Why is the effective management of people so important?

In their book The Service Profit Chain, James Heskett, W Earl Sasser & Leonard Schlesinger make the case that no matter what your business, the only way to generate enduring profits is to begin by building the kind of work environment that attracts, focuses, and keeps talented employees.

Australian research shows that it costs a minimum of $48,000 when someone leaves you.

That’s based on that person earning an average of $42,000 salary. Other research shows that it costs you a minimum 1.5 times a person’s salary when they leave – the cost of lost knowledge, training, recruitment and loss of productivity does bleed profits directly from a company’s bottom line.

Most people would instinctively agree with the generalization that ‘engaged employees will stay longer’, but research conducted by the Gallup Organisation across thousands of companies, over a million employees and over 25 years has found that the link between employee opinion and employee retention is subtler and more specific than this. The Gallup research has shown that people leave managers, not companies. In Australia, 70% of people leave their boss, not their job. While companies have been throwing money at the challenge of keeping good people: better pay, better perks, better training, the real cause of turnover has been with the managers that were causing people to leave.

Managers trump companies.

Employee-focused initiatives are important and should be implemented, but they are not as important as a person’s immediate manager. She defines and pervades your work environment. If she sets clear expectations, knows you, trusts you and invests in you, then you can forgive a company its lack of a bonus program. But if your relationship with your manager is fractured, then no amount of in-chair massages, team building days or company BBQ’s will persuade you to stay and perform. It is better to work for a great manager at an old fashioned company in run down premises, than for a terrible manager in a new company with funky premises offering an ‘employee-focused’ culture.

An employee might join a company initially because it has a great physical environment and generous employee perks but it is her relationship with her manager that will determine how long she stays and how productive she is while she’s there.

What does this mean for you? As a business owner, you need to ensure you are investing in the people that you have managing others. Just because someone was a fantastic performer in their role due to their technical ability, does not mean they should, or can, manage a team of people. Invest in ensuring your people are strong leaders that are helping your company to grow, not causing your people to leave.