October 17 , 2018

Understanding The Tremendous Cost Of “Doing Nothing” in HR

When you notice an engine warning light in your car, most quickly calculate that “doing nothing” would be a costly option. And if you’re not familiar with the term, the “cost of doing nothing” is the costs that occur because needed actions are never taken or are unnecessarily delayed. For example, if your facility had a leaking pipe and fixing it was postponed until it burst and flooded an entire floor, the repair costs that result from “doing nothing” might go up exponentially from under $1,000 to hundreds of thousands of dollars.

It’s important for HR to realize that calculating the cost of doing nothing (CDN) is common in almost every business function (e.g., the cost of skipped equipment maintenance), however, the calculations or even the concept are almost non-existent in HR.

Slow decision-making

A huge strategic problem for many HR departments is that they are slow and deliberate at decision-making. Unfortunately, this can mean that important HR actions and decisions are delayed to the point where they cause large negative business impacts. For example, when Uber delayed fully investigating its employee’s sexual harassment complaints, the company suffered hundreds of millions of dollars in damage to its shareholder value, product brand, and its recruiting image. Other prominent costs of doing nothing areas in HR include delayed retention efforts, slow hiring, delayed training and not fixing bad managers. And although deliberate decision-making has its merits, it’s important for HR leaders to realize up front that their unnecessary delays often severely damage business results. So, in my view, HR is negligent when it doesn’t calculate the cost of doing nothing.

Why HR inaction costs so much

HR professionals must recognize that there are tremendous costs that accrue when they “do nothing.” It’s important for HR leaders to work closely with the CFO’s office to calculate the actual costs associated with inaction or unnecessary delays in strategic HR areas. The first step for everyone involved is to understand why doing nothing costs so much. Some of the primary reasons are are listed below. Listed first are some of the most expensive CDN items to include in your total calculation.

Damages can escalate exponentially – Rather than remaining static, costs may escalate exponentially when HR fails to take action. For example, legal damages may increase by multiples if you don’t quickly respond (or if you never respond) to employee discrimination complaints. And failing to fix weak managers may cause them to continue to hire weak employees, which over time will severely damage business results. Obviously, spotting and mitigating employees who are likely to cause workplace violence is relatively cheap compared to the exponential costs after the violence occurs. And remember that delays may create unintended consequences, like when your customers notice that problems never seem to get solved; sales and customer relationships will also be negatively impacted.

Rushing to catch up can cause more errors if proactive actions are delayed until the problem becomes a crisis. The hectic rush to fix the problem will require a great deal of management time. And even then, it may result in a patchwork solution that is less than optimal. And if you must hire expensive consultants to fix a festering problem that could have been avoided, costs will increase even more.

Catching up may not even be possible – In some cases, once you fall behind, no amount of money will allow you to catch up. For example, when a competitor builds a stronger employer brand to the point where they dominate recruiting in your industry it may simply not be possible to catch up, even within five years, no matter how much money you spend. In the same light, if you allow an employee to go too long without needed training, it may be too late for them to unlearn their bad habits.

Preventative actions are much cheaper – Preventing fires is clearly cheaper than putting them out. Like when your car’s oil level light illuminates,and you take no action. Thousands of dollars of engine repairs could have been prevented with a $100 oil change. The same goes for HR. Preventative actions to remedy areas of harassment, discrimination or low performance may be 10 times cheaper than ignoring the warning signals.

Multiyear damages are greater than single year damages – If you immediately solve a problem, the damage may be limited to the first year. However, if a problem is allowed to continue over multiple years unabated, the overall costs will continue to accrue each and every year.

Project delays mean delayed revenues if a product or process that you’re developing is unnecessarily delayed because of slow decision-making. The value that you will eventually receive will be postponed. And with inflation, a delay will mean escalating costs. So, it’s important to include the economic losses from project / production delays and from setting unnecessarily distant completion dates into your CDN calculation.

The competition isn’t standing still – One of the roles of any business function is to maintain a competitive advantage. Slow or inaction by your firm will allow your competitors to sprint ahead and gain first mover advantage in important talent areas like employer brand, innovation, recruiting and retention.

Inaction can become part of the culture once everyone sees that failing to take needed action goes unpunished. Slow action and decision-making may, unfortunately, spread throughout the organization until it eventually becomes part of the culture.

The window of opportunity can close – When a new opportunity arises, inaction can also cause that opportunity to be completely missed. For example, when you fail to act immediately when a top industry talent becomes available, that recruiting opportunity may be gone forever.

Waiting for information can be expensive – Many in HR want to wait until they get 100% of the information they need to make a decision. However, in many cases, if they acted when they had 80% of the information, the decision would be almost as accurate, and the benefits of the decision can begin accruing much faster.

Vendors might avoid you in cases where you rely on vendors to supply solutions or technology. Decision-makers need to be aware that vendors might completely avoid working with you if they know that your “task force” decision process will take up to 18 months to make a decision.

Note: that there is even a basic “cost of doing nothing calculator” online that might give you some ideas on how to calculate your firm’s costs of inaction.

The top 10 HR areas where doing nothing is the most costly

Once HR realizes how severe the business consequences are from delayed or no action, the next step is for HR to identify the most likely “cost of doing nothing” areas within HR. The top 10 cost of inaction HR areas is listed below, with the highest impact areas listed first. Incidentally, if you’re one of the many HR leaders that don’t effectively prioritize, these should be your high priority focus areas if you simply want HR to be more strategic.

1. Failing to investigate serious complaints in the areas of sexual harassment, discrimination, workplace violence and bullying can have serious productivity, retention and legal consequences. And because government intervention, lawsuits, and bad publicity are highly likely in these areas, the costs of inaction are the highest.

2. Failing to take retention actions when corporations are experiencing the highest turnover rate in a decade. Failing to act before a high-value employee begins a job search can be expensive. Given that the average voluntary turnover rate is approaching 30% and that half of that is preventable, preventative actions are cheap compared to the dollar consequences of turnover.

3. Inaction on bad managers – The most significant “under the radar” problem in HR results from failing to identify and fix weak managers. Few HR functions have a “bad manager identification program,” so the tremendous damage, up to 25%, that your managers can create, can go on for years.

Slow hiring – Having positions vacant for too long (especially in revenue-generating positions) is a significant cost that is often not calculated in HR. Unnecessarily extended vacancies can also cause current employees to have to work much harder to cover. In addition, slow decision-making in HR will likely damage your employer brand when comments about it apppear on sites like Glassdoor.com.

Inaction on weak productivity – A primary HR goal should be to increase team productivity. Unfortunately, managers and HR are often slow to identify barriers to productivity or to institute performance management actions on the bottom 20% of your employees. It’s expensive if you pay these employees the same, yet they produce up to 20% less.

Delayed training in a fast-moving world where skills become obsolete quickly. Not offering or delaying training can significantly reduce productivity and innovation. Not offering timely training may also increase turnover among employees that desire to remain on the leading edge. Delaying onboarding for weeks can also be expensive if the new-hire makes many preventable errors.

Delayed leadership development – Whenever HR fails to train enough leaders for current and future openings, it directly slows your firm’s opportunities to grow.

Slow rewards – Putting off well-deserved rewards or pay raises won’t actually save you any money because that inaction will negatively impact productivity and retention.

Slow internal movement – Having cumbersome internal movement, transfer and promotion processes can frustrate top employees and increase turnover. Because if they can’t move up in your organization, they likely will in another.

Delayed technology – Postponing or never purchasing new technologies will result in great costs when it comes to HR efficiency and capabilities. It turns out that forming an ad hoc task force to make a decision is the worst approach if you want to keep current with technology.

An illustration – The cost of doing nothing with hiring speed

“The cost of slow” can be illustrated when you are slow at hiring individuals in revenue-generating positions. For example, you reduce your time to fill for sales jobs from the 40 days to 30. You will literally gain 10 more days of active selling in each vacant position. And not only will that increase your sales by tens of thousands of dollars, but it might also reduce customer frustration and the loss of customers because they literally have no salesperson servicing them. And if faster hiring meant that you didn’t lose top quality candidates to other firms, the resulting hiring of better performing salespeople would increase your sales over many years.

The cost to you of doing nothing

I have already demonstrated how slow decision-making in HR can damage its own results. There are also numerous personal consequences of doing nothing that can’t be ignored. For example, an HR professional can gain the reputation of being indecisive or risk-averse. That may negatively impact their ability to get a raise, a promotion or new job at another firm. In addition, you may also lose the respect of your management colleagues and employees. And over time, your employees may emulate your inaction for so long that they may never be able to shift back to a more proactive and faster decision-making approach.

Final thoughts

When I recommend calculating the cost of doing nothing in HR, I’m not suggesting that every HR leader become an accountant (who incidentally are rated low at risk-taking along with HR and lawyers). What I am advocating is a “connect the dots” approach, where HR leaders identify the actual costs resulting from acting slow or complete inaction. Connecting HR inaction with corporate damages is, obviously, a strategic step that unfortunately many in HR have ever even considered.

If you’re not ready for a total effort, I suggest that you start with identifying the cost of inaction in areas like sexual harassment, workplace violence, training, and retention. Delayed action in these areas could literally reach into the tens of millions of dollars each year. Finally, the key lesson to be learned here is that being deliberate is okay, but not to the point where you are indecisive. Because in the fast-moving, continuing crisis world that we operate in, preventative actions and rapid decision-making with incomplete information are essential skills for all corporate leaders. And that means that HR leaders should add to their array of metrics, the unnecessary costs that accrue from the delayed action, maintaining a holding pattern or doing nothing.

Author’s Note: If this article stimulated your thinking and provided you with actionable tips, please take a minute to follow or connect with Dr. Sullivan on LinkedIn.

 

 

As seen on TLNT.net May 29,2018

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

Check Also

What’s Wrong With Corporate Culture As A Management Tool? Almost Everything!

The top 15 most damaging shortcomings of managing using your culture It’s no secret that …