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The Cost of Ineffective Communication.

In the 1950s there was a game show called the "$64,000 Question" with a spin-off show shortly after called the "$64,000 Challenge." Contestants were asked a series of questions, each one escalating in difficulty, until reaching the final $64,000 question. While $64,000 in 1950 is now the equivalent of $684,600 in 2020, most managers today would still be thrilled to have an extra $64,000 added to their annual bottom line.


In our modern-day version of the $64,000 challenge, however, it's not about playing games, but rather investing time and energy into team communication and employee retention.


Cost: Employee Turnover


Research has demonstrated that the average cost of employee turnover ranges anywhere from a modest estimate of $15,000 per employee to $35,000 per employee - with the cost of turnover increasing as the employee's job level and salary increase. With those estimates, it takes less than 5 employees leaving per year to reach the $64,000 mark. If you lose a higher-paid employee making $64,000 - all it takes is losing just one staff member. And in all likelihood, if you use the formula below, your annual cost of turnover is even higher that these average estimates.





The cost of a high turnover rate goes beyond the tangible costs of recruiting, hiring, and training new employees - the overall performance of your team suffers as well. A group that has spent time working together and becoming a cohesive team ultimately performs better.


Of course, we can't (and shouldn't) prevent all staff turnover - having low performers move on can actually help your bottom line. But if you have a high percentage of your top performers leaving, you will feel that loss.


Cost: Productivity


It's not just the loss from high turnover that impacts the bottom line - ineffective communication diminishes overall productivity, even for a stable team. According to a study published by Cognisco, poor communication, and the resulting employee misunderstanding, cost UK and US businesses $37 billion per year. The study defined employee misunderstanding as actions taken by employees who did not fully understand (or were misinformed about) their roles and responsibilities. In other words, an employee's lack of understanding of company policies, business processes, and their job functions (or a combination of all three). From unnecessary downtime, to outright mistakes, the seemingly small individual misunderstandings have a significant impact in the aggregate.


So, what's the answer?


Research has shown that communication, or lack thereof, is a common driving factor in voluntary resignations. When employees feel included and engaged, however, they are more likely to stay. By cultivating a culture where communication is clear and open, and regular feedback is the norm, you will promote higher levels of job satisfaction and productivity, and ultimately increase your employee retention rate.


Additionally, just as we can calculate the cost of poor communication, research has shown the profitability of effective communication. In a report published by Towers Watson, companies described as "highly effective communicators" had nearly 50% higher total returns than companies described as "least effective communicators."


One of the best ways to improve team communication is by cultivating a feedback culture, where everyone feels genuinely comfortable both giving and receiving feedback. And truly effective feedback is a two-way street. Leaders should be giving feedback to individuals on the team and to the team as a collective unit. Additionally, leaders should be receiving feedback from individual team members and the team as a collective. Further, peers should be comfortable giving and receiving feedback to one another.


While a true feedback culture requires participation from everyone on the team, it is incumbent upon the leader to set the tone and lay the foundation. Begin by regularly providing authentic feedback to your team and set aside time each week to check in with your direct reports and request feedback on what you could do to help them be more successful.


Being intentional with team communication is not a luxury or something to focus on during downtime. Being intentional with team communication is essential. Make the time and take the time to meaningfully engage with your team - your colleagues (and your bottom line) will thank you.




References:

Altman, J. (2017). How Much Does Employee Turnover Really Cost?

Cognisco (2010). $37 billion: Counting the cost of employee misunderstanding.

Sears, L.S. (2017). 2017 Retention Report: Trends, Reasons, and Recommendations. Towers Watson (2010). Capitalizing on Effective Communication: Communication ROI Study Report.

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