July 27, 2017

The Truth About Turnover: Four Reasons You Actually Need It

By Christy Farrell, Partner, Healthcare Technology & Innovation

Turnover is bad — or so many are led to believe. At worst, it can reduce productivity, drive up human resources costs, and eat away at your bottom line. At best, it implies less-than-stellar business practices that can taint your reputation as an employer. But even though it’s difficult, some turnover is necessary and can even be desirable; after all, one bad apple can spoil the whole barrel.

Scary Statistics

The statistics on turnover are certainly fear-inducing for employers already facing a tight labor market: according to Gallup, almost half of the largest generation in the workforce — millennials — plan to change jobs [1] in the next year.

Moreover, according to a study by the Society for Human Resource Management [2], replacing an employee who earns $60,000 can cost a company anywhere from $30,000 to $45,000 in training and onboarding costs. And higher up the income scale, it’s even bleaker: the Center for American Progress [3] estimated that the cost of replacing an executive that earns $120,000 could be over $255,000.

But despite these costly concerns, without some level of turnover, a company faces stagnation and even regression. Recent research has found that turnover in fast-moving economies can actually be a good thing; here are four reasons why.

1. Added Value

In some cases, replacing an underperforming employee can bring added value that outweighs the training and recruitment costs. Additionally, in many cases, employees who leave an organization have been disengaged for some time, providing less than optimal productivity. According to Gallup, only 32 percent of US workers considered themselves engaged in 2015 while over 50 percent were “not engaged.” That’s a significant amount of labor that could be replaced by “engaged” counterparts to significantly boost output.

2. Poor Fits

Whatever the cause of a worker’s disenfranchisement, employer-employee relationships aren’t expected to last forever. Sometimes a new employee finds workplace culture hard to adjust to, and circumstances may change within an organization so that a once stellar employee becomes dissatisfied. Poor morale in one worker can pull down the attitudes of their coworkers.

And while the onus is on employers to monitor retention and identify areas where staff needs should be met, not all employee problems are the direct result of mismanagement. After all, the average company loses between 20 and 50 percent [4] of its staff base each year, so these losses must be for a multitude of reasons.

Inevitably, mishires will occur, and personality conflicts are sure to arise in the workplace. In many cases, a voluntary termination can be a mutually beneficial and economic resolution in spite of the resulting costs.

3. Fresh Blood

Although loyal, already satisfied employees may be comfortable with the status quo, new staff can inject a sense of innovation and bring fresh ideas. A moderate amount of turnover can infuse creative thinking, stimulate interest, and encourage a positive outlook [5].

Also, while older workers are certainly valuable because of their institutional knowledge (which is hard to replace), according to a Forbes study on global diversity and inclusion, employers feel that they need to work harder to ensure diversity in areas such as disability and age [6] to remain competitive on an international scale.

4. 100 Percent-Poof Turnover

Forty-three percent of those surveyed by Forbes prefer to retain and develop talent, while 35 percent also ensure diversity through a pipeline of varied talent and 28 percent hire for a generational employee mix.

Thus, optimal retention isn’t 100 percent retention — instead, it’s 100 percent strategicretention, where a company monitors its best performers and understands and exploits the dynamics of employee comings and goings in order to ensure that so-called “bad apples” (who may simply be poor fits for an organization or role) are replaced with ripe, fresh talent. Strive for an ideal workplace, where top talent is nurtured and developed while bad fits are phased out (even if it’s costly).