In challenging periods such as the current corona crisis, managers in companies think more often about staff reduction than about employee retention. But this could backfire: Because dedicated high performers and innovative drivers are needed even in times of crisis. By the time the economy recovers at the latest, companies without or not enough employees, who are key to success, will have problems. In an interview with hkp.com, the hkp/// group experts David Voggeser and Leon Jacob discuss the necessary balance of having to recruit and dismiss staff at the same time, while keeping the important people on board.
Mr. Jacob, Mr. Voggeser, Covid-19 has hit the economy hard. Almost every company announced plans for restructuring, including staff reductions. Why is it important to talk about employee retention right now?
David Voggeser: No single company intends to dismiss staff in all sectors. Even in sectors such as tourism or the automotive industry, which have been severely affected, companies are required to develop new strategic business models and exploit growth potential. The talents needed for this are in demand today and then again during the economic recovery just as much as they were before the crisis. It would be folly to part the company with them now.
Leon Jacob: Organizations have to meet the challenge of doing both. On the one hand this involves cutting staff in administration and phasing out business models, and on the other hand staff expansion and employee retention in future business areas. A company, which succeeds in retaining its key employees in the long term through targeted retention measures, has a clear competitive advantage.
Many organizations have cut their spending as part of their liquidity management. How can companies justify investments in such an environment?
Leon Jacob: Companies ought to look at their retention expenditure as an investment that will pay off both directly and indirectly. The costs incurred by the loss and replacement of an employee correspond roughly to about half a year's salary. It includes direct costs, e.g. for the replacement and induction of a new employee, as well as indirect costs, e.g. for replacement while the position is vacant and for the loss of expertise. Every employee that does not leave the company saves costs, as these costs are not incurred in the first place.
David Voggeser: And those are only the direct costs. Losses caused by failure to develop strategic business areas or to realize growth potential are even more serious. Of course, some companies are nonetheless initially happy about reduced personnel costs. But that backfires after the crisis, when it comes to profiting from the economic recovery and there is a shortage of staff. Crucial projects are deferred, orders cannot be processed and key departments are undersized for the implementation of long-term strategies. If you think you can simply recruit again on the labor market, you will soon be in for a shock. In the worst case scenario, the best employees have now been hired by competitors.
What should organizations do if they wish to invest in retaining their key employees and top performers?
David Voggeser: In good economic times, organizations have relied heavily on retention bonuses and particularly attractive compensation commitments. We advise against such a piecemeal approach. Firstly, the retention effect of money is usually short-lived and, secondly, the cost of this is currently simply too high.
Leon Jacob: Identifying the relevant factors for employee retention is often the greatest challenge in order to effectively prevent involuntary fluctuation. There is a nice quote by Henry Ford: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” Retention measures implemented in an undifferentiated manner will have the same problem. Companies that want to achieve the greatest possible impact of their measures must use them in a targeted manner. To help them do so, we developed four key principles that provide guidance.
How do they look like?
Leon Jacob: We believe it’s all about localization understanding, development and realization. The first two stages are designed to classify the retention problem – in other words, to identify which groups of employees have a retention problem and what are the reasons for it. Only when these two stages have been concluded it makes sense to start looking for suitable countermeasures and implement them in the organization.
In other words, identify the fluctuation and then identify the reasons...
David Voggeser: Exactly. Best practices of course are helpful when developing a solution. In the end, however, it is a matter of choosing the most suitable path for the company and the target group. The last stage is to implement the measures and supervise their success. To achieve this, organizations must track and monitor their unwanted fluctuation on an ongoing basis. The effectiveness of a measure becomes apparent only after 6 to 12 months.
In view of the challenges posed by the crisis, this seems rather complex.
Leon Jacob: Not if you approach it in a structured way and work with the right, i.e. most effective, instruments. To support organizations in solving their retention problem, we have developed the hkp/// group Retention Management Toolbox. This is a tried and tested approach to help organizations navigate through all four phases of a retention project. We are happy to discuss this with you individually.
Mr Voggeser, Mr Jacob, thank you for the interview.