– Thoughts on Strategy and Management

How long are your employees with you on average?

Did you ever check the average length of service of your company’s employees?
Did you check the average tenure after which employees leave your business?
Did you check if these average figures changed over the last decade?

I bet they decreased.

Is this a good or a bad sign?  

The problems of very low average employee tenures

At first glance, it could be a good thing to have many new people on board. It might indicate strong growth which goes along with an expanding workforce. If this is the case, a low average length of service actually is a good sign.

In most other cases, you should think twice what’s going on. A high employee turnover is equal to a low rate of retention. That means that knowledge walks out of your door on a regular basis.

That is not in your businesses best interest. Of course, it is highly advisable to have a good mix between experienced long-term employees and newcomers who bring in fresh ideas. But is inefficient to frequently train new people when you lose most of them shortly after they got up to speed.

There is another dimension of that problem besides the inefficiency. Chances are good that it is not even your fault that people quit so quickly. There is a general trend that the average length of an employee’s stay at a company decreases. Gerald Nanninga wrote a very insightful post about what he calls shrinking career half-lives at his blog Planninga From Nanninga. (Although I’ll summarize the main points here, I highly recommend reading the original post)

Gerald has observed that more and more people move on to the next job after not more than two to three years. If this is the normal planning horizon of your new employees, there is a serious implication, as Gerald writes:

Traditionally, strategic planning has been concerned with creating a great long-term future for your company. But, if the key people only plan on sticking around for about two years, where is the incentive to work hard on building long-term improvement? Even for a five-year plan, a two year employee will have changed companies twice before the plan horizon is completed. …

As a result, I’ve witnessed strategy get perverted into something that has nothing to do with long-term planning. It’s just a tool for an employee to get a quick bullet point on the resume in order to get the next job.

People with such a mindset will naturally shift your strategic planning efforts into something that looks like a strategy, but actually is very risky for your company’s long-term success. Gerald mentions four short-term oriented strategies as a result. Frankly, we all have observed an increase in such activities:

  1. M&A activity: An acquisition or a divestiture perfectly fits a two-year timespan. It looks like an impressive strategic measure in both – the businesses press releases and an employee’s CV. The downside is that still many M&A projects fail to deliver the expected results.
  2. Bring cash forward: Sale-and-lease-back transactions are typical examples. It seems to be a great success to make a lot of money to flow into the businesses coffers. Who cares that this money will be lacking later on.
  3. Moving horizons: It is like in politics – Politicians and short-term minded employees love to create plans where the (perceived) wins come immediately, whereas the tough parts don’t occur until after they leave office.
  4. Project orientation: It is always a good thing to complete a project. However, without long-term orientation employees solely focus on their project without really integrating it into the businesses long-term success. It is much easier to bring something to life for its own sake instead of making sure that it is well integrated into the company’s systems and other activities.

In conclusion, it is highly advisable to identify such short-timers right from the beginning. A look at their resumes will do the trick. You can either prefer people who seem to be more long-term oriented. Or you should set up some control mechanisms to make sure that short-time employees really work in your businesses best interests.

The problems of very long average employee tenures

So how about the opposite extreme? Is it better to have a very long average employee tenure?
Surely, such a situation is better. However, it is not without problems.

I worked in a company with above-average employee’s length of service twice. In one of them, the average tenure was of about ten years. The benefits were obvious:

  • People were very loyal and committed.
  • Almost everybody had a long-term orientation with everything he did.
  • Projects were initiated when there was a need for a project. Nobody ever initiated a project in order to show some quick gains.
  • People always had the “bigger picture” in their minds. When somebody had to change something within his area of responsibility, he always checked potential implications on other business functions.
  • The company had an enormous tacit knowledge for both – current and historical information.

Of course, there were downsides too:

  • With such a stable workforce, few new people come in. This leads to a limited inflow of new ideas and new knowledge.
  • Everything had worked out quite well over the last couple of years. This naturally leads to reluctance to change.
    People did not even see the need for change. When change was unavoidable, it was very difficult to get their commitment.
  • You could observe the “not invented here” syndrome.

Summary: It’s the right mix that makes it!

When you manage your workforce strategically you should strive for a good mixture of employees with different tenures of service.

You need the short-timers to bring in fresh ideas and latest knowledge. They may be a good choice if you need to get something done quickly or if you need to initiate change. A PwC executive once told me:

I prefer to have an excellent team member for only two years than to have an average one for a long time.

This applies in particular to project-orientated businesses.

On the other hand, you also need some long-timers. They are your guarantee the a strategic long-term focus does not get lost in a fast sequence of initiatives

These long-timers virtually are the organizations memory. Even in time-pressing projects it is beneficial to have somebody who knows why things are the way they are. Otherwise you may accidentally destroy something that is there for a reason.

Within a conductive culture, short-timers and long-timers can benefit from each other and thus deliver optimum results.

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