Do the Benefits Outweigh the Costs?
Now that we’ve got a pretty firm grasp on What Onboarding Is & Why It Even Matters, at least with regards to the overall picture, let’s take a look at how effective onboarding can have a tangible impact on our bottom line before we even bother mapping out any specific steps we should consider taking…
According to an article I read on Forbes.com called Onboarding Fail: How You Can Prevent Great Hires From Leaving To Soon, “The lack of effective onboarding is a major reason why companies lose 17% of their new hires within the first three months and why 20% of all staff turnover occurs within 45 days of employment.” Over the last several years, I’ve seen very few companies that have had more great people asking for positions than they’ve had open spots to put them in! If there really are practical steps we can take to keep the solid candidates we do find, wouldn’t it make sense to do it?
Of course it would, and we’ll dive into that soon. But sometimes just knowing it’s so ain’t enough… Some of us have to understand just how much (financial) pain we’re actually experiencing before we’re willing to make a change, especially when we’re just not convinced (yet) that making the change really will yield the results we so desperately need!
With that in mind, let’s take a hard look at those turnover costs tied to poor onboarding. Before we even go there though, I think we also need to consider why we’re hiring to begin with. Other than the gubermint, I’m not aware of any organization that hires without having a very specific need; and that really boils down to adding team members because the company is growing or replacing team members who have left for one reason or another.
Let’s start with replacing team members who have left… If it was due to a retirement or promotion, we may have a chance of minimizing the time and expense of getting the new person up to speed, assuming we can keep them longer than 45 days. If we’re replacing someone who left the company for any other reason, it would likely serve us well to understand all we can about why they left if we want to have any chance of preventing the same thing from happening again in the near future. Either way, we can count on it hitting our bottom line! A recent article from Hireology called The Costs of Poor Onboarding estimated that “an employer will need to spend an average of 16-20% of an employee’s salary” just to replace them and that the “total cost of turnover per employee typically ranges from 100-300% of the individual’s salary.”
If we’re one of those companies that’s losing one out of five new employees within the first 45 days, those are some significant dollars to absorb! That’s an even tougher pill to swallow when we’re struggling to find talent to begin with. Since none of us are hiring just for the fun of it, these numbers make a pretty strong case showing why we should be developing an effective onboarding process. But just in case turnover costs alone aren’t enough, let’s consider how long it typically takes to get someone up to speed, as well as how good onboarding can help with that too!
Get Better, Sooner!
Let’s assume, as dangerous as that can be, that our onboarding process is at least good enough for folks to stick around beyond that 45 to 90 day window… Now we’re cooking with gas, right? Maybe not quite yet!
The article I referenced before from Hireology stated that “It takes an average of about 8 months for a new employee to start producing at their maximum capacity.” It also shared that “Approximately one-third (33%) of new hires look for a new job within the first six months.” A while back, I found some similar stats in another article that I detailed in a page called The Importance of Employee Retention that suggested it took around five months to get a new team member up to speed, but those even covered progress we could expect to see along the way. I won’t go into all that again here but you’re welcome to circle back to it if you like…
Regardless of whether it’s five months or eight months before we can expect a new team member to be at full productivity, it would serve us well to make sure our onboarding process is geared at earning their engagement through every step of the process - especially if a third of all new hires really are looking for a new job within their first six months because that’s certainly not leading to higher productivity! For what it’s worth, Hireology also suggested that “A standardized employee onboarding process leads to 50% greater productivity than non-standardized onboarding.” We’ll dig more into just how much we can stand to gain through those productivity increases shortly… For now, let’s stick to the time involved.
As I said when we started down this path, the most frequent reason I’ve heard companies use for not developing a true onboarding process is the time it requires - both from existing personnel to lead the process as well as how long the new employee is held back from doing the work they were hired for. But when we consider the one in five that leave within the first couple of months, requiring us to start the hiring process all over again, could getting good at the onboarding process actually suck up more time than that? I don’t think it does! The difference though lies in where our hand is forced. There’s typically nothing pushing us to create an onboarding process that truly invests into the new team member but we usually don’t have a choice when it comes to hiring enough additional bodies to get work done - and that’s where the revolving door starts spinning!
Like putting any new system into place though, this can be extremely painful on the front end… But if we do it right once and stick with it each time we bring someone onto the team, it becomes part of the culture and sooner than later helps those new folks feel like part of the team much faster. And then we start seeing the increase in productivity sooner too. Now let’s get some hard numbers in hand, then in a follow up article to this we’ll start putting together some practical steps that will make an onboarding process effective in just about any organization…
Where’s the Payback?
I don’t think it’s ever been much of a secret that turnover is expensive or that getting a new team member up to speed takes time, and both cost a lot more than most companies realize, but those certainly aren’t the only places we see the impact of our onboarding process - be that for good or for bad…
Not so long ago in our Leading At The Next Level program, I shared a lesson called When Employee Happiness Isn’t Enough where I referenced a Harvard Business Review study that showed “organizations with a high level of engagement report 22% higher productivity.” While I’m absolutely certain a strong onboarding initiative builds employee engagement, I don’t believe that’s the only way effective onboarding makes a positive impact on productivity!
Having just looked at a stats from Hireology showing that “33% of new hires look for a new job within the first six months,” I can’t think for one minute that at least some of their job search isn’t being done while they’re on the clock… And that’s definitely taking its toll on productivity, at least a little bit. But that same article went on to detail a few ways we can expect a well planned onboarding process to increase productivity:
- 69% of employees who undergo effective onboarding are more likely to stay with an employer for at least 3 years, and 58% are more likely to stay on for more than 3 years.
- Organizations that invest in an effective onboarding program retain 50% more of new hires than their competitors do.
- A standardized employee onboarding process leads to 50% greater productivity than non-standardized onboarding.
The first speaks to the turnover numbers we’ve already looked at, but it’s significant. Having an employee stick around for at least 3 years wasn’t a big deal when I entered the workforce over three decades ago, but it’s not uncommon today to see candidates who list at least half a dozen jobs within 3 years; the world has definitely changed whether we like it or not! The second point is kinda more of the same, but show me just one organization that’s not at least a little interested in having that kind of edge on their competition, especially when they’re fishing in the same pond… The third point is the one that grabs my attention the most!
For close to 10 years, I had direct involvement with the Lean Manufacturing initiatives for a large production facility. Many of those projects rearranged work cells and sometimes even completely re-engineered a process, typically costing tens of thousands of dollars (or more) and requiring weeks of effort from everyone involved. Each project started with a specified goal for increasing productivity. That was usually to the tune of 5 to 10%, with an occasional stretch goal of 20-25%. And let’s be honest, very few hit their goal simply because the changes implemented required so much ongoing follow through. For what it’s worth, the payback was still there though almost every time…
So with it being fairly normal for a company to throw big bucks at projects like that for modest productivity improvements, why in the world do so few invest the time, energy, and resources into building world class onboarding processes - especially with data showing the potential for as much as 50% greater productivity? My thoughts: I believe most just don’t understand how simple it can really be to effectively onboard new team members and get these kinds of results, so we’ll start digging into that next time…