The real cost of attrition – and why purpose is the key to winning the talent war

  • Careers
  • Solutions
  • Herve Duborjal
  • 2022
24 March 2022

Man sitting on bench with computer

COVID has served as a wake-up call for many employees, who are questioning long-standing business ‘truths’, trying to find a better balance between work and home life, and, as a result, looking for more fulfilling, flexible kinds of work.

It is immensely exciting, but, at the same time, it can be nerve-wracking for CFOs. So let me share some of the best wisdom I’ve heard in relation to these turbulent times, which came during a recent lunch with my mother-in-law.

She said that people who leave jobs don’t just disappear – they are looking for something, and that something is purpose – be it a different job that better meets their needs, more time with their family, or perhaps even the chance to do some volunteering.

What this showed me is we need to change our frame of reference. We need to understand the true cost of attrition, yes – but we also need to focus less on ‘not losing people’ and more on actively recruiting and retaining them – fulfilling their need for purpose and becoming great companies where these great people want to work for the long-term.

 

Understanding the real cost of attrition

Firstly, we need to know what we are up against.

Ultimately, while we all know attrition is bad for business, many aren’t aware of quite how bad it is. CFOs, in particular, need to understand the real economic equation here. There are hard costs, from hiring, ramping up the sales force, and so on.

But more importantly for high-growth businesses, there are soft costs that are both harder to predict and to attribute, not least business velocity on deals, opportunity cost, culture dilution, and productivity. Revenues and Opex are affected, too, while growth friction can be immensely expensive.

I’m a numbers man, so I’ve tried to formalise this equation. Normally, you would calculate turnover by adding together the costs to cover a vacant position, the cost to fill that position, as well as onboarding and orientation costs – not to mention the cost of ramping up productivity. You typically get into a 5-7 months of salary cost on average. 

But in high-growth scenarios – companies growing at 20%+ year-on-year, such as ServiceNow – that calculation does not work. You do not have the capacity to cover for vacant positions: it falls on the existing team – or is simply lost.

My rough calculations show that every percentage point of attrition above 10%, on an annual basis will ultimately cost 50 basis points (bps) of growth for a business. So, if you hit 16% attrition, you cost yourself 300bps – and that is without the other costs for hiring and onboarding, too.

To generalise, this equation means anything below 10% attrition is manageable. Up to 15% is tough. And above 25% will quickly cause any high-growth organisation to crumble. 

 

How to attract new talent

Secondly, let’s proactively solve this and focus on the positives. In my mind, there are a few key factors.

·       We need to nail the basics of management.

People don’t leave companies, they leave bad managers: the more you can get the fundamentals right, the more likely you are to retain talent.

With informal conversations at the coffee machine happening less in the new world of work, you need to think about how to create new spaces – both formal and informal – for clear communication. That includes collaboration spaces to communicate, and more formal time for goal-setting and development conversations

·      We need to change how we look at hiring.

At present, all high-growth companies are competing for the same pool of skilled workers, and this isn’t sustainable. By fighting over limited quantities of workers, all we’re doing is forcing up prices. And in some specialist roles, these ‘ideal’ positions may not even exist, making it a pointless task.

The thing is, a lot of talent exists out there – it just isn’t cultivated properly. The answer is to hire on potential, not for existing skills. We need to give people a shot and tap into new sources of talent.

One example of this is our NextGen programme: our Youth Development stream, for example, focuses on creating apprenticeships to train young people outside of university with the right skills they need to succeed in the world of work.

·      Finally, we need to generate new demand amongst candidates, and highlight how our businesses are driving change.

 

The opportunities for purpose driven growth

Whatever the role a given candidate may be seeking, the main driving force behind that search is purpose: the role needs to be fulfilling for them. For me, for example – and for many within the wider finance team – it’s the role of being a strategic enabler for the whole business that gives me purpose.

An organisation’s growth ambitions, and its culture too, are also strong factors. As I said before, the talent equation is no longer a simple case of calculating the loss of an unfulfilled role versus recruitment fees, it’s about weighing up all the positive purpose aspects of a role.

We in the finance department have a big role to play in the future of business. We’re stewards of transformation, guiding what happens, how fast it happens, and the tools and processes that make it a reality.

As a CFO, I’m keen to ensure we measure every aspect of our transformation and create a fulfilling purpose for all employees.

So if you want to be a part of that journey with ServiceNow – or know someone else who does – I would urge you to visit our careers portal here.

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