In 2021, content is king, in both the private and professional spheres. Whether it's the end of a contract or offboarding, this precious content is the experience acquired by the employee.

We see it every day on the news feeds to which we subscribe: we go to great lengths to produce good content, whether it's photos to post on social networks or personal opinions to publish on a company blog(here and here, for example) or on Medium. Some of us even end up making this activity a supplement to our income, or even our main professional activity. In 2020, the production of quality content undeniably creates value: social value in the private sphere and financial value in the professional context.

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In a business world where management is becoming more horizontal, employees are increasingly encouraged to take responsibility and take a stand. This is true even for the most junior staff (interns and work-study students, for example). Is it the managers who are driving this evolution, or the more recent generations who are imposing new rules of the game? The difficult question of the chicken or the egg... (even if at Komin we're convinced that it's the egg that's driving managerial innovation - Gen Y and Z in particular).

Changing management styles are a good trend for organizations. It leaves more room for initiative and empowerment. It is in this context that an employee asserts himself in the accomplishment of his missions.

It highlights a risk for companies: the more initiative an employee takes, or the more ingenious they are in carrying out certain tasks or missions, the more difficult it becomes to replace them. While the principle that "no-one is irreplaceable" in the workplace may be true in absolute terms, recent developments in management methods reveal a hidden cost of turnover when replacing employees: the loss of an employee's knowledge or best practices (having held a position for 6 months, 18 months or several years).

This knowledge is the fruit of an iterative process and of professional experience acquired by regularly confronting real-life issues. This experience is high value-added content,

Replacing an employee always implies a risk of losing knowledge for the company, and therefore a problem of job continuity and productivity. This is especially true today.

Preparing for the end of an employee's contract means anticipating a number of issues: management and corporate culture issues with regard to the remaining team, data security issues and many others.

More often than not, when we think about the departure of an employee, and therefore his or her replacement, we anticipate direct costs: the cost of recruitment, the time spent sorting through CVs and scheduling interviews, the time spent conducting interviews, etc. We also think about the time it will take to find a replacement.

There has always been another, indirect cost, which has become even more pronounced since the horizontalization of management: lower productivity. When an employee leaves, the risk of losing acquired experience is high. This content, or experience, enables the proper performance of exhaustive and recurring tasks in the employee's position. The hidden cost of turnover lies in the time needed for the newcomer, and the team in general, to become fully operational, individually or collectively.

When it comes to terminating a contract or replacing an employee, there are direct and indirect costs. The former are the most predictable, the tip of the iceberg, while the others are rarely addressed, and can cost upwards of €10K in lost productivity for a single replacement.

Oxford Economics has carried out a study on the cost of turnover in the workplace. The organization's reputation is well established, and it is one of the leading providers of economic analysis and forecasting. Looking at off-boarding, they put a figure on the "emerged and submerged parts of this iceberg we call turnover."

To do this, they interviewed over 500 companies, of different sizes and in 6 different business sectors: Retail/Commerce, Finance/Accounting, Legal, IT/Tech, Media/Advertising. This study only covers the replacement of employees whose annual salary was at least equal to around €28K.

According to Oxford Economics, 84% of the cost of replacing an employee is linked to a drop in the productivity of the position left, and 16% to recruitment and other "logistical" costs.

There are many lessons to be learned from this study.  

Firstly, Oxford Economics distinguishes two different sub-costs. The first is the "loss of productivity" of the position, equivalent to the time required to bring a new arrival up to an optimum level of productivity. The second is "logistical", and concerns the expenses incurred in dealing with the situation (recruitment agency, managerial time invested in interviews, etc.). On a 100% basis of the total cost of a replacement, Oxford Economics estimates that the first represents around 84%, compared with 16% for the second.

While these two costs are quite logical, the first is indirect and difficult to assess, while the second is direct and usually corresponds to the one everyone thinks of first.....

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This drop in job productivity may of course correspond to the time during which the position is not filled, but above all it corresponds to the time it takes for the new employee to get up to speed in his or her new position.

Interestingly, Oxford Economics has identified 3 parameters that influence the average time it takes for an onboardee to reach optimum productivity levels:

1. The company's sector of activity (the complexity of the information to be assimilated varies from one sector to another)
2. The background of the newcomer (from the same sector, from another sector, recent graduate or with no previous activity)
3. Company size (you'll learn faster in a smaller structure where you'll be in contact with management)
   

The graph below shows the average number of weeks it takes for a new employee to reach optimum productivity levels in 6 different business sectors. This value depends on the candidate's background: whether he or she comes from the same industry or used to work in another, whether he or she is a recent graduate or not in employment.

The following graph gives figures for the cost of reduced productivity when replacing an employee. This is the indirect cost mentioned earlier. While the precise amounts of these values may be debatable, they nevertheless lend a more tangible character to this indirect cost, and appear very interesting in terms of the orders of magnitude they present between the sectors of activity concerned and the background of the employees!

So, if ever recruiting an employee from the same sector of activity, a company can claim to suffer "only" a cost of around €5,000 in reduced productivity in the distribution sector, this amount rises to just under €12,000 if he or she comes from another sector of activity! 😮

← Finally, at Komin, what we allow is that these 2 curves (cost of an employee's salary vs. the value they create) cross as soon as possible after their integration.

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By collaborating with Oxford Economics to retrieve the study data, we offer you the possibility ofestimating this annual productivity cost linked to the turnover of your workforce.

This cost is therefore directly linked to the time needed for each new employee to reach optimum productivity levels. It's a perverse cost, because it doesn't appear in any budget , and you never remember to pay it because it's not invoiced. This cost is the equivalent of operating income going up in smoke, a little each time an employee leaves during the year.

Our aim is neither to point the finger at companies with average or high turnover rates, nor to assert that this cost can be fully converted into operating income, but rather to propose an alternative to the status quo, in order to gain a better understanding of how to manage the arrival and departure of employees within the company.