Churn, Churn Churn Turnover ... and Over

There are many signs that constant employee churn is already happening. Like it or not, get ready for it.

August 20, 2007
For decades, organizations have sought to retain employees on the premise that longer tenure leads to greater ROI—or, to put it another way, return on talent. While formal retention programs never attained widespread popularity, nearly every HR professional will tell you that there is an economic benefit in retaining employees over replacing them. It’s a logical premise. Longer-term employees have:

  • Invested time building a skill set unique to the organization.

  • Learned the ins and outs of how to get work done within the organization.

  • Proved their ability to be productive.

    However, would retention still make economic sense if these three supporting assumptions were no longer true or no longer of value?

    As our world has flattened, the speed at which competing organizations render obsolete each other’s products and product-development approaches has increased exponentially. This phenomenon also affects how organizations consume talent.

    Skill obsolescence: With enough resources, including time, an organization can develop a highly skilled workforce. Numerous organizations that embrace a develop-from-within methodology, such as UPS or Procter & Gamble, have proved this. However, in today’s environment, the key question is not whether it’s possible, but rather whether organizations can continue to do this development in the time frame the market will allow and at a cost that makes it feasible.

    Let’s say you work for a consumer products company in product marketing. For years you have specialized in producing print promotions, point-of-sale displays and advertising campaigns. However, statistics show that an increasing number of consumers have tuned out such channels and now are more swayed by interactive marketing. It’s unlikely that you as an individual marketer could get up to speed on interactive technologies overnight and at a low cost. It would be better for your company to just hire someone who already has that skill set.

    When technology, knowledge and business practices change so fast, it makes sense that employees’ skill sets related to these outdated technologies and business practices would quickly become obsolete.

    Institutional-knowledge obsolescence: When firms and industries remained unchanged for decades, it was smart to build a workforce with long-term institutional knowledge. Stagnation, however, is a thing of the past. It takes no time for companies to disappear as a result of being displaced in the market or by being absorbed into other organizations through mergers and acquisitions. Venerable companies like GM, Xerox, Kodak and Ford that have (so far) survived the M&A ax find that the competition and the scope of their industry change so rapidly that long-term institutional knowledge is becoming less critical. In fact, when firms transform themselves every four to eight years, longer-term institutional knowledge and corporate cultural elements might actually hurt a firm that needs to become more agile.

    Innovation supplants productivity: Productive employees have always been retained because productivity was the No. 1 success factor in most industries. However, productivity is no longer enough in a flat world where everything is constantly changing or being ruthlessly copied, and where products like mobile phones can become obsolete in six months or less. A constant demand for product and service innovation from customers has made the ability to innovate the new key success factor.

    Employee loyalty is history: While loyalty to a profession is not uncommon, loyalty to an employer is quickly becoming extinct. It’s not news that Generations X and Y do not attach a stigma to frequently changing employers. For HR, this shift is important. If the resources in the labor market no longer value longer-term tenure, then all systems and programs that are based upon it as a motivating factor must also shift to reflect the new market priorities.

    Action steps: In a world of rapid employee obsolescence, firms need to be able to release employees who are no longer needed while simultaneously hiring those with emerging skill sets. That approach will put new demands on organizational leadership. Recruiting will change as more and more organizations hire based not on experience but on a candidate’s ability to innovate and learn rapidly. Appraisals will shift emphasis away from perceived performance toward measuring relevance and true return on talent. Organizations that invested in formal retention functions and succession plans will abandon them. There are many signs that this constant employee churn is already happening. Like it or not, get ready for it.