Community » HR Forums » Human Resources » Attrition and Retention» ROI Approach to Retention
ROI Approach to Retention

January 2, 2017 01:55 AM 1
Total Posts: 13
Join Date: March 5, 2013
Rank: Executive
Post Date: January 1, 1970
Posts: 13
Location: India

ROI Approach to Retention

In the middle of a win-or-lose situation, no one wants to hear a team member exclaim, "I'm taking my ball and going home!" - especially if that "ball" is talent. Still, senior executives often hear some variation of this statement in their organizations, despite efforts to prevent it. Finding a successful talent retention approach requires shifting paradigms, changing perceptions and throwing out old habits. Outdated talent retention approaches have created six distinct problems.
1. Proactive versus reactive approach
Many organizations react to the retention issue by addressing it only when a problem arises. When they do react, they often develop enormous incentive packages to entice key employees to remain onboard. This creates a financial burden, as it costs the organization more to retain these employees than to benefit from them. A continuous improvement process cycle can help focus on consistently bettering the current talent retention situation.
2. Too many preventive programs
The philosophy is often this: If enough programs are implemented, eventually one will maintain staffing at the appropriate level and eliminate unnecessary turnover. Without program accountability, implementation results may never be known.
3. Keeping up with the Joneses
Many talent managers continually search for solutions. They try to find programs that have worked for other organizations through workshops and conferences. This approach often results in failure without proper problem analysis. An upfront evaluation can identify specific turnover causes.
4. Too many solutions
When employee retention is identified as a problem, too many organizations, even successful ones, base their solutions on an excessive number of strategies. Turnover is a complex issue with many influences. Too many solutions can burden the organization with new, costly programs with minimal, if any, results to show for them. The objective should be to allocate resources only to those that are most effective.
5. Mismatches
Too often, a solution does not address the retention problem. Perhaps there is insufficient information to provide a clear understanding of the solution required. Perhaps the wrong solution is selected or it is improperly implemented, resulting in a lack of added value. To avoid mistakes, clearly match solutions to needs.
6. Lack of payoff
When an expensive solution is implemented, management should know whether or not it made a difference. A process is needed to measure solution results from a balanced perspective. Collect different types of tangible and intangible data so management can clearly see the impact of major retention strategies.
An ROI Approach
An eight-step approach talent leaders can use to strategically promote accountability when managing talent retention.
1. Measure and monitor turnover and retention data.
Six issues need to be addressed to properly monitor and measure turnover.
a) Appropriately define turnover.
For many organizations, turnover is voluntary. For others, it stems from resignations and terminations based on unsatisfactory performance. Perhaps the cleanest definition is "avoidable turnover." It is important to define turnover and match its definition in benchmarking studies, industry reports or trade publications.
b) Report turnover rates by various demographics.
It is important to report demographics that account for differences, enabling patterns to develop and be analyzed.
c) Report turnover by critical job groups.
Employee groups that design, develop or deliver essential products and services or require special skills often in short supply should be monitored and tracked separately.
d) Report turnover with costs.
While actual turnover rates and percentages are reported monthly or yearly, additional reporting of actual costs can be more effective. Because various components of turnover cost appear in different cost statements, it is important to bring the total cost of turnover to the senior management team's attention.
e) Compare data with benchmarking targets.
It's important to compare turnover data in multiple ways:
1. Within the industry to show how the organization stacks up with others in similar situations.
2. A custom-designed benchmark project to best-practice firms.
3. A historical comparison is critical.
4. A comparison of expectations from the division manager, senior team or plant manager, to understand when a measure is not working.
f) Develop trigger points for action.
When should an alarm sound? Is turnover a rising trend or a sudden spurt? Is the measure going up when it should go down? Each of these could signal action necessary to begin exploring clauses and creating solutions.
2. Develop fully loaded turnover costs.
Turnover is often misunderstood because it does not reflect the actual costs of a turnover statistic, nor is it regularly reported to the management team. Further, it can be alarming to management when fully loaded costs are calculated for the organization for an entire year. In one technology-based organization, turnover costs were estimated at almost $2 billion with revenues of $20 billion, a frightening amount when considering the total impact on the organization.
In some turnover studies, only costs for recruiting, selection and training are considered. These are easily calculated and consequently result in underreporting.
3. Diagnose causes and needs for retention improvement.
Some causes may be obvious, while others remain elusive. Collecting appropriate data is often a challenge because of the potential for bias and inaccuracies that surfaces during the data collection process. Several diagnostic processes are available, such as exit interviews, exit surveys, force field analysis and affinity diagrams. Nominal group technique is an effective tool to understand the causes of turnover.
4. Explore a range of solutions.
Organizations are often creative in their approaches to turnover problems, but too many potential solutions can cause confusion. Ensure a solution is feasible for the organization.
5. Match solutions to needs.
This step goes hand in hand with forecasting the value of solutions, because the solutions selected for implementation are assumed to meet specific needs, making the forecast of the anticipated value imperative. When attempting to match solutions to need, consider four key issues:
a) Avoid mismatches.
b) Discourage multiple solutions.
c) Verify the match early.
d) Check the progress of each solution.
6. Forecast ROI of retention solutions.
Developing a forecast for a solution's value allows the team to establish priorities and focus on solutions with the greatest return on investment. When forecasting, accumulate as much data as possible to establish credibility for the process. Ideally, the forecast will offer a range of possible ROI values, given certain assumptions, which removes some of the risk of making a precise estimation.
7. Calculate ROI for retention solutions.
From a senior executive's point of view, accountability is not complete until impact and ROI data have been collected. Develop different data types to illustrate turnover reduction strategy. This ensures the value of the strategy is clear and enough data are developed to identify improvements. These data include:
a) Reaction to the solution and satisfaction with it.
b) Skill and knowledge acquisition.
c) Application and implementation progress.
d) Business impact improvement.
e) Return on investment, expressed as a financial ROI formula.
f) Intangible measures, not converted to monetary values.
This strategy also includes a technique to isolate the effects of the retention solution.
8. Make adjustments and continue.
The extensive set of data collected from the ROI process will provide information to make adjustments and changes in turnover reduction strategies. The information reveals the success of the solution at all levels and examines the barriers to success, identifying specifically what kept the solution from being effective or prevented it from becoming more effective. Further, it identifies processes that enable or support a turnover reduction solution.
Managing talent is an important and expensive exercise for an organization. Ensuring the right talent is retained is part of that process. Too often resources are allocated to talent retention with minimum concern for the impact the investments have on retention itself. An ROI approach has many advantages and is recommended when there is concern with preventing or reducing turnover from its current level.  

[About the Authors: Jack Phillips, Ph.D., is chair of the ROI Institute Inc. and developer of the ROI Methodology. Patti Phillips, Ph.D., is president and CEO of the ROI Institute Inc.