Cost and consequences of talent departure
The quality of an organization's workforce determines the overall performance of such organization; performance in productivity, sales, quality of service delivery, and the organization's general management can all be traced to the quality of an organization's workforce.
High employee turnover is a warning sign of low morale among an organization's workforce, which is one factor that affects the organization's productivity.
Why is employee turnover a problem for a business?
The negative effects of high employee turnover are the following:
1. It is expensive
Employee turnover can be very costly for an organization, mainly if it is a voluntary resignation of human capital investment from the organization and the subsequent replacement process. These replacement costs may include the search of the external labor market for a possible substitute, selection between competing candidates, interviews, induction, formal and informal training of the replacement until they attain a reasonable level of performance that is equivalent to that of the individual who quit.
A research conducted by The Center for American Progress shows that for all positions, except for those requiring very specific skills, the typical cost of turnover was 21% of an employee’s annual salary.
2. It results in the loss of experienced employees
Building a culture that encourages knowledge transfer and succession is a crucial strategy for an organization's growth and sustainability. A high labor turnover rate results in an organization's inability to ensure continuity knowledge.
Losing an experienced employee is hard to deal with. Besides this, the organizations must search for a new candidate, and it takes years to get the level of knowledge and experience of the one who left the company.
3. It affects productivity
Employee productivity and overall performance can be negatively affected when there is high personnel turnover. Employee turnover leads to the loss of experienced and trained staff who know the organization's policies and goals and their roles in achieving these goals.
However, a new employee may require some time to learn these roles.
It takes a lot of time and resources for a new employee to reach the full productivity level of a departing employee. Therefore, high employee turnover means having many inexperienced employees, leading to lower employee productivity.
4. It affects profit
Aside from the cost of replacing an employee, other adverse effects could combine to affect a firm's profit. The cost settlement of employees' benefits (gratuity and others) and the cost of litigations, as some separations may lead to legal disputes, all combine to affect company performance, which ultimately affects the firm's overall profit.
Anything that tends to increase costs or reduce productivity or revenue will certainly reduce profit. A new business often takes months or years to achieve profitability, and unexpected expenses like high turnover can increase the time it takes a new venture to generate profit or break even.
5. Severe loss of valuable knowledge and experience
We know that financial resources are important; however, human capital can weigh even higher. Senior employees tend to carry a lot of know-how and experience gained over the years that the newcomers usually lack. A well-thought transition plan, a good playbook for each role, and actively coaching more junior staff is definitely the key to avoid such challenges.