Leadership and Organizational Behavior Leadership and Organizational Behavior Leadership and Organizational Behavior

The author has researched journal articles to examine the cost of staff turnover. Linking these findings to the ABC case, combining with analyzing annual customer satisfaction survey and sales report, the author's attempt is to determine the cost of staff turnover and its business impact in the ABC specific case.

In this context, the author plans to address four following major categories:

* Replacement costs

* Matrix structure impact

* Lost sales

* Lost stakeholders' satisfaction

2.2.1 Replacement cost emphasizes the cost due to person leaving, hiring cost, training cost, and lost productivity

Calculating the replacement cost of staff turnover is not simple. Some costs could be seen as a visible cash pay, but the time waste, work progress delayed, or low staff moral as an bad impact of staff turnover are not easy to quantify in a number. However, researchers have tried to figure out these replacement costs in a relative assumption way, from which the author would draw some indicative numbers as following.

The replacement cost is estimated an average of 150% annual compensation of the departing person (7). Since the company normally pays twice or triple wage to a sales person in compared with support staff's salary, the replacement cost could easily reach to 200% or more for the replacement of a sales person. In general, the higher the company pays the person, the higher cost of replacement to fill in with new candidates (7)

Cost due to the person leaving is count from the time the staff announces his resignations. By that time his mind already "out" of the company business, losing job focus is anticipated of a lower productivity. Time waste refers to management time to talk with the departing employee to investigate the reason of his leaving, what pending work, and how the job to be handled over. The possible cost of lost customers should be count due to the departing employee might take away the company's customers. The sum total of these costs can be as much as 85% of this position's base salary (7)

Hiring cost is another count. Unless there is an internal potential personnel available for a prompt assignment to the vacancy or there might be a perfect candidate just comes at the right time. In reality, none of this lucky replacement might be happened. The company has to take following leads for a hiring replacement, i.e. advertising, staff agency, job fair, internet posting, management time for interview, references check, cost of skills or personality assessment tests. The sum total of these costs will be from 15% of this position's base salary (7)

In fact, the hiring cost associated is much higher in Vietnam market. As an emerging country with GDP continuous growth at a positive rate of more than 7% in the last 10 years, Vietnam is reported as highly shortage professional of high education to meet the booming labor market. ABC has experienced that those technical sales positions are much harder to refill since finding the right candidates with good technical background, sales skills, and professional experiences would take an average time of 6 months or more. Waiting such a long time for a replacement generates a huge but invisible cost to the company as we experience that business never waits for people but people would need to catch up the business opportunity. In many cases, ABC has no other choice than take any candidates just come in to fill in the vacancies, though being aware of potential risks from recruiting unqualified staff. Another note is that a more cost is associated in replacement cost when sourcing through staff agency. A hiring fee equivalent to 3-month-salary of the new hired position to be paid to staff agency for its successful recruitment services.

Training cost such as orientation, company history, work procedures, on the job training, industry knowledge, job duty, etc... are few to name. Set the sum total of these costs at approximately 13% of the position's base salary (7)

In general, the training cost for a technical sales position at ABC is much higher. An intensive training takes place locally to well equip sales staff with necessary knowledge to run the business in a professional environment. The suppliers and the company also have cost sharing product training to new hired sales at the supplier's production facilities in different countries; the attendance of new hired sales to oversea exhibition to strengthen their product knowledge also raises the training cost much higher. In line with this, we should refer the training cost lost as the knowledge and skills lost when the well-trained sales person leaving.

Lost productivity can be referred as the performance gap between the departing employee with high skills and the newly hired employee; or the shortfall performance during the vacancy is not filled. If some person inside the company temporary handles the job of the departing staff, this person either feels overload with double work burden or simply does not fully focus as this is not "my job" or the attitude might be " who care"! If the new hired staff does not fully trained, it will take time before he is fully productive in his new position. Research states that it takes as fast as 12 weeks (3 months) for the new hired employee to reach full productivity though the person is being paid at the full rate of pay during that first 12 weeks period. Naturally, for more senior-level positions, or those requiring longer periods of time to develop full productivity, the costs will be higher (7).

The back up time to cover the lost productivity for technical sales position at ABC Vietnam basically would last longer for months. The new hired sales staff would need months to years to get familiar with new products, new industries, and gain good knowledge in product application before the person could fully exploit his potential to provide quality services to customers in the chemical industrial supply fields.

Another aspect of lost productivity, manager or supervisor of new hired staff also involves more time in instructing, reviewing work and possibly correcting mistakes. There might be some mistakes that are not caught right away and will cost money to correct down the line such as with a customer who receives an incorrect price, invoice or actual shipment due to the new person's error. Put the sum total of these costs at approximately 32% of the position's base salary (7)

Table 1.- Depict the replacement costs for direct sales reps and telemarketing reps at a telecommunication company in the U.S. (3)