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What Direction is Your Business Headed?
Calculating the Cost Of a Vacant Position...
A List Of Possible "COV" Factors
Take a moment to think... If an airline bought a new 747, and then let it sit for two months on the runway because they didn't have a pilot, what would the cost be to the airline? In other words what is the Cost of a Vacant Position (COV)?
Many firms calculate the cost of a hire, and some go so far as to calculate the cost of a bad hire, but few have taken the time to calculate the cost of a vacant position. These costs can be significant: anywhere from $7,000 dollars per day to $50,000 per day for a mid-level position. In fact, key leadership positions may cost as much as a hundred thousand dollars or more per day. Couple these amounts with the fact that the length of many vacancies often exceed 100 days, and you are talking about some serious financial impacts ($7,000 X 100 days = $700k or $100K X 100 days = $10M!).
How Do Vacant Positions Impact Your Business?
- Delays in product development and time to market in a fast changing industry means:
- Lower margins
- A loss of first entry dominance
- A loss of PR and Brand Awareness
- Potential loss of market share
- Great ideas and products come from people, not from equipment, buildings or capital. If you don't have the great people you need...you won't have great products. And without great products you won't have a great company.
- If the vacancies are a result of a slow recruiting process, it is important to realize that a failure to fill vacancies rapidly, or at lease in a timely manner, will probably also mean that all of the top candidates will be gone by the time you make a hiring decision. This results in further delay or you may refill your vacancies with lower quality hires.
- Vacancies in a single team can have an impact on many other teams (because of interdependencies), which can cascade throughout the entire company.
It's Up To You to Quantify the Cost Of Your Vacancy
When you have a vacant position, one or more of the following things may happen. Estimate the dollar costs of each bullet point that fits your situation:
1. Product Development and Productivity
- Time To Market (TTM) is dramatically impacted by the entire production chain. Because departmental schedules and plans are closely interwoven, any disruption in one department may adversely affect all others.
- In industries that are seasonal (i.e., Consumer Toys) this disruption may be even more costly. Vacancies in key skill positions may mean that products and projects may need to be dropped altogether.
2. Team Impacts - Doing More With Less Has Limits
- Leadership may become reluctant to terminate poor performing employees until the vacancy is filled. Vacancies coupled with poor performers can cripple the team.
- If a team environment exists, a disruption in team cohesiveness may occur. This can result in a longer TTM (Time To Market) and a loss of focus, that can also impact TTM.
- Vacancies may affect the idea generation of others because existing coworkers are frustrated or overworked.
- Vacancies may cause overworked employees (because they have to fill in) to tire, which may cause increased accidents.
- Vacancies may cause overworked employees to tire, which may adversely affect product quality through increased error rates.
- If the Division leader is the "vacancy" then "time to productivity" is likely to be even more negatively impacted.
- Team product development may be dramatically impacted by the disruption caused by the lost productivity, lost experience, leadership, idea generation and skills of the "vacated" person.
3. Individual Employee Impacts
- Vacancies may cause the team to miss its goals, thereby reducing the possibility of individual and team incentives, which may further reduce productivity.
- Vacancies may frustrate other employees, causing them to lower their productivity.
- Vacancies may frustrate other employees, causing them to quit at higher rate than they normally would. This is especially true for your top performers who are always sought by your competition!
- Understaffed departments will not be able to send current employees to training and conferences, which may lead to increase stress, decreased worker knowledge or frustration.
- Superstar employees often resent being asked to fill in when lesser employees positions are vacant, which may cause them to look for your competition as a better place to work.
4. Increased Management Time and Effort
- Teams with vacancies require "high maintenance" and more management attention.
- Strategic management loses out to operational management selling out your future in order to meet the immediate needs of the business.
- When business leaders fill in for "vacant" employees that time can't be spent on the best employees.
- Vacancies in leadership and mid-level positions have a multiplier effect on productivity and the recruitment of others.
- There are opportunity costs for things a business leader and coworkers could have done if they didn't have to carry the extra load of filling in for a vacancy.
5. Customer Impacts
- Excessive vacancies may send a message to customers and suppliers that you are getting weak or we don't care about them. It may cause a period of confusion for suppliers and customers regarding whom they can contact and the stability of the relationship. Errors caused by "vacant" employees may lose sales volume and key customer accounts.
6. Competitive Advantage
- Excessive vacancies may cause management to panic and to "quickly" hire some poor performers. Once the team is saddled with a large number of poor performers, you may never be able to hire any new top performers.
- Vacancies at the CEO, CFO, CTO, and other top leadership positions can adversely impact your financial market position and the willingness of others to partner in the future.
- Vacancies in key positions may send a message to analysts and the stock market that you are getting weak.
- Vacancies may send a message to competitors that you are vulnerable, which can lead to increased competitive pressures.
7. Image and Recruiting
- Excessive vacancies send a message to your competitors you are getting weak. This might encourage them and improve their own confidence so that they become bolder in the employee poaching of other employees.
- Vacancies may impact new recruiting because vacancies send a message to future recruits that you are not easily able to recruit replacements.
- Vacancies send a message to outside recruiters that you are vulnerable, which leads to increased "headhunter" activity, further perpetuating the problem.
8. Other Miscellaneous Concerns (and Costs) That May Arise
- The new hire may be a lower quality (low performance) candidate.
- New hires are unlikely to be immediately productive, thus resulting in increased costs.
- Some "vacating employees" take others with them soon after they leave. A "break in the dike" of one leaving may cause the whole intact team to leave.
- In a tight labor market, vacancies in hard to hire jobs may not be replaceable, at any cost.
- Spending the time to avoid vacancies may have a huge ROI especially if your former employees go to a competitor with "your" ideas, causing their revenues to increase as yours go down.
How We Can Help You Reduce Your COV
Since 1987, America's Executive Search had provided a menu of services to meet the specific needs of each individual client, services designed to acceleate the hiring process and reduce your Cost of a Vacant position (COV) and proprietary methods to ensure that you reduce your Cost of a Bad Hire (COBH), as well. We do this by hiring proven exceptional talent in a timely manner that can make an immediate positive impact on your business. Whether you represent a start-up venture or you are a global corporation, we are able to accommodate your specific needs. Click on the link for additional information regarding the Specific Strategic Services We Offer and how we can partner together to find the right leaders for your business with a similar sense of urgency. If you would like to contact us directly to confidentially request additional information related to your specific needs, please advise us completing our Client Request for Information Form now.
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