How Expensive is Poor Leadership?

More than you think...

Retaining talented employees should be a major focus for companies these days. I have heard over the years, that “anyone is replaceable.” When I was a young engineer fresh out college, I believed it myself. There were over 50 engineers in my graduating class and I was competing for jobs like they were. We had very similar skills and backgrounds and I knew I had to separate myself from them so an employer would hire me and not them. Even a couple years after college, I still believed that I could be replaced at any moment by fresh new talent.

It has been drilled into our heads over the years that we are replaceable and we have to conduct ourselves in a way that borders on humiliation. I took my first leadership role over a year ago after working for a few companies that really did not value the contributions of their people. Overtime and chaos was name of their games. Fortunately, those experiences allowed me to create my own leadership philosophy that centers on the fact that my people are not replaceable.

Employee turnover is very expensive. I recently was invited to speak at the Talent Management and Succession Planning Conference on creating a work life balance for employees to motivate and retain good talent. My emphasis will be on the importance of creating a pleasant work environment where leaders and employees respect each other. People will generally stay with a company if they are treated fairly, are given legitimate challenges, and feel their contributions are recognized.

The best way to illustrate the cost of poor leadership is give an example of what it takes today to hire a mid-level engineer. First, the engineer’s resume would cost the company around $15,000 provided it is coming from a recruiter. Today, many professionals move around the country, so the company would offer a full relocation package that would include moving of household items, vehicles, and pets. This would cost around $8,000. Then the employer would cover travel expenses including airfare, temporary housing, rental cars, and maybe thirty days of living expenses during the transition. I will be modest here and say that would cost around $5,000. Many employers also cover closing costs on both selling and buying of a home that could run as high as $10,000 total. Finally the engineer may be offered a starting bonus of $2,000. So, before the employer even starts paying the engineer his or her $65,000 a year salary and before the new employee steps in the door they have paid out around $40,000. This is a very large investment and I have seen many people in these positions quit after ten months to a year from poor leadership in a hostile work environment. Now the company has to do this routine all over again.

Good leadership is the key to retaining good employees and bad managers will only drive them away. As a leader myself, I cannot afford high turnover. I invest time and money into enhancing my people to be better employees. It becomes expensive to keep hiring people and training them to be productive and successful employees. I realize employees leave companies for a variety of other reasons. However, I can still do my part to make their work life a pleasant one.


Guest writer Chris Ortiz is a senior lean consultant and the owner of Kaizen Assembly. He has spent the majority of his professional career working for Fortune 500 companies, teaching and guiding them to become more efficient businesses. He has designed and constructed well over 100 assembly lines and other manufacturing processes resulting in millions of dollars in cost savings and waste reduction. Chris can be reached at chrisortiz@kaizenassembly.com or visit his company's website at www.kaizenassembly.com