What business are you in?
Ask most people in business this question and they will light up and start to tell you about what their business does? Be it the goods they produce or the services they deliver (or what we call thinguns). The relevance of their offering to their clients will likely be the thing they are most passionate about, their reason for being and what brings them back day after day.
Additionally, thinguns will generally be the lifeblood of the business and from a profitability perspective will largely determine whether the business is doing well or otherwise. And how do we know this? Well, there is evidence to support it via the numbers! The talk is always about the numbers be it talking about Sales, Revenue, Expenses, Margins, Growth or Profitability. And we are told the numbers don’t lie and maybe they don’t lie, but they do hide things!!
Most businesspeople/owners can recite their sales volumes, their margins, the rate of company growth etc because in the main these are the lifeblood of the business. They are tangible numbers that have their own separate line item on a balance sheet or income statement. They are the measures they can impact and what they tend to discuss with their business partners and trusted Accountant.
I would however contend that most businesses are in the people business. And whilst AI and automation continue to emerge exponentially, in the main, people still deal with people. And it’s an organisations people who determine to a large extent whether the business is a success or otherwise.
The challenge however is that whilst we can measure the performance of the business via Sales and Income and Revenue and Costs, with each having a separate line item in the financials, we generally struggle to measure the impact people have on our business. And why? Well because the cost to the business is not nicely packaged up in a separate line item in the financials. Aha, this is where the numbers don’t lie but they do hide things!!
And this is where the opportunity or threat lies. So, what am I talking about?
What we call the holy trinity of people metrics. Engagement, Turnover & Personal Leave
Staff turnover
Do you currently measure turnover? Do you know what it is costing you?
I recently asked a Chief Financial Officer of a company what the turnover rate for their business was and he couldn’t tell me. I also asked him where the cost of turnover is in the financials, bearing in mind for many businesses, staff are one of the biggest costs.
Well, it doesn’t have a separate line item, but its impact is sprinkled all through various line items in the financials. It isn’t all bad, just mostly bad.
So where does it appear? Well whilst your salaries budget may be reduced whilst you look to recruit a replacement, it is negatively impacting other areas of performance. Sales will be down, others will be required to pick up the slack, the likely cost of the replacement will be higher, they will then need to be trained and then there is the lag period until such times as they are able to operate by themselves and are productive.
In a 2020 survey CultureAmp stated the cost of turnover for business could range anywhere between 30% and 200% of the individual’s salary.
Engagement inc Culture & Leadership Capability
Do you measure engagement? Do you measure your culture? How capable are your leaders? What is it costing you?
Well, if you don’t measure them, you should. And if you do measure them, how are you performing?
Again, these items don’t have a separate line item, but their impact is on a number of areas in the financials. Loss of productivity, presenteeism, staff complaints are all costs to the business but are difficult to quantify
Forbes estimates the cost to business of these 3 items to be 33% of an individual’s salary, each year, every year
Personal Leave
Do you manage personal leave?
Whilst personal leave is an ‘entitlement’ it does represent a cost to business and whilst the majority of leave will be legitimate, it can be a warning sign of a disengaged staff member.
And remember a disengaged staff member can cost up to 33% of the individuals salary, and that doesn’t consider the loss of productivity for the days of personal leave they take.
So, three areas that will be negatively impacting your business today, yesterday and tomorrow and will continue to do so. And I suspect these metrics will not be getting the level of attention they deserve. The question is now you know, what to do?