Bottom Lines

March 2013

Bottom Lines
The extraordinary executive sees something different than many others. The worldview of the extraordinary executive recognizes a powerful truth. There is more than one bottom line. Making no apologies for managing the traditional bottom line, the extraordinary executive knows that managing for profit is the foundation of the organization and the American business landscape. Financial fitness and fiscal health is the non-negotiable must-have.

Yet another bottom line exists. It is the bottom line of leadership development and talent management. The people bottom line. Good people can build good businesses. Good businesses can build good people. But when good people choose to leave the business, it costs the business profit. The tangible and intangible costs of unwanted turnover directly hit the traditional bottom line. When top organizational performers leave the business the business often experiences a performance shortfall. Prolonged performance shortfalls can be costly.

Perhaps over time you have seen the statistics that a regrettable exit (voluntary turnover) costs the organization from one to four times the annual salary of the position being vacated. Typically, entry level positions have a lower multiple and executive positions carry with them higher multiples. But the chief point of consideration here is that each organization should agree upon their own (believable) number. Agree upon your multiplier for your business and you will have a quantifiable basis from which to be able to see the financial impact that your people bottom line has on your traditional bottom line.

The extraordinary executive is instinctively aware of the well-worn maxim, “People join companies, but quit bosses.” Research from the Saratoga Institute (later to become PwC Saratoga) and others have long indicated that when people leave an organization due to push factors, overwhelmingly they leave because of their boss. Jay Conger, the Henry Kravis Research Professor of Leadership Studies at Claremont McKenna College puts it this way, “The largest predictor of whether someone will stay with a company is their satisfaction with their immediate boss.” Businesses are wise to be about the task of making good bosses. And since retaining good people causes businesses to retain hard earned profit then retaining top performers and high potential leaders is a crucial bottom line strategy.

In a recent study by the AMAE, a division of American Management Association, only 19 percent of nearly 1000 responding organizations considered themselves as “well prepared to deal with either rising turnover or management departures.” And with many sources warning us that talent shortages are popping up and expected to increase, let’s explore this further next time. Isn’t it wise to have a strategy for retaining top performers and developing high potentials?