Australia is losing A$ 5.9 billion a year managing under achievers, according to a new report from SHL, world leader in objective assessment.
SHL commissioned The Future Foundation to produce Getting the Edge in the New People Economy, the first report in an ongoing research program exploring the hidden costs of hiring, selecting and managing employees. SHL sought to quantify the true cost implications of selection errors as well as the potential value star performers bring to an organisation.
The research revealed that, as Australian businesses squander the talent and potential of their workforce, they are wasting 1.13 per cent of the Australian GDP, slightly less than the average global figure of 1.65 per cent.
SHL found Australian businesses waste $1,118 for every full time employee. This is based purely on the time managers must spend dealing with those employees who fall below par.
For Australia’s top 50 private businesses* this means that they are potentially losing more than $82 million every year.
According to SHL, the main problem lies in companies’ failure to match the right person to the right job.
“Companies may talk about their human capital being their greatest asset but most are not taking enough time to effectively select and deploy their staff,” says Sarah Kearney, managing director, SHL Australia.
In Australia, 1 in 7 disheartened employees give up and leave their job before they are competent. Job-hopping incurs further costs as it takes an average of 7 months for Australian employees to reach competence in a new job.
These figures are just the tip of the iceberg. According to the report, Australian workers believe 21 per cent (or one in five) of their colleagues are incompetent. Globally this figure is 22 per cent.
Worse still, while they may be critical of their co-worker’s performance, employees also admit that more than half (56%) of their own mistakes never come to their managers’ attention. This is in comparison to 68 per cent in the US and 70 per cent in the UK.
While Australian employers might be startled to find out the real cost of their people management, they are ahead of their Hong Kong counterparts who lose a staggering 2.99 per cent of the GDP.
Australia loses A$5.9 billion to poor people management says new global report
In comparison, the UK loses 1.6 per cent and the US 1.05. Sweden boasts the best performance in this area, squandering only 0.59 per cent of its GDP through managing poor performers.
“These figures only scratch the surface of the problem as these statistics are based purely on the cost of the time Australian managers spend with underperformers.
“Poor people management costs even more when other important factors are considered, such as opportunities lost before new starters reach competence and the damage inflicted to the business by underperformers,” says Kearney.
“Australian companies are under investing when it comes to employee selection and as a result are failing to tap into the potential of their workforce. The cost ramification of dealing with poor people decisions is hurting Australian companies.
“The global distribution of these startling figures suggests that no single country or culture is dealing with this problem effectively. We believe that business as a whole should prepare for an inevitable sea change. With the technological means for global reach a reality, we are now recognising that knowledge and human capital are the true drivers of profit and innovation. To excel in the 21st century, leaders will need to focus on people first and technology second. The advantage in this ‘New People Economy’ will go to those who can redefine skill sets and match the right people to the right jobs through intelligent and objective assessment.
“Organisations need to make an objective assessment of the individual’s performance against the key competencies in order to select and retain the best talent to control this cost and secure a sustained competitive edge,” concluded Kearney.
To download the full research report click here.
About SHL Group PLC:
SHL is the world-leading provider of psychometric assessment and development solutions. The company supports organisations in the selection, recruitment, promotion, succession planning and development of talented people at all levels and across all sectors. Operating in 40 countries and more than 30 languages, the SHL Group devises innovative approaches to help organisations increase productivity and gain competitive advantage through the more effective use of their human capital. SHL has over 5,500 organisations as clients, including many of the Global and Times Top 1000, and is recognised as the foremost provider of objective assessment products in the world. For more information please visit www.shl.com.
About Getting the Edge in the New People Economy:
The Future Foundation surveyed 700 managers across UK, USA, Sweden, Netherlands, India, Hong Kong and Australia. It was supported by a survey of 2500 employees, in depth interviews with recognised business leaders and academics, extensive desk research and literature review. The formula to calculate the overall cost of managing poor people performance is: (number of managers x average earnings of managers x proportion of time spent managing employees’ poor performance.) The report is available for download here.