On The Business: Feature
I have always been troubled by the high turnover rate among service professionals. It’s not the same across the board, but attrition is certainly high among the junior ranks of many investment banking, law, accounting and consulting firms.
Professional services aren’t the only industries with this reputation – others include hospitality, food service and retail. While many companies and leaders accept this as ‘part of the industry’ and something that can’t change, I am encouraged by the following:
- The Container Store enjoys close to a 10% annual turnover rate compared to retail industry averages nearing 100%
- At Trader Joe’s, 99% of promotions are from within, and there’s only a 4% turnover rate
- Costco pays 65% more than Wal-Mart, but still has a higher profit margin per employee; this success is due largely to retention – Costco has a 6% first-year turnover rate while Wal-Mart’s is nearly 50%
I realize the examples above aren’t perfect comparisons for banking, law or accounting, but these three companies have figured out how to be different and rise above the norms. And if three major retailers can do it, don’t you think advisors and capital providers can do it too? I am convinced that high turnover doesn’t have to be the norm.
Many factors impact retention, including competitive compensation and benefits, culture, and hiring practices, but for now I’ll focus on three areas:
1. Training & Development
One of the reasons The Container Store has such high retention is that it provides every employee with 263 hours of training in the first year. Think about that for a moment – 263 hours equates to more than 6.5 weeks of training. And that’s just in the first year! This may sound like a large investment, but much of the training is to teach employees about every product in the store so they can provide better service to customers and sell more product. When done well, training increases retention and prepares everyone to generate more revenue.
It is thoroughly documented that intrinsic motivation (autonomy, mastery and sense of purpose) is much more powerful than extrinsic motivation (money, praise, etc.). Training and development feed this natural desire for mastery. People put in even more effort when the skill or project has a greater significance or meaning.
Training can have a profound impact on retention due to the psychological contract it encourages between employer-employee. Training is a social exchange that creates a feeling of reciprocity, and leads to the employee feeling more committed to the organization. Conversely, when employers violate this contract by not delivering on expected benefits (assumed or formally agreed-upon), retention can plummet.
Communication (more specifically, feedback) is a major component of training and development and every organization can improve in this area. Communication issues range from giving direct feedback, to making sure people understand the direction of the organization, to collaboration. The effects of inadequate communication ripple through every level of the organization.
Lack of feedback is one of the major reasons people leave. Many companies believe they have open communication and give great feedback, but more than 60% of employees believe they don’t receive enough feedback. Unfortunately, the first thing people often think about when they hear the word feedback is the annual review. It is important, yes, but the feedback that keeps people around must be far more frequent.
Feedback is most effective when you factor in the experience level of the individual. As professionals move from novice to expert they desire more negative feedback. The purpose of feedback changes from wanting to do a good job to wanting to achieve mastery. People want to know what they are doing wrong so they can fix it and move on. For people pursuing mastery, praise may even dampen their desire to do the work for intrinsic reasons.
One of my virtual mentors, Michael Hyatt (former CEO and Chairman of Thomas Nelson), talks about a time earlier in his career when he fell short of achieving quarterly financial results. When asked why he missed, he responded in the way many of us would, by blaming the economic environment and other external factors. Then he was asked a question than would put most of us on our heels, “what was it about your leadership that produced these results?”
For those of us senior professionals, we should ask ourselves the same question every time we lose a good person.
“What is it about my leadership that made this person leave?”
Truthfully, everything starts with leadership, including training, development and communication. Leadership sets the tone for how people collaborate, how much people trust each other and, ultimately, whether or not good people feel committed enough to the organization to stick around.
Employee engagement has been a hot topic for several years and is now the #1 issue for HR and talent managers – every company wants their employees to be more engaged. But engagement itself can’t be achieved unless leaders work hard to foster an environment where people want to be engaged. Some factors that matter (after basic financial needs are met) include:
- a shared sense of purpose and values throughout the organization
- transparency from (and trust in) the senior levels of leadership
- a talent system where roles are clearly defined and filled with people possessing the right skills
- an inclusive environment where people feel safe to vocalize their opinions and feel their contributions are valued
Conversely, in a study on the link between leadership and the health / job satisfaction of subordinates (their term, not mine), a bad leader:
- Does not show genuine care for people
- Initiates structure without showing consideration, or deprives subordinates of participation, autonomy, and control
- Is too transactional with subordinates (doesn’t build real relationships)
- Is laissez-faire – does not respond to subordinates and does not monitor performance
Leadership is also responsible for instilling a sense of greater purpose into the organization. It confounds me when professionals trivialize things like ‘purpose’ because the evidence is piled high – people value meaning over money, just check out these three books:
- The Story of Purpose: The Path to Creating a Brighter Brand, a Greater Company, and a Lasting Legacy by Joey Reiman
- Drive: The Surprising Truth About What Motivates Us by Daniel Pink
- Conscious Capitalism: Liberating the Heroic Spirit of Business by John Mackey and Raj Sisodia
The last thing I’ll say about retention and leadership for now is we need to figure out a way to engage and keep talented young professionals. It is difficult for some people to understand the next generation and others don’t like it, but a tidal wave is coming and we need to adapt.
More on retention:
- Article: Locking Down Employee Retention Strategies
- Article: 3 Key Essentials for Engaging and Retaining Top Talent
- Article: Employee Retention – Big Company Tactics for Small Businesses
- Article: Handle With Care – How UPS Reduced Attrition In Its Distribution Center From 50% to 6%
- Article: Attract and Retain Employees
- Article: Retaining Talent In Times Of Change – 5 Tips For Hanging Onto Good People
- Article: 7 Ways to Attract and Retain Talent (Without having to compete on salaries)
- PDF: Retaining Talent – Replacing Misconceptions With Evidence-Based Strategies
- PDF: The Impact of Training and Learning on Three Employee Retention Factors
- PDF: The Impact of Talent Management on Retention
- PDF: Retaining Talent – A Guide to Analyzing and Managing Employee Turnover
On The Business: Leadership
Most of us are hesitant to invest in executive coaching for ourselves, but the ROI can be compelling. A PWC study on the matter showed an average ROI of 7x, with 25% of participants achieving ROIs of 10-49x.
Leaders often get appointed due to job performance, political capital or intellectual intelligence. While reasonable on the surface, this points to a gross misunderstanding of the requirements of a good leader. Communication, empathy and emotional intelligence are far more important, which is why the CEO of The Container Store says Women Make Better Executives Than Men.
On The Business: Talent
Today’s feature was about retention, but I think we would agree that some turnover is a good thing. The key is figuring out how to lead the organization into a healthy turnover rate.
Keeping the best people is proving to be tougher and tougher each year but it is possible to create an attractive environment – The Five Elements Of A ‘Simply Irresistible’ Organization.
On The Business: Sales & Marketing
How does your website look on mobile devices? If you haven’t given much thought to this, you may want to start. On April 21st, 2015 Google will be launching another update that factors in how usable your site is on mobile devices. Therefore, if your website isn’t mobile responsive, friendly, etc., your ranking in Google’s search results may go down. This is definitely something you will want to look into now.
When advisors and capital providers lose a potential piece of business, we want to know ‘why,’ but it always seems difficult to get the real reason from the client. I am convinced we can figure out a way to get better feedback from clients on our pitches, win or lose. I found an interesting article by Michael McLaughlin from MindShare Consulting about what to do when a client says no. I like his suggested approach of a client debriefing after the dust has settled and you have time to come up with some really good questions that test your assumptions held prior to the pitch.
And that wraps it up for this issue. I have to admit, writing today’s feature proved much more difficult than I originally expected. The issue of retention is complex, the information is vast and it took a while to find the good stuff. I did the best I could for now but I know we’ll cover other aspects of retention in the future.
If you found this issue beneficial would you be kind enough to share it with someone?
Invest in the important stuff,
On The Business