In this third section covering the business process of effective internal communications, we look at its value to the business. It’s great that it can make employees’ lives more interesting and more personally rewarding, but how does that translate into numbers. First, let’s summarize the process from the beginning.
An Employee Communications solution — also known as an internal communications solution — puts work-enhancing information into the hands of employees on the front line. It also provides a conduit for ideas back to the management team, insights into how information is being consumed, and a means for front line employees to know how their inputs are being received. Such a solution will have several layers of the organization’s members involved at all stages of the process: from implementation to maintenance, to ongoing input of content. The result of such a solution is improvements in employee engagement, employee retention, service and product quality, as well as the very human benefit of a raised quality of work life for everyone.
Some hard numbers
It’s easy to understand that it costs money to train a new employee. Even for experienced hires, it takes time while they get “up to full speed” as they adjust to the new (new to them) work culture, learn unique processes, products, people and customers. Let’s take a conservative estimate that a new employee costs the company 50% of their yearly salary to get up to speed. (That’s 30% of their fully burdened cost, but for simplicity, I’m using the annual salary as the calculation basis here). Studies have shown that engaged employees stay twice as long as disengaged employees. (They are also much more productive, which I cover later, below). Let’s take an arbitrary — and conservative — number of four years of service for a disengaged employee versus eight years for an engaged employee. And for simplicity, let’s use an annual salary of $50,000 for an employee.
Let’s also assume a disengaged employee has a zero productivity rate. (Studies have shown that a disengaged employee can actually have a negative productivity rate, as they undo the work of others, but we’ll stick to my conservative approach). According to the Gallup Organization, many corporations in the United States tolerate a 30% rate of disengaged employees and a 40% rate of simply un-engaged employees. Focusing only on the disengaged in such a company, we’ll spread the cost of that 30% across all employees: a 30% loss of productivity due to disengagement.
|Cost of recruitment: (50%)||$25k|
|Average annual recruitment cost per employee: (÷8)||$3k|
|Average salary investment loss per employee (30%)||$16k|
|Total cost of Employee Engagement per employee||$19k|
So, looking just at the “lost” part of the salary investment — that is, the percentage of an employee’s salary that the company loses because they get no return for it — we see a loss of $19k per employee. That’s just the recruitment cost and does not include the cost of lost productivity.
In reality, every for-profit business hires employees because each such hire can add more value than they are getting paid. Otherwise, there would be little point in hiring anyone, right?
Salaries are just one part of the cost of production. Plant and machinery, leases, trucks, utilities, and the many other business costs — from marketing to manufacturing — all must be recouped ultimately by the productivity of what can be sold to customers. A disengaged employee on the front line therefore, may be costing the company many times the simple cost of their one salary. Clearly, the cost burden of disengaged employees eats disproportionately into a company’s profits. Let’s look at a similar cost analysis of a real world example I am familiar with. A friend of mine owns a construction company. He specializes in high-end kitchen remodels. Whether his customer pays him or not, he has to pay his workers for doing the work. No matter what goes wrong on a project, he has to pay for both the workers and all of the materials he uses, most of it long before his customer pays him. The way he calculates his offer price is all of his costs + 20%. It’s a competitive space, so he has found that to be the optimal markup for his business. The problem is, a single slab of granite counter-top can cost about 20% of a kitchen remodel project, so in one single accident, he can lose the entire gross margin for a whole remodelling project. When a few more things go wrong, as they always do, his kitchen remodel project can quickly run at a loss.
Single points of failure can wipe out the profitability of an entire project.
You might have an excellent market at your doorstep. You might have a killer sales team and the best marketing resources around, and still, a national average level of employee engagement might destroy the entire opportunity for you.
With all the talk of outsourcing jobs overseas, what has happened is, complex production processes have largely remained here in the United States, the UK and other developed, industrialized nations. Those exact industries and manufacturing units that require a high level of employee commitment are those that are most vulnerable to the scourge of disengaged employees.
This century has brought to the surface a new solution to a problem that pervades such complex production environments. That solution is an employee communications system. It ties front line staff with the management team, giving everyone in the organization the knowledge they need to be effective. It provides visibility up and down the organization, brings cultural ownership of success to every single member of the team. All employees are involved because every one of them is there for a reason.