In 2021, content is king, in the private as well as in the professional sphere. For the end of a contract or an offboarding, this valuable content is the experience acquired by the employee.

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

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In a business world where management is “becoming horizontal”, the employee empowerment and their position are increasingly encouraged. This, even for the most “junior” populations (trainees or work-study students for example). Are managers at the origin of this evolution, or are the most recent generations imposing new rules of the game? The difficult question of the chicken or the egg... (even if at Komin we are convinced that the egg is the engine of managerial innovation - Gen Y and Z in particular).

The evolution of management methods is a good trend for organizations. It leaves more room for taking initiatives and empowering employees. It is in this context that an employee asserts himself in the realization of his missions.

It highlights a risk for businesses: the more good initiatives an employee takes, or the more ingenuity they are in carrying out certain tasks or missions, the more difficult they are to replace. While the principle that “no one is irreplaceable” in business is true in absolute terms, the recent evolution of management methods reveals one hidden cost of Turnover when replacing employees: the loss of an employee's knowledge or best practices (who would have held a post for 6 months, 18 months or several years).

This knowledge is the result of an iterative process and professional experience acquired by dealing with concrete problems on a regular basis. This experience is a content with very high added value,

Replacing an employee always involves a risk of loss of knowledge for the company, and therefore a problem of job sustainability and productivity. This is all the more true today.

Preparing for the end of a company employee's contract, means anticipating several challenges: management and corporate culture challenges with respect to the remaining team, data security challenges and many others.

Most often, when we imagine the departure of an employee, and therefore his replacement, we anticipate direct costs : the cost of recruiting, the time spent sorting CVs and planning interviews, the time spent in conducting interviews, etc.

Since always, there is another indirect cost that has increased since management became horizontal: the drop in productivity. With the departure of an employee, the risk of losing the experience gained is high. This content, or this experience, allows the successful completion of exhaustive and recurring tasks in the employee's position. This hidden cost of turnover lies in the time needed by the newcomer, and the team more generally, in order to be fully operational, individually or collectively.

Therefore, in the context of the end of a contract or the replacement of an employee, there are direct costs and indirect costs. The former are the most predictable, this is the tip of the iceberg, the others are rarely addressed and cost up to more than €10K in reduced productivity for a single replacement.

Oxford Economics has carried out a study on the cost of turnover in companies. The reputation of this organization is well established, it is one of the leaders in the provision of economic analysis and forecasts. By looking at offboarding, they thus encrypted the “emerged and submerged parts of this iceberg called turnover.”

To do this, they interviewed more than 500 companies, of different sizes and in 6 different business sectors: Distribution/Commerce, Finance/Accounting, Legal, IT/Tech, Media/Advertising. This study only focuses on 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 decrease in productivity of the vacated position, and for 16% linked to recruitment costs and other “logistical” costs

There are many lessons to be learned from this study.

First of all, Oxford Economics distinguishes between two different sub-costs. The first is The “loss of productivity” of the position, equivalent to the time needed for a newcomer to be at an optimal level of productivity. The second is “logistics” and concerns Expenses incurred to deal with the situation (recruitment agency, managerial time invested during interviews, etc.). Based on 100% of the total cost of a replacement, Oxford Economics estimates that the former represents approximately 84%, against 16% for the second.

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

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This drop in job productivity can obviously correspond to the time during which the position is not filled, but it mainly corresponds to the time it takes for the new collaborator to gain skills in his position.

It is interesting to note that Oxford Economics has identified 3 parameters influencing this average delay for an “onboardee” to reach an optimal level of productivity:

1. The sector of activity of the company joined (the complexity of the information to be assimilated would be different depending on the sector)
2. The background of the newcomer (from the same sector, from another sector, young graduate or without prior activity)
3. The size of the company (we would learn more quickly in a smaller structure in contact with management)
   

Below, the graph shows the Average number of weeks for a new employee to reach an optimal level of productivity in 6 different business sectors. This value depends on the background of the candidate: whether he comes from the same sector of activity or worked in another, if he is a young graduate or a person with no professional activity.

The following graph shows numerical values of Cost of reducing productivity in the context of replacing an employee. This cost is therefore the indirect one mentioned earlier. While the precise amounts of these values can be discussed, they nevertheless bring a more tangible character to this indirect cost, and appear to be very interesting because of the orders of magnitude they present between the sectors of activity concerned and the background of the employees!

Thus, if ever by recruiting an employee from same sector of activity, a company can claim to suffer “only” from a cost of around €5,000 of drop in productivity in the distribution sector, this amount amounts to just under €12,000 if he comes from another sector of activity ! 😮

← Finally, at Komin, what we allow is for these 2 curves (cost of an employee's salary vs the value he creates) to intersect as soon as possible after integration.

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By working with Oxford Economics to retrieve the study data, we are offering you the opportunity toestimate this annual productivity cost associated with the turnover of your workforce.

This cost is therefore directly linked to the time required for each new employee to reach an optimal level of productivity. This cost is perverse because it is not included in any budget. and you never remember to pay it because it's not billed. This cost is equivalent to operating income that would go up in smoke., a little at each departure of an employee during the year.

Our objective is neither to point fingers at companies with an average or high turnover rate nor to affirm that this cost can be fully converted into operating income, but rather to offer an alternative to the status quo, in order to better understand the management of the departures and arrivals of employees in the company.