Overturn the High Cost of Employee Turnover

Jun 27, 2006 8:06 PM  By

To hire and retain the optimal workforce, some companies invest strategically in becoming an “employer of choice”—a company that job candidates would prefer to work for, not one whose offer they accept merely because they need a job and no other offers are forthcoming. Is their money well spent? Based on our analysis of the true cost of employee turnover, our answer is a resounding yes. In this age of increasing demands on productivity, employees leaving the company and taking their know-how with them is a price that no company can afford. Here’s how you can avoid having to pay that price.

The cost of turnover
Turnover hits the contact center hard—harder than you might think. LeapFrog!, Response Design Corp.’s metric database, reports that the average annual negative turnover for front-line agents is 26%. (Negative turnover refers to agents’ leaving the company for good, whether through voluntary or involuntary termination. Its counterpart is positive turnover, which occurs as agents move laterally or via promotion into other areas of the company.)

LeapFrog! reports the most obvious costs of turnover:
• $4,000 per agent is the average cost to hire
• $4,800 per agent is the average cost to train.

The total cost of hiring and training an agent, then is $8,000. So we expect that a typical call center with 100 front-line employees with a 26% negative turnover rate will incur at least $228,800 (26 x $8,800) a year to replace 26 front-line employees—and that is just the beginning. A few other considerations that may fall below the radar but cost the company money:
• the cost of meetings and conferences in which supervisors and managers juggle the workload among the remaining employees
• overtime compensation necessary to fill the shortfalls;
• human resource’s cost of “separating” employees who are leaving (tasks include halting payroll, conducting exit interviews, and educating employees about COBRA)
• the cost of the IT department repeatedly setting up personalized desktops and passwords
• lost productivity incurred when new employees take over the work of seasoned ones.

No matter how detailed your list of the costs of turnover, remember that turnover is like an iceberg floating in the water. So much of its deadly presence is submerged, hidden from sight. We believe that as the turnover rate goes up, employee morale goes down—the employees who are left feel pressure to carry the load. At the same time, as the turnover rate goes up, customer service suffers—agents who are still learning the ropes handle a larger percentage of the customers. And unless you have a robust knowledge management system, the employee has taken another intangible: his knowledge.

To transform the turnover challenge into opportunity, raise awareness that people constitute your biggest asset and your biggest expense, and make no excuses for burnout and turnover.

The optimal workforce
After you have made your case to management that turnover is costing too much, concentrate on hiring the right individuals. Some people are made for the job. They have the right temperament, interest, and skill. Learn to know them when you see them.

If you are to have the optimal workforce, it should be uniquely tailored to the role your company expects the contact center to play. The optimal workforce for consultative sales is different from the one for taking orders. The optimal workforce for responding to only telephone calls looks different from the one charged with responding to calls, e-mail, and live chat.

Determining the composition of the optimal workforce is more difficult because your company’s expectations of the contact center are probably changing. In most cases, this function has been seen as a necessary cost. Companies defined a standard product and service portfolio, then organized customer support around repetitive, predictable tasks. Agents were hired to work for low wages with minimal training. Now your company’s survival may depend on how well the contact center adds value to each customer interaction, increases customer loyalty, and becomes a font of customer knowledge for the rest of the organization. LeapFrog! tells us that 96% of call centers have taken on more responsibility within the past 10 years—responsibility that is surely centered on adding value.

Yet, in spite of these new challenges, hiring profiles and turnover models have stayed the same.

Companies continue to expect staff dissatisfaction and high burnout rates. Each agent hired under this old model contributes to self-perpetuating failure cycles, with further declines in service quality and customer satisfaction. The inadequacy of new hires to perform, along with the scarcity of means to restore their confidence, leads to indifferent agent attitudes and mediocre service. Customer dissatisfaction bolsters agent discomfort, inciting further burnout and turnover, which in turn deteriorates service quality, and so on.

Based on our assessment of the jobs that contact centers will do in the future, we have developed a profile of an agent bound for success in the new environment. We believe this agent will be energetic, tech savvy, people oriented, organized, and upwardly mobile. This agent has “some college” (if not a degree) and enjoys the challenges of technology.

Will our prospective employee pool be filled with these types of individuals? How many people in the general population will we have to choose from? Accounts vary. Some say things look bleak—the educational system has not met the challenge of preparing folks to fill our jobs. The federal government’s National Assessment of Educational Progress administered in schools across the U.S. shows that, after a decade of school reform, students are reading no better than their predecessors a generation ago. More than 120 million adults today read at or below a fifth-grade level. Daimler-Chrysler says that only one out of four applicants can pass tests requiring 10th-grade skills.

Some analysts have a brighter outlook—they believe that the generation currently graduating will include candidates to fill our positions. But regardless of which predictions are right, it’s safe to say that we face tough competition in the labor market. The employment rate is decreasing and expected to remain low. We must come to grips with the understanding that skilled-staffing shortages will exist for the foreseeable future, and we must incorporate this fact into our strategic and tactical planning processes.

Organizations must put more effort into recruiting, both from the perspective of where to look as well as what skills to look for in a candidate.

Becoming an employer of choice
As skill sets increase, the factors that make employees loyal change. Offering more money will not buy employee loyalty.

There must be a radical rethinking of what makes the agent loyal to the company—and our focus is on becoming an employer of choice, a strategy that will hold you in good stead in any environment. Employers of choice have the following characteristics:

• They compensate competitively. Compensation comes in many forms—not just base pay. When people were asked by “USA Today” if a good benefits plan encouraged them to work harder and perform better, 66% said yes. According to a recent CallCenterCareer.com survey, some 29% of contact center job seekers feel that recognition for hard work is nearly as important to them as receiving better pay (a response made by 32% of job seekers overall). We expect significant growth in performance and competency-based incentives, with some organizations also pursuing value-based compensation schemes.

• They provide a comfortable working environment. A comfortable environment covers much more than the fit of the chair, the height of the screen, what is available to eat, and where agents can park. It refers to the entire employee experience. Do agents believe they are treated fairly? Do they trust the management? Do they believe they can make a difference? Do they know what is going on around them? Employers of choice provide frequent communication and satisfactory answers at every turn.

• They provide opportunities to learn and grow. Employers of choice facilitate career planning and work with each employee to create a customized plan. (They do not engage in career pathing, which forces employees down a road they might not want to go.) Career planning is initiated and controlled by the employees. Individuals should be able to design plans around what interests them—whether the career moves be upward or lateral.

When you understand your cost of turnover, you can invest in selecting the right person for the job—no matter what your optimal workforce looks like in the future. And with your status as an employer of choice, the right people will be at your door, ready to come in and stay.

Kathryn E. Jackson, Ph.D, is founder of Ocean City, NJ-based contact center consultancy Response Design Corp.