What is the real cost of Culture or let me say cost of not working on culture? I can give you several studies and theories and research, but it will be all in vain. Instead let me tell you about a real incident that I came across recently and you make up your own mind.
I was recently in conversation with a person who used to work at one of the “unicorns” in India. The company has been on a very fast paced growth for a few years fueled by deep investor pockets. The person had a very short stint at that company, and I got curious so asked him what the reason for him leaving was. He told me that it was the norm for people to leave the company in 6 months. The attrition rate in the company is around 50%.
Let me ask you a question, do you think this is normal and in the best interest of the business?
Let’s look at some numbers to make sense of all this. The company has around 12,000 employees on the rolls. By safe estimates let’s say that the average salary at the company be only INR 500,000. The annual salary cost by these assumptions comes at whopping INR 6,00,00,00,000. Too many zeros you say? Let me say it again. IT IS INR 600 CRORE!!!
So, we have the estimated salary expense the company is making on its employees. Now keep in mind, the company is hiring the employees to execute its strategy that has been laid out by the board room executives and expensive suits.
Some studies say that it costs an average of 6-9 months salary when an employee leaves the company. This cost includes the finding the right replacement and getting the new person on to the same productivity. You can read more about it here. Let’s say that it’s not true and this company has formulated a way to get employee productive very fast. Even then the person will at least take 15 days to get up to speed. The trend these days is to have long notice period of say 2-3 months. Do you think the employee is productive during this period? Moreover, the company is replacing almost half of the organization in every 6-9 month period. This means there is hiring cost of interviewing the replacement and getting the new employee on board. In effect, the company has lost overall productivity of at least 2 months out of the 6-9 months average stay of the employee in the organization. i.e. 25-30% of the salary down the drain. What does it account for? INR 150-180 CRORE / YEAR. Let me say it again. The company is losing INR 150 crore a year without knowing. The eyes are still shut. I will let you decide if that is a significant impact on the company or not.
The question is that did it happen overnight?
The answer is NO. Somewhere when the company was around 100-200 employees, someone would have asked the CEO à “Are you looking to build an organizational culture that can help you when you grow very fast and keep your attrition and employee productivity in check?”. And he would have answered à “No we are very busy right now”. The same question would have popped up when the company would have been 500-1000 employee odd and the answer would have been the same.
The inefficiencies that might have looked small at the initial stage have become humongous at this scale. You know when the company scales, so do the inefficiencies that are part of the system. Let me ask you a question. Is it easier to inculcate right behavior and habits in a system when there are 100-500 employees or when the employee strength is 10,000? In any case it is better late than never.
So just to answer the main question. Not working on culture has a very tangible cost. However, culture itself is not tangible. But you can make culture tangible by measuring it and strategically working on it.
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