How to Reduce Large Turnover Rates as CFO (Free Preview)

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Free Preview: Reduce Large Turnover Rates [Transcription]

We’re going to talk about four basic areas here and it’s all around the issue of turnover. I’ll share some data that I have had for quite some time and refresh it yearly on what turnover looks like in different industries and etc., what the total turnover here. Then, we’ll dig into how much is that costing an organization. I think there’s some numbers that float around but I’ll just refresh and make sure we’re all on the same page relative to the unbelievably large impact that turnover has on an organization.

Then, I want to link the turnover to trust since my center point of my business is always about trust. I’m going to show, hopefully, a very strong link between the level of trust and the level of turnover, that being as we can improve a culture of trust in an organization, it will definitely help to lower turnover. Then, I have 10 suggested, I’ll call them tips, 10 suggestions on what an organization might do to really have a lowering effect on turnover. We’ll talk about them in a fair amount of detail and have some ideas about each one. That’s the overview of what we’re going to be talking about for the next hour.

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I think for us to recognize that turnover is related to the culture of an organization and we have … I’ll show lots of examples of large and small turnover. When a culture is good, you have a small turnover. When a culture is not so good, you have problems and you have large turnover obviously. What I wanted to share is that some companies, when they have a culture that is “good”, they have financial returns that are far, far superior to the average. I just wanted to show a comparison here.

I’m using a group of firms called Firms of Endearment. It’s a book that Raj Sisodia wrote in about a bunch of companies that seemed to get it right in terms of having a good culture and therefore achieve low turnover and all kinds of productivity benefits. If we compare the cumulative return for 15 years of those firms of endearment, it’s huge compared to what the S&P 500 turned in for that same period or even Jim Collins’ Good to Great: Why Some Companies Make the Leap…And Others Don’t. You see that there’s an amazing amount of leverage, financial return leverage, if we get the culture right. A lot of what we’re going to be talking about today is related to the environment that a company is able to create or the culture.

Now, we work against a very challenging problem in the average company relative to engagement of people. There’s a lot of different studies. I know four of them. There’s probably even more. They all seem to come up with roughly the same kind of numbers. They’re within 5% points of each other. That’s pretty good for something this broad. This happens to be information from Gallup.

It was in 2013 and it shows that the average company has only about 1/3 of the people working in that company engaged in the work. By engaged, what they mean is actually really pulling for what the organization is trying to accomplish with all of their might, giving a fair amount of discretionary effort, and really being there and suggesting ideas and trying very hard for the success of the company. About half of the employees in the average company are what they call not engaged. What that means is they’re there and you can see them and they’re working and they’ll do what they’re told but they’re not really gung ho about trying to accomplish the objectives of the organization by any means. They’re just there and performing as they will and taking home a paycheck.

Then, a very interesting third category, the green one there, is some percentage, whatever’s left, it depends on what the total us. Usually about 20% or 15% of the employees are actively not engaged. That’s the scary one because those employees are actually either so embittered or so apathetic that they’d just as soon not even be there. They are in fact, in subtle ways, and sometimes not so subtle ways trying to undermine what the organization is trying to achieve.

You see you have, in an average company; almost the same number of employees that are actively not engaged as there are engaged. Then, half of the employees are not engaged at all. That’s really tragic because what it means is that the muscle of the organization is not being used. It shows that there’s great potential in the average company. Granted, I know several companies that beat these odds handily. I know some organizations where they believe they’ve got 60 to 70% of their employees engaged in what they’re trying to accomplish. Those are, of course, the best companies. You find them on the best companies to work for in America and other benchmark companies. As an average, we don’t do very well and we’ve got a lot of upside potential if we can correct this. A lot of what I’m talking about today will be in that direction.

Let’s take a look at some other data here. Let’s take a look at typical turnovers for, and this is now, I’m agglomerating all kinds of industries. The average turnover rate for all industries is roughly around 15%. It ran a little higher in 2008 because of the recession and you see a little recovery in 2009. Generally, it runs between 15, 16, somewhere around there, every year is the turnover rate. What we have to make sure we understand here is that turnover rate includes both the voluntary turnover, where people decide to leave or go on to greener pastures, and also involuntary terminations where people are asked by the organization to leave because they’ve gotten themselves in trouble. Generally those two, voluntary and involuntary, are roughly equal magnitude. It does vary by industry. If you dig into the numbers, it can be a little bit all over the map. In general, if you think of half of those bars there in blue being voluntary and about half of it being involuntary, you’re not far off the mark on average.

It does show that we’ve got … 15% is quite a lot when we start talking about the cost of dealing with this turnover. It’s huge. It’s not that way for all types of industries and it really does matter what type of industry you’re in what the average turnover rate might be. I dug into some statistics and just looked at some industries that do worse in terms of turnover, that is the turnover is higher, and some industries where the turnover is lower. It’s not really very surprising.

No real earth shattering numbers here, that the leisure business, that would be the travel business, and also the seasonal carnival type things and things like that, has a turnover between 30 and 40%. Custodial jobs typically run even higher; can be I’ve seen it well over 100% in certain custodial areas. They really have a tough time hanging onto people because it obviously isn’t the most glamorous type of work. In general, it’s nighttime shift work and difficult to hang onto people. You also have a lot of young people that take those and they’re more transient. In the retail segment, there’s also a higher level. That’s, again, because we have a lot of part time folks and we have a lot of people who are not in it for a career but just in it to make some money for a while, as is the grocery business. That gets up to well over 50%. Those are typical industries. There’s a lot more, but those are the kind of industries where you have a lot of turnover just because of the nature of the work and the nature of the people that are attracted to those jobs.

In the lower than average, they’re not much lower than average, you’ll see that most of them are pushing over 10%. They are a lot more stable. The education market is much more stable. People tend to get in there and stay there. The utilities of course is a stable type of industry, so therefore the turnover is lower there, and the financial and insurance. I suppose legal would probably be in there as well as being lower than the average turnover. There you get the spectrum of what we see out there year after year in terms of the overall problem.

ExecSense Speaker

Bob Whipple
CEO, Leadergrow Inc.
Financial Management & Leadership


Bob Whipple is CEO of Leadergrow Incorporated, an organization dedicated to development of leaders.

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He speaks on leadership topics and the development of trust in numerous venues. He also teaches leadership and business classes at graduate universities. As a leadership coach and business consultant, he works with individual clients as well as large organizations such as government agencies, corporations, and The Rochester Business Alliance. A highly successful leader at a Fortune 500 company for over 30 years, Mr. Whipple accomplished revolutionary change while leading a division of over 2000 people through the application of outstanding “people” skills.

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