In the almost 20 years of my consulting services, I have witnessed that the highest performing companies with the highest profit as a percentage of sales (generally in the high teens to mid-twenties) are the companies with very low employee turnover. However, it is far more than just retaining employees.
When most people think about lean manufacturing, they think about the lean tools such as 5S and just-in-time, but that is only one side of a coin when implementing lean principles. Lean practices require best-in-class employee practices. In other words, lean requires great employees to implement the better methods of lean to obtain the gains that lean promises and delivers. Sadly, too many companies talk a good game about good company employee management practices, but the reality is so many fail miserably.
How can any company possibly be at its most productive when they are always hiring and training new employees? So often, too many managers will say “We treat our employees very well, and it’s not the company’s practices causing these issues.”
Usually, people will then list several things, such as the local unemployment rate, wage inflation, and so on. But none of those things are solutions, they only represent other challenges. The first step in solving any problem is recognizing there is one.
So many companies claim that employees are the most important part of their business, but too many have staffing shortages and high employee turnover in different departments, which severely impacts output.
Industrial engineers are taught that most skilled positions take an average of three years of experience to reach full potential. Typically, a three-year-experienced worker is twice as productive as a new hire. Even what some perceive as the most menial of manual tasks requires hand-eye coordination that does not happen overnight. Experienced workers produce not only more units per hour, but also higher quality with fewer mistakes.
So, how can any department within a company reach maximum output if they have a high percentage of new employees with minimal experience? The answer is simple: they cannot.
Here is an exercise you should perform with your company: Choose any larger department, such as manufacturing, that is having difficulties and add up the number of positions it would take to be fully staffed. Here is a typical scenario in the U.S. with poorly performing groups: Approximately ⅓ of the group has been with the company for longer than three years, ⅓ has been with the group for between one and three years, and the remainder is continually being overturned because they only last weeks, let alone months. Count the number of new hires for the given area for 12 months, and if it exceeds 30%, you may have a serious problem.
Have you ever stopped and thought about all of the time being wasted trying to teach new people how to do their jobs correctly? How about just trying to catch all of the mistakes new hires are making? Any mid-manager will tell you it costs the company for more than most realize.
If a company has a high employee retention turnover ratio, they have three problems:
- Recognizing the right employees to keep;
- Keeping the right employees happy enough to stay with the company; and
- Weeding out the weak performers.
I’ve been discussing these issues with Tony Misura of the Misura Group, whose business is helping companies find, build, and retain a stellar workforce. Tony emphasizes that retention is crucial, but it must be with the right people. Companies with best processes and business platforms go nowhere without the right people. According to Tony, the following are the top three actions leaders can take to improve retention:
- Field confidential surveys. Knowing what is essential to your people is vital. The reasons for communication barriers between leadership and staff are endless. Creating a platform for people to share their candid thoughts and ideas in a safe, confidential space is enlightening to even the best leaders. Actioning on those ideas is highly effective, increasing engagement while enhancing the culture and financial performance.
- Invest and challenge people. Aligning the personal goals of each person to the company’s goals and objectives is the magic of great leadership. People are inherently competitive, with an innate desire to grow. Leaders often make the mistake of missing the desire to grow when the team member is determined to grow their way at their pace. Leveraging and building on momentum, creating a defined career path to grow their career is effective in garnering the full potential of each employee.
- Offer performance-based compensation. People respond quickly when a self-awareness of outcomes is transparent and timely. Self-imposed measurements and expectations lead to a higher sense of autonomy, and higher performance immediately follows. Clarity, consistency, and transparency with compensation are a powerful motivation for any team.
One must always keep in mind that trust comes before impact. Trust is earned through honest and open communication, but remember it is the actions leaders take that deliver the loudest message.
