By Vlad Vaiman on November 1, 2013
After many conversations with the executives of different organizations around the world during the past six months, I discovered a very interesting phenomenon: Some of them still sincerely believe that now is not a good time for companies to invest extra money and effort to retain their top talent.
The most common response I got was, “Where are they going to go? The economy is so bad now there is no reason to worry about losing our key players.” Echoing that gloomy assessment, many human resource directors sense that talent retention is not something of great relevance at the present time.
The truth is quite the opposite. Now is especially the time for companies in most sectors of the economy to pay close attention to their human capital by implementing appropriate talent retention strategies. HR managers would do well to focus on this and persuade company executives to follow their lead.
Retention management reached its boiling point in the mid-1990s. As the economy grew at a tremendous pace, companies scrambled to get the people they needed to stay afloat.
Many candidates had multiple job offers and companies offered them sizable signing bonuses just to join the force. Most large organizations could not keep up with the growing demand for talented employees. Voluntary turnover at some companies reached intolerable proportions. Industries such as financial services, technology and management consultancy were especially at risk of facing employee losses and shortages.
Turnover is always a major problem because it imposes massive costs on both individual and organizational levels. For an individual, leaving a job and moving on can cause stress and uncertainty and necessitate numerous adjustments. For a business, turnover imposes extensive costs. In addition to the expense of replacing an employee, there is the loss of knowledge, expertise, and valuable client relationships.
Another factor of great importance is that in most industries, the people and their knowledge are a major source of competitive advantage. When a company loses its top performers, it is destined to become an industry follower in the best-case scenario, or to meet its demise at the worst. In other words, if the company wants to stay competitive, and hence stay alive in the rapidly globalizing business world, it better make sure that its best performers will stay and grow with the company in the long term.
With the recent economic downturn, retention efforts became more crucial because organizations needed to make sure they still had their best people to carry them through the tough times after major layoffs. Of course, the higher the unemployment out there, the lower the possibility that people will voluntarily leave their organizations. But it is important to remember that even high unemployment rates have little influence on the intent of individuals with highly specialized skills and training to leave. And some projections strongly indicate that unemployment rates will return to their lowest levels rather soon, which will be followed by the increase in voluntary turnover rates when the recession is over. Therefore, retention efforts should be considered extremely important at any time under any economic conditions.
Many executives know this. The most recent PricewaterhouseCoopers Global CEO Survey reports that talent management remains the No. 1 priority for 78 percent of companies worldwide.
Some experts predict that the tremendous efforts to hire, develop and retain the best performers will continue for at least another 20 years.
There are three key forces that constantly stimulate the proverbial war for talent: the permanent shift from the industry-based economy to the knowledge-based economy, the ever-growing demand for top performers, and the strong tendency for talented people to ride on the waves of their employability, switching from one company to another.
These forces, along with the limited supply of young and talented performers, will ensure that retention management will remain the most relevant issue in human resource management for years to come.
• Vlad Vaiman is a professor of international management in the School of Management at California Lutheran University in Thousand Oaks.