No one doubts either the impact or the cost of turnover to an organization. Even in these times of high unemployment, loss of talented employees can have prolonged and disruptive affects upon the operations of any business. While it is often appropriate to separate voluntary from involuntary turnover, the impact to an organization’s operations with an already reduced staff has a significant and negative impact, regardless of the reason. Traditional thinking often marginalizes the voluntary separation of an employee who marries, stays home to care for a new child, joins the military or whose spouse is transferred to another city. Nevertheless, the loss of a talented employee, voluntarily or involuntarily, creates a void, which will require time to replace and incur both real and opportunity costs.
In October 2010, the U.S. Bureau of Labor Statistics (BLS) reported that 15.3 million US workers were unemployed in September 2009. In that same news release, the BLS reported that 14.8 million workers were unemployed in October 2009, a decline of 500,000 workers. According to current data available from the BLS, voluntary separations (quits) account for approximately 40% of all separations. A July 2010 news release from the BLS reported that of the total separations from January 2010 through May 2010, 8.8 million were voluntary vs.11.4 million were involuntary.
The economic, social, and political affects of both voluntarily and involuntarily separations are clearly significant for both private and public organizations. While the impact of staff separations upon a single business’ operations may vary from organization to organization and industry to industry, measuring that impact can be difficult. Both real and opportunity costs have to be considered when attempting to calculate the organization’s total cost.
Real Costs Opportunity Cost
Recruiting Costs Loss of Customer Goodwill
Hiring Bonus Lowered Staff Morale
Relocation Expenses Loss of Proprietarily Knowledge
Onboarding Costs Disruption of Service Delivery
Training Cost Loss of Market Position
Temporary STaff Expenses Loss of Investor Creditability
Erosion of Customer Base
It may not be possible to eliminate every separation; in fact, there are indications that a certain amount of turnover is even essential to the growth and development of a strong organization. When assets, human or otherwise are not performing, it is reasonable to expect that those assets will be recycled. This happens in businesses, investment portfolios, and sports teams.
A January 2007 study by Hewitt Associates (now Aon Hewitt) found a strong correlation between the performance of an organization and the level of the organization’s talent. So much so, that in Hewitt’s study of 1,000 organizations, ”Results showed that the flow of pivotal employees – defined as employees in the top quartile of their peers in pay progression – into and out of an organization is a strong predictor of changes in Cash Flow Return on Investment (CFROI[1]) and shareholder value.” While most organizations would agree that better organizational performance is related to the talent of its human capital, selecting, developing, and retaining that talent is a challenge for all organizations.
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