It's not unusual to hear about companies with constant employee turnover or cutting senior leadership positions as a cost saving measure. Many companies with mass turnover try to avoid extra costs such as pay raises and benefits by planning for constant turnover, but it is a difficult model to sustain and certainly not one that helps the bottom line. It's not more expensive to keep long term employees, in fact, it helps you retain a significant portion of your operating costs.
Some inexperienced managers feel the best way to solve any performance problems is to wipe the slate clean and start with new a new crop of employees. However, studies have shown that the actual cost of replacing an employee can be more than three times the employee's annual salary.
It is difficult to calculate the true cost of losing a trained, seasoned employee. As they exit, the skills and knowledge your business invested in exits also. While it takes time to screen, acquire and train a new employee, other employees are stressed to take up the workload in order to keep company goals and targets on track.
One company was experiencing a drop in signing new contracts. While the entire industry was also experiencing a downswing, the manager's knee jerk reaction was to assume his sales force was not fully engaged or motivated. By demoting and threatening, (motivating by intimidation), he not only caused a significant blow to company morale, he failed to take a leadership position that recognizes strengths and addresses individual development.
Rather than feel empowered and supported, many of the reps were now diverting time, attention and dedication away from their current positions to a job search. This was in a highly specialized industry where a new hire would need at least six months of intensive mentoring and guidance before the rep would be self-sufficient in their duties.
One of the most cost efficient ways to retain employees is to give them a voice in the process. Since they are on the front lines whether dealing with customers, selling your product or manufacturing your widget, they have real time feedback on what works and what doesn't. An organizational design professional can help discover gaps or overlaps in the process that directly contributes to employee frustration, redundant tasks or increased costs.
An OD professional has many other tools at their disposal, such as assessments that address strengths and limitations for individual development plans that ultimately benefit the entire organization. The results can be instrumental in realigning duties, work groups or processes by leveraging the strengths rather than focusing on the limitations.
If you are facing the decision to let dedicated employees go, reconsider the cost of developing vs. firing. Saving employees actually saves money and time, all of which have a powerful impact on the bottom line.