If you are struggling with employee turnover, I can almost guarantee it is a product of an ineffective culture. You can blame it on the economy and/or low unemployment. You can blame it on the competition down the street. Heck, you can blame it on the Millennial generation. Everyone else does!
The fact is, you have more control over employee turnover than you think. We looked at 150 manufacturing facilities with over 9,000 employees to conduct the Denison Organizational Culture Survey (DOCS), and also asked each respondent how likely they were to look for another job. What we found was a strong correlation between a facility’s culture and the likelihood of whether they will stay. Basically, we found four key drivers of what keeps people from leaving.
Culture and turnover intention
To find the impact of culture on turnover, we took the culture results from each facility and compared them to the percentage of likelihood that employees were actively seeking a new job. Utilizing Denison’s manufacturing benchmark database, we compared each company’s results to a database of hundreds of other manufacturers.
Figure 1 shows a composite of the facilities grouped by quartiles. The full profile labeled Top Quartile Companies include those who scored at the 75th percentile or better on the DOCS. These are the facilities that have high performing cultures and would be considered the best of the best for manufacturers. The Bottom Quartile Companies scored below the 25th percentile, and are those facilities whose low DOCS score indicates the presence of serious culture issues.
A turnover intention index was created by taking the responses of those who disagree with the statement, “I rarely think about looking for a job with another organization,” and then tallying them to create a “percent agree/disagree” index. These data provide an idea of how many respondents were thinking of leaving their organization, and are listed in Figure 1 as Turnover Intentions.
Those facilities in the Top Quartile show few people thinking about looking for another job. In contrast, the facilities in the Bottom Quartile group have a turnover intention rate twice that of the Top Quartile. What this means is that for a facility with 200 employees that is in Top Quartile, that facility will lose 30 people annually. Facilities in the Bottom Quartile will lose 64. The cost of poor organizational culture can be measured as 34 additional bodies that must be replaced on the floor each year.
Another striking result involves facilities with cultures that are just above average (i.e., 3rd Quartile). Turnover rate data posted on Salary.com, which has a database of 25,000 organizations, indicate that the average turnover rate for manufacturing is 20%; our data show that facilities with cultures just above average sit right around this manufacturing industry average.
Improving your turnover rate is about more than getting good workers in the door and then keeping them. There is a cost associated with turnover. The basic costs include the time it takes to hire a person’s replacement and the added overtime by others to fill the void. But endless turnover creates poor morale, which in turn feeds more turnover, becoming a loop. There is loss of knowledge and experience in the form of diminished quality and production efficiencies as good employees walk away. Isn’t it fair to say that much of this will eventually affect the customer? What is the financial cost of a lost customer? Do you want to find out?
According to the Center for American Progress, the cost of replacing an employee ranges from 10-30% of their annual salary, depending on the industry and length of time on the job. For simplicity, let’s just assume the figure is 20%. If your people average $22 per hour on a 2,000-hour work year, they make $44,000 annually. The cost to replace a person like this amounts to $8,800. If you lost 50 people at your plant last year, the direct and indirect cost to your facility is over $400,000!
This cost analysis explains why truly great companies use their culture as their competitive weapon. They not only focus on equipment, technology, inventory, automation, workflow, and other ways to gain the upper hand, but build out a high performing culture to get that competitive edge, as well.
The four key drivers of employee retention
After looking at the relationship of culture to turnover intention, we ran a key driver analysis on those responses to identify the cultural themes with the highest correlation to turnover. Here are the top four. This is why people stay.
1. People are seen as a competitive advantage. Southwest Airlines 1996 annual report boldly stated, “We are a company of People, not planes.” In fact, the chairman, Herb Kelleher, would always capitalize the P in people when referring to employees. Organizations who have highly effective cultures don’t just talk about employees being their most valuable asset; they prove it through their day-to-day actions. These organizations listen to employees and implement their ideas regularly. They recognize employees for great work and celebrate organizational achievements. They inherently believe that the people in their organization are the key to success.
2. Solid leadership begins at the floor level. Organizations in high performing cultures take the time to develop front-line supervisors. They cultivate an environment where leaders can grow, as opposed to a place where bosses can boss. Supervisors operate out of a position of respect. They communicate regularly whether it be staff meetings, huddles or just walking around. They are perceived as fair, without favoritism. They are calm, creating very little emotion or drama on the floor. These supervisors are approachable, and do not separate themselves from employees. In fact, they often make themselves available to coach and mentor. They also buy into the position that employees are the key to success.
3. Leaders know how to communicate purpose and direction. People need purpose in life and high performing cultures provide it, even if the work seems mundane. A plant manager in Michigan looking to get people on board with his continuous improvement initiative said, “We don’t just produce boxes, we produce jobs for our community. If we increase efficiencies throughout the plant, our parent company will send us more work. We grow. If we grow, we hire more people and those people will be your friends and family.” I don’t know about you, but this is far more motivating than building boxes!
As for direction, great companies communicate regularly. They don’t just assume employees “get it”; they make sure that they “get it.” This is done through town halls, group meetings, or informal channels such as simply getting out and talking about direction. Metrics are used such as safety, quality, productivity, and scrap/waste so employees fully understand what is being tracked and how to improve. There is clarity in the environment. Leaders not only communicate “The What”; they are good at explaining “The Why” as well.
4. Great cultures build their “bench strength.” Whether it is onboarding new employees or ongoing training, great companies develop great workers. People do not feel they are just thrown to the wolves upon joining; they are taught how to do the work. Supervisors work alongside new employees to make sure they feel comfortable and learn the job. Managers and supervisors are promoted based on whether they can lead, not just because they have the highest tenure or the most work experience. Once in the role, they are also developed through leadership development programs or mentoring by other leaders with solid leadership skills. Basically, great companies leave nothing to chance. They know that the teams with the best players win, and they act on it.
What now? Try this…
The data in this article look at why people choose to stay with an organization. When you look at why they leave, the overwhelming reason is respect.
If your turnover rate is greater than 20% and the number of grievances filed each week makes your skin crawl, you may want to look at the dominant management style in your facility. If it is heavily authoritarian with an accent on “lead by fear,” you probably have a culture that drives people away.
In a separate piece of research, we analyzed the top qualities of great manufacturing supervisors. These data were based on comments from leadership surveys conducted on over 400 supervisors, and the following key themes emerged:
- They share information and are good communicators
- They are approachable, and are good listeners
- They follow up with action
- They stay calm under pressure and always keep their emotions in check
- They take the time to mentor and coach
Note that the themes do not include anything like “my boss should talk more and listen less,” or “they treat us like children.” The reason is that effective leaders operate out of a position of mutual respect, treating people how they would want to be treated. So, if you want to reduce your turnover, you really have to take a close look at how your managers and supervisors manage people.
My guess is that your organization probably has some good leaders and some not so good leaders. The “not so good” leaders are where the issue lies, and more than likely, they just do not know any better. Typically, when I am brought in to coach leaders, they are notorious. They have a reputation. They are described in words I wouldn’t say in front of my mother.
When I talk with them, they often say that they adopted their management style from a previous supervisor, which means that the organization is breeding bad leaders. After that, when I take the time to show them another way of leading, they typically are quite open to it. Nobody wants to be the “World’s Worst Boss.” They don’t even make a coffee mug for that one. Instead, you and your team can use the five guidelines above as your own personal expectations for behaviors.
One of the actions I always suggest for the people I coach is to get some cardio. Go walk around. Be among the people who work for you. Talk and listen. Take in their thoughts and ideas, and share their interests. It doesn’t have to be formal and doesn’t have to take all day. Just set aside an hour each week to hit the floor and talk to the rank and file.
I haven’t run into anyone yet who felt this was a waste of time. In fact, they relate it to the television show Undercover Boss where they have had an enlightening experience. Too often in our busy lives we forget the little things. We forget the people who help us succeed. It is not intentional. It’s just that we feel we only have so many hours in the day.
By identifying how these four drivers work in your company and taking small steps, both literally and figuratively, you can begin to turn your culture around. These positive impacts, while seemingly small, can make a huge difference on your company’s turnover rate.