Everything You’ve Wanted To Know About Employee Turnover

Jacob Shriar

The topic of employee turnover should be taken seriously by all companies, because there are both direct and residual effects of a high turnover rate.

A little bit of turnover is unavoidable. No one can stick around forever, and sometimes what you thought was a good fit turns out to not be. A low rate of turnover is ok – you’ll survive. And there’s something invigorating about newcomers and new minds coming on board.

On the other hand, a company with a high turnover rate might need to take a closer look at what the underlying problem is.

Before we look at how to calculate turnover and ways you can reduce the problem in your company…

Definition of employee turnover

Employee turnover refers to the number or percentage of workers who leave an organization and are then replaced by new employees.

Essentially, it’s the number of employees that leave your company in a certain amount of time and need to be replaced.

The opposite of turnover is retention, which refers to the rate at which companies keep their employees.

We want to help you understand what turnover really means for an organization, and then offer tips on how to avoid it.

Employee turnover statistics

Employee turnover is incredibly costly, which is why HR departments and managers need to work toward keeping their team intact.

Bonusly offers some interesting statistics on turnover in the workforce:

Employee turnover infographic
In our own real-time report on the international State Of Employee Engagement, data reveals that universally, 15% of employees do not see themselves working at their company one year from now. Even scarier, according to Gallup, 51% of workers are looking to leave their current jobs. Yikes!
The question is, how expensive is turnover really?

Employee turnover costs

Unfortunately, this issue isn’t so black and white; there are many ways to evaluate the cost of turnover. And in addition to dollars and cents, there are other less tangible costs to consider.

These costs include:

  • Costs associated with hiring (job posts, interviews, technical tests, etc.)
  • Onboarding costs (employees aren’t “valuable” for at least 3 months)
  • Training costs
  • Lost time from other employees helping out with questions

This graph by Josh Bersin demonstrates it well.

employee turnover cost graph

For more specialized positions that take longer to fill, the cost of turnover is higher. For jobs that inherently have high turnover (retail, call centers, etc.) turnover costs will be lower.

To keep it simple, let’s look at a mid-range position. The cost to replace a manager making $40,000 a year would be $8,000, suggesting that employee turnover costs 20% of an employee’s annual salary.

Employee turnover rate calculation

Use the following formula to calculate turnover rate:

employee turnover calculation

Not a math person? That’s ok. We’ll break it down for you. Suppose you have a company with 200 employees, and 30 of them leave throughout the year. That would leave with you 170 employees, but of course, to fill the holes you bring new employees in (in this case, 25). This gives you a turnover rate of 15%.

Employee turnover rate calculation image

Is that good? Is that bad?

There is not a definitive answer on this because the truth is that it doesn’t only matter how many people leave, but who is leaving. If 15% of your top talent and execs are leaving, then yes, that is a problem. However, if 15% of your bottom-performing employees are leaving, you might even consider this exodus to be a positive thing, as it leaves room for new talent to come in.

According to Gallup, 10% would be the ideal rate, and that 10 % would ideally also be bottom performers.

Causes of employee turnover

There are many causes of employee turnover, but lumped together you might simply call it employee disengagement. Two of the biggest factors of turnover are problems at the hiring stage, and bad management.

Hiring

According to the RainMaker Group, hiring problems account for 80% of employee turnover.

This is why it’s so important to make sure you have an amazing hiring process that is up-to-date with the latest technologies, and that considers things such as cultural fit and company alignment in addition to the experience.

Bad managers

Another significant cause of turnover is bad management.

The truth is that most people don’t quit their jobs; they quit their bosses, which is quite sad because they might love their job and be really good at it.

At a previous job, five people quit over the course of two months. Each one announced an obscure reason for leaving, like focusing on other passions, moving to freelance, etc. All five left without having secured a new job, which seemed reckless, until it became clear, after a sixth person left, that their reason for leaving was unmentioned but unanimous: the boss. After the first employee mustered the courage to leave, it triggered a domino effect.

Can you imagine the stress that losing six team members caused for the remaining employees who had to pick up the slack; for the HR reps, who had to hire quickly but strategically; and for the manager, who had to train a slew of new employees? It’s a huge, time-consuming, discouraging setback.

How to reduce employee turnover

Focusing on employee engagement and personal growth for your employees will pay huge dividends for your team.

Here are a few ideas you can use to reduce your turnover:

  1. Improve the hiring process

    The hiring process is where it all begins, so it needs to happen properly. Make sure new hires are a good cultural fit and that they are aligned with the company’s mission and values in addition to considering their skill set and past experience in the field. It might take a bit more time to do the hiring process right, but it’s better to get it right the first time then have to do it over and over.

  2. Improve the onboarding process

    20% of employee turnover happens in the first 45 days, and a big part of that is due to improper onboarding. Be sure to set proper expectations, make them feel welcome, collect feedback, and touch base with them often.

  3. Train managers

    When you hire a manager or promote an employee to a managerial position, it’s important to consider more than just their skill set. There is an element of personality and psychology to leadership that is just as important to consider. Offering training for managers is one of the best ways to ensure that they can lead a team successfully. Things like emotional intelligence and empathy cannot necessarily be taught, but they should be considered during the hiring process.

  4. Give opportunity for growth

    What employees really want, as famously taught by Dan Pink, is autonomy, mastery, and purpose. You can easily fulfill their need for mastery by letting them improve whatever skills they have for their job. It’s a win-win, because if they’re better at what they do, they’ll be more productive and feel encouraged to keep learning and improving.

    Offering your employees professional development opportunities shows them that you are invested in their future at the company, which will in turn inspire them to stay in the organization.

  5. Recognize employees

    Companies that scored in the top 20% for building a “recognition-rich culture” actually had 31% lower voluntary turnover rates, according to research by Josh Bersin.

    The research shows that it’s more important to receive recognition from peers than from top managers, so set up a way for employees to praise and recognize each other.

  6. Promote work-life balance

    Work-life balance is one of the most important parts of keeping your employees happy, healthy, and productive. Organizations are finally starting to understand to the importance of helping employees maintain a proper work-life balance to reduce stress and maintain a positive outlook when they go to work in the morning. Being mindful not to overwork your team and avoiding contacting them outside office hours is a great start, but you can also offer benefits such as gym memberships, proving that you care about both their mental and physical health.

  7. Collect frequent feedback

    Some companies still survey their employees only once a year, but employees need to be able to express themselves and offer feedback on a more frequent and regular basis. Employees want to be listened to and feel that their opinion matters. Collecting frequent feedback allows managers to act instantly on problems.

For more insight on employee retention, see 8 Employee Retention Facts That’ll Keep You Up At Night.

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How To Design Your Company’s Digital Transformation

Sam Yen

The September issue of the Harvard Business Review features a cover story on design thinking’s coming of age. We have been applying design thinking within SAP for the past 10 years, and I’ve witnessed the growth of this human-centered approach to innovation first hand.

Design thinking is, as the HBR piece points out, “the best tool we have for … developing a responsive, flexible organizational culture.”

This means businesses are doing more to learn about their customers by interacting directly with them. We’re seeing this change in our work on d.forum — a community of design thinking champions and “disruptors” from across industries.

Meanwhile, technology is making it possible to know exponentially more about a customer. Businesses can now make increasingly accurate predictions about customers’ needs well into the future. The businesses best able to access and pull insights from this growing volume of data will win. That requires a fundamental change for our own industry; it necessitates a digital transformation.

So, how do we design this digital transformation?

It starts with the customer and an application of design thinking throughout an organization – blending business, technology and human values to generate innovation. Business is already incorporating design thinking, as the HBR cover story shows. We in technology need to do the same.

Design thinking plays an important role because it helps articulate what the end customer’s experience is going to be like. It helps focus all aspects of the business on understanding and articulating that future experience.

Once an organization is able to do that, the insights from that consumer experience need to be drawn down into the business, with the central question becoming: What does this future customer experience mean for us as an organization? What barriers do we need to remove? Do we need to organize ourselves differently? Does our process need to change – if it does, how? What kind of new technology do we need?

Then an organization must look carefully at roles within itself. What does this knowledge of the end customer’s future experience mean for an individual in human resources, for example, or finance? Those roles can then be viewed as end experiences unto themselves, with organizations applying design thinking to learn about the needs inherent to those roles. They can then change roles to better meet the end customer’s future needs. This end customer-centered approach is what drives change.

This also means design thinking is more important than ever for IT organizations.

We, in the IT industry, have been charged with being responsive to business, using technology to solve the problems business presents. Unfortunately, business sometimes views IT as the organization keeping the lights on. If we make the analogy of a store: business is responsible for the front office, focused on growing the business where consumers directly interact with products and marketing; while the perception is that IT focuses on the back office, keeping servers running and the distribution system humming. The key is to have business and IT align to meet the needs of the front office together.

Remember what I said about the growing availability of consumer data? The business best able to access and learn from that data will win. Those of us in IT organizations have the technology to make that win possible, but the way we are seen and our very nature needs to change if we want to remain relevant to business and participate in crafting the winning strategy.

We need to become more front office and less back office, proving to business that we are innovation partners in technology.

This means, in order to communicate with businesses today, we need to take a design thinking approach. We in IT need to show we have an understanding of the end consumer’s needs and experience, and we must align that knowledge and understanding with technological solutions. When this works — when the front office and back office come together in this way — it can lead to solutions that a company could otherwise never have realized.

There’s different qualities, of course, between front office and back office requirements. The back office is the foundation of a company and requires robustness, stability, and reliability. The front office, on the other hand, moves much more quickly. It is always changing with new product offerings and marketing campaigns. Technology must also show agility, flexibility, and speed. The business needs both functions to survive. This is a challenge for IT organizations, but it is not an impossible shift for us to make.

Here’s the breakdown of our challenge.

1. We need to better understand the real needs of the business.

This means learning more about the experience and needs of the end customer and then translating that information into technological solutions.

2. We need to be involved in more of the strategic discussions of the business.

Use the regular invitations to meetings with business as an opportunity to surface the deeper learning about the end consumer and the technology solutions that business may otherwise not know to ask for or how to implement.

The IT industry overall may not have a track record of operating in this way, but if we are not involved in the strategic direction of companies and shedding light on the future path, we risk not being considered innovation partners for the business.

We must collaborate with business, understand the strategic direction and highlight the technical challenges and opportunities. When we do, IT will become a hybrid organization – able to maintain the back office while capitalizing on the front office’s growing technical needs. We will highlight solutions that business could otherwise have missed, ushering in a digital transformation.

Digital transformation goes beyond just technology; it requires a mindset. See What It Really Means To Be A Digital Organization.

This story originally appeared on SAP Business Trends.

Top image via Shutterstock

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Sam Yen

About Sam Yen

Sam Yen is the Chief Design Officer for SAP and the Managing Director of SAP Labs Silicon Valley. He is focused on driving a renewed commitment to design and user experience at SAP. Under his leadership, SAP further strengthens its mission of listening to customers´ needs leading to tangible results, including SAP Fiori, SAP Screen Personas and SAP´s UX design services.

How Productive Could You Be With 45 Minutes More Per Day?

Michael Rander

Chances are that you are already feeling your fair share of organizational complexity when navigating your current company, but have you ever considered just how much time is spent across all companies on managing complexity? According to a recent study by the Economist Intelligence Unit (EIU), the global impact of complexity is mind-blowing – and not in a good way.

The study revealed that 38% of respondents spent 16%-25% of their time just dealing with organizational complexity, and 17% spent a staggering 26%-50% of their time doing so. To put that into more concrete numbers, in the US alone, if executives could cut their time spent managing complexity in half, an estimated 8.6 million hours could be saved a week. That corresponds to 45 minutes per executive per day.

The potential productivity impact of every executive having 45 minutes more to work every single day is clearly significant, and considering that 55% say that their organization is either very or extremely complex, why are we then not making the reduction of complexity one or our top of mind issues?

The problem is that identifying the sources of complexity is complex in of itself. Key sources of complexity include organizational size, executive priorities, pace of innovation, decision-making processes, vastly increasing amounts of data to manage, organizational structures, and the pure culture of the company. As a consequence, answers are not universal by any means.

That being said, the negative productivity impact of complexity, regardless of the specific source, is felt similarly across a very large segment of the respondents, with 55% stating that complexity has taken a direct toll on profitability over the past three years.  This is such a serious problem that 8% of respondents actually slowed down their company growth in order to deal with complexity.

So, if complexity oftentimes impacts productivity and subsequently profitability, what are some of the more successful initiatives that companies are taking to combat these effects? Among the answers from the EIU survey, the following were highlighted among the most likely initiatives to reduce complexity and ultimately increase productivity:

  • Making it a company-wide goal to reduce complexity means that the executive level has to live and breathe simplification in order for the rest of the organization to get behind it. Changing behaviors across the organization requires strong leadership, commitment, and change management, and these initiatives ultimately lead to improved decision-making processes, which was reported by respondents as the top benefit of reducing complexity. From a leadership perspective this also requires setting appropriate metrics for measuring outcomes, and for metrics, productivity and efficiency were by far the most popular choices amongst respondents though strangely collaboration related metrics where not ranking high in spite of collaboration being a high level priority.
  • Promoting a culture of collaboration means enabling employees and management alike to collaborate not only within their teams but also across the organization, with partners, and with customers. Creating cross-functional roles to facilitate collaboration was cited by 56% as the most helpful strategy in achieving this goal.
  • More than half (54%) of respondents found the implementation of new technology and tools to be a successful step towards reducing complexity and improving productivity. Enabling collaboration, reducing information overload, building scenarios and prognoses, and enabling real-time decision-making are all key issues that technology can help to reduce complexity at all levels of the organization.

While these initiatives won’t help everyone, it is interesting to see that more than half of companies believe that if they could cut complexity in half they could be at least 11%-25% more productive. That nearly one in five respondents indicated that they could be 26%-50% more productive is a massive improvement.

The question then becomes whether we can make complexity and its impact on productivity not only more visible as a key issue for companies to address, but (even more importantly) also something that every company and every employee should be actively working to reduce. The potential productivity gains listed by respondents certainly provide food for thought, and few other corporate activities are likely to gain that level of ROI.

Just imagine having 45 minutes each and every day for actively pursuing new projects, getting innovative, collaborating, mentoring, learning, reducing stress, etc. What would you do? The vision is certainly compelling, and the question is are we as companies, leaders, and employees going to do something about it?

To read more about the EIU study, please see:

Feel free to follow me on Twitter: @michaelrander

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About Michael Rander

Michael Rander is the Global Research Director for Future Of Work at SAP. He is an experienced project manager, strategic and competitive market researcher, operations manager as well as an avid photographer, athlete, traveler and entrepreneur. Share your thoughts with Michael on Twitter @michaelrander.

Human Skills for the Digital Future

Dan Wellers and Kai Goerlich

Technology Evolves.
So Must We.


Technology replacing human effort is as old as the first stone axe, and so is the disruption it creates.
Thanks to deep learning and other advances in AI, machine learning is catching up to the human mind faster than expected.
How do we maintain our value in a world in which AI can perform many high-value tasks?


Uniquely Human Abilities

AI is excellent at automating routine knowledge work and generating new insights from existing data — but humans know what they don’t know.

We’re driven to explore, try new and risky things, and make a difference.
 
 
 
We deduce the existence of information we don’t yet know about.
 
 
 
We imagine radical new business models, products, and opportunities.
 
 
 
We have creativity, imagination, humor, ethics, persistence, and critical thinking.


There’s Nothing Soft About “Soft Skills”

To stay ahead of AI in an increasingly automated world, we need to start cultivating our most human abilities on a societal level. There’s nothing soft about these skills, and we can’t afford to leave them to chance.

We must revamp how and what we teach to nurture the critical skills of passion, curiosity, imagination, creativity, critical thinking, and persistence. In the era of AI, no one will be able to thrive without these abilities, and most people will need help acquiring and improving them.

Anything artificial intelligence does has to fit into a human-centered value system that takes our unique abilities into account. While we help AI get more powerful, we need to get better at being human.


Download the executive brief Human Skills for the Digital Future.


Read the full article The Human Factor in an AI Future.


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About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation.

Share your thoughts with Kai on Twitter @KaiGoe.heif Futu

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How Manufacturers Can Kick-Start The Internet Of Things In 2018

Tanja Rueckert

Part 1 of the “Manufacturing Value from IoT” series

IoT is one of the most dynamic and exciting markets I am involved with at SAP. The possibilities are endless, and that is perhaps where the challenges start. I’ll be sharing a series of blogs based on research into knowledge and use of IoT in manufacturing.

Most manufacturing leaders think that the IoT is the next big thing, alongside analytics, machine learning, and artificial intelligence. They see these technologies dramatically impacting their businesses and business in general over the next five years. Researchers see big things ahead as well; they forecast that IoT products and investments will total hundreds of billions – or even trillions – of dollars in coming decades.

They’re all wrong.

The IoT is THE Big Thing right now – if you know where to look.

Nearly a third (31%) of production processes and equipment and non-production processes and equipment (30%) already incorporate smart device/embedded intelligence. Similar percentages of manufacturers have a company strategy implemented or in place to apply IoT technologies to their processes (34%) or to embed IoT technologies into products (32%).

opportunities to leverage IoTSource:Catch Up with IoT Leaders,” SAP, 2017.

The best process opportunities to leverage the IoT include document management (e.g. real-time updates of process information); shipping and warehousing (e.g. tracking incoming and outgoing goods); and assembly and packaging (e.g. production monitoring). More could be done, but figuring out where and how to implement the IoT is an obstacle for many leaders. Some 44 percent of companies have trouble identifying IoT opportunities and benefits for either internal processes or IoT-enabled products.

Why so much difficulty in figuring out where to use the IoT in processes?

  • No two industries use the IoT in the same way. An energy company might leverage asset-management data to reduce costs; an e-commerce manufacturer might focus on metrics for customer fulfillment; a fabricator’s use of IoT technologies may be driven by a need to meet exacting product variances.
  • Even in the same industry, individual firms will apply and profit from the IoT in unique ways. In some plants and processes, management is intent on getting the most out of fully depreciated equipment. Unfortunately, older equipment usually lacks state-of-the-art controls and sensors. The IoT may be in place somewhere within those facilities, but it’s unlikely to touch legacy processes until new machinery arrive. 

Where could your company leverage the IoT today? Think strategically, operationally, and financially to prioritize opportunities:

  • Can senior leadership and plant management use real-time process data to improve daily decision-making and operations planning? Do they have the skills and tools (e.g., business analytics) to leverage IoT data?
  • Which troublesome processes in the plant or front office erode profits? With real-time data pushed out by the IoT, which could be improved?
  • Of the processes that could be improved, which include equipment that can – in the near-term – accommodate embedded intelligence, and then communicate with plant and enterprise networks?

Answer those questions, and you’ve got an instant list of how and where to profit from the IoT – today.

Stay tuned for more information on how IoT is developing and to learn what it takes to be a manufacturing IoT innovator. In the meantime, download the report “Catch Up with IoT Leaders.”

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Tanja Rueckert

About Tanja Rueckert

Tanja Rueckert is President of the Internet of Things and Digital Supply Chain Business Unit at SAP.