Understanding employee turnover

Fired businessmanInnovation does not only occur in products or processes; it can also be reflected in names and titles. Most people have probably never heard of “Chief Organization Manager” which is the title I currently bear at Clueda AG. Some people get confused when reading this title.

First, this title is very broadly defined and includes a diversity of functions. The wide range of functions is particularly noticeable given that I work in a start-up and not in a big organisation with clearly defined roles.
Second, this position indeed includes some HR functions (as I have been asked before), even if my current focus is on business strategy planning.

People make companies real. They are like the blood of an organization. Individuals become exceptionally important in a start-up. I am thrilled to be involved in one of the most interesting aspects of management: talent management. Inspired on this part of my role, I previously wrote Does the candidate fit with the team? which views talent management from a inflow perspective, i.e. hiring or the selection of a new team member. In this post, I want to turn the attention to the other end of the spectrum: i.e. the leaving of an existing team member.

Someone is leaving…Why?

Modern life is full of changes. At any point in time, circumstances might have changed in which it no longer makes sense for an employee to continue his/her work in a team. Some examples include:

  • Changes inside an organisation: A company is growing international and the employee does not accept the culture of thinking global and prefers to work in a smaller, more local company.
  • Changes in personal lives: Priorities of the employee might have changed; he/she might want to prioritise family over a long-hour job.
  • Change of job content: Instead of doing a pre-assigned job task, the employee might be required to adapt to new requirements, which he/she is unwilling to accept.
  • Change of technology: People with more technical expertise are required instead of people who accomplish repetitive manual work.

One of the most important lessons in each of the personnel changes is in understanding why. Why is someone leaving voluntarily or involuntarily? The underlying reason(s) can also help detect problems in a company:

  • Is the salary structure inappropriate? Is it because people are being underpaid?
  • Is it because of management?

It is a common saying that people join companies, but leave managers. Employees usually do not say it directly to the manager they are leaving, but I have found out from my experience that this is often the case.

  • Have they found a better fit?

Whichever the real reason might be, if the cooperation is no longer satisfactory, and you decide to go apart, the separation does not have to be traumatic. You can discuss options beneficial for both the company and the employee.

Signalling Effect

The fact that someone is leaving the company, either voluntarily or involuntarily is sending signals to both internal and external stakeholders.

Internal employees: These people are usually the first ones to become aware of someone’s departure. If someone is leaving, everyone starts wondering why and what happened. A high level of fluctuation can cause excessive levels of uncertainty, pushing the most brilliant talents in search of alternative opportunities.

Depending on the signals you want to give away, you might want to sometimes delay the announcement of a departing team member. For example, instead of letting everyone know about a personnel change when a project is about to come to an end, you might prefer to wait until the project is successfully closed.

External people: People outside of the company also start wondering why the personnel change took place. For example, when Vic Gundotra left Google+, thousands of people wondered what the future of Google+ would be.

How healthy is the company?

When I was at CMC Consulting, I was very astonished at how quickly the personnel change was. Later, I was told by the ex-CEO, with whom I always maintained very open and direct conversations, that the fluctuation we had in the company was very usual. He told me that when people stay over 2 years in a consulting company, it can be considered a long stay.

Taking pulse

Just like we need stock indices and macroeconomic indicators to take pulse of the financial markets and the economy, we need an indicator to estimate the health of the company in terms of personnel change. This can be accomplished through the employee turnover rate.

Employee turnover rate

This statistic is calculated by dividing the number of employees who have left by the average number of total employees.

While each company is different, it is good to know how your company stands in comparison to peer groups. Turnover rates by industry are available for 2013. The overall average is of approximately 10.4% for voluntary turnover and 15.1% for overall turnover.

Besides the signalling effects that might take place, remember that you prefer to keep the employee turnover rate low because of the economic and time costs involved in replacing people. Unless, of course, you are living an exceptional circumstance, in which cost cutting measures must be taken.

Measures and hidden advantages

How to avoid knowledge loss

While usually an official “transfer ceremony” for each leaving employee takes place in order to make sure that the tasks can be taken over by someone else, it is impossible to avoid some extent of knowledge loss. The people that are leaving have their own experiences and impressions of the job, and while they try to explain thoroughly what they think is important to the one taking over, they might most likely forget one or another thing. While in big companies, this might be a minor issue, because there is always someone to whom to ask, in small and medium companies, knowledge transfer is vital.

The ex-CEO of CMC Consulting was always aware of this fact and he established a system to avoid any possible knowledge gap that might be caused by the absence of any employee.

  1. Two people rule: Each project always had at least two people who were knowledgeable and could reply or act in case one of them was on vacations/sick or would leave the company.
  2. Documentation: Everything should be written down in order to make sure that other people can use the gained knowledge at any time. For example, even how to use Mailchimp or how to enter a new contact in Outlook had to be registered. Information about any other process also needed to be registered and this was especially important for the internal IT system, which differed in some significant ways from those of other companies. Because the details were being registered continuously, the possibility that something could be forgotten was reduced.
  3. Continuous reminder: Everyone would be continuously reminded to use the appropriate documentation systems to ensure that absolutely everything essential could be found somewhere in the IT structure.

Having this amazing system in place meant that all operations continued almost undisturbed, even after an almost complete change in team members when we relocated the office. At first glance, the required procedures took a lot of time; however, it became extremely valuable when the “unexpected” did happen.

Long term effects

If the employee turnover rate is not excessively high and the reasons people leave do not hint to major problems either in hiring or other business processes, the mild personnel fluctuation might bring about positive effect in the long term.

  • Expansion of network: As employees go to work somewhere else, the company’s people network spreads. It is, therefore, important to end a working relationship on a good note whatever the reason for the ending might have been. Ex-employees know the company the best and can bring the company opportunities in the future.
  • Generation of fresh ideas: Problems and business situations can sometimes be clearer from the outside than from the inside. After you have been looking at your problem a thousand times, someone from outside or a new team member can better tell you what the problem is.
  • Learning process: You learn throughout the process and recognise the different types of employees and their main motivations. People leaving a company can provide a very good feedback about the diverse processes of the company. Even though these people might not be completely open in their reasons, any comments are worth considering and analysing.


Talking about it

In career advice, we often hear that you should not talk bad about your bosses. This is actually also true for employers. Do not talk bad things about previous employees, because the current ones will feel uncertain and will think that that is the way they are going to be referred to after they leave the company. If some employee did in fact harm the company, give everybody the broader picture and explain the rationales before criticising them.

Keeping talents

While some turnover might be unavoidable and to some extent even healthy, remember to keep your talents. Even if nowadays many people argue that everyone is replaceable, I hold the philosophy that when you find the right people, you should do the best possible to keep them, nurture them and grow together with them.

Remember the signalling effect mentioned above? Instead of letting the facts spread the wrong signals, you could use this effect to your benefit by showing your talents that they are both valuable and important.

I remember a sentence one of my friends said when she was crying and planning to leave her company:

“Always treat your employees as if they were the most important people”.

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