We’re lucky to work with around 300 clients now across the UK. In major firms we typically work alongside heads of HR and in SME’s with the CEO’s or typically the Finance Directors. One thing that I have always found fascinating is the relationship between the Heads of Finance and HR. Arguably both are on the same team, but often seem to have differing priorities. HR is looking for engagement, retention and a great culture in the belief that this will make the company in some way ‘better’. However ‘better’ can be difficult to quantify, so our pitches as HR leaders for funding in our businesses often fail. Finance is looking for EBITDA, reduced overheads, growth in margin; so where do the two come together?
For years as HR leaders we ask for money by selling “HR” to the business. We rarely sell ‘profitability’ to our Finance colleagues?
So how do we work together to increase the bottom line with language that is palatable to both parties?
I’ll call this “The Cost of Disengagement.”
Things like motivation, productivity and engagement do not show up on a Profit and Loss Sheet.
The average UK levels of staff engagement is 36% (scarily low I know and that is one of the higher assessments from CIPD 2015) and the suggested cost of disengagement is up to £3400 in every £10k of salary (Source: Achievers). This means that a headcount of 100 staff on an average £40k salary may cost the business £870,400 per annum in terms of ‘disengagement’.
Disengaged employees take typically 2-3 more sick days per annum, they make higher numbers of errors in their work and ultimately they reduce the quality of the service. So you may only see the impact when you lose clients or get complaints – ultimately when it’s too late. So when it feels like you are dealing with operational issues all day and move from one fire to another, it’s not necessarily just a bad day, it’s often disengagement.
By gauging your culture (independently), listening to your staff, and acting on the priorities identified and agreed, you can work to get that 36% engagement up towards 80%. In this scenario that would create an annual saving to the company, or increased profitability of £575k.
How do we know this works?
In 2014, we had an external facilitator gauge our culture using our own signature engagement product. We became the 8th best employer in terms of ‘wellbeing’, in the Times Top 100 Best Small Companies To Work for in the UK and Top in Scotland Overall. More importantly our growth accumulated to 2000% over 3 years and we delivered a 7 figure EBITDA (double the previous year’s net profit). There’s enough research to back this up, it’s worth taking the time to look into this.
This is not going to solve all of the issues relating to growth and profitability in recession markets. There will clearly still be an impact on numbers. Engagement may however be the difference between survival and decline.
The opportunity to increase profitability is not limited to recession markets. This applies regardless of economic cycle.
In times of recession (which many of our clients are in) we have to be careful to not batten down the hatches to the point where we cannot see the opportunities that will actually save cost, improve profitability and make us sustainable.
