Did you Budget for Turnover?

As you prepare your budget for next year, you probably accounted for the cost of your new hires, but how much did you budget for replacing your current employees who quit?  Turnover is expensive.  When your current employees leave (and many of them will), have you budgeted for the full cost of replacing them? 

Before you finalize next year’s budget, be sure you think through the impact of employee turnover. Whatever level of employee turnover you have been experiencing in the past 18 months, plan for it to double as the economy improves.    Yes double. 

If you must replace 10% of your team, will you still be able to achieve your performance goals? What will it cost you when a key player leaves, and it takes you 60 or 90 days to replace them?  What will you lose in productivity while the new hire comes up to speed? What will it cost to attract someone new to the position (both in salary and recruiting costs?)

With all the turnover we are seeing in the DC job market, you should seriously consider what might happen if you lose 20 or 25% of your team … then what happens to your budget? 

If you don’t plan for turnover now, you will almost certainly find yourself behind on your performance goals, short-staffed and over budget at this time next year.

Sharp Rise in Senior Staff Turnover Reported

CEO Update recently reported on a trend we’ve been talking about all year – the spike in executive turnover at associations and nonprofit organizations across the Washington metropolitan area.   They reported that the number of open positions posted with them is ”greater than 2008, 2007, 2006 or any other year we have tracked.”

Back in January we predicted that the local job market would be a big game of musical chairs this year, driven primarily by executive turnover. 

In August we observed that top candidates were on the move in larger numbers, and that we were seeing a spike in candidates who were receiving multiple job offers.   As you may recall, on the strength of that trend we declared the recession over  (at least as a retention tool) a full month before the economists made it official on September 20th.   (Then again, in their September announcement, they said the recession actually ended in June 2009 … so just give me 15 months and I’ll predict what happened today). 

No matter how you look at the data, this is certainly a good time to look for a job if you are an association or nonprofit executive.  Not looking?  Then now might be a really good time to update your executive succession plans and rethink your retention strategies, because your best people are getting calls.

Why the Right People Are Still Hard to Find

Have you tried to fill a position lately?  Were you disappointed by how few good people applied?  Many people are surprised that good candidates are not lining up around the block to apply. 

In a recent article in Human Resource Executive Online, Wharton Professor Peter Cappelli offers some insights into why it’s still difficult to find qualified workers for many positions.  He says:

“There is no shortage of people with the appropriate education credentials for any jobs I’ve seen. The skills that are in short supply are work-based skills, the kind that are only learned on the job: Experience with these vendors, knowledge of these work practices, an understanding of this industry.

A generation ago, these jobs would have always been filled from within, typically as the result of formal development programs. Now employers want to hire these people on the open market, in other words, from their competitors.

But when everyone wants to do this — poof! — such candidates are hard to find.”

I’ve mentioned before that we don’t have one big national economy, but rather 366 metropolitan economies – and the DC metro area is pretty healthy.   In fact hiring in the DC area remains stubbornly difficult for many firms,  particularly now,  when HR staff is spread thin and budgets for recruiting are so limited.

There are solutions to your hiring challenges, but it won’t be easy, and what you did to recruit people five years ago is less and less likely to work today.

Hiring in Washington DC

New clients often ask me why recruiting great people in Washington DC remains stubbornly difficult.   One of my favorite job aggregator sites – Indeed - explains why in a very simple graphic that compares unemployed people relative to job postings.   (9/15/09 Note:  Indeed updated this chart recently).

Washington and Baltimore have 1 job posting for every unemployed person.  This is the best performance of any major city listed.  Other cities,  like New York have a ratio of 2 unemployed people for every job posting.  But poor Detroit comes in last with eighteen unemployed people for every job posting.  

The graphic illustrates that recruiting is essentially a local business.  Hiring difficulty varies widely from city to city.

By the way, it’s also a good reminder, that if you want to hire better people (at least in Washington), you have to write a better job ad.  Something I have been ranting talking about for quite some time.

Stop Thinking About the National Economy

Thinking about the national economy is, by and large, a waste of time (unless you are Ben Bernanke, or Tim Geithner, in which case, please stop reading this blog and get back to work!)

The Brookings Institute suggests we do not have some monolithic national economy, but instead really have an interconnected group of 366 metropolitan economies.   It makes sense, as this is exactly how staffing actually works.  At it’s core, staffing is a local business.  The labor pool, the jobs, the pay, what’s considered a good job, what’s considered a good commute – all this varies widely by region.  Ignore it at your peril.  The national unemployment rate is irrelevant in hiring.  Nurses might be in oversupply in one region and there might be a nursing shortage elsewhere.  Whether you are hiring  20 construction workers in Miami or 2 Mechanical Engineers in DC,  the local  economic situation matters more than the national numbers.  This is why we are seeing a talent migration to Washington DC, which has one of the strongest regional economies in the country.

Every day this week I talked to a local employer who had run ads to find candidates, but still had not found the ideal candidate for an open position.   A strong local economy like DC, can be really irritating if you thought hiring was going to be easy.

HR, Don’t Let The Crisis Go to Waste

I was meeting with a senior HR leader recently, asking how she was navigating the economic storm.  She mentioned that in a recent senior staff meeting, her CEO wondered aloud if they needed to consider across-the-board pay cuts.    When she took her job, the CEO used to just make those kinds of decisions, perhaps in consultation with the CFO.  Now, the CEO asks her. 

And so in the meeting, she said “Let’s assume we go with your approach, you know that star player we just recruited from our biggest competitor?  Do YOU want to tell him about the changes you just made to his compensation plan?”  

That put a new spin on things.   Naturally she did not come unarmed to the meeting, she had a long list of other places to cut back before the tired old chestnut of across the board pay cuts.  In the end, she found the savings they needed, communicated it clearly to hundreds of employees and avoided creating a new problem beyond their need to reduce expenses.  

Score one for using HR strategically.   

I’m not suggesting that across the board pay cuts are a bad idea, indeed, they might be brilliant for your situation - your employees can be amazing.  22,000 Montgomery County School employees recently agreed to forego their contractual pay raises to balance the school budget, rather than cut classroom jobs. 

But before you make big HR decisions, you need to look at all your options and choose wisely.  Few CFOs have the tools to do that.  But HR does.

A few weeks ago, I wrote that this is HR’s Golden Moment - a time to shine, to earn that “seat at the table” and really make a difference.  And now I read, in the Huffington Post, an article about a national conference of HR professionals held in Australia.  The writer, Juliet Bourke seems to agree with my viewpoint, observing that now is the time HR leaders need to pull back business from “knee jerk retrenchments.”  So she went looking for how HR pros were helping their companies to avoid layoffs and other damaging across-the-board actions. 

“Our bottom line proposition was that the global financial crisis provides HR with a unique opportunity to demonstrate its value to business — namely, how to survive, if not thrive, under extremely challenging conditions. One hundred percent of the HR attendees agreed that talking about flexibility was relevant to their business’ needs . . .”

But sadly, she found that more than three quarters of the attendees were nowhere near ready to lead this effort.    ”It’s as if they are looking for someone else to lead the way.”  So sad. 

If you are a CEO and don’t feel like you are getting sound HR advice for your big decisions, grab your phone and call me.  Right now.  That’s easy to fix.  And if you are an HR professional please know that I, for one, hope you don’t let this financial crisis go to waste.   Send me a private note, or post a public comment, tell me how you are using your golden moment to step up and make a difference in the future of your organization.

Small and Midsize Employers Lead Innovation, and the Recovery

The secret of great entrepreneurs is “Smarts Guts and Luck” according to a recent article by venture capitalist Tony Tjan.  As he puts it, his “central philosophy” is that “human capital trumps everything else . . .  it is all about the people, and we would take a B business plan with an A team over an A plan with a B team any day.”

In a recent survey by Intuit, 9 of 10 small business owners see opportunities for their business despite the recession.   In the “Future of Small Business Report” the authors note that “With no large corporate fortress separating them from the marketplace . . . small businesses rely on an almost instinctive muscle memory approach toward innovation to survive and thrive.”  As business guru Peter Drucker puts it:

“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.” 

The Boston Globe ran an article entitled “Innovation may fuel economic recovery.”   They quoted George Colony, the CEO of Forrester Research as saying “It’s obvious that the new economy – whatever we’re going to emerge into – is going to be built by the innovation that will emerge during this recession.” 

In a recent survey, the Boston Consulting Group ranked the US second among large large countries for manufacturing innovation (and 8th overall). 

Unfortunately I find that most small businesses are chronically underserved when it comes to recruiting people who can drive innovation and results.   For this reason, I’ve written extensively on the need for search firms to innovate.   In a post on “The Outlook for Recruiting” on  ERE, Raghave Singh reached a similar conclusion.

 ”…much of the growth in jobs is expected to occur in small and medium-size businesses that have no need or cannot support full-time recruiters. An increase in needs for sourcing, as opposed to full-service recruiting, will occur as employers seek to minimize costs.”

While I agree with many of Mr. Singh’s points, I disagree that growing enterprises will have to settle for less than “full service” recruiting.  I’m convinced that search firms will either learn how to meet client needs at a price they can afford, or they will cease to exist.   

One thing is certain about innovation -  after the recovery, the world will look different.   So what are you doing right now to make it different?

How Companies Turn Crisis into Opportunity

Management guru, Jim Collins (author of legendary business classics  ”Built to Last” and “Good to Great”) has extensively studied why companies succeed.   His latest research is on how companies manage in turbulent times.  In a recent interview with Fortune magazine he shared some of what he has learned.  I suggest you read the entire article -  it’s well worth it -  but here are a few excerpts:

“If you go back in history, a few companies used difficult times to bolster their legions of talent…if you do not find a way to get those great people, you’re not thinking long term enough.”

“The right people don’t need to be managed.  The moment you feel the need to tightly manage someone, you’ve made a hiring mistake.”

“People who take credit in good times and blame external forces in bad times do not deserve to lead.  End of story.”

You have to ask the question, what can we do not just to survive but to turn this into a defining point in history?”

No wonder everyone buys his books.

In a previous post, I defined a top performer as someone who is capable of, and interested in, driving the business results you need – someone who will take responsibility for getting results within the norms of your company culture.  Naturally, Jim said it better.  And how do you find these people?  Read  How to Hire People who Thrive in Downturns.

Has your organization has lost its’ focus on people?  You are not alone, but you may be in trouble.  A recent survey of the leaders of 500 global organizations asked participants to rank the their top challenges.  “Insufficient talent to quickly adapt to change” was listed by only 5% of respondents, far below “Financial pressure to cut costs,” ”Rapid Market Decline” and 4 other choices.    Although unsurprising, the survey is still profoundly disturbing.  Just exactly who is supposed to be handling the adaptation to new market conditions – robots?  

The survey does not bode well for those 95% of leaders who aren’t paying close attention to their staffing.   In good times mediocre people can look like they are getting results, but as they say, when the tide goes out, you can see who is swimming naked.  In times like these, it may take very different skills to drive results.   Perhaps in the past you could follow a well-worn path to success, but now you might need to trailblaze a new path.  Different skills for different times.  The hard truth for most CEOs is this:  the people who got you to this point, might not be the ones who can drive results right now.

How to Hire People Who Thrive in Downturns

Have you noticed that some of your employees are less productive, just when you need them most?  Some people are frozen in place from fear, while others are innovating, trying new things and challenging the status quo.  Harvard Business Review posted an article on the need for flexible, positive leadership, quoting futurist Alvin Toffler.   

 ”The illiterate of the twenty-first century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.” 

The path forward is not clear.  We need innovation to survive and thrive.  And innovation demands that we all develop our patience and persistence, while our leaders must demonstrate optimism and enthusiasm. This is the time to step up and take risks, making plenty of mistakes along the way. 

If your key people do not have the skills to thrive in this market, it might be trade-in time. In an earlier post, I mentioned how to hire for resilience - and patience, persistence, optimism and enthusiasm are essential to resilience.   I’ve heard it said that you can’t trust someone who has not failed at something, learned and bounced back.

Look around you, do you see resilience and indomitable spirit or just people trying to look good by avoiding mistakes and placing blame on external factors?

Recessions Spur Innovation

Adversity often brings out the best in people.  Our current recession holds the potential for sparking both innovation and collective action for social change.  Many people do not realize that the Great Depression sparked enormous management innovation (see  ”Recession: The Mother of Invention?”). 

Many successful organizations started during an economic slump. Why?   Market upheavals provide rich opportunities for innovation.   Wary buyers begin looking for more cost-effective ways to meet their needs so new business models gain traction in the market.  (For that very reason, I’ve argued that search firms must innovate their way out of this recession).

Some people say a lack of venture capital money is really not a constraint to innovation.  Tim O’Reilly in an article in Forbes, sees it this way “many of the great waves of creative destruction . . . didn’t even start with the profit motive.  Rather they started with interesting problems and people who wanted to solve them . . . because exploring new ideas was fun.”   He suggests that venture capital follows innovation, not the other way around.  “The people inventing the future are doing so just because it’s fun.”

In this economy, fear of change might be the biggest danger facing your business.  So, here’s the question: are you innovating?   Are your employees showing resilience and really swinging for the fences, or just playing it safe?

Recruiting Myths: Good People Don’t Look for Jobs in a Recession

One of the many reasons I like to blog is to gleefully disagree with conventional wisdom.  I don’t know if “good people don’t look for jobs during a recession” qualifies yet as conventional wisdom, but it does meet my four criteria:  It’s widely repeated, simplistic, unexamined, and outdated.  Therefore you can gain a serious competitive advantage by challenging it.    

In every recession, a few search professionals advance the argument that “top talent does not look for jobs during economic downturns” (so presumably employers need to hire those same search firms to find the “A players”).   The concept is that in a bad market good people with good jobs become risk averse and hunker down – you practically have to dynamite them out of their chairs - and only a silver tongued headhunter with uncommon skill can recruit them away.   The theory is that good people will rarely answer ads, and mediocre recruiters (or what Josh Letourneau hilariously calls  “Big-Box Publicly Traded Candidate-Grinders”) will never be effective.  As with most conventional wisdom, this is all partly true (naturally it’s the part that’s not true that I think about).

Quite a few blog posts have been written about wooing passive candiates in a recession (Look here and here). I’ve heard variations of this argument from people I really respect in the industry (all vaguely implying that “active” candidates are somehow inferior to people who are not looking).     Finally, the cherry on top of the conventional wisdom sundae -  is the advice that you have to a pay a huge salary premium to get someone to “take a risk” on a new job – see “How Much Cash Does it Take to Steal a Passive Candidate?.   Perhaps I’ll revisit the whole “passive candiates are better than active candidates” myth in a future post, but probably not.  It definitely meets my 4 criteria for conventional wisdom – but Ronald Katz already did a brilliant job of eviscerating it in his post “What’s So Great About Passive Candidates.”  (For balance, be sure to read the comments -  the people who disagreed with him also made some decent points).

Ok, so why am I convinced that great people look for jobs in a recession?  Well mainly, because we’re talking to them every day.  Lots of them.  They are migrating to DC in droves. 

The Misplaced Loyalty of the CEO

There is a consistent theme emerging from my conversations with CEO’s lately.  Loyalty.  While many people enjoy bashing Fortune 500 CEO’s for showing no loyalty to employees – and for dumbsizing, the bigger issue for smaller organizations is too much loyalty.   I see too much loyalty to long-time employees who are not performing, and too little loyalty to everyone else who is.   Truth be told, I’m not really a fan of Jack Welch, but he did have an interesting column about misplaced loyalty in BusinessWeek.

Most business leaders really struggle with their loyalty to long-time employees who are no longer effective, and while I think loyalty in general is both admirable and good business . . . blind loyalty is not.  It is dangerous.   The context matters. 

Sometimes the person’s performance just waned over time – they “got comfortable”,  sometimes the person was simply over-promoted (Think: Peter Principle), sometimes the person took on a job that appeared similar but required different skills (Think: salesman promoted to sales manager), perhaps the most common is when a growing company simply “outgrew” one of the original employees.  

Increasingly in this recession, the problem person was a good steward of a function during normal times, but simply cannot adapt to the chaos of the current environment.   They resist change, ignore market signals and get in the way of new initiatives – doing what is comfortable and familiar, instead of what is right.

My conversations with CEO’s generally go something like this:

Search Firms Must Innovate, But Will They?

This is my third recession in the staffing business, and this one is different.  The search business has arrived at what Andy Grove would call a  ”strategic inflection point” – where the fundamentals of its’ business are about to change.   Costs simply must come down, way down.  I saw alot of search firm repositioning in the last recession – mostly tinkering with their pricing models, but not fundamentally changing  who they hire and how they deliver services. 

The largest search firms got crushed in the last recession – some laying off 40% of their staff.  Of course they got into trouble because they gorged on the dot com bubble.  But they learned their lesson, right?  Wrong.   Good times returned and then they used the same inefficient business model to gorge on the financial services bubble and surprise!  now they are now laying off again.  Note to my investment advisor:  The next time any major national search firm earns a third of their revenue from any business sector…that’s the very definition of a bubble – a whole business sector not paying enough attention to costs.

Now the blogosphere is lit up with comments about “disruptive innovation” in the recruiting world.  Most of the comments are about technology and social media, but the same market forces apply to search firms.  One of the most thoughtful is David Manaster’s ERE post – (R)evolution.  In another must-read article, John Sumser bluntly counsels that HR “should be hammering its vendors for cost reductions.  Get the same for less money.”  John refers to a brilliant article in The Economist about the flip-side of Moore’s Law:

“Suddenly there is more interest in products that…provide a particular level of performance at an ever-lower price.”

Here is the problem. 

Where the Jobs Are…NOT

“Green collar” jobs, infrastructure investments, financial bailouts…just exactly where will the new jobs come from?  In the Washington region – where the federal government accounts for almost a third of our total economy - we benefit when when Treasury struggles to fill jobs to support the $700B rescue package,  we benefit when the  FDIC hires 1400 new bank examiners,  and when the State Department adds 1,500 positions, and when the FBI starts its Hiring Blitz.  This is why Dr. Fuller reported at the GMU Economic Conference that our local economy still has a “worker shortage” and is still ”importing” people from other areas to fill our jobs.  I’ve been calling it The Great Talent Migration, and it appears it will only increase in 2009 as massive government spending offsets job declines in other areas like construction.  in 2009, DC is projected to gain high paying jobs, not lose them.

Our search practice is thriving.  Maybe it’s because we get better results for far less money than traditional firms, but mostly it’s because hiring is still a challenge for most organizations.  Across the region we have small firms who are expanding, association clients filling key roles in education, certification, and member services.   We’re filling jobs in marketing, nonprofit development, finance and accounting, IT, and HR.   And more and more of our best candidates are coming from outside the region.

So is the “green revolution” overblown?  Well, it depends what you call a green job.   According to a recent analysis done for the DC Office of Planning, the so called “green collar” jobs are often just the same construction workers who were being laid off  in the downturn.  But I think their survey placed too much emphasis on just the green building movement, and not other green jobs. Commenting on the study findings, GMU economist Stephen Fuller observed that the green jobs thing is “substantially oversold.”   

How to Make the Most of the Economy Right Now

Bob Corlett

Come join me on February 18th when I talk to the Montgomery County Chapter of the Society for Human Resource Management (MC-SHRM).

The topic is “Recruiting in a Recession:  How to make the Most of the Washington Economy Right Now.”  We’ll be talking about what recruting strategies are working best right now and how employers can best take advantage of the current job market conditions.   Since I am the speaker, naturally we’ll be talking about  my favorite topics including:

• Trade-in Time – How you can trade in your mediocre people for better people.
• The Great Talent Migration – Highly qualified people are moving to Washington DC because of our strong job market- so get ‘em while they last.
• Hiring for Performance - How can you raise the bar on  performance expectations with your new hires?
• What the CEO Wants from HR – what kind of conversations should HR be having with senior management right now?

Registration is only $20 for non-members.  Bring me your toughest recruiting challenge, but leave those rotten tomatoes at home - no hecklers please!