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The misunderstood costs and dynamics associated with losing employees

Owning a business allowed me to experience a wide range of employee engagement levels. This provided a front-row view into the pain and costs involved with losing employees. Today, I run a small division. We were working on a SWOT analysis and quickly identified losing employees as a major threat. While the impact may be more obvious in smaller organizations, employee turnover affects companies of all sizes. There are several dynamics that lead companies to undervalue current employees. Without a deep understanding of these dynamics, it is difficult for organizations to break this costly cycle.

To start, let's examine the "Great Resignation," as some call it, or the "silent resignation" phenomenon that unfolded as companies planned their post-pandemic operations. It stemmed from a simple dynamic - your most talented and skilled employees likely have the most self-confidence. This self-confidence reduces their fear of change and increases their drive to maximize value. Combine this with significant skill gaps in the job market and deficiencies in corporate benefits (especially flexible work policies) as the pandemic waned. The result? Many people voluntarily left jobs without clear provocation or cause. This occurred even with major layoffs, including in technology departments and companies. While companies readily lay off less valued staff, the same dynamics leave them extremely vulnerable to the high costs of unplanned turnover.

Fixed Mindset 

This dynamic reflects a belief that people have limited capacity to grow and change - that continuous learning and development is uncommon. With this view, if specific skills are needed, the only option is to go to the job market to find them. This mindset fuels the recruitment industry, emboldens layoff strategies, discourages investment in corporate training, and drives employees to leave in frustration. 

Providing just 40 hours of employee training costs approximately $1,000-$3,000. Reinforcing that training with coaching and real-world application may cost another $1,000-$2,000 over a month or two. The total cost of developing skills internally is $5,000 plus a couple months of slightly lower productivity. 

However, salary studies consistently show larger pay increases from changing companies rather than staying put. Retaining and training staff ensures critical organizational knowledge remains while bringing new capabilities at a lower cost. It also drives loyalty and longevity. 

The alternative many companies choose is to lay off employees, pay recruiters to find replacements with desired skill sets, and onboard the new hires. The costs? Severance payments, recruiting fees that can reach 20% of salary, and onboarding inefficiencies over months as new staff learn processes. If an $80,000 employee is laid off with one month's severance ($6,600), then replaced by hiring at $100,000, fees could be $20,000. Assuming six months before full productivity, the real costs of outside hiring for skills that could've been developed internally exceed $46,600...plus the productivity lag.

The biggest unseen consequence of a fixed mindset is unplanned turnover. Working in my own firm, it quickly became clear how much people value growth, purpose and engagement. Unexpected departures usually happen when employees see no development path, receive no career support, and lack connection between tasks and organizational purpose. 

Power Bias

Power corrupts; absolute power corrupts absolutely. Owning a company showed me how easy it is to slip into valuing my importance above all else simply because it was harder to see other perspectives. With this bias, leaders view themselves and the company as more important than individual employees - to the point of believing staff are lucky to have jobs. The costs of turnover are ignored while leaders focus narrowly on their own returns. Of course, this does not happen everywhere, but it is common enough to require deliberate effort to overcome. 

With this bias, employees are judged only on current capabilities rather than future potential. Investing in growth and efficiency seems pointless when easier options like layoffs and rehiring appear available. Employees may settle anxiously into the job based on compensation and job security rather than purpose and passion, reducing organizational resilience to change. Those with confidence to leave do so, triggering the high replacement costs described earlier.  

Status Quo Bias 

While the biases above stem from different mindsets, they manifest in similar ways. The fixed mindset assumes limited human potential. The power bias prioritizes leadership wants. The status quo bias values stability over evolution.

With this inclination, leaders struggle to see the importance of reskilling. Current operations meet targets, so why change? This thinking exacerbates disruption in larger companies, evident in declining longevity of S&P 500 firms. 

Providing staff training and growth opportunities requires significant effort - planning programs, securing resources, scheduling events, tracking outcomes. This investment must be driven from the top levels or it quickly fades. Major transformation initiatives like digitalization, Agile adoption, DevOps realignment, and product-mindset all require executive commitment to sustain.

Status quo bias stems from behavioral economics - specifically friction and energy. Friction represents the pain a company feels from change, but by the time it's felt, it's too late. Energy reflects leadership drive and "gumption" to act. Energy enables proactive response while friction drives reactive fire-drills. As explored by the Three Laws of Human Behavior, leadership and reskilling/empowerment investment are critical to maintain energy. 

Protect Yourself and Your Company

Fundamentally, addressing these biases requires examining mindsets and beliefs. Changing actions alone is insufficient, like building a house with duct tape - it works temporarily but not for long. Real change flows from changing beliefs. Certain perspectives are essential for minimizing unplanned turnover's massive productivity impact and for improving layoff planning.

Growth Mindset Development 

A growth mindset embraces the belief that anyone can continuously expand their capabilities. It views failure as an opportunity and psychological safety as the foundation for innovation. Overcoming cultural and systemic obstacles like credentialing processes requires deliberately nurturing this way of thinking through training, coaching and consistency. With this lens, staff improvement is the default before considering performance management, restructuring, or layoffs. Investment focuses on the current team versus replacing team members.  

Adaptive Leadership Practices

Adaptive leaders know status quo thinking kills companies slowly. They distinguish essential work from non-essential and push colleagues to embrace discomfort for growth. They develop critical thinking skills in others through teaching and mentoring - cutting and replacing staff are last resorts. Part of enabling growth involves unlearning past ways of operating.

Iterative Testing and Black Swan Planning 

Iterative approaches apply beyond Agile software development - every function must learn to test, analyze, and adjust repeatedly. Without iteration, determining which skills to recruit or layoff is guesswork. As explored in The Black Swan, predicting successful change is very difficult. Iteratively developing internal capabilities based on trends is far less risky than reactive restructuring.

It’s natural to seek the path of least resistance and optimize efficiency. For years many companies responded to change through reengineering, restructuring, and layoffs aimed at cutting “bottom performer” employees while rewarding “high potential” staff. But as demonstrated by declining S&P 500 longevity, these approaches no longer work. Mindsets and beliefs must shift alongside new skill development. My hope is that this shift accelerates faster than current trends indicate.

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This article was written by David Mantica, VP and General Manager of SoftEd, USA.

Drawing from his experience in successfully building a B2B training firm (growing it to $13M in seven years), David speaks on the impact of technology on leadership and management, helping organizations cope with the ever-changing demands and complexities of modern business.

With over 30 years of experience and more than 700 speaking engagements, he has inspired better work practices in marketing, product management, project management, software development, executive management, and other key areas of technology and business operations.