Employee retention LO23343

Doug Merchant (dougm@eclipse.net)
Tue, 23 Nov 1999 09:14:21 -0500

Replying to LO23242 --

>From: <d.l.dwiggins@computer.org>
...(snip!)...
>A relevant question is: if we're going to make such an
>investment, how should we start?

Imagine a graph of employee development investments where the y-axis is
"Asset specificity" (Low Company Specific to High Company Specific) and
the x-axis is "Asset Economic Life" (Short Economic Life to Long Economic
Life).

The time and effort for an employee to learn about their company's
products is highly company specific and relatively short economic life
(the upper left hand quadrant ).

The time and effort for the employee to learn about the firm's marketplace
(customers and competitors) is less company specific and usually of longer
economic life (somewhere in the middle of the graph).

When the employee learns to read or learns a public computer language, the
investment is low in company specific value (they can read for anyone)
with a long economic life (they can read for a long time). This
investment would be placed in the lower right hand quadrant of the graph.

The time, effort and behaviors for an employee to become a member of a
high performance team is highly company specific and the economic life of
the investment depends on the life of the team.

Frequently employees bring and deploy commodity skills on the job and the
competitive advantage is generated, not from their unique skills, but as a
result of the organization's processes etc. in which they work, e.g.,
counter workers in a McDonnalds stand.

In some cases the employees have commodity skills and the competitve
advantage results from the production of the employment product that
attracts those employees or from the process that guide employee
selection. For example, temporary employment agencies may offer flexible
benefits or have unique selection tools.

While many employees may use commodity skills on the job, at least some
segment of a firm's employee body must become strategic employees.
Strategic Employees are those who have unique skills and abilities that
contribute to the firm's ability create sustainable competitive advantage.
These employees must be somehow different from employees in competing
firms. And, these differences must be beyond the easy economic reach of
competitors. That is, if competing firm can replecate the competitive
advantage by hiring away a few employees, the advantage is not strategic.
(It may be important but it is not sustainable.) Strategic Employees must
have the time, resources and incentive to make the necessary company
specific investments in order to become uniquely different from employees
in competing firms. The very aspect of these company specific investments
is that they are lost to both the firm and the employee when the employee
leaves.

A starting point for understanding the economic value of employee
retention is to: 1) understand how the firm creates competitive advantage
from the employee body, 2) identify the associated employee development
investments on the "Asset Specificity vs. Economic Life" graph, and 3)
understand how employee turnover effects the pattern of company specific
investments.

Of course, the greater the employment risk as perceived by the employee,
the less willing they are to make company specific investments in their
own development. If there is a high probability they won't be around long
enough to get a return on their investment (for example, it is difficult
to document "effective team member" on an employment resume), they would
rather develop themselves in ways which are attractive to other firms.

Doug Merchant

-- 

"Doug Merchant" <dougm@eclipse.net>

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