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Leadership Development Blog

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The Low Cost Of Employee Development vs. The High Cost Of Employee Turnover

Posted by Paul O'Keefe on Feb 10, 2016 7:56:00 PM

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Talent development. Workforce investment. Employee training. Career development. For many years, these terms have been bandied about and their import hasn’t changed: Train your staff and grow your employees for their benefit and the benefit of the organization.

It doesn't matter the industry or size of the company, employers must invest in their employees. A workforce that only gets minimal training and development can be costly.

The Cost of Neglecting Employee Development

If a company’s talent isn't properly developed and trained, the outcomes are expensive. These outcomes may be the “hard,” quantifiable variables of accidents, injuries, diminished profits and turnover and/or “soft,” less measurable variables such as employee dissatisfaction and disengagement.

The hard, measurable variables are reflected in a company’s bottom line. The accidents, injuries and resultant litigation that come from a lack of knowledge and training, particularly in high-risk environments, can be an exorbitant expense. The inefficiency and unproductivity derived from a dearth of experience, training and engagement have a significant price tag. Employees who don't have the knowledge and skills necessary to benefit the company are inefficient and diminish profits. Turnover caused by employees bouncing from position to position whether for higher pay or to escape an unsatisfying job is expensive.

The soft, intangible variables deal with the satisfaction, engagement, sense of efficacy and meaning of workers and can result in costly outcomes as well. It matters to employees if their leaders have an authentic interest in them. When people feel a leader truly cares about them and their lives, they are more loyal and productive.

As Victor Lipman in Forbes states: Loyal employees are more engaged. Engaged employees are more productive.”

Workers want to advance and do well, and they appreciate their leadership’s support in their endeavors. They want training, coaching and mentoring. The truth is “if one company doesn’t provide it, enterprising employees will go elsewhere for it.” Employee disengagement has a hefty price tag that's often overlooked, and can lead to employee turnover as workers leave seeking satisfaction.

The Price of Employee Dissatisfaction

Since 2000, Gallup has been gauging employee engagement and satisfaction, defining it as a measure of how much a worker is involved in, enthusiastic about and committed to his workplace and his own work. In 2015, employee engagement, which hasn't shown much change in over 15 years, was at 32.4 percent in the United States.

Further, Gallup reports that disengaged employees are more willing to leave for higher paying jobs than engaged ones. When asked if they would leave their present company for a pay increase of 20 percent or less, 37 percent of those who were engaged said yes; whereas, 54 percent of those who were disengaged answered in the affirmative.

In essence, “The majority of actively disengaged workers are likely to bolt for almost any raise, while the majority of engaged workers would require more than a 20% raise to leave their current company.”

Clearly, employee disengagement and dissatisfaction play a real role in turnover. In fact, Gallup estimates that disengaged, dissatisfied workers cost the United States $450 billion to $550 billion per year in productivity alone.

The Expense of Employee Turnover

Employee turnover has many hidden costs associated with it. These expenses lie in the time and resources spent by HR representatives seeking, interviewing and hiring replacements, yet it doesn’t stop there. Depending upon the intensity of the need, representatives may have to travel, stay in hotels and attend expensive recruitment fairs. Once the new employee is hired, training expenses must be calculated as well as the cost of lower productivity and efficiency until the employee is up to speed. This cost increases as the new employee’s colleagues have to pick up the loose ends, cover the lack of knowledge and take on extra work to keep the unit functioning productively.

Employee Turnover in Numbers

Karlyn Borysenko, in TLMT/Talent Management and HR, asserts that it costs between 30 to 50 percent of an entry-level worker’s annual salary to replace that individual. For mid-level employees, expenditures can reach up to 150 percent of their annual salary to replace them, and for highly skilled, executive employees, it can be 400 percent of their salary.

She then gives a numerical illustration using a hypothetical company that loses 12 employees in the course of a year: six entry-level, four mid-level and two senior employees.

  • Six entry-level workers with a salary of $40,000 would cost a total of $96,000 to replace, or $16,000 per worker.
  • Four mid-level employees with an income of $80,000 would cost approximately $480,000, or $120,000 per employee.
  • Two senior employees with a salary of $120,000 would cost $960,000 to replace, or $480,000 each.
  • It would cost over $1.5 million to replace 12 employees.
  • The expense of replacing one employee ranges from $16,000 to $480,000.

Certain industries have higher turnover rates than others. The retail industry, specifically in clothing and accessories, has the highest voluntary turnover rate at 76 percent in 2013. When the cause is examined, the numbers are telling: Dissatisfaction and other opportunities pull workers away. 19.5 percent of voluntary turnover in the real estate industry was due to employee dissatisfaction; whereas 24.2 percent of voluntary turnover in the manufacturing industry, particularly in computers and electronics, was due to employees leaving for other job opportunities.

The picture is dire, and upper management should heed the warnings. Every organization in every industry is affected. Employee development and training can mitigate many of these outcomes at a fraction of the expense.

The (Much Lower) Cost of Employee Development

Research and empirical evidence show that employee development is much cheaper than the alternative. The Association for Talent Development’s 2014 State of the Industry report, which is based on data from 340 organizations, notes that training and development spending in 2013 averaged $1,208 per employee with 31.5 hours of learning.

The amount spent per worker differed due to the organization’s size:

  • Companies with less than 500 employees spent $1,888.
  • Mid-size organizations with 500 to 9,999 employees and large businesses with more than 10,000 workers spent $838.
  • Large companies got more bang for their buck because their employees trained 36 hours, or 4.5 days, versus the 27 hours, or 3.5 days, of mid-size organizations.
  • Spending the same amount as mid-size organizations, the larger ones were able to offer an extra day of training.

Per employee spending on development and training varied by industry as well. Manufacturing companies, which are generally large organizations, spent an average of $535 with 27 hours, or 3.5 days, of training per worker. Finance, insurance and real estate businesses spent $1,107 with 33 hours of training, while healthcare and pharmaceutical companies spent the most at $1,392 for 24 hours.

Why is Development Neglected?

If employee development is so important and much less expensive than turnover, why is it neglected? One answer is that business owners and industry leaders are too busy reacting to the present, instead of accurately recognizing portents of the future and proactively moving forward on what they see. Reacting to institutional change, reorganization and downsizing, they end up consumed with the problems at hand and unable to effectively plan future development. In such demanding situations, organizational leaders are “most focused on essential day-to-day operations and less interested in longer-term activities,” notes Lipman.

Often, employee development is neglected simply because of a misuse of time. Upper-level managers can be so engrossed in creating rubrics, paradigms and models that no time or energy goes into actually applying the rubric, shifting the paradigm or developing the model. Further these changes take weeks and months to develop and years to implement. Many don’t understand, aren’t willing or aren’t able to invest the time and energy required for long-term application. Some haven't bought into the development plan, so there's no follow-through.

A Low-Cost Solution to Employee Development

Dissatisfied, disengaged employees are a high cost for any organization. Such workers aren’t productive or efficient and are prone to leaving the company at the first opportunity.  Absorbing the waste, lack of productivity and/or finding a replacement are costs no organization can afford for long and be successful.

You need a solution. Investing in employee training that is focused on growth is a low-cost solution that brings a strong return on your  investment.

360 degree training is a low-cost solution

One low-cost solution that gets to the heart of the problem is to implement a 360 degree training program. Employee dissatisfaction and turnover are often rooted festering issues and concerns of which no one is aware. If you are aware, yoiu may still have no real way of communicating about the issues because of certain deficiencies.

These deficiencies may be organizational: Your company doesn’t offer a way to address issues and concerns. Or they can be personal: Your employees, and frequently your leadership, are not skilled in communicating and addressing grievances in a productive, fruitful way.

Fortunately 360 training is a low-cost, yet effective way to deal with these grievances. This training allows you to see the concerns via a 360 degree assessment so that you can address them via training and mentoring. The nature of 360 degree feedback and training is designed to help your employees address these underlying problems.

What is 360 degree training?

The overall means of developing your employees is called 360 degree training.

This training includes mentoring and targeted professional development. This training hinges on 360 degree feedback, which is derived from an actual 360 degree assessment.

What is 360 degree feedback?

The framework around which 360 degree feedback revolves is the Johari Window model and is the work of psychologists Joseph Luft and Harry Ingham. In 1955 they developed this model as a means for personal and professional growth. It was designed to increase individuals' self-awareness while simultaneously increasing communication between individuals.

This, in turn, would increase trust and openness between the individuals.

Johari’s Window defines four sectors: open, hidden, blind and unknown. When these four sectors come together, they offer a full view of a person.

The open quadrant:

  • Common knowledge
  • An individual's behaviors, actions, attitudes and beliefs about which everyone is fully aware

The blind quadrant:

  • The blind spot
  • Can be positive or negative
  • Reveals hidden strengths and weaknesses
  • Information from this area is central to 360 degree feedback
  • Helpful for personal and professional development

The hidden quadrant:

  • The facade
  • This information is known to the person, but no one else knows it
  • Includes dreams, feelings, hopes and opinions that the individual keeps from others, often from fear of a negative reaction
  • This information may be revealed as trust grows

The unknown quadrant:

  • Information, behaviors and attitudes that are unknown to everyone, including the individual

Properly conducted 360 degree feedback reveals those things that are in the blind quadrant (blind spots) and, over time, may reveal the hidden quadrant.

What are 360 degree assessments?

The 360 degree assessment is the survey instrument that is used to gather feedback about an employee. The core of the 360 degree concept is to receive feedback about an individual from employees who work with that individual to garner a well-rounded view of that employee’s behaviors, performance, attitudes, etc. Those surveyed are the employee’s supervisor, subordinates, peers and clients.

The most common type of 360 assessment is for lower-level employees. However, there are different assessments for mid-level supervisors and managers as well as executive-level leadership.

How does 360 degree feedback help your organization?

The 360 degree feedback model identifies hidden problems and behaviors, and 360 degree training provides a means for addressing them. Of particular interest to any organization are the blind spots - those behaviors, actions, beliefs and attitudes that are self-defeating, harmful and unproductive, but about which the person is completely unaware.

It's often these blind spots, in your rank-and-file employees as well as the mid-level managers and upper-level executives, that are the root of employee dissatisfaction, disengagement and low morale. If not addressed, these blind spots may lead to high turnover.

360 degree feedback helps your lower-level employees

This feedback is central for continuous improvement because it uncovers those self-defeating blind spots. The employee may be unaware of or unwilling to "see" these blind spots. This type of feedback allows them an opportunity to see, voice and address their blind spots in an open and trusting environment.

It helps your mid-level managers and upper-level executives

Another way to look at 360 feedback is that it reveals blind spots in your leadership that may be causing them to negatively impact your employees. Poor management is one of the key reasons employees leave an organization. In fact, Gallup found that 50% of employees left their job to get away from a manager.

Yet how often is it the case that when you talk to the manager, they are completely clueless of their subordinates' unhappiness and disgruntlement with them? A 360 degree leadership assessment allows those employees the opportunity to provide that leader crucial feedback about their leadership in a constructive manner.

360 degree feedback leads to change

It's imperative for a company to change with the times and go in the direction of innovation and forward movement. In order to bring about change in an organization and it be successful, behavioral change must happen among the employees.

How do you change your employees in any meaningful and significant way so that it creates lasting change in your company?

It must be an inside-out thing...

Abraham Maslow is often quoted, “What is necessary to change a person is to change his perception of himself.” It's true – the fastest way for a person to change their perception of themselves is to get insight into the perception of others of them. This is what 360 degree feedback is designed to do.

How can 360 degree feedback benefit an organization and reduce employee turnover?

It changes behaviorWhen implemented correctly, 360 feedback changes behavior for the better, which in turn benefits the company. It reveals hidden issues, problems and attitudes that erode employee satisfaction and work enjoyment and provides a vehicle for addressing them.

It improves teamworkOne of the things that cause employees to leave is the feeling of isolation and lack of connectedness. This type of feedback was specifically designed to open the lines of communication and improve relationships between employees.

It opens communication and increases the sharing of ideasOne of the complaints of those who leave organizations is that they never felt that their input was valued. This type of feedback is based on people giving their input. This builds trust so that workers take greater risks in sharing their ideas.

360 degree feedback is a low-cost solution to a high-cost problem

Adding 360 degree training is an effective means of addressing hidden issues, problems and attitudes that are festering in your workplace. It's a great way to address strengths and areas that need improvement in your lower-, mid- and upper-level employees. Addressing these areas via a growth-focused model such as 360 feedback will help your company see ongoing success.

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Further Reading:

To learn more about the benefits of employee development, contact Edge Training at 800-305-2025.

Topics: Employee Development

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