John Gering
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In September of 2000, Paul Rutledge, President of HCA's MidAmerica Division, initiated
action to make the division’s 19 hospitals become the employer
of choice in their respective markets. A history of tactical programs
had proven to be ineffective. The time had come to implement a comprehensive, mission-oriented employee
recruitment and retention strategy.
Nashville-based consulting firm CG&A was asked to construct the
strategy and support its implementation. With specific focus on the business
plan, value proposition, progress measures and management influences, the
following strategic model was applied to secure sustainable employee retention
gains.
The best approach to retaining and recruiting top-notch employees
starts and ends with
marketing.
It is
about making your facility so attractive that the best talent in your market
wants to work there. Hospitals spend great effort in marketing their facilities
to attract patients and physicians. That same
diligent effort must be put in place to attract and keep employees.
Although retention gets a lot of discussion, it is not something that everyone embraces.
In any facility, there are departments that
have high turnover and departments that have low turnover. We say that turnover
has a high cost—but it may be difficult to find
evidence in your financial reports.
Consequently, gaining the buy-in and support
of those unaffected by the problem can be difficult.
If your institution is to make progress with retention and
recruitment, the issues have to be addressed on a higher plane. The issue requires
a strategic focus.
A strategy contains
a quantified problem and measurable objectives.
A strategy starts
with a business plan and an expected ROI.
An effective retention strategy is built around a value proposition (or marketing proposition) to employees and
prospective employees. Good managers are good because they take a process
approach to solving problems. To achieve worthwhile
results, the recruiting and retention problem must be treated the same way.
Starting
with a business plan will create focus for your
retention strategy. During the process of plan
development, people begin to understand the cost of turnover, the consequences
of turnover and the direction to be taken as you begin to solve your particular
retention issues. Just as importantly, the business
plan will answer the questions:
Do we have a problem worth solving?
(and/or)
What can we afford . . . to solve the
problem?
As
mentioned earlier, the cost of turnover is difficult to determine because
actual costs do not show up in a financial report line item. Many highly
credible HR consulting firms have analyzed the cost of turnover. For instance, the
Saratoga
Institute says the cost of turnover is determined
by counting 50 percent of the annual salary and benefits (for exempt
employees; 35 percent for non-exempt employees). Other firms have determined that up to 150 percent of annual salary is a defendable
cost estimate.
When we began to develop the business case for the MidAmerica
Division of HCA, we used two
measures. One was ultra conservative, using only those costs that could be
identified as direct costs, such as advertising, background checks, drug
screens and processing in/out cost. Those costs were determined to be $5,000 per turnover. We used the Saratoga formula as a high-end cost. It was not as important what number was used, only that the
number gained consensus from leadership.
At HCA, 100 percent of
salary (for both exempt and non-exempt employees) now is used across the
corporation to determine cost. (The company dismissed the $5,000 per turnover
number after looking at additional costs.) In addition to the cost elements
already described, temporary replacement costs (contract labor, PRN, overtime)
that inevitably occur while you have the opening must be comprehended.
The Advisory Board
reports that 79 percent of the cost of turnover is productivity related. When
an employee is planning to leave, productivity declines. As a new employee,
ramp-up time is required for optimum productivity. The productivity of other
employees is impacted, as they become the on-the-job-training (OJT) resources
for the new team member. Part-time replacement personnel are typically not as productive
as full-time, tenured employees. Quality is impacted that could have severe
ramifications when considering patient care and safety.
Other
elements of cost to consider: transfers (transfer requests go up as employees
in a department or unit become dissatisfied--they seek relief from the
department or manager, but not from the institution), absenteeism and
tardiness. Employees committed to the
institution come to work on time. Those
employees who are looking for the next best place to go predictably miss work
and time leading up to their departure.
Search firm fees, training (or better said, re-training), severance and
sign-on bonuses also enter into the formula.
Add recruitment and interview time.
Unfortunately, legal costs must be considered
in many termination instances.
In
determining the cost of turnover, both the expense line and the revenue line
must be evaluated. We know a top physician satisfier is the competence and stability of staff.
If a physician sees the same staff members routinely and has confidence
in their ability (based on previous experiences), the doctor is likely to
continue to bring patients to the institution. If a physician sees new faces as
the norm, new people in a constant training
mode, then he/she can easily direct patients to
competitive institutions.
It is important to understand how much a point of market
share is worth to the facility. Let us say your annual revenues are $300
million, and you currently enjoy 30 percent market share. Each market share
point is worth $10 million. If employee turnover causes physicians to send
patients elsewhere or the potential risk exists, the financial consequences of
these defections should be reflected in the business plan.
Once you determine the costs of turnover, you begin to understand
the financial benefits of reducing it. At the same time, even though we
establish the financials in order to quantify the problem, cost is not the primary reason for creating a turnover remedy. Patient care is the reason.
Long-term employees acquire experience through
experiences. They know what to do if something goes wrong. The longer you can
retain an employee, the greater the potential benefit to the patient.
Cost is not the primary reason for creating a turnover remedy.
Patient care is the reason.
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At this
point, you should have gained insight into the specific areas affected by the
turnover problem. At HCA, we found the average tenure of the turned employees
was around two years. Across the
company, we found that 20 percent had tenure of 90 days, 70 percent tenure of
six months. These statistics are consistent with
other industries. Relationships and emotional investments go a long way
in keeping people. New people do not have those magnets. Consequently, even
though they sign on, they continue to look for the next best opportunity,
either in terms of growth, opportunity, money or schedule.
The next decision is: How much will you have to spend to achieve this
newfound opportunity? The components of the cost are in three primary areas:
Compensation must be competitive within your
served market area. You must know, with regard to the critical positions of
your institution:
- Are you at market or below?
- Are you at market with your tenured employees but below market with new hires?
In the
context of the overall strategy, if your institution is a "great place to work"
compared to your competition (i.e., training, resources, technology, work environment, staffing, scheduling),
you may be able to pay less than your competitors do. If your
competitors have the edge (in work environment), then your only advantage will
be with compensation. Initially, target your compensation to be consistent with
your market and have a work environment that is competitively distinctive.
The fact is:
If your retention strategy is based solely on
compensation, your strategy is destined to run out of steam every payday.
The Gallup Organization
states that 70 percent of employees quit
their manager, not their company. Exit interviews continue to validate this assertion.
Consequently, management
development is essential to an effective strategy. The management
development investment must be included in the business plan. Costs can be determined by capturing the cost of
curriculum/materials, printing, instructors, facilities, time away from job
(including possible back-up requirements) and travel. The American Society for Training and Development
has conducted many studies within companies that have strong commitments to
training and development and has reported the following annual expenditure
standards:
Table 1: Training Expenditure Rates
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Training expenditures as a percentage of payroll
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2.88% |
| Training expenditures per employee
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$1,526 |
| Average training days per employee
|
4.00
|
| Average
cost per training day (per employee)
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$382
|
| Training expenditures as a percentage of revenue |
.52% |
The final primary cost component is marketing communication. It is somewhat easy
to understand the first two components of cost
(compensation and training) but some might ask—what is this need for
marketing communications? Employees first must understand that the institution
values them; they need to understand the institution wants them to be satisfied
and retain them. Employees need to understand that although we talk and put a
lot of focus on patient satisfaction, physician
satisfaction and financial performance, we will never
obtain any of these through dissatisfied, disloyal, inexperienced, untrained
employees. If anything good happens, it will be through the efforts of
the people of the institution. Employees need, first and foremost, to
understand this principle.
Although we talk and put a
lot of focus on patient satisfaction, physician
satisfaction and financial performance, we will never
obtain any of these through dissatisfied, disloyal, inexperienced, untrained
employees. If anything good happens, it will be through the efforts of
the people of the institution.
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Next, employees need to understand what you
are going to do about
it.
-
What are the vision, direction and guiding principles over
the long term?
-
What should employees expect, what should they not
expect?
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What is the status of our vision (as we progress)?
-
Where are we going, and how will we know when we get
there?
-
How are we doing (are we on track, or off)?
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If off track, what are we going to do differently?
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What is expected of the employee?
These questions require answering in a structured and scheduled
manner. Do not assume the employee and staff automatically
know.
In addition, a strong communication plan
imbeds an element of accountability into the process. Employees then can say,
"If you say this is what you are going to do . . . then I’m going to watch and
make sure you do it!" and "I’m going to give you feedback when you don’t."
In determining the cost for such
an effort, you must comprehend creation time, execution elements (i.e., web site, print, direct mail,
posters, focus groups), recognition, etc.
Once turnover and remedy costs are validated, you compute the varying
returns realized at varying levels of turnover. Establish reasonable short and
long-term goals, then implement.
The MidAmerica Division of HCA established a long-term target
to be at the national healthcare turnover rate, which at the time was 19.2
percent. Division turnover had been at a 30+ percent rate. Certainly, the target you establish should comprehend the
performance of your market competition. It serves no purpose to be at
19.2 percent (for instance) if your competition is realizing 12 percent. You
are seeking to establish a reputation as the best place to work.
You seek to have the best talent want to work in your facility.
Retention is a vehicle to provide evidence of that fact.
Your
value proposition (or your marketing proposition) must have two compelling
components that your facility:
- Can satisfy an explicit need, and
- Is competitively different.
It is
easier if you know what these unique factors are, but
if you don’t, conduct employee focus groups and/or review your exit
interview data. You want to understand what
the perceived attraction was in the beginning. Has this perception proven
true?
A value
proposition is about showcasing strengths. There is plenty of additional
supporting data to help you as you formulate your proposition. We often reference a study conducted by the Hay Group: Why
Productive Workers Leave – Seven Suggestions for Keeping Them. This study focuses on what the best think and what is most
important to them. In this study, Hay reports that one-third of the
employees surveyed plan to resign within two years.
They report that in the last five years, employee attrition has surged
by more than 25 percent. It is one thing to lose employees, but quite another
to lose your best; the ones that are the most productive, produce the highest
quality and lead others to do the same.
This
particular study focuses on what the best think, what is most important to
them.
Table 2: The Relationship Between
Job Satisfaction and Attrition
|
Satisfaction
with:
|
Employees
planning to stay for more than two years (%)
|
Employees
planning to leave in less than two years (%)
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Gap
(%)
|
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Use of
my skills and abilities
|
83
|
49
|
|
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Ability
of top management
|
74
|
41
|
33
|
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Company
has a clear sense of direction
|
57
|
27
|
30
|
|
Advancement
opportunities
|
50
|
22
|
28
|
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Opportunity to learn new skills
|
|
38
|
28
|
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Coaching
and counseling from one’s own supervisor
|
54
|
26
|
28
|
|
Pay
|
51
|
25
|
26
|
|
Training
|
54
|
36
|
18
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What causes employees to stay? Research indicates the following:
- Effective leadership with a clear vision, mission and purpose.
- The opportunity to use all of their skills and abilities and develop new ones, which ultimately lead to advancement opportunities.
- They want help from their supervisorsand others.
- And yes, they expect to be competitively paid.
If these needs are met, the employee desires to
stay; if they are not, the employee will seek to satisfy these needs elsewhere.
The Hay Group further reported "Seven
Things Companies Can Do To Reduce Attrition:"
- Show them you care.
- Be lean – but not mean.
- Walk the talk.
- Measure "soft" skills.
- Fight attrition with smart training.
- Weed out poor managers.
- Eliminate weak performers in non-management ranks.
Managers
show they care by actively demonstrating a genuine interest in their employees’
development and success. Employees appreciate that companies must run
efficiently, but not at the expense of making people
feel that their contributions are insignificant. Most companies proudly display
their corporate values. However, employees watch for behaviors. Said another way:
The gap between the words and the behaviors of the
company is the measure of employee dissatisfaction.
Companies
often place great emphasis on a person’s technical knowledge or skill, but it
is typically that person’s aversion to being on time, working well with
customers and co-workers and/or quality of work (behaviors) that spell their doom. Employees desire these behavioral
contributions to be valued considerations.
Training
should be conducted with a purpose. It should prepare
the person for what they will be expected to do in the context of their job,
something they will be held accountable to, something they will be rewarded for
and something that will support their advancement.
The last
two areas are especially intriguing. The Hay Group reported more than half of
employees surveyed said they believe their companies routinely tolerate
poor performance. The "best" would
rather take on more responsibility than have
to work along side of those who care little about the company, the customer and
others. They want to win and winners want to work with winners. In a recent
exit interview report submitted by J. Walter
Thompson, over 4,000 former employees were asked why they joined in the
first place. The top reason was, "good career opportunity." The top two reasons
they left were "the manager/supervisor and better career opportunity."
So how does this all work together to improve employee
retention? Employees desire that their personal and practical needs be
met. We must get the compensation, benefits and scheduling
right. Practically speaking, employees desire training, development,
resources, tools and technology. In addition, they want to be seen and treated
as valuable to the institution - demonstrated with actions. Therefore, these
critical imperatives become the foundation of the value proposition. They are
brought to the forefront through the vision, mission, values and strategies.
They are defendable through explicit evidence and results, which are published
and openly shared. Employees are treated in a way that leaves an indelible
impression of the quality of the institution.
All of
this is easier said than done, but the value proposition is where it starts. It
is the stake in the ground.
It is
often unrealistic that you can achieve this desired state in one grand swoop.
You must set the path and establish the milestones. Determine
those things that will predict your results along the way. There are many
quality consulting companies that measure employee satisfaction and engagement.
HCA has used Gallup for some time, not
only to measure employee satisfaction, but patient and
physician satisfaction as well. After many years of surveying hundreds
of thousands of employees across numerous industries, Gallup has been able to draw direct
correlations between responses to their Q12
questions and the predictability of employee
retention, productivity and profitability.
Gallup's workplace research has
identified 12
questions that measure employee engagement. They have been consistently
correlated to relevant business outcomes, including retention, productivity,
profitability, customer engagement and safety.
The Q12
- Do I know
what is expected of me at work?
- Do I have
the materials and equipment I need to do my work right?
- At work, do
I have the opportunity to do what I do best every day?
- In the last
seven days, have I received recognition or praise for good work?
- Does my
supervisor, or someone at work, seem to care about me as a person?
- Is there
someone at work who encourages my development?
- At work, do
my opinions seem to count?
- Does the
mission/purpose of my company make me feel like my work is important?
- Are my
co-workers committed to quality work?
- Do I have a
best friend at work?
- In the last
six months, have I talked with someone about my progress?
- At work, have
I had opportunities to learn and grow?
Gallup Q12 is consistently accurate.
Organizations/managers that score high in these areas predictably perform very
well, while low scores confirm poor performers.
In order
to effectively implement a strategy, it should be loaded with in-progress
measures. Critical events, actions and activities that will accurately predict
the end result should be tracked and reviewed along the way.
There are other factors that can offer great insight into
your employee retention initiative. Earlier, I
mentioned absenteeism and tardiness. Both are credible indicators of
employee defections. Consider employee contributions to 401K programs or
company stock purchase programs. Employees
committed to long-term relationships will invest their
money in the company retirement vehicle.
A manager’s ability to forecast turnover also is a good indicator. Accurate forecasting
indicates understanding of the mindset of the manager’s team members. When
every departure is a surprise, clearly a lack of connection is indicated.
Softer measures might include ability/inability to
recruit volunteers for community or special no-pay projects. People’s
willingness to wear their company’s name in the community also will be
revealing.
- Do you sell a
lot of company hats and shirts with logos?
- Do your
employees actively participate in recruiting their friends into your
organization?
Collectively, these and other indicators will accurately
predict the long-term success of your retention strategy.
Very often,
when it comes to training
managers, companies focus their efforts on training management skills, i.e., coaching, delegating,
communicating, etc. They train so they can say they
trained and to "check it off." Training
should prepare managers for what is expected to be implemented. The training
goal is to communicate the standard for what "good" looks like, with the
expectation of accountability to that standard. Without an effective process to
ensure accountability, people take away little and implement even less.
Again, we took our lead from the Gallup data. Over years of observation, they
determined the best managers select
people, set expectations, motivate and develop people. Other companies support these fundamental platforms
as well, reporting that the best managers have highly effective performance
management processes. They are able to clearly distinguish between excellence,
acceptability and unacceptability. They use reward systems that effectively
recognize achievements. They motivate through
reward
and recognition, but as importantly, they work to eliminate the things
that de-motivate people. A relentless pursuit to make the job easier is their
goal. An effective performance management process is the tool.
What do the best organizations do to attract and retain good
people?
- They take a strategic approach.
- They plan and expect an
acceptable return on investment (ROI).
- They provide compelling
reasons why employees would want to be a part of the organization.
- They look to satisfy the
personal and practical needs of the employee.
- They operationally behave in
a way that demonstrates the value of each employee.
- They execute management
processes that provide daily engagement and advancement for the employee.
- They provide focused reward and
recognition.
- They take action on the
unacceptable, dealing equally with technical and behavioral deficiencies.
Quick
fixes, tactical activities and actions might have immediate or short-term
success, but for long-term, sustainable, marketable success, only the strategic
approach will do. The strategic approach will deliver a culture change and it is a retention culture you seek in order to
sustain and grow your business.
In case you wondered, how has the MidAmerica Division of HCA done
so far? The first year, 42.3 percent improvement in employee retention and a
26.7 percent improvement in employee retention cost!
John Gering is a partner
in CG&A LLC, a management consulting firm in Brentwood, TN. As a former,
long-time executive with Xerox Corporation, John’s positions included regional
general manager and national product marketing manager. He now shares his
expertise in strategic planning, marketing, training/development and other
critical management functions with leading healthcare companies and other
industries. John also has significant experience in Total Quality Management,
maintains several quality tool certifications, and earned a national team
excellence award. He has been retained by HCA’s MidAmerica division to serve as
manager of organizational development. Contact John at john.gering@cgaa.biz.
This article first appeared in the November 2002 edition of Healthcare Financial Management. For more about
HCA’s management development strategy, click here.
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