REAL ROI. How Service-Industry Employers Can Improve People Practices and Make More Money

Transcription

1 REAL ROI How Service-Industry Employers Can Improve People Practices and Make More Money

2 REAL ROI How Service-Industry Employers Can Improve People Practices and Make More Money INTRODUCTION A quiet revolution is under way in the service industry. Whether the employer is a restaurant, a convenience store (c-store), a hospitality establishment or retail shop, today s most urgent priorities are building talent capabilities and delivering exceptional customer service. What s the connection? Customer service matters: The cost of acquiring a new customer is five times greater than retaining an existing one. 1 However, many service businesses are behind the curve on hiring, developing and retaining the talent it takes to deliver great customer service. As a result, they are failing to recover costs and to build top-line sales. Technology can support these key talent initiatives. Although many service businesses understand the value of technology in areas such as point-of-sale and inventory control, most employee and HR processes are still paper-based and inefficient. Serviceindustry employers need to know that adopting HR technology can deliver return on investment (ROI) in several operational categories, including: Tax-credit optimization Better-quality hires Improved employee performance Reduced turnover FOR EXAMPLE To make our ROI examples a little easier to understand, we re going to create a fictional 50-unit fast-casual restaurant chain to offer some reference. We ll call this chain McAppleGarden. Here are the numbers for our assumptions: McAppleGarden Restaurants: 50-unit fast-casual restaurant chain Number of employees: 1, revenue: $28,200, profit: 7%/$1,974,000 Yet, no single operational category compares to the profound ROI resulting from the dramatic improvement in customer service driven by talent management solutions. This paper shows how using HR technology to support your talent management can help your organization hire, develop and retain top talent while delivering a significant return on your investment. EMPLOYER TAX CREDITS: LEAVING MONEY ON THE TABLE Many service-industry employers fail to claim all of the available tax credits for people they are hiring. Why? Well, simply, these programs are complex, and high turnover rates make it difficult to manually identify and take action on every opportunity. Using technology to screen and process opportunities to claim these tax credits has a significant impact on managing costs for many employers. 1 How to Deliver Great Customer Service. Inc. Magazine. Sept. 1, magazine/ /how-to-deliver-great-customer-service.html 1 White Paper: Real ROI

3 A variety of tax credit programs are available at the federal, state and local levels to encourage hiring certain individuals. For example, the U.S. government has offered incentives to hire disadvantaged workers since 1996 with a program called the Work Opportunity Tax Credit (WOTC), which was meant to encourage the hiring of welfare recipients, young food stamp recipients, young workers from economically depressed areas and other groups. Many serviceindustry employers are hiring from this labor pool anyway 58 percent of the workers eligible for WOTC incentives work in serviceindustry jobs such as retail, food service and accommodations. 2 The potential savings for service-industry employers can be high, given that 10 to 20 percent of the workforce may qualify and credits are worth between $1,200 and $2,400, with some worth as much as $9,600. However, WOTC incentives frequently go unclaimed almost 89 percent of eligible employers did not file for credits, according to one survey. 3 The National Restaurant Association found that as many as 27 percent of restaurant employees may be eligible for WOTC incentives. 4 And the average benefit can be significant almost $1,250, according to TaxBreak LLC, a leading provider of tax credit services. POINTS TO CONSIDER Employer tax credits are designed to offset labor costs. Available credits include: Work Opportunity Tax Credits (WOTC) Disaster Recovery Credits Empowerment Zone Credits Thousands of State and Federal Incentives MILLIONS IN MISSED OPPORTUNITIES, BILLIONS IN LOST TAX CREDITS In 2009, 698,520 WOTC certifications were issued by state employment agencies. Far more employers never applied. According to TaxBreak, 90 percent of businesses don t realize these incentive programs exist, and, as a result, about 80 percent of tax credits are forfeited every year losses totaling billions of dollars. WHY DON T THESE EMPLOYERS APPLY? Lack of awareness: Among c-store owners, only 31 percent are filing and collecting Work Opportunity Tax Credits, while 42 percent don t know what they are and another 27 percent know about them but don t file. Unsure about eligibility: Although some employee groups, such as people younger than 18 and unemployed veterans, are easy to identify, other employees, such as food-stamp or welfare recipients, may be reluctant to self-identify eligibility because of embarrassment or a perceived stigma. Administrative hassle: Administrative requirements and timeframes for collection can seem onerous. Turnover among service-industry employers can be so high that it can be difficult to identify which employees are eligible. As a result, the perceived benefit doesn t seem worth the effort. 2 Hamersma, Sarah. Why Don t Eligible Firms Claim Hiring Subsidies? University of Florida Hamersma, Sarah. The Effects of an Employer Subsidy on Employment Outcomes: A Study of the Work Opportunity and Welfare-to-Work Tax Credits, Draft Employee tax credit programs keep your business from leaving money on the table. Nation s Restaurant News. March 26, White Paper: Real ROI

4 Tax credit screening embedded in HR software, such as an applicant tracking system (ATS), can work around these obstacles. These systems can easily filter qualified employees and screen in a way that does not stigmatize or intimidate the applicant. The hiring system should not only identify workers who qualify for tax credits, but also ensure that your tax credit solution is integrated with state and federal systems to reduce errors and turnaround. The result not only benefits your bottom line, but also helps people facing adversity get back on their feet. Your company will do a better job taking advantage of these credits if you believe in their intent and promote that intent as part of your employer brand. Tax credit processing doesn t have to be complicated. If you are not embedding this process in your ATS, you are leaving money on the table. There s no reason not to take advantage the savings in this one area alone can more than cost-justify a talent management solution. EMPLOYEE PERFORMANCE TAPPING INTO DISCRETIONARY EFFORT Employee performance goes by several names you may sometimes hear it called productivity, engagement or discretionary effort. In the service industry, improved performance results in a better customer experience, because employees want to work, care about customers and want to take care of them. For employers, this means that more work can be done with fewer people and that training requirements are reduced significantly. The bottom line: Highly engaged employees outperform their disengaged colleagues by 20 to 28 percent, according to 2006 research from the Conference Board. 5 Gallup research has focused on the benefit of employee engagement for years and has interviewed millions of workers. Its research has shown that: Engaged employees average 27 percent less absenteeism than those who are actively disengaged. Organizations with a surplus of disengaged employees suffer 31 percent more turnover than those with a critical mass of engaged employees. This, along with replacement costs ranging from 25 to 80 percent for entry-level employees, translates to lower cost of employee acquisition. Work groups with high disengagement lose 51 percent more inventory to employee theft than those with high engagement. 6 EMPLOYEE ENGAGEMENT DRIVES CUSTOMER LOYALTY What keeps customers coming back and inspires their loyalty? They say it s all about the experience they have with your employees. 5 Esty, Katherine; and Gewirtz, Mindy. Creating a culture of employee engagement. NEHRA. June 23, The Value of HR Technology. CedarCrestone FOR EXAMPLE How Would Tax Credit Processing Benefit McAppleGarden? At McAppleGarden, our fictional 50-unit, fast-casual restaurant chain, annual turnover is right at industry average, according to the National Restaurant Association 75 percent. Considering that McAppleGarden has 1,250 employees, they are hiring 937 new employees every year. Using the NRA s estimate that 27 percent of new hires would be eligible for tax credits, 252 employees would be eligible. The benefit would be significant, assuming an industry average collectible value of $1,250 per employee. The total value would be $315,000 if all tax credits were claimed. Even if McAppleGarden is claiming tax credits with a manual process, it s likely that many opportunities are being missed, because only 11 percent of tax credits are claimed, on average, with the pen-and-paper process. Adding an automated screening process would allow McAppleGarden to claim an additional $186,250 in tax credits. By the numbers 2009 turnover: 75% (937 employees) Number of new hires eligible for tax credits: 27% (252 employees) Value of eligible tax credits: ($1,250 average) $315,000 Average number of newhire tax credits currently claimed with a manual process: 11% (103 employees) $128,750 Difference: $186,250 in additional credits could be claimed with an automated process 3 White Paper: Real ROI

5 High-quality interactions with people and systems Superior product or service Lowest price or cost 0 20% 40% 60% 80% 100% Corvirtus, a well-respected provider of assessments in customerintensive industries, has also been studying the impact of engagement on key business metrics. Its research shows that increased employee engagement leads to: 200 percent greater espoused employee loyalty 26 percent greater cash flow 50 percent less reported theft Source: Customer Experience Management: Accelerating Business Performance, Bob Thompson, CustomerThink Corp, percent higher check average per person 23 percent greater customer satisfaction 52 percent lower employee dissatisfaction Taken together, the message is clear: Service-industry employers who want to benefit from employee engagement need to focus on hiring better people, providing the training they need and offering clear performance evaluation and development plans. The ROI can be significant. Research from leading talent management analysts at Bersin & Associates shows that organizations with intermediateto-advanced talent management processes for talent acquisition, performance management and learning generate 26 percent higher revenue than organizations with no talent management processes. This return on investment is driven through several talent management processes: Assessments: Better employee performance starts with hiring better people. Pre-hire screenings lead to better hires with better attitudes and longer retention. Lower turnover reduces labor costs. Also, hiring better people increases engagement, which creates a better customer experience and helps build top-line revenue. Evaluations: Performance reviews increase productivity. Employees can understand how they can achieve their individual goals and become more engaged in their work as a result. Training: Hiring better employees and retaining them longer allows a business to recoup its training investment. Also, FOR EXAMPLE How Would Better Engagement Benefit McAppleGarden? At McAppleGarden, our fictional 50-unit fast-casual restaurant chain, improved engagement can make a big difference: Increased revenue: Research from Bersin & Associates shows that organizations with intermediate-to-advanced talent management processes generate 26 percent higher revenue. A 26 percent improvement in revenue could mean an additional $7,332,000 for McAppleGarden. Decreased absenteeism: The 2007 Unscheduled Absence Survey from CCH found that two-thirds of people who call in sick at the last minute do this for reasons other than illness at an annual cost to the organization of $602 per employee. At McAppleGarden, the cost is $752,500 a year. Because engaged employees have 27 percent lower absenteeism, creating more engaged employees could save this restaurant chain $203,175 a year. Less shrinkage: The Association of Certified Fraud Examiners found that between 0.5 and 3 percent of restaurant sales are lost through shrinkage. Because work groups with high levels of disengagement lose 51 percent more inventory than an engaged work group, what s the cost of disengagement at McAppleGarden? Assuming 2 percent shrinkage, the cost is $564,000. Reducing this cost by 51 percent would save the company $276, White Paper: Real ROI

6 training delivered via collaborative technology systems allows for more frequent training and reinforcement without waiting for formal group training events. Hiring better people can also decrease the amount of time (and money) it takes to train an employee. Unfortunately, most service industry employers are not positioned to directly impact employee performance for several reasons: Ad hoc employee selection leads to poor-quality hires Lack of effective assessment and screening leads to poor-quality hires Learning and training are informal functions Absence of a formal performance review process drives lack of employee engagement Talent management technologies such as an ATS, a performance management system and an e-learning system can create structured processes that improve employee performance. In the long run, the cost of these systems is small compared with the benefits. With these processes, employees become more engaged and deliver superior customer service, which results in increased ticket amounts, return visits and customer referrals. EMPLOYEE TURNOVER: THE HIGH COST OF CHURN In the service industry, high employee turnover is considered a fact of life. Although the National Restaurant Association puts the industry average for annual turnover at 75 percent, the reality for many restaurants and service industry employers is that turnover can be well over 100 percent. With turnover rates this high, the constant churn of hiring, training and replacing employees feels never-ending, is exhausting to managers, increases the likelihood of desperation hires, and also has a significant financial impact as shifts go unfilled, co-workers pick up extra duties and the company s investment in training is lost. The cost of turnover can be anywhere from 25 percent to 80 percent of annual wages for entry-level positions like many of those in the service industry. 7 TURNOVER BITES INTO THE RESTAURANT DOLLAR Salary and wages cost restaurant employers 33 cents on the dollar. Conservative estimates place the cost of turnover at 25 percent or 8.25 cents on every dollar a restaurant earns cents Food & Beverage - 33 cents Salaries & Wages - 33 cents Occupancy Costs - 8 cents Corporate Overhead - 4 cents General & Administrative - 3 cents Other - 18 cents Income Before Taxes - 4 cents Note: Due to rounding, total does not equal 100. Source: Optimizing Workforce Performance in the Hospitality Industry, Oracle, CedarCrestone. The Value of HR Technologies White Paper: Real ROI

7 High turnover shouldn t be considered a given. Research shows that companies with well-developed talent management strategies that integrate hiring, performance management, learning and compensation experience 27 percent lower turnover than businesses that lack talent management initiatives. Employee retention can be improved through the following initiatives: Assessments: Pre-hire screenings make it easier to choose the best candidates. Employees who fit your culture, have the right aptitude, exhibit the right attitude and who are more loyal are more likely to remain with your company than employees who do not have these characteristics. Training: Employees who understand how to do their jobs are more likely to be engaged, have confidence in their abilities and deliver a better customer experience. Evaluations: A structured framework for functional communication and improvement helps employees better understand how to do their jobs. Rewards and recognition: A positive comment at the right time whether it comes from a manager or peers can inspire and engage employees. Workplace collaboration: Real-time exchange of information contributes to a sense of team cooperation, efficiency and flexibility. Reducing employee turnover delivers ROI in several categories: Seasoned employees deliver better customer service, which increases revenue and customer loyalty. Reduced training overhead means managers may focus on strategic initiatives. Engaged employees are more likely to work efficiently, to complete tasks correctly and in less time, and to reduce waste. Decreased turnover means reduced onboarding costs, such as new uniforms and new-hire training. CUSTOMER SERVICE: GETTING EMPLOYEES TO GO ABOVE AND BEYOND Of all the benefits and ROI opportunities described above, none is as powerful as the exponential impact the sum of these initiatives has on customer service. Exceptional customer service can increase average ticket value, frequency of visit and long-term retention. Customers rank service higher than any other aspect of their experience even quality of the product or price. 8 What is the ROI of a smile at the right time or replacing a customer s spilled drink? One quick-serve restaurant chain Steak n Shake has actually quantified it. The company believes that there is a clear connection between customer satisfaction and customer loyalty and a loyal customer can be worth much as $25,000 over a lifetime at the restaurant. 9 FOR EXAMPLE How Would Reduced Turnover Benefit McAppleGarden? At McAppleGarden, turnover at the industry average of 75 percent is a significant expense. Even when calculating the cost of turnover at the lower end of the spectrum (25 percent), the cost of one employee leaving the company is $3,120, based on an average salary of $8/hour and a 30-hour workweek. In 2009, 937 employees left the company, at a total cost of $2,923,440. The impact of turnover on talent management can be dramatic, according to Bersin & Associates research. If McAppleGarden could reduce voluntary turnover by 27 percent, the result would be 252 fewer departures per year with a savings of $786,240. By the numbers 2009 turnover: 75% (937 employees) Number of new hires eligible for tax credits: 27% (252 employees) Cost of turnover: Cost of turnover = 25% of annual salary $8/hour x 30/week = $240 a week or $12,480/year $3,120 per position x 937 positions $2,923,440/year Decrease turnover by 27%: 252 fewer departures with a savings of $786,240 8 Customer Experience Management: Accelerating Business Performance, Bob Thompson,Customer ThinkCorp Workforce.com, Turnover Is the New Enemy at One of America s Oldest Restaurant Chains 6 White Paper: Real ROI

8 THE VALUE OF CUSTOMER SERVICE According to Forrester Research, every 10-percentage point increase in customer service results in a 2.84 percent increase in revenue, including: A 1.16 percent reduction in turnover A 1.03 percent increase in sales from word of mouth A 0.65 percent increase in sales to existing customers Source: Forrester Research, Customer Experience Boosts Revenue, Bruce Temkin, June 22, 2009 The first step toward achieving better customer service is hiring better people, because not all employees are inherently capable or motivated to deliver great customer service. That s why prehire assessments are so vital for service-industry employers. Implementing assessments results in better hires with better attitudes and longer retention. For example, using pre-hire assessments results in hiring employees who are: Twelve times more likely to set challenging, long-term goals Eight times more likely to take initiative on all tasks Five times more likely to encourage teamwork through their actions 10 Another way to focus managers on customer service is to eliminate HR tasks that add no value. The automation that talent management technology provides can reduce the cost of manual HR processes, as the table below illustrates. For employers with between 500 and 2,500 employees, the results can be dramatic. With talent management technology, the overall annual cost of administering HR per employee drops from $367 to $229 a 38 percent decrease. 11 Automating inefficient manual processes can do more than have an impact on your bottom line eliminating paper forms can also reduce overall paper waste meaning less paper ends up in the landfill. THE COST BENEFIT OF AUTOMATION Process Manual Cost Cost of Process with HR Technology Manual Cost Processing a job application $11.55 $ percent Creating a job requisition Enroll in training Complete a performance appraisal $29.89 $9.58 $59.73 $9.36 $2.31 $ percent 76 percent 20 percent 10 Corvirtus LLC 11 CedarCrestone. The Value of HR Technologies SOURCE: CedarCrestone. The Value of HR Technologies White Paper: Real ROI

9 CONCLUSION Talent management technology can improve customer service and deliver a significant return on investment. With paper-based processes, it s difficult to claim all available tax credits, hire and retain the best people, and nurture better performance. However, no single operational category can compare to the profound ROI resulting from the dramatic improvement in customer service. Unlike other providers, PeopleMatter s tools and technology are designed specifically to meet the needs of restaurants, c-stores, hospitality and retail establishments. In high-turnover environments where the cost pressures are always intense, technology can automate and streamline talent processes to deliver exponential ROI from cost savings and increased revenue. Your people matter. Discover how PeopleMatter s solutions can deliver the ROI you need and jump-start your customer service. Hire the right people, engage them, train them and give them the time, attention and tools they need to succeed. You will see real results. ABOUT THE PEOPLEMATTER INSTITUTE The PeopleMatter Institute (PMI) is the thought leadership source for PeopleMatter, the HR industry and service-focused organizations worldwide. PMI provides extensive research and education tools to help businesses and individuals understand, manage and motivate their most important asset: their people. Access the PeopleMatter Institute on the Web at CONNECT To learn more about how PeopleMatter s suite of online HR tools can help your business, visit PeopleMatter 466 King Street Charleston, SC White Paper: Real ROI