Optimizing Employee Lifetime Value in 2019
Tracking ROI as part of your HR strategy is an essential metric for keeping track of your business growth. Tracking how your employees bring value to your organization is just as critical.
We are in the midst of a paradigm shift: the product-based economy as we know it is gradually replaced by a service-focused economy where people are the focal point of the ecosystem. The value that services are bringing to customers, as well as the value that the workforce is bringing to business has become the current currency of growth.
How Employees Impact The Bottom Line
According to SHRM and Brookings Institute, the total human capital costs average to nearly 70% of operating expenses in most organizations, including Fortune 500. However, only recently have we started to understand how to have a lifetime value perspective on employees, the same way that we are used to look at customers. Loyal and happy employees stay longer, are more productive and willing to go the extra mile and are great ambassadors for your brand.
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The Employee Lifetime Value Model
The Employee Lifetime Value Model was created by Maia Josebachvili and is a great visualisation of that perspective. Essentially, when a new hire starts, they cost the organization money.
Gradually, as employees grow in their role and begin producing output, they increase the value they bring in the company. At a specific time, they reach a plateau where they produce maximum output also known as the peak where they reach the highest value in the life cycle.
What we want to show you is how companies can benefit from looking at the different phases in the lifetime journey of their employees in order to increase that value.
Besides the three phases in the Employee Lifetime Value Model we will also talk about a fourth phase, offboarding, because there are a lot of things you can optimise there as well.
Because a new hire and a high performer who have been with your for years are very different and have different drivers for loyalty. Being aware of the output of your workforce and realizing how much employees contribute to the organization at every stage of their lifecycle are essential indicators for growth and the impact on the bottom line.
In the following we will take a look at what you need to consider when you communicate with, train and lead your employees throughout the phases and beyond. When they onboard, when they begin to deliver value, when they reach the maximum potential and after they – at some point – decide to move on (offboarding).
Phase 1: Pre- and Onboarding
Increasing employee lifetime value starts at the beginning of the journey of every new hire. After identifying quality talent and finding a culture match in the recruitment process, a company is ready to welcome a new employee in the organization. And a bad onboarding experience carries a huge risk when it comes to employee turnover.
Starting on the right track is essential to get employees set up for success and accelerate time to productivity. Send them a welcome message even before they start to build on the excitement of landing a new job. Perhaps a video message where the team introduce themselves to their new colleague. That way, your new employee will recognise some friendly faces on their first day.
Seamless and streamlined pre- and onboarding plays a crucial role. By laying the groundwork and providing new hires with the knowledge they need about your company culture and their journey ahead, knowledge gaps are closed fast, and employees are onboarded successfully.
Next up you want to help get your new colleague set up with the practical stuff well as get them started on some of the initial training. You can also start to introduce them to the most important processes in the team.
In-depth training: When you’ve got the basics covered you can begin to let your know hire dive into the more advanced training elements, which should basically cover everything they need to know in order to be a smashing success in their role, e.g. Health, Safety & Environment rules and procedures. A crucial key concept here is blended learning. Be creative here and try to mix classroom training with online learning.
Why just bombard your new hire with facts and rules when you can make it into a fun quiz, that they can take on their phone while waiting for the train? It would also be a wise move to split up the training rather than bombard the new team member with hour long e-learning – think snackable pieces.
Early days in a new job is a vulnerable time, so it is crucial to get a good dialogue rhythm going. Have regular check-ins, both scheduled and more informal talks, to get an early feel of whether they are off to a good start. Make sure that they feel welcome and comfortable with asking questions.
And you should definitely also see your new hire as a great way of getting some outside-in perspective on your team and your organisation. You can ask them to be an “anthropologist” for the first month and note down everything that surprises them or is different to previous jobs. That might give you and your team great new ideas to change habits or improve processes.
Phase 2: Delivering value
In this phase your employee is fully onboarded and well-integrated into your team and organisation. They have built a network in the organisation and are delivering value in their daily tasks.
That does not, however, mean that no further nurturing is needed as that is a huge driver for engagement, especially among the younger generations. Offering career training and development would keep 86% of millennials from leaving their current position.
In order to keep people motivated beyond the “honeymoon” excitement of the onboarding phase of you need to provide clarity and purpose across all layers of your organization. That enables your workforce to become more effective, more engaged, and more motivated about their work and their role. It also enables you to increase employee lifetime value dramatically.
Organizations that want to achieve sustainable growth need to have clear goals for their employees. Understanding how employees relate to the overall brand vision, mission and core values builds trust and connection across all pillars of your organization.
A daily task that might seem trivial is much more meaningful if linked to the bigger purpose. Just like the famous anecdote from the NASA HQ where John F. Kennedy asked a janitor what his job was and he replied “I’m helping to put a man on the moon.” THAT’S purpose.
You want to make sure that you keep on building the competencies of your employees. Build knowledge over time by equipping your staff with the right training at every step. Step away from old school learning and focus on building an intuitive and modern approach to digital learning where everyone can get up to speed at any time on any topic and accelerate their learning curve.
In the onboarding phase we talked about the importance of setting up a good rhythm for your one-on-ones with employees. But creating a culture of coaching and feedback is about more than booking one-on-ones.
With supportive coaching and timely feedback, an insightful manager can enable employees to increase productivity and feel empowered about their role in the organization.
Adopting a coaching culture based on knowing how employees feel enables managers to keep a finger on the pulse, provide continuous support, and point out areas for improvement.
Creating a feedback loop between employees and managers helps foster a culture in which teams are aligned and engaged.
Phase 3: Reaching maximum potential
This is a crucial phase as it’s typically in this phase that an employee starts to consider leaving. But there are a number of things you can address that will have a positive effect on your retention rate and increase the lifetime value of your employees even after they have reached their maximum potential.
And as the cost to replace a highly-trained employee can be very high there is good reason to do so.
Communication is not a one-way street, so make sure you get all the feedback you can from your employees. Especially the people who are in this phase have extremely valuable input for you and are very likely to pursue new opportunities if they don’t feel like management listens and take action when there is an issue.
What can really make a difference when it comes to training and increasing employee lifetime value is an analytical focus. That helps you identify strengths and knowledge gaps to provide support to your employees when it’s needed. That could help you expand the tenure of your high achievers as you avoid situations where a valued employee doesn’t feel that they get the training, attention and nurturing that they deserve.
And that takes us to “Lead”. When it comes to leadership, a crucial element when looking at this phase of the employee life time is getting the right data to base your decisions on.
Up until now, lengthy employee surveys and biannual or annual performance appraisals have been considered the gold standard for measuring employee satisfaction and managing performance in most industries.
For many organizations this method has proved ineffective simply because managers are not getting the feedback they need when they need it. In order to impact development and drive change in your organisation, surveys need to be conducted at the right time, in the right place.
Phase 4: Offboarding
No matter how strong your employee engagement is, even your most loyal employees will at some point down the line decide to seek new opportunities outside the company. But even though they have given their resignation, there are still a few key things you can do to optimise the lifetime value.
Because you want your alumni to stay ambassadors for your employer brand even after they leave to be able to attract great new candidates. According to Harvard Business Review, a bad reputation costs a company at least 10% more per hire .
Losing a valued employee and team mate can be a big blow to an organisation on a professional as well as personal level. Don’t underestimate the impact it can have on morale in your team and make sure you make room for the mixed emotions that occur. Make a farewell party so they leave on a high – you want to increase the chance of “boomerang” employees who find out that the grass was not greener after all.
Knowledge transfer is very, very important. Your company has spent time, money and resources on training employees, so it’s crucial that they don’t just disappear and take their knowledge with them. So as soon as you get the resignation, you need to plan the handover process.
It can be tempting to throw yourself into the recruitment process, because the sooner you have a replacement for the valued employee who is leaving the better. But it can be well worth it to prioritize exit interviews. You can get a lot of valuable information and honest feedback from asking, e.g. why they are leaving, what could have persuaded them to stay and if they have any recommendations.
So as you can see, there are a lot of action points and initiatives to take in order to improve the Employee Lifetime Value.
Depending on your starting point, some might seem as low hanging fruit and some may seem like significant projects that require time and heavy investment. But regardless of the maturity level in your organisation, you can go a long way with keeping some simple things in mind:
Remember to think of the life cycle of your employees and how their needs evolve as they go from:
- Pre- and onboarding phase
- to delivering value
- to reaching their maximum potential
- and finally go to the offboarding phase
A special thank you to Diana Daia for her contribution on this article.