Knowledge of your business and industry is lost. Customers lose theircontacts. Morale sinks when other employees have to pick up the slack. Clients,competitors, and sometimes the media think there’s something wrong at thecompany. Each week, we find stories on financial channels like Bloomberg, CNBC,and TheStreet.com about how corporations and stocks are affected when a keyemployee quits.
All this turnover adds up to lower revenue and thus lower profits.
Wait: not so fast. A new and groundbreaking study says that all of the aboveis not always true.
Three business professors--John Delery, Nina Gupta, and Jason Shaw--say thata company may not necessarily be hurt by quitters. They found that if a companyinvests a lot in its people, turnover will wreak havoc on the company. If thecompany doesn’t invest so much, turnover may not be all bad.
Delery and Gupta, of the University of Arkansas, and Shaw, of the Universityof Kentucky, looked at turnover among drivers at 379 trucking companies.
The profs first determined how much companies invested in employees--pay,benefits, and training. They also included the thoroughness of performanceappraisals and how well the companies did in ensuring "stability"--likeavoiding layoffs.
When you invest more in employees, it matters a tonif your people quit. If you don’t invest a lot in someone, it doesn’t make alot of difference if he or she leaves.
Here’s what they found: When you invest more in employees, it matters a tonif your people quit. If you don’t invest a lot in someone, it doesn’t make alot of difference if he or she leaves.
In order from most profitable to least profitable, this is how the surveyedcompanies ranked:
1) The most successful companies invested a lot in truck drivers and had lowturnover.
2) The second-best companies didn’t invest much in truck drivers and hadhigh turnover.
3) The third-best companies didn’t invest much in truck drivers and hadlow turnover.
4) The worst companies invested a lot in truck drivers and had high turnover.
It’s fascinating stuff. What we see is that the best set of companies spenta lot on people, and kept them from leaving. That’s what we’d all expect.After all, chances are good that you entered the HR field by accident, butequally good that you stayed in it because you believe that investing in peoplecan help businesses get better.
It’s the contrast between numbers two and three that runs counter to whatwe might think. That’s where we see that some companies with high turnover didbetter than companies with low turnover.
Delery says there are at least two lessons we can learn from the study, whichwas funded by a grant from the Mack-Blackwell National Rural TransportationStudy Center--part of the U.S. Department of Transportation. First, if you’regoing to make investments in HR, in people, hold on to those investments fordear life. "Clearly you can achieve high performance through investments inHR," he says. "The trick is to keep them committed to the firm." You’llend up in group number one, you’ll beat your competitors, and--if your boss issmart--he or she will want to hold on to you as well, and give you a promotionor a raise.
Second, if you’re not going to invest a lot in a group of employees, you’vegot to find another competitive edge among your workforce. Wal-Mart, forexample, isn’t known for paying its store employees a fortune, nor is it knownfor keeping turnover low. Still, the company has been consistently profitable.Delery attributes that to--among other things--low turnover and good pay amongother Wal-Mart employees (like Wal-Mart truck drivers, for example).
Rick Harb is president and managing partner of Marquette Management, whichbuilds and manages luxury apartments. He’s where everyone wants to be: inCategory 1. He spends about 20 percent of his annual budget on training, and hasless than 40 percent turnover in an industry where it’s about 63 percent. "Wespend a great deal of money to quickly, efficiently, and thoroughly trainemployees," he says. "This lack of training or investment in employees bycompanies may be one of the primary reasons why employees leave companies tobegin with."
Which employees should you invest limited dollars in to reap the greatestrewards? Where will profits most bleed when human investments walk out the door?That’s the likely focus of these professors’ next studies. In the meantime,those questions will continue to be HR’s challenge.
Workforce, January 2003, p. 72 -- Subscribe Now!
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