What Really Drives Business Profits?

When I was working for Flight Centre, the company’s property area decided to analyse the top 200 most profitable stores worldwide to see what was the key factor in their success. Was it expensive shop rentals? High customer walk past? Attractive store-front displays?

The conclusions were surprising.

The research showed that these kind of factors had no impact at all. The most profitable stores were in high-end locations and down dingy back streets. Some had loads of walk past and some were nearly all phone and internet-based. Some had smart store-fronts and some were a bit run-down. After more analysis the company discovered that there was actually only one statistically significant factor. It was unexpected and one that most corporations aren’t aware of. The single factor was:

All the most profitable stores consisted of teams who had been together for more than 12 months.

Staff retention proved to be the single biggest factor in relation to store profit.

The Proof Is In The Profits

That was when I first learned that people are the heart soul and balance sheet of every organization. ‘Best Employer’ companies achieve on average four times the profit growth of other organisations[1] and perform three times better than the general market when it comes to comparative stock market returns[2]. Even during the global financial crisis the US-based Parnassus Workplace Fund – a group that only invests in organisations with a solid reputation for outstanding workplaces – had an annual average return on investment of 10.81 % compared to the S&P index’s 3.97 %. The proof really is in the profits.

The Big Wham Strategies For Staff Retention

So what are the key strategies needed to keep good people? This question is critical because the most effective techniques are not always the obvious ones. Take one of my clients who seemed to have it all. They paid their employees a high incentivised salary; gave them a day off on their birthdays; built an in-house coffee-shop with their own barista; subsidised lunches; provided free fruit baskets; and took the managers away on an all-expenses paid conference once a year. Yet their staff turnover rate was a staggering 64%. Their list of seemingly impressive initiatives was longer than most Chinese restaurant menus, but they had zero focus. They threw perks at their employees like lollies to children, but used very few of the real techniques that truly keep people around.

It’s the 80/20 rule. 20% of strategies have a greater impact on staff turnover than all of the other 80% put together. So here’s my list of the big ‘wham’ items, the practices built on a foundation of effective recruitment, that have proven both through my direct experience, and empirical research, to lead to the most outstanding staff retention success:

In my new book Winning The War for Talent, I’ve outlined the specific, practical steps needed to implement these retention strategies into any organisation. Most are simple and cost-effective. They do take commitment and perseverance however, so maybe this was the reason for the results of the 2012 Gallup Poll of 142 countries that found that only 13% of people across the world were engaged at work[1] . This is about 1 in every 8. Even worse, 24% were actively disengaged, consciously undermining both their co-worker’s and the organisation’s success.

What exists in these figures is a massive opportunity. Because most businesses are still so poor at engaging their people, it means that those who get good at it will have a real edge over their competitors and can secure the cream of the crop.

The Silver Bullet Solution for Retention

To finish, there is just one more thing I need to share about retention. Everybody wants a silver bullet solution, the one strategy they can do that will fix all their staff turnover woes, and ensure their people never want to leave. The good news is …..I have one!

There is one single factor that is responsible for nearly 75% of staff retention. It’s one that is hardly ever mentioned in the retention section of HR books and rarely practiced by organisations. It’s one of the keys to all business success and the closest thing ever to a silver bullet solution that gives an organisation the best chance of keeping great people, and transforming their business profits:

The best staff retention strategy ever is…………great recruitment!

Like a diver and his oxygen tank, recruitment and retention are inextricably linked. Employ the right people who are a good fit for the role and the corporate culture and they will want to stay. Employ the wrong people and even the most mind-blowing retention techniques will be ineffective. A good recruitment system places people’s wants at its centre, so by addressing factors such as flexible workplaces, brightness of future, engaging job roles and inspirational vision and values as part of the hiring process, an organisation is already winning the battle for talent.

Recruitment and retention. People and profits. They are so intertwined that you can’t neglect one without impacting heavily on the other. Yet it’s more than this. I think ex-Apple CEO Steve Jobs summed up my overall philosophy best when he said, ‘All we are is our ideas, or people. That’s what keeps us going to work in the morning, to hang around these great bright people. I’ve always thought that recruiting is the heart and soul of what we do.’[2]

Mandy Johnson

[1] Source: 2011 Aon Hewitt Best Employers in ANZ – People Practices Inventory

[2] Source: Russell Investment Group 2011 Performance data of companies 1997-2011

[3] Source: PricewaterhouseCoopers 16th CEO Survey 2013