This report was commissioned by a Victorian high profile mission-based organisation to respond to key challenges that it was facing in their Human Resource (HR) strategy.
This organisation recently underwent a major organisational transformation project involving the development of a new strategic plan, revised organisational restructure, and the appointment of a new senior management team. These changes were introduced to better align the organisation’s purpose to their strategic focus and daily operations, as well as facilitate a higher level of collaboration, innovation and efficiency across the organisation.
Despite these initiatives, the organisation was experiencing challenges, particularly relating to workforce retention, engagement and productivity. Over the course of 20 months, 180 employees (22% of the total workforce in one year, with only six redundancies) exited the organisation. This represents a loss of valuable knowledge and expertise from the organisation, translating to increasing employee related costs and a shortage of capable internal employees to promote into vacant positions.
Key Issues Uncovered:
- The organisation was experiencing retention issues, with the turnover cost figure calculated at approximately $12,000 per person (specifically operations team member).
- Poor communication within the organisation resulted in weak vertical and horizontal alignment of HR practices to organisational strategies, and highlighted concerns with culture and employee engagement. This secondary issue contributed to the high turnover figure (22%) as well as profitability of the organisation due to decreased productivity.
The organisation recently underwent a major organisational transformation project involving the development of a new strategic plan, revised organisational restructure, and the appointment of a new senior management team. These changes were introduced to better align the organisation’s purpose to their strategic focus and daily operations, as well as facilitate a higher level of collaboration, innovation and efficiency across the organisation.
Despite these initiatives, the organisation was experiencing challenges; particularly relating to workforce retention, engagement and productivity. Over the course of 20 months, 180 employees (22% of the total workforce in 2015, with only six redundancies) exited the organisation. This represents a loss of valuable knowledge and expertise from the organisation, translating to increasing employee related costs and a shortage of capable internal employees to promote into vacant positions.
Scope and Purpose
This project utilised company data, external industry data, and our collective expertise, to investigate the organisation’s current HR processes and programs in an effort to identify root causes contributing to low employee retention and high turnover. Actionable recommendations have been developed with a ‘best practice’ approach that aim to combat identified issues. Recommendations take into consideration operational and budgetary constraints, and aim to improve organisational retention and productivity across Victorian sites, with secondary by-product benefits likely to improve broader issues such as organisational culture.
Analysis of current HR activities and issues
One of the most critical issues facing the organisation is high employee turnover. Recognising the underlying causes contributing to this is integral in forming meaningful recommendations to address and improve loss in human and social capital at the company.
- Employee Development and Recognition
Providing career growth and related development opportunities is an important method to motivate and retain employees. Investing in employee development leads to employees feeling valued; promoting loyalty and increasing organisational citizenship behaviours. A major cause of employee turnover at the organisation is likely to be a lack of career succession opportunities. This is evident across the exit survey results that were conducted, where 48% of the employees have exited the organisation for better career opportunities; 58% of respondents disagreed or strongly disagreed to the statement “there were sufficient opportunities for advancement”; and 37% either disagreed or strongly disagreed to the management providing opportunities to develop.
Identification of employee development opportunities is also one of the key outcomes of an effective performance management system. It is important for organisations to determine the impact of employees, and address performance issues which might be hindering the achievement of the organisation’s mission. In absence of a formal appraisal method, it becomes relatively difficult to recognise and reward top talent, identify and develop training programs, and provide opportunities to grow into leadership positions due to inaccurate (or absent) people analytics. This can eventually result in voluntary turnover as employees do not feel recognised and appreciated. Before this project, the organisation did not have a formal reward and recognition program and followed an out-dated performance appraisal method. The effects of this were seen in the survey results; where 33% of employees had either strongly disagreed or disagreed to their supervisor or manager setting appropriate goals and reviewing these regularly and 25% said the supervisor or manager did not provide constructive feedback. Being a mission-based organisation, the company had limited financial resources, therefore it was necessary to provide a robust reward system including monetary and non-monetary benefits. This was particularly salient as 23% of employees have left the organisation for better benefits.
2. Problematic Induction and Training Activities
Research has shown that the first year of employment alongside effective onboarding (by which new employees are socialised and trained to fit in their new roles) is critical for increasing employee retention and reducing turnover. The organisation lacked a formal induction and training program which had contributed to 45% of its employees leaving within a year, and 35% either disagreeing or strongly disagreeing to having access to adequate training to be competent in their role.
Developing training programs for new employees reinforces the unique value the individual contributes to the organisation, increases employee embeddedness, and increases organisational capabilities resulting in higher employee performance. An effective onboarding and training program, which communicates care and concern to employees, can create a sense of reciprocity, leading to less voluntary turnover.
3. Problematic communication channels
3.1 Communication methods
Consistent communication with employees, via a range of differing channels promotes stability in performance and productivity within an organisation. Findings suggested the organisation lacked robust horizontal alignment between HR activities and therefore resulted in problematic communication with their employees. Indicative of incongruence between communication methods was found in formal recruitment activities. Examining the organisations careers page, discrepancies existed between the Employee Value Proposition (EVP) and actual employee experiences.
In fruition, 35% of employees disagreed or strongly disagreed that they had access to training to be competent in their job, with an alarming 50% disagreeing or strongly disagreeing that they have access to development programs, per exit surveys. By suggesting benefits that are not then implemented, the psychological contract formed between the organisation and the employee was compromised, contributing to reduced morale and in extreme cases, resignations. This example highlighted a lack of communication between the talent acquisition team, and learning and development team which therein fails to deliver a key message communicated to employees at the outset of their employment.
Generally, the channels of communication that the organisation utilised were problematic; when asked to rate internal communication effectiveness, 55% of exiting employees determined it as a major problem area. Formal communication issues also infiltrated procedural HR activities with a former employee noting a “lack of clear policy, inconsistency in management decisions” as a reason for departure.
3.2 Communicating the organisational strategy
A key message of the Annual Report was the directive One Team: One Purpose. The Strategic Plan made specific reference to expertise and collaboration as one of their key values, and source of organisational sustainability. This involved team members actively sharing knowledge to influence change, and is particularly pertinent considering the organisation spreads across multiple sites across Victoria. Following major changes to the organisational structure and strategy, communication of how the changes impact employees was imperative to achieve the revised direction. When poorly executed, employee engagement is negatively affected. Further, ineffective role clarity communication resulted in “everyone trying to do and be everything” causing tension around role direction following structural changes.
Notably, a lack of clarity around the future vision of the organisation, created confusion about the purpose and value employees are delivering at an organisational level. Data extracted from the exit survey suggest communication within teams was effective, with 72.5% of employees agreeing or strongly agreeing that “my colleagues listened and appreciated me”. This is indicative that disconnects are occurring between management and staff. When asked to respond to the statement “management clearly communicated management decisions and how they would affect your work”, 69% of respondents indicated slightly agree to strongly disagree, suggesting issues within top down communication channels.
4. Absence of succession planning and knowledge transfer
When tacit knowledge fails to transfer between outgoing and incoming employees, substantial experience and expertise is lost in that transition. It is important for organisations to identify and manage employee human capital knowledge as it is at the core of succession planning. Research has suggested that succession planning can help foster employee engagement by identifying and offering career development opportunities to high performing employees. Absence of succession planning and knowledge transfer leads to work overload, lack of role clarity and understaffing issues. This can contribute to employee burnout and stress giving rise to resignations. This was evident in survey responses where 65% employees either disagreed or strongly disagreed to having sufficient staff to cover the work. Further, 60% of the employees either disagreed or strongly disagreed to availability of sufficient resources and staff, while 50% either disagreed or strongly disagreed to a culture supporting staff to develop and reach their potential.
Turnover and Retention
The organisation had a turnover of 22% in one year, which was high when compared with the national average. Based on a salary of $52,625 and a position time-to-fill of 14 days, the cost of turnover of permanent staff in the operations department alone was $485,040.00 in one year. Therefore, a turnover reduction of 20% would result in an annual saving of $97,008.00 in the operations department, plus savings from a reduced turnover in the casual pool. Given the budget concerns of the organisation, coupled with high reliance on volatile funding, it is essential to reduce this turnover figure to remain sustainable.
Employee engagement and Morale
The organisation was experiencing lowered engagement and morale. Engagement directly impacts turnover, with 40% of employees with low engagement scores looking to leave their company within two years. Also, it is proved that organisations with low engagement scores have an operating margin of 17% less than those companies with the highest engagement scores. Therefore, it was vital to increase engagement and morale levels to reduce turnover and increase the operating margin.
High turnover coupled with a lack of a formal knowledge capture process has resulted in loss of tacit knowledge and human capital. The resultant gaps in capability directly impacted productivity, morale, quality of work, as well as the financial costs associated with training and slower task completion. Further, as workforce capability diminishes, as does company growth, acting as a threat to the future of the organisation as an industry leader.
Due to issues with the employee development program and problematic communication channels at the organisation, a unified culture was not cultivated. This secondary issue had a quantifiable impact; being the profitability and viability of the organisation. Low levels of cultural integrity are directly correlated with decreased productivity, profitability, and a decreased attractiveness of the employee value proposition that is marketable for future talent attraction.
Recommendations were presented in a two-phase implementation schedule. Phase one contained provisional and foundational recommendations to be implemented within the first six months, targeting the immediate issues that were arising from the organisational communication approach and lack of direction during onboarding of new employees.
Phase two of the recommendations focused on actions to be completed within two years. The recommendations within this phase aimed to reinstate a culture of integrity and high performance within the organisation in order to reinvigorate productivity, profitability, and increase the external employee value proposition to attract potential candidates.
The organisation was able to significantly reduce operational costs and turnover rate to below industry average, and became a high-performing organisation with revenue surplus to spend on the appointment of two full-time marketing professionals to further the brand identity of the organisation. To this day, the organisation is voted as one of the best places to work in Australia; a long way from its past high turnover rate and disengaged workforce!