SUCCESSFUL ONBOARDING

A Strategy to Unlock Hidden Value Within Your Organization

The McGraw-Hill Companies, Inc.

Contents

Excerpt

CHAPTER 1

THE BUSINESS CASEFOR ONBOARDING

An R&D manager at a large consumer electronics firm wanted to improve the timeit took to get new hires working at their best. This manager felt that a morecomprehensive onboarding program would help new hires gain better and quickeraccess to the specialized knowledge they needed to excel in their jobs. Yet whenour client tried to get his chief technology officer to invest in new hireonboarding, he received an unenthusiastic response. More effective onboardingseemed like an intriguing idea, but it wasn't worth funding over otherpriorities and wasn't clear what the payoff could be.

Few operating leaders today appreciate the full value that effective onboardingcan deliver. This is understandable given onboarding's position as an emergingdiscipline with only a short history. This is a shame because on an intuitivelevel, onboarding makes a good deal of sense. The dollars we spend to recruitGrade A talent have mounted over the past 20 years because of a number offactors, including tightening of the labor force and the increasing value ofknowledge workers in a service-based economy. Other factors, as some haveargued, are the wider emergence of external recruiters who have an economicinterest in fostering higher salaries; talent shortages; the never-ending cycleof hire, attrit, and rehire; and the associated stream of finders' fees. Infact, the cost of attracting talent approaches 30% of a new hire's annualsalary. Imagine the added value if firms possessed a centralized, focused,properly resourced function to incorporate talent into the firm, so there wasless of a need to rehire.

It's one thing to talk about adding value, and quite another to provide hardnumbers and explain exactly where those numbers originate. This chapter builds aquantitative business case for dramatically enhancing and broadening the wayfirms bring new hires into the fold. It begins by examining the economics ofonboarding, quantifying typical returns that can be expected. It then describesin more detail the specific business objectives and results firms can achievewith a strategic program in place. But this is only part of the story. Thesecond half of the chapter attacks the problem from the employee's viewpoint byexamining the new hire's personal needs. Employees who are enthusiastic abouttheir work and their careers are usually strong and productive, and a well-designedonboarding experience satisfies them far better than an inconsistent,haphazard one. The chapter closes with a detailed and thorough economic analysisacross industries. Using benchmark data from 25 leading companies across sixindustries, the prospective impact for your company and your shareholders ismeasured and illustrated.

It is hoped that this chapter will provide change agents inside organizationswith the business case they need to spark serious discussions about onboardingwith senior decision makers. If most leaders today believe their firms can'tafford an effective onboarding program, this chapter's material is designed toconvince them of the very opposite: Their firm cannot afford not toinvest in one.

The Economics of Onboarding

The first step in building the case for onboarding is to estimate the hiddenvalue that typical firms can hope to recover via a strategic program. To arriveat some hard numbers, we took a sample of Fortune 500 companies across six majorindustry sectors.

We assessed the impact of attrition of new hires on the overall cost structureand its impact on profit. Based on our research, on average across industries webelieve that companies experience approximately 13% attrition of new hires inthe first year, and some of that constitutes "regrettable" attrition (productiverecruits with great prospects who choose to leave) as opposed to "non-regrettable" attrition (unproductive and low prospect workers leaving the firm).We asked ourselves, what if a strategic onboarding program could invert thecommon ratio of regrettable attrition? That is, instead of having 65% of ourattrition made up of regrettable losses, what if we had 65% of our attritionmade up of non-regrettable losses?

We determined that an approximate 25% reduction in total attrition levels was areasonable goal and would represent a clear savings to a firm in terms of thereplacement cost the enterprise would have to pay to recruit newemployees. Yet this was only the beginning of the value effective onboardingcould bring in this model. To get a more complete measure of this value, we alsofactored in the opportunity costs of regrettable attrition. When you puta new hire in, say, a quality improvement job and she or he doesn't make it inthe role because of poor onboarding, the loss includes all of the improvementsto your quality program that are not happening during the failed ramp-up period,the departure period, and the new search—value that is lost forever. Thisloss may show up as rework cost, warranty cost, and a reduction in brand equityas customers grow frustrated with your company's products or services. Althoughdifficult to quantify in a simple analysis, these losses are significant, andthey need to be reduced through more effective onboarding.

As the preceding discussion suggests, onboarding does not just offer anopportunity to reduce the overall attrition level. Rather, it also aimsto improve the overall attrition mix (regrettable versus non-regrettableloss, as represented by Figure 1.1), which can have an even greaterimpact.

The objective of onboarding now includes retaining more of the people you wantto keep, and reducing the proportion of your head count loss that is made up ofregrettable attrition (i.e., retain more people you want and lose morepeople you are happy to see separate). The most exciting part of this attritiongain is that although it will affect the short-term, day-to-day productivity ofthe organization, its larger impact will be in the form of what the retainedemployees—who otherwise would have been regrettably lost—will do foryour business in years to come. This is potentially a non-linear relationship,as some of these new hires may provide a truly big impact down the road. This isthe game you need to be changing.

Another gain from onboarding relates to the productivity of all new hires.Effective onboarding can shorten the time it takes for the average employee toachieve expected productivity levels. The time (and level) will vary dependingon the role, function, and company in question. To quantify the potential gainfrom strategic onboarding, we calculated what it would be worth if we couldreduce the time to productivity. We then asked what it would be worth ifwe could improve the average level of productivity—in effect,redefine what we expect out of a prospective new hire with regard to overallproductivity, or contribution. Consider the situation in which, before aneffective improvement, a firm deemed a new customer service representative"productive" when he could handle eight calls an hour. What if we were able toproduce an entirely new form of value for the enterprise, maybe in the form ofthe representative's ability to connect the dots between calls, actually detectpatterns in customer issues, and possess the motivation and know-how to properlyinform product development (or pricing, or channel strategy, mergers andacquisitions (M&A), or any other critical business activity)?

Figure 1.2 summarizes the potential productivity gains attributable tostrategic onboarding for those new hires who stay with the organization. The topcurve represents the level of competency a typical firm could expect to see innew hires over time thanks to a more effective program. The bottom curverepresents the existing progress of productivity performance over time. As thegraph shows, new hires operating under a more effective program would get a jumpstart on their jobs, reaching maximum productivity—what the organizationwould define as 100%—some time between day ninety and the one-year mark,well before employees at the firm might currently reach maximum productivity(see Figure 1.2).

The area of the graph represented by the darker gray area is the entirely newvalue firms may hope to create by readying and equipping new hires to operate ona new level of redefined expectations. As the graph shows, this new value can berealized in the course of Year One and will continue to develop well into thefuture as employees come to excel in their jobs. Overall, new hires become moreproductive more quickly, and they operate at that higher level as part of thenew steady state. This, combined with the gains attributable to lower attritionand better attrition mix, yields what we term the OnboardingMargin.™

Onboarding Objectives and Business Results

This exercise has hopefully provided you a rough sense of how much value moreeffective onboarding can unlock. To explore further how onboarding can add valuefor particular enterprises, let's consider the many specific performanceimprovements and business results individual managers can hope to accomplishwith a strategic program in place.

To the extent that most leaders today think about enhancing new hire onboarding,they usually have at least the following business result in mind: Decreasing thetime and money devoted to serving new hires. Companies do spend a fair amount ofdirect spend on onboarding (in addition to indirect spend, which includes allthe costs associated with unproductive new hires), much of it wasted because oftheir insufficiently organized and poorly designed efforts. An effectiveonboarding program can address this basic requirement and help cut waste in anumber of ways. For instance, many companies have employees fill out paper-basedforms, which in turn means the company needs extensive administrativedepartments to collect, organize, and collate the data. By standardizing andhaving employees read and complete forms online before their startdates, you can drive cost savings and compliance while also creating apotentially more interesting first day (as time is freed up to tackle far moreengaging experiences). New hire training programs offer another example.Currently, many programs are unable to address new hires' needs in a number ofareas. Lacking standardized information, hiring managers are left to improvisetheir own solutions to integrate the new hire. A more effective onboardingprogram avoids the duplication of efforts, saving time and money and avoidingneedless frustration for the new hire and his or her manager.

To help drive efficiencies, minimize waste, and allow for better new hireexperiences, many companies invest in software to administer the process. Whatmost leaders don't realize is that minimizing this Day One and early entry wasteis actually the least that strategic onboarding can deliver. Minimizing Day Onewaste is a decent opportunity. In fact, sometimes it's helpful to make greaterefficiency as the primary objective when getting a program off the ground. Bydelivering results there, you'll have momentum and have an easier time gettingbuy-in for subsequent investments.

Yet managers and executives shouldn't make the mistake of limiting the idea ofonboarding to a piece of software or the single business result of minimizingwaste. These cost savings are largely a one-off savings opportunity, and theyexclude the far greater upside. Table 1.1 lists bigger ways in whichstrategic onboarding will help a firm improve performance. It also listsspecific business impacts—including minimized waste—that firms canexpect to see as a result of achieving their improvement objectives.

As Table 1.1 suggests, a solid onboarding program can deliver much morethan simply reducing administrative cost. Some of the objectives listed here(e.g., attrition) are easier to quantify in their business impact than others(e.g., improvement of the employment brand). It's also important to realize thatno single strategic program, no matter how well conceived, can hope to deliveron every single objective; in fact, many companies go wrong precisely when theyattempt to tackle every objective at once. As discussed later, the key is toassess which objectives will have the biggest impact to your company and thendevise a customized program focused on delivering on those objectives.

Let's run through the onboarding improvement objectives and explain howstrategic onboarding can make a big difference:

• Knowledge transfer. Today a lot of enterprise value is derived fromthe knowledge of existing employees. Firms widely recognize employee know-how asa company asset, even if it doesn't appear on the balance sheet. Many companieshave invested a lot in trying to distill employee know-how into a formalknowledge management system. When an employee transfers out of a position orleaves the company altogether, knowledge loss always occurs. New hires representa great and unique opportunity to transfer the most important knowledge of theenterprise to the future workforce and future leaders. This issue is even morepronounced given that a large number of experienced Baby Boomer employees willsoon retire. Strategic onboarding helps by offering mentor and apprenticeprograms, and developing and engineering the significant relationships that newhires require to learn from veteran employees, thus creating an effectiveknowledge transfer program.

• Engagement levels. Employee engagement is critical for anylabor-dependent business. In fact, engagement affects several of the businessimpacts on the right side of Table 1.1—most notably time toproductivity, level of productivity, level of attrition, and attrition mix. Highperformers and "high prospects" who are not sufficiently engaged operate atmediocre levels and soon begin a job search. Ironically, low performers (or lowprospects) also maintain mediocre output levels, but unfortunately they are morelikely to stay on the job. Both of these are terrible outcomes for theorganization. A study of professional services firms found that offices withengaged workers were over 40% more productive. Other studies have found thatengaged workers are more customer-focused and profitable, and less likely toleave their employer. As shown later in this book, strategic onboarding fostersengagement by helping new hires get excited about their work, their careerprospects, and the enterprise's mission.

• Employment brand. All companies have employment brands in the minds ofcurrent and prospective employees, recruiters, and career counselors. Sometimesthese brands are more pronounced and positive, as in the case of firms who win"best place to work" awards. If you've engineered a system that produces morepositive experiences more often, the message will get out. A firm's reputationwill improve, making future prospects easier to identify and cheaper to recruit.Moreover, you will attract the kinds of new hires that your firm desires; thatis, those attracted by the specific cultural and performance values your brandconveys. Negative experiences produce the opposite result by eroding the firm'semployment brand through negative word of mouth.

• Automation and standardization. We estimate that 80% or more of mediumand large businesses have onboarding processes that are tedious and paper based,require multiple steps of manual administration, are deployed across theenterprise in inconsistent ways, lead to haphazard and wasteful outcomes,inefficiently deploy resources challenging new hire readiness, and createfrustrating experiences for new hires and hiring managers. Software can makethis a more pleasant and lower-cost experience for everyone involved.

• Consistency of experience. Many companies with existing, piecemealprograms possess pockets of excellence around onboarding, whether in specificfunctional areas, specific locations, or other organizational units. A strategicapproach determines and applies best practices across every part of theenterprise that brings in new hires. It helps firms avoid the bitterness thatarises when some employees enter smoothly, while others have less positiveexperiences. In Columbia, South Carolina, The Sisters of Charity ProvidenceHospitals, has vastly improved its onboarding by standardizing its orientationprogram. Retention rates for new nurses rose from 78.2% in 2005 to 86.1% in2007, whereas the retention rate for new graduates rose from 60 to 94%.

• Accountability—roles and responsibility. Too many onboardingsystems flounder because stakeholders do not know what role they have in thesystem, they are not provided sufficient guidance and support, and nobody isholding them accountable for fulfilling their responsibilities. Strategiconboarding programs perform better because clear delineation of roles andaccountability for performance is baked in. Systems are established to providesupport at the right moments, using the right tools.

• Organizational transformation (business and/or cultural). One of themost exciting and strategic long-term business results an onboarding program canprovide involves organizational transformation. Given the high rate of employee-based renewal, a fantastic opportunity exists to transform a business byenlisting new hires in a mission of change—either business change (e.g.,entering a new channel or a new business) or a cultural change (e.g., a new wayof behaving). New hires need to know that their firm is enlisting them as changeagents; otherwise, they'll think that company veterans have bought into thechange, although in many instances they have not. New hires also need tounderstand the organizational benefits of change and why change presents both achallenge and a thrilling journey for them. When a strategic onboarding programproperly mobilizes new hires as a force for change, the impact on a firm'sbottom line can be profound—certainly far more significant than theone-off cost savings that many firms now mistake as onboarding's basic benefit.

• Other/unique to organizations and circumstances. All firms are unique.Because a strategic program design includes a comprehensive diagnostic phase(detailed in Chapter 8), your company will have a chance to discoverimprovement objectives that are unique to you and that comprise bigopportunities for the organization.

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(Continues...)Excerpted from SUCCESSFUL ONBOARDING by Mark A. Stein, Lilith Christiansen. Copyright © 2010 by Kaiser Associates, Inc., Mark A. Stein, and Lilith Christiansen. Excerpted by permission of The McGraw-Hill Companies, Inc..
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