Culture

• Staff
• Culture, Recruiting, Retention
• February 20, 2015

How Corporate Culture Prevents Turnover

Turnover: An issue every company faces. For some businesses it is an inevitable part of their operations because of seasonal peaks and valleys. For other businesses, turnover can be a costly expense that hurts their ability to turn a profit. The direct cost of an employee leaving isn’t what is costly. It’s the cost incurred to replace them as well as the value of the loss of production that is expensive to the company. Josh Bersin of Deloitte Consulting LLP lists the costs as such:

• Cost of hiring a new person (advertising, interviewing, screening, hiring)
• Cost of onboarding a new person (training, management time)
• Lost productivity (a new person may take 1-2 years to reach the productivity of an existing person)
• Lost engagement (other employees who see high turnover disengage and lose productivity)
• Customer service and errors (new employees take longer and are often less adept at solving problems). In healthcare this may result in much higher error rates, illness, and other very expensive costs (which are not seen by HR)
• Training cost (over 2-3 years you likely invest 10-20% of an employee’s salary or more in training, that is gone)
• Cultural impact (whenever someone leaves others take time to ask “why?”).(Bersin)

Fig 1: Economic Value of an Employee to the Organization over Time (C) Bersin by Deloitte

As these points show, replacement costs are incurred from hiring and training a new employee. Research suggests that direct replacement costs can reach as high as 50%-60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary.(SHRM) Not only are direct replacement costs high, but total costs that include the loss of productivity and errors that a new employee might make also create a huge expense for a company. Overall, turnover is a pricey process that many businesses can ill afford.

Employees leave for a variety reasons that range anywhere from compensation, to location, to growth potential, etc. So how can businesses avoid turnover? One way of increasing retention can be as simple as making sure a potential new employee is a cultural fit. According to an engagement survey done by TINYpulse, only 42% of employees know their organizations vision, mission, and values.(TINY) If employee’s are unaware of what the company’s vision, mission, and values are, they are less likely to be engaged because they lack clarity on what the company is trying to accomplish. This is why a mission and core values should be clearly established. Management at Zappos understood that a lack of knowledge of corporate culture can be detrimental to success and they created 10 core values. These 10 core values are important enough to Zappos to where they take time to train employees on what the 10 values mean and the behaviors employees should display to live up to the values¹.

Familiarizing employees with corporate culture should not begin after they are hired. It should happen as early as the interview process. At Zappos for example, job applicants go through an initial interview with a recruiter who assesses a cultural fit between the applicant and Zappos¹. According to Tony Hsieh, CEO of Zappos, the cultural fit interview carries 50 percent of the weight in the hiring process¹. Right from the get go Zappos is making sure that there is compatibility between the company and the applicant. Ritz-Carlton also values that a candidate be a good fit culturally to their organization. Management at Ritz-Carlton view hiring in the same light as marriage. The way they see it, it is not advisable to marry a person with the goal of changing him or her. Instead, it is best to try to marry the right person¹. In Ritz Carlton’s case, they prefer to hire people who are well groomed, who have few body piercings, and who smile frequently.

At NexGoal, hiring to fit our company culture takes high priority. Specifically, we have a sports oriented culture where we prefer to hire former athletes. The reason we make this our focus when hiring is because athletes have a drive and work ethic that isn’t common among non-athletes. Athletes understand that to be the best, you have to be both coachable and willing to take the time to apply what you have learned to your craft.

From my over 30 years of hiring experience, an employer wants someone loyal, trainable, and coachable who is willing to conform to company culture. You don’t necessarily want to change them, but you have to be able to identify what they do best with what the company needs are. This is why we target athletes because they are already familiar with these keys to building an effective team. The process isn’t foreign to them and it allows for a smoother transition into our corporate culture.

What can we learn from all this? Turnover is a costly process from a time and money standpoint. One of the major causes of turnover can be attributed to the fact that employees are often not familiar with their company’s core values and mission. The first step to avoid this problem would be for an organization to clearly establish their mission and values, not only in writing, but also with their daily operations. Employees should be able to put the mission statement and core values into practice. If they can’t, then the mission and values become words and nothing more. In essence, practice what you preach! Once current employees are clear on their corporate culture, management should devise a plan to make their culture clear in the interview process. When interviewing job applicants, hiring personnel should ask questions that are geared towards the firm’s core values. Depending on how a candidate answers the questions, hiring personnel can decide whether a candidate’s views match the company’s views. Understanding early if an organization and candidate’s views align does not only create a compatible working situation for both parties, but it can also prevent the costly undertaking of replacing an employee who just didn’t fit in.

If turnover is becoming a problem with your organization ask yourself: “Do your employees fit your culture?” If no, a change in this area could quite possibly be the ticket to solving a turnover crisis.

¹ SADRI, G. (2014). HIGH-PERFORMANCE corporate culture. Industrial Management, 56(6), 16-21.

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