I introduced you to the idea of using the concept of Employee Lifetime Value (ELTV) to understand the ROI of investing in People. I explained ELTV in terms of the employee lifecycle, showing a new hire’s journey from first day to last day. As shown in the graph below, ELTV is represented by the area under the employee lifecycle curve.
There are a few ways to increase ELTV. Great People teams can drive that impact on the organization by helping leaders and managers shorten an employee’s ramp time, increase how high they go, impact how much higher they go over time, and ultimately, lengthen the time they stay with the company. You can see the impact of these actions in the illustration below:
These inputs can be loosely mapped to a handful of strategic People Practices, which are outlined below. Put another way, the better a company’s People Practices are, the higher ELTV they can achieve for their employees.
A good onboarding program accomplishes two goals: 1) It decreases the time it takes an employee to become a fully contributing member, and 2) It significantly increases the likelihood that the employee will stay with the company long-term.
Supporting data showing the effect of optimized onboarding practices:
Google began onboarding new hires using a short checklist sent to managers the week before the new hire started. The result was 25% less time to get full productivity (one month). (Work Rules, Laszlo Bock, p. 295)
Organizations with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. (The True Cost of a Bad Hire, Brandon Hall Group)
An excellent hire has a higher maximum output from the beginning, plus has the added network effect of attracting and elevating other top performers. It’s important to note that through chronologically, hiring comes before onboarding, the full impact of great hiring practices isn’t realized until after a new hire starts.
Supporting data showing the effect of optimized hiring practices:
Recruiting is the HR function with the highest impact on revenue. Excellent recruiting practices contribute to more than 3x revenue growth and 2x profit margins. (Realizing the Value of People Management, BCG)
3. Management and development
Excellent management and development practices increase the value an employee brings to an organization over time.
Supporting data showing the effect of optimized management and employee development practices:
Companies that hire managers based on their management skills saw a 48% increase in profitability. (State of the American Manager, Gallup)
67% of Millennials believe it is management’s job to provide accelerated development opportunities to encourage them to stay. (Why and How People Change Jobs, LinkedIn)
4. Management and culture
A strong management practice and positive culture are directly correlated with retention, which results in an increase in ELTV.
Supporting data showing the effect of optimized management and culture practices:
1 in 2 employees left a job because of their manager, according to a survey measuring the engagement of 27 million employees. (State of the American Manager, Gallup)
36% of people switching jobs left because they were “unsatisfied with the work environment/culture” of their previous employer. (Why and How People Change Jobs, LinkedIn)
The effect of improving these inputs is illustrated below, with the green section representing the increase realized in ELTV.