: •Loss of morale among remaining staff members,leading to reduced productivity •Increased 'Ghost Work', i.e.,remaining staff taking on the burdens and tasks of departedstaff, which can also be stressful and demoralizing •Loss ofrevenue directly or indirectly attributable to the loss of staff•Cost burden related to the recruiting and training ofreplacement staff •Loss of tacit 'head knowledge' andexperience. According to the Boston-based Delphi Group, tacitknowledge represents some 70% of an employee's knowledge base.It includes knowledge about those they consult and discussbusiness with, company culture and operations experience, andunique experiences in the business that lead to innovationPlanning An Employee Retention Program Recognizing that employeeretention is important is easy enough. Doing something effectiveabout it requires both strategic thinking and smart tactics,especially for staffing firms. Temporary staffing and recruitingfirms may justifiably pride themselves on their intimateknowledge of human relationship management, but may also expendmuch of their efforts on clients and temporary or contractemployees instead of their own staff. Changing that focus willchange your business and its productive profitability big time.Let's start with the strategic planning factors: •First, beaware that employee needs differ from management's. Theytypically don't have 'ownership', and so their motivations aremarkedly at odds with what management believes they want.According to a number of surveys done over the past 50-plusyears, the top ten things employees want vs. what managers'think' they want are: Top 10 Things Employees Want vs. WhatManagers 'Think' They Want FACTORSMANAGERSEMPLOYEES FullAppreciation for Work Done81 Feeling 'In' on Things102Sympathetic Help on Personal Problems93 Job Security24 GoodWages15 Interesting Work56 Promotion/Growth Opportunities37Personal Loyalty to Workers68 Good Working Conditions49 TactfulDisciplining710 Sources: Foreman Facts, Labor RelationsInstitute of NY (1946); Lawrence Lindahl, Personnel Magazine(1949). Repeated with similar results: Ken Kovach (1980);Valerie Wilson, Achievers International (1988), Bob Nelson,Blanchard Training & Development (1991), Sheryl & Don Grimme,GHR Training Solutions (1997-2001) •Second, acknowledge thatemployee retention is great for business. A recent surveyconducted by the Gallup organization researched the Impact ofEmployee Attitudes on Business Outcomes. They found thatorganizations where employees have above average attitudestoward their work (that is, high employee satisfaction), have:o38% higher customer satisfaction scores, o22% higherproductivity, and o27% higher profits •Third, understand thatimproving employee retention isn't so much about dollars as itis personal effort. This is the hard part. It takes continuouseffort and involvement by management at all
levels to coach,cheerlead, mentor, and encourage. •Fourth, your strategies andtactics for employee retention should affirm that an employee'stacit (head) and explicit (external) knowledge has someintrinsic value to the firm and efforts should be made togather, catalogue, and make this information available to otherswho could benefit from it. Tips to Improve Employee RetentionAny tactics that you implement, as part of your employeeretention program, should be geared to eliciting one responsefrom your employees, "The pay ain't bad, and they treat megreat!" Most of the following tips and techniques aren't rocketscience. They are based on well-proven and documented successesin the business world. Here are some tips based on the work ofBob Nelson, author of "1,001 Ways to Reward Employees": 1. Payemployees fairly and well -- then get them to forget aboutmoney. 2. Treat each and every employee with respect. Show themthat you care about them as persons, not just as workers. 3.Praise accomplishments and attempts •Both large and small •Atleast four times more than you criticize •Publicly and inprivate •Verbally and in writing •Promptly (as soon as observed)•Sincerely 4. Clearly communicate goals, responsibilities andexpectations. NEVER criticize in public -- redirect in private.5. Recognize performance appropriately and consistently: •Rewardoutstanding performance (e.g., with promotions andopportunities) •Do not tolerate sustained poor performance --coach and train or remove! 6. Involve employees in plans anddecisions, especially those that affect them. Solicit theirideas and opinions. Encourage initiative. 7. Createopportunities for employees to learn and grow. Link the goals ofthe organization with the goals of each individual in it. 8.Actively listen to employees concerns -- both work-related andpersonal. 9. Share information promptly, openly and clearly.Tell the truth with compassion. 10. Celebrate successes andmilestones reached -- organizational and personal. Create anorganizational culture that is open, trusting and fun!Techniques to Reduce the 'Brain Drain' It's not enough toimprove your employee retention. Turnover in the high-pressurestaffing environment is natural and to be expected. What youdon't want is staff to leave with stuff in their heads thathelps you generate business. Part of your retention strategy hasto involve knowledge. You want to retain as much of the tacitknowledge that contributes to your firm's business and itsprofitability as possible. Following the lead of suchorganizations as General Electric, Siemens, the World Bank, andothers, the knowledge management of your staffing or recruitingfirm has to include 'Continuity Management'. Here are sometechniques for gathering, storing, cataloguing and makingavailable this knowledge: •Use in-person methods to identify theknowledge that is critical to capture. According to a study bythe American Productivity and Quality Center (APQC), whileelectronic communication (email, on-line chat, etc.) has itsvalue and its place, it does not and cannot take the place ofknowledge gained in face-to-face interaction. Such humaninteraction opportunities include: oSenior management meetingsoInterviews with internal subject matter experts oInternal orexternal communities of practice and/or interest oInternalconferences oFocus groups oExit interviews •Establishmethodology, infrastructure, and practice of capturing tacit andexplicit knowledge for use oRecording and reporting tools. Thismay include information systems (such as your staffing software)that record activities and other business processes, meetingnotes and related documents, or even audio or video tapes ofevents oFile storage and access. This may be hard copy files forsome information or any form of digital information storage,such as databases and document management systems oEstablishreview and validation process for captured knowledge •Establishmethodologies and practices for the access and use of knowledgeoKnowledge databases should be easily accessible and updateableoBusiness information staffing software systems should be ableto suggest best practices based on real-time ongoing capture oftacit and explicit information The End Result A full-blownprogram that addresses both employee retention and knowledgeretention may seem to a big task -- one too big to handle inmany respects. However, such an initiative -- even oneimplemented one department or division at a time -- will makeyour firms' future more manageable. At the same time it willfocus the spotlight on you as a proactive, forward-lookingleader who understands the big picture. Such a program tellsemployees that management understands the value of employees andtheir knowledge -- that is both motivating and empowering. --end -- Resources: •Employee Retention Headquarters:www.employee-retention-hq.com •American Productivity and QualityCenter: www.APQC.org •Society of Human Resources Management:www.SHRM.org •Continuity Management:www.continuitymanagement.com •American Staffing Association:www.staffingtoday.net •Bob Nelson: www.nelson-motivation.com
About the author:About the Author Phil McCutchen is Marketing Manager forVCG, Inc., the leading provider of staffing software to thestaffing industry. He has been with the firm since 1991, and hasmore than 25 years of marketing experience. For moreinformation: VCG Staffing Software
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