Improve Your Profits with "ROE" Retention
Posted: Friday, May 13, 2005
by Phil McCutchen
VCG, Inc.
"R.O.E.: Return On Employee –- A measure of corporate business performance as determined by the gross revenue achieved per staff employee."
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.
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 clients) with ROE’s that exceed that by 50% or more.
Why do some 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: A large company was 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 redundant research and lost revenue was $1 billion.
Similar losses happen on smaller scales every day – 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.
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, who may 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. 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 | |||
| FACTORS |
MANAGERS |
EMPLOYEES | |
| Full Appreciation for Work Done |
8 |
1 | |
| Feeling 'In' on Things |
10 |
2 | |
| Sympathetic Help on Personal Problems |
9 |
3 | |
| Job Security |
2 |
4 | |
| Good Wages |
1 |
5 | |
| Interesting Work |
5 |
6 | |
| Promotion/Growth Opportunities |
3 |
7 | |
| Personal Loyalty to Workers |
6 |
8 | |
| Good Working Conditions |
4 |
9 | |
| Tactful Disciplining |
7 |
10 | |
| 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:
- 38% higher customer satisfaction scores,
- 22% higher productivity, and
- 27% 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 value to the firm and efforts should be made to gather, catalogue, and make this information available to others who could benefit from it.
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 4 times more than you “criticize"
- Publicly and in private
- Verbally and in writing
- Promptly (as soon as observed)
- Sincerely
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!
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. Some turnover is natural and to be expected. 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, your knowledge management 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:
- Senior management meetings
- Interviews with internal subject matter experts
- Internal or external communities of practice and/or interest
- Internal conferences
- Focus groups
- Exit interviews
- Establish methodology, infrastructure, and practice of capturing tacit and explicit knowledge for use
- Recording 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
- File storage and access. This may be hard copy files for some information or any form of digital information storage, such as databases
- Establish review and validation process for captured knowledge
- Establish methodologies and practices for the access and use of knowledge
- Knowledge databases should be easily accessible and updateable
- Business information staffing software systems should be able to suggest “best practices" based on real-time ongoing capture of tacit and explicit information
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 – and 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
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: www.vcgsoftware.com
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Top-level comments on this article: (1 total)Hi, I have read this section, “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)" from so many articles online that I’ve lost count, but the only reference that is good enough to actually track is the “Lindahl" one. I would appreciate it if you could provide me with the full citations for any/all of the above mentioned. Thanks so much.
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