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Improve Profitable "ROE" with Retention
"R.O.E.: Return On Employee --
A measure of corporate business performance as determined by the gross revenue achieved per staff 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 that makes your operation profitable. For any business with above-average employee turnover, ROE is a critical component of success that is too often neglected by management.
For the purposes of this article, we'll focus on the staffing industry; temporary employment and recruiting agencies that provide important 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 and techniques to improve the turnover situation and thus, ROE.
In our analysis of available operational data, the average ROE for commercial staffing firms is a bit under $400,000. We've also seen some firms (many of them VCG staffing software clients) with ROE's that exceed that by 50% or more.
Why do some staffing and recruiting firms settle for average or less, while others excel?
One key to success is staff employee retention.
According to data from the ASA 2002 Staffing Industry Compensation Survey by Mercer Human Resource Consulting Inc., the average annual turnover for staffing industry jobs was 48 percent. In fact, in previous 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 of Strategic Leadership Group, an Arlington, VA-based consulting firm, pointed out the potential cost with this true story.
A large company delayed a major product launch by nine months as it struggled to resolve a technical issue.
The delay allowed a competitor to introduce a similar product first, gaining a competitive advantage among customers. As a result, the firm's product never reached its projected volume and revenue potential.
In investigating the launch, it was discovered that the solution to the technical issue that caused the delay already existed as the firm's intellectual property based on research that had been done 15 years earlier! Knowledge of that research was lost due to staff turnover.
Total cost to the firm in duplicated research and lost revenue was $1 billion.
Similar losses happen on smaller scales every day, and that includes your staffing firm -- all because 'head knowledge' was lost. Such quantifiable losses however, are just the most easily quantifiable part of the problem. Among the more obvious issues of 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 departed staff, which can also be stressful and demoralizing
•Loss of revenue directly or indirectly attributable to the loss of staff
•Cost burden related to the recruiting and training of replacement staff
•Loss of tacit 'head knowledge' and experience. According to the Boston-based Delphi Group, tacit knowledge represents some 70% of an employee's knowledge base. It includes knowledge about those they consult and discuss business with, company culture and operations experience, and unique experiences in the business that lead to innovation
Planning An Employee Retention Program
Recognizing that employee retention is important is easy enough. Doing something effective about it requires both strategic thinking and smart tactics, especially for staffing firms. Temporary staffing and recruiting firms may justifiably pride themselves on their intimate knowledge of human relationship management, but may also expend much of their efforts on clients and temporary or contract employees instead of their own staff. Changing that focus will change your business and its productive profitability big time. Let's start with the strategic planning factors:
•First, be aware that employee needs differ from management's. They typically don't have 'ownership', and so their motivations are markedly at odds with what management believes they want. According to a number of surveys done over the past 50-plus years, the top ten things employees want vs. what managers 'think' they want are:
Top 10 Things Employees Want vs. What Managers 'Think' They Want
FACTORSMANAGERSEMPLOYEES
Full Appreciation for Work Done81
Feeling 'In' on Things102
Sympathetic Help on Personal Problems93
Job Security24
Good Wages15
Interesting Work56
Promotion/Growth Opportunities37
Personal Loyalty to Workers68
Good Working Conditions49
Tactful Disciplining710
Sources: Foreman Facts, Labor Relations Institute 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 that employee retention is great for business. A recent survey conducted by the Gallup organization researched the Impact of Employee Attitudes on Business Outcomes. They found that organizations where employees have above average attitudes toward their work (that is, high employee satisfaction), have:
o38% higher customer satisfaction scores,
o22% higher productivity, and
o27% higher profits
•Third, understand that improving employee retention isn't so much about dollars as it is personal effort. This is the hard part. It takes continuous
effort and involvement by management at all levels to coach, cheerlead, mentor, and encourage.
•Fourth, your strategies and tactics for employee retention should affirm that an employee's tacit (head) and explicit (external) knowledge has some intrinsic value to the firm and efforts should be made to gather, catalogue, and make this information available to others who could benefit from it.
Tips to Improve Employee Retention
Any tactics that you implement, as part of your employee retention program, should be geared to eliciting one response from your employees, "The pay ain't bad, and they treat me great!" Most of the following tips and techniques aren't rocket science. They are based on well-proven and documented successes in the business world. Here are some tips based on the work of Bob Nelson, author of "1,001 Ways to Reward Employees":
1. Pay employees fairly and well -- then get them to forget about money.
2. Treat each and every employee with respect. Show them that you care about them as persons, not just as workers.
3. Praise accomplishments and attempts
•Both large and small
•At least four times more than you criticize
•Publicly and in private
•Verbally and in writing
•Promptly (as soon as observed)
•Sincerely
4. Clearly communicate goals, responsibilities and expectations. NEVER criticize in public -- redirect in private.
5. Recognize performance appropriately and consistently:
•Reward outstanding performance (e.g., with promotions and opportunities)
•Do not tolerate sustained poor performance -- coach and train or remove!
6. Involve employees in plans and decisions, especially those that affect them. Solicit their ideas and opinions. Encourage initiative.
7. Create opportunities for employees to learn and grow. Link the goals of the organization with the goals of each individual in it.
8. Actively listen to employees concerns -- both work-related and personal.
9. Share information promptly, openly and clearly. Tell the truth with compassion.
10. Celebrate successes and milestones reached -- organizational and personal. Create an organizational culture that is open, trusting and fun!
Techniques to Reduce the 'Brain Drain'
It's not enough to improve your employee retention. Turnover in the high-pressure staffing environment is natural and to be expected. What you don't want is staff to leave with stuff in their heads that helps you generate business. Part of your retention strategy has to involve knowledge. You want to retain as much of the tacit knowledge that contributes to your firm's business and its profitability as possible.
Following the lead of such organizations as General Electric, Siemens, the World Bank, and others, the knowledge management of your staffing or recruiting firm has to include 'Continuity Management'. Here are some techniques for gathering, storing, cataloguing and making available this knowledge:
•Use in-person methods to identify the knowledge that is critical to capture. According to a study by the American Productivity and Quality Center (APQC), while electronic communication (email, on-line chat, etc.) has its value and its place, it does not and cannot take the place of knowledge gained in face-to-face interaction. Such human interaction opportunities include:
oSenior management meetings
oInterviews with internal subject matter experts
oInternal or external communities of practice and/or interest
oInternal conferences
oFocus groups
oExit interviews
•Establish methodology, infrastructure, and practice of capturing tacit and explicit knowledge for use
oRecording and reporting tools. This may include information systems (such as your staffing software) that record activities and other business processes, meeting notes and related documents, or even audio or video tapes of events
oFile storage and access. This may be hard copy files for some information or any form of digital information storage, such as databases and document management systems
oEstablish review and validation process for captured knowledge
•Establish methodologies and practices for the access and use of knowledge
oKnowledge databases should be easily accessible and updateable
oBusiness information staffing software systems should be able to suggest best practices based on real-time ongoing capture of tacit and explicit information
The End Result
A full-blown program that addresses both employee retention and knowledge retention may seem to a big task -- one too big to handle in many respects. However, such an initiative -- even one implemented one department or division at a time -- will make your firms' future more manageable.
At the same time it will focus the spotlight on you as a proactive, forward-looking leader who understands the big picture. Such a program tells employees that management understands the value of employees and their knowledge -- that is both motivating and empowering.
-- end --
Resources:
•Employee Retention Headquarters: www.employee-retention-hq.com
•American Productivity and Quality Center: 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 for VCG, Inc., the leading provider of staffing software to the staffing industry. He has been with the firm since 1991, and has more than 25 years of marketing experience. For more information: VCG Staffing Software
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