Now You Can Calculate the Actual Cost of Doing Nothing
by Richard A. Ruhmann for Business Leader
As a consultant to organizations, I frequently encounter senior executives who are discouraged about the cost associated with implementing change within the organization. Though they will readily make investments in the core aspects of the business, they often find it difficult to convince themselves that investment in the soft issues of motivation, competence and morale are worth it. I then ask these same executives if they have considered the cost of NOT addressing these issues? What is the cost of simply maintaining the status quo? Most executives are surprised to find out that they can, in fact, put a monetary value on the cost of the status quo. To do so, you must start with an understanding of the impact of the status quo. This is most easily accomplished through the use of a four-quadrant grid, pictured in figure 1, which describes the various stages of effectiveness that all employees go through.
Figure 1 The process begins in the upper left hand corner, quadrant 1, where a new employee is best described as motivated, but not yet competent. On the first day in your organization, new employees are eager to join your team and enthused about their new job. However, with regard to your policies, procedures, performance expectations and operating systems, in their first weeks/months on the job, they are not yet competent in the ways of your organization.
Within 3-6 months, successful employees will move to quadrant 2, where they are best described as motivated and competent. They have settled in, so to speak, and have become knowledgeable of their responsibilities, expectations and the policies of the organization. This is the desired quadrant, where your employees are most effective and productive. In most organizations, individuals who fail to move to this quadrant within the first 90 days, are let go.
Unfortunately, after a period of time, some employees will move to quadrant 3, where they are described as de-motivated but still competent. This occurs because the individual has had a “de-motivating” experience; something has occurred within their experience of the organization where they no longer put forth their best effort.
Individuals in quadrant 3 become marginal employees, they seemingly “retire on the job” and do just enough to “get by.” Most managers have little or no idea when or why an employee moves to quadrant 3 or what to do with them once they are there. In fact, many managers hope that the employee will realize they are unhappy and just leave; however, this rarely occurs.
If the individual stays in quadrant 3 long enough, they may become de-motivated and no longer competent and move to quadrant 4. Once this occurs, one of two things must happen: they must either leave voluntarily or the manager is faced with firing them. If the individual does not leave voluntarily, the manager must then undertake the arduous task of documenting their lack of performance and building a file of nonperformance. In some cases, this will lead an individual back to quadrant 2 others will be let go. Depending on the position, this process can take anywhere from one day to one year and, if the individual leaves the organization, whether voluntarily or involuntarily, you are once again faced with the cost of recruiting, selecting, and training - returning to square 1.
Industry experts estimate that the cost of recruiting, selecting and training new employees runs anywhere from 1.5 to 4 times the individual’s annual salary depending on the position. Since we know that replacing unproductive employees is time consuming and expensive, the next question is, what is the cost, in lost productivity, of the individuals in quadrant 3? With a little bit of company information and a few assumptions, you can estimate this cost for your organization. Start by asking yourself:
How many total employees do you have?
What is their average monthly compensation?
What percentage of your employees are at some level of de-motivation, but are still competent, i.e., what percentage are in quadrant 3?
For those in quadrant 3, at what level of performance are they operating? Are they operating at 60%, 70% or 80% of their potential? Once this is known, subtract this from 100% to determine the impact on your organization to find the percentage of lost effectiveness.
Figure 2 provides a formula for calculating the hidden cost of employees in Quadrant 3, along with a sample calculation for a company with 500 employees whose average monthly compensation is $4,000 and where it is estimated that 30% of the employees are operating at only 70% of their potential.
The annual cost of doing nothing is 2.2 million dollars! In addition to the hidden cost identified by this model, it’s important to remember that unhappy employees do not remain in quadrant 3 alone. They recruit new members (in the break room, at the water cooler, at the company picnic, etc.) by playing a game called “Ain’t It Awful.” Therefore, if you do nothing, the number of individuals in quadrant 3 is going to increase and your hidden costs will go up!
Are you faced with issues affecting motivation and, if so, how long can you afford for these individuals to remain in quadrant 3?
In today’s economy, the obvious answer is not long at all. So, what’s next? You must start by examining what factors exist in your organization to cause individuals to move to quadrant 3. Employees become de-motivated for one of three reasons:
1. They are not well-matched behaviorally to the job;
2. They do not feel valued, supported or included by their manager or in the organization;
3. They do not understand how to adapt to change.
There are a number of effective solutions available to you and your managers to move individuals in quadrant 3 back to the highly effective and productive position of quadrant 2, while at the same time reinforcing those individuals who are already in quadrant 2.
First, start by ensuring that your employees are behaviorally matched to their position. Take advantage of the highly-effective assessment tools available today to benchmark the requirements of your positions. Then match each of your employee’s behavioral styles to this benchmark.
Secondly, people perform better when they value themselves and their contribution to the team. Determine the values that drive your people and satisfy those values.
Finally, we have found that when the behavioral style of the employee matches the style required by their position and the employee’s values are being met, the employee will adapt much more readily to change within the organization. As a result, this process shifts the status quo and creates win/win outcomes for both the organization and the employee.
Rich Ruhmann, president of Ruhmann Associates, is a consultant specializing in executive coaching, organizational change and the implementation of effective selection and position assessment tools. He can be reached at (919) 349-4173 or (JavaScript must be enabled to view this email address).
Adapted by permission. Judy Suiter, Competitive Edge, Inc. is the source of the original model.
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