People, planning, process – SUCCESS
Companies across all industries have been struggling with retaining key people and attracting new people. The Great Resignation is the number one issue facing business leaders today. A recent McKinsey study revealed that 40% of employees will leave their current employment in the next six to twelve months. This finding represents both a cost and an opportunity. The cost is that you may lose people who are critical to your operation. The opportunity lies in attracting your chosen types of employees from this massive pool of people. The first part of this article will focus on why attraction and retention are so important. The second part of this article will focus on the benefits of getting attraction and retention right.
Why are attraction and retention so important?
- Labor turnover is approximately 25% to 30% in some industries. These levels of turnover affect your company’s ability to produce enough of your product or service to meet demand with current and new companies. These lost employees generally cost three times their annual salary to replace them, and a significant investment of time weakens a business substantially. Losing employees places a tremendous burden on the employees that are left behind and substantially decreases morale, leading to more employee turnover.
- The loss of employees negatively impacts your capacity to produce goods and services and is one of the most significant barriers to business growth. Less production equates to fewer sales revenue from existing customers and the inability to serve new customers. Less production, generally at reduced service levels, infinitely increases the chance of losing more customers and more revenue. Combining these two factors, the business will not remain as profitable as it has historically been, resulting in lost business.
- Business leaders need people, so they are more reluctant to remove poor and below-average employees. The success of a business is highly dependent on the quality of its people. Strong people build great products without defects to satisfy their customers and provide the service level that potentially gives the company a competitive advantage. Strong people are efficient and can help lead a company to industry-leading profitability. Being left with the poor and below-average performers creates the inverse effect. Inferior products or service quality severely weakens profits.
- Financial rewards are not a particularly powerful means of retaining people. Your competitors down the street are also suffering from poor attraction and retention. Your competition will outbid you for your people, or you will keep them at a profit-draining cost. That is not to say that competitive compensation is not a key element of a strong attraction and retention policy. It means it cannot be the only element of a strong attraction and retention policy. To be a desired workplace, you need to offer more than the highest pay to appeal to less experienced people in the marketplace.
- The cost of poor attraction and retention strategies is borne by those who remain with the company. Stress levels for those left behind dramatically increase as they try to produce more with fewer resources. Those left behind suffer from severe morale issues and begin to question their desire to work for the company. The grass may not always be greener on the other side. However, from the viewpoint of the overworked and under-resourced employees left behind, it is a reality that will place doubt in their minds regarding their desire to stay.
What are the benefits of getting attraction and retention right?
- Increased capacity leads to the ability to produce more of your goods and services, translating to more sales and better financial outcomes.
- Your capability is increased because you have retained people with their collective institutional knowledge and attracted new people with the skill sets you need to service your customers or clients. This increased capability leaves you with more productive, efficient, and well-trained employees in your system.
- The combination of increased capacity leads to increased profits. Currently, attraction and retention are probably the first issues affecting your ability to compete in the marketplace.
- The potential for losing customers is substantially less if you attract and retain the right people. Poor or below-average people make many mistakes in building your product or providing service. They are also generally less efficient with their time. So, things take far longer to complete. The mistakes and longer lead times force customers to re-examine their relationship with you and start to move to other providers.
- Succession planning is a much smoother process if you retain your key people. As a business leader, you must constantly groom the future management team that will run the company. You cannot groom a management team of poor and below-average employees to run a company effectively. This factor eventually leads to a forced sale at a reduced valuation.
- Attraction, retention, and how well you treat your employees can help you become a destination employer. A destination employer does not have to look as hard for new and talented people because new and talented workers seek out them.
- If you attract and retain the right people, you will maximize the value of your business for sale or transition to the next generation.
The ability to attract and retain key people is a core fundamental of business. If you get attraction and retention right, you operate your business with more capacity and profit. If you get attraction and retention wrong, your business runs with less capacity and profit. Attraction and retention are essential to maximizing the sale or succession of your business. So, it needs to be right at the top of your plan to grow your company’s value.
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