In our line of work, we have lots of conversations with business owners, CEO’s, leadership teams and managers about different aspects of their organizations. One of the primary concerns is often around answering the question, “How do I grow my organization?” While many leaders expect us to answer this question with discussions of increased sales, more effective marketing and decreasing expenses, we will often discuss that the greatest way to scale their organizations is by growing their people.
This is not an answer they expect, and not always one they readily receive.
This hypothetical conversation reveals a common myth that states investing in the culture of the organization may make those employees happy, but that it will not do much to grow the business as a whole.
To dispel this myth, let me first begin by discussion the negative impacts low engagement has on an organization. To do this, I am going to talk about the cost of disengagement in two cost “buckets”; turnover costs and disengagement costs.
This article titled, “How Much Does Employee Turnover Really Cost?”, published in 2017 in the Huffington Post gives us a calculation of how you can quantify the impact of your employee churn. They even give you a tool to find out this cost of turnover specifically for your organization. Their calculation goes like this:
Furthermore, the Center for American Progress study found the following turnover costs to be consistent across the business landscape.
As you can see, the higher the wage, the more exponential the cost to replace that individual will be. This means that for highly skilled positions the economic cost of turnover for that employee is, “213% of the cost of one year’s compensation for that role.”
Josh Bersin, a global analyst for Deloitte reveals that the greatest hidden cost for high-turnover organizations is the loss of potential economic value to the organization over time. In the following image, Josh illustrates that there is a significant amount of time invested into each employee before you begin to see returns on that investment, and the longer an individual stays and is engaged with an organization, the higher the economic return.
The second cost bucket to address is the high cost of disengagement when an individual doesn’t leave, but stays within an organization and is actively disengaged in their work. Active disengagement is defined as someone who is “unhappy and unproductive at work and liable to spread negativity to coworkers.” If you remember from our first post in this series, it is estimated that 16% of the current workforce falls into this category.
Gallup estimates that, “an actively disengaged employee costs their organization $3,400 for every $10,000 of salary, or 34 percent. That means an actively disengaged employee who makes $60,000 a year costs their company $20,400 a year!”
In addition they state that the 16% of actively disengaged employees cost the U.S. $483 billion to $605 billion each year in lost productivity.
These are staggering numbers for any organization to swallow.
The good news is that Gallup’s State of the American workforce study proves that when you focus on growing your people, everything else grows too. Illustrated below are just a few of the benefits high performing cultures experienced as their culture thrived.
So, let me ask again, is engagement just about making employees happy?
Clearly the answer is no.
It is important that all organizations focus on not just working to make employees happy, but to help create environments where engagement is key. This data makes a compelling case that maximizing the human potential in our organizations must be the primary goal if we care about the growth of our organization.