As Published in Business 2 Business, July 2002

Churn-Over:
How One Company Said "NO" to De-motivated and Unskilled Candidates
by Ira S. Wolfe

When Lancaster County's unemployment rate just two years ago was falling faster then Enron stock, one Lancaster City-based business hit full stride in churning employees - to the tune of 300 interviews in a twelve-month period. But the owners of this company decided they weren't going to take it sitting down. In a rebellion of sorts, they determined churn-over was not a fait de complet. It was hitting them in the pocket book and they didn't like it.

With approximately thirty positions to fill, nearly 440 applications were received. Three hundred candidates presented for interviews and 153 were confirmed for training. Twenty-one new hire training classes were scheduled.

Unfortunately, less than 130 "confirmed" showed for training. Even fewer completed the four days of training and still fewer showed up for work the next week. Floor supervisors and trainers were running fast - and on overtime - just to fill positions, answer phones, train new hires, and adjust schedules for no-shows.

Despite attending job fairs, running classified and display ads in newspapers, and hosting open houses, the pipeline for new hires couldn't keep up with the churn.

Within one year, the total number of applications dipped to 159. Was this a good thing? With a smile the hiring manager says, "It is a pleasure to interview fewer, but a higher quality, of candidates and to be able to let the bad eggs on the floor go." He typically spends up to 30 minutes per candidate per interview. By interviewing only more qualified candidates and avoiding "bad eggs", he believes he has saved his company nearly 60 hours per year by not interviewing the highest risk candidates.

What else changed? With less than half the applications and interviews, 132 were still confirmed for 10 training classes. But this time, seven of these classes had 100 percent attendance. Job fairs were discontinued as a source for applicants and display ads were used only occasionally, saving more time and thousands of dollars.

How did this company reverse its fortunes?
First let's quickly re-visit last month's column when I traced the life of an employee through four stages:
1. Motivated but not yet competent
2. Motivated and competent
3. De-motivated but still competent
4. De-motivated and no longer competent

What this local company realized was that they were hiring people who never left Stage 1 Their high churn was directly related to offering jobs to individuals who were neither motivated nor competent.

As a quick aside, the only stage of an employee's life cycle that produces a consistent positive yield is Stage 2, the motivated and competent stage. What organizations of any size can ill-afford to tolerate are having too many motivated but not yet competent employees leave before they become competent and having too many employees migrate to Stage 3 and be de-motivated but still competent.

Stage 4, on the other hand, is like having unemployed people on your payroll. It is just plain inexcusable. Companies who retain and tolerate employees in this stage will soon cease to exist. The money will either run out, or the good employees will leave for greener pastures.

What alarmed our client even more than the costs to hire and train was the increase in revenues required to replace the profits eaten up by the acquisition and termination of workers who left their organization without ever making it to Stage 2.

To illustrate the high cost of churn, let's use this example from another client whose turnover rate has similarities to many local businesses.

1. Total number of positions in the organization =100
2. Number of positions held by same employee for more than twelve months = 70
3. Number of positions held by different employees during previous twelve months = 30
4. Number of employees hired to fill open positions during previous twelve months = 40
5. Percentage of churn-over (No. 4 / No. 3) = 133%
6. Average cost of hiring and training new hire = $3000
7. Total cost of hiring and training new employees for previous twelve months = $120,000

That's $120,000 of hiring and training expenses, much of which added nothing to productivity. The profit margin for the company is 30%. If you divide that into the cost of churn, the revenues required to replace the lost costs of churn is a whopping $400,000! Ouch!

For every mis-hire, costs just seem to pile up. For every new hire, more training costs and time are required. For every dollar spent on churning hires, less money is available for investing in the incumbent workforce. Time, money and resources are diverted to recruitment and away from the retention of internal and external customers.

Putting A Test To The Test
Although still struggling with open positions, the hiring manager contributes the reduction of churn to the integration of a pre-employment test into their screening process. Not only did the test screen out nearly 15 percent of the applicants as high risk but as he said "it freed up my time to focus my attention on those applicants who put their best foot forward."

This screening led to a more qualified pool being invited to training, a higher show rate for training and an extended tenure in the position. The extended tenures also reduced the need for bi-weekly training, which reduced administrative and training costs, overtime for the trainers, and freed the managers to train and develop incumbents, instead of new hires who frequently quit if they showed at all. This added attention to the incumbents continues to extend the stay of employees.

With a higher caliber employee on the floor, referrals were encouraged and a bonus system for new hires was initiated based on retention, not recruitment. The longer the new hire stays, the more bonus the referring employee gets. The word started to spread and word-of-mouth became the most reliable and least expensive source of prospective employees.

So far in 2002, these changes have continued to work. Fifty-seven candidates have been confirmed for training and fifty-four showed. The company at this pace will experience still another reduction of wasteful employee churn.

Extending the Life Cycle of Employees
With fewer qualified workers and higher costs to acquire and retain them, improving productivity is no longer a goal but a necessity for profitability and growth. Likewise, minimizing the drains on productivity is equally important. Many organizations have succeeded in reducing turnover and improving productivity by following one or more of the following strategies:

1. Reduce the number of employees churned in Stage 1.
2. Hire employees who have the ability to ramp-up and move into Stage 2 quickly.
3. Look for ways to accelerate new hire on-boarding - as long as it does not compromise quality and productivity.
4. Keep employees in Stage 2 longer. Remember: it's the only time an employee is producing more than he or she costs to keep on the payroll.
5. Have an identification system in place to quickly identify employees who slide into Stage 3. Initiate mentoring and development programs to "revive" them.
6. And for goodness sake, re-deploy, re-train, or terminate without haste anyone who enters the terminal stage 4.

Ira S. Wolfe is founder of Success Performance Solutions. He is the developer of CriteriaOne™, a blueprint for employee retention and productivity. For more information about how to match, manage and motivate your employees, contact Ira at 717.656.4632, email him at iwolfe@super-solutions.com, or visit his website at www.super-solutions.com.