The Costs of Bad Onboarding for Leaders.
How much are you risking in the first 12 months when you appoint new leaders?
In a previous blog, we looked at the importance of protecting your investment when recruiting new colleagues. Here, I want to talk through a real-life scenario to give an example of the potential financial impacts associated with the realistic risk points during the first 12 months a new leader is in post.
Meet Rosa.
You have appointed a new Assistant Director of Customer Operations, Rosa. In their new role, they have 5 direct reports and a total department of 30.
This is the first time they’ve led a department, but they do have over 5 years of experience leading people.
One of their new direct reports also applied for the position and was incredibly disappointed when they weren’t successful.
This is the first time Rosa will be part of a divisional leadership team. They will report directly to the Director of Customer Experience, who is part of the Executive Team.
Rosa has never worked in the sector their new organisation operates in.
Take a moment; what are the real risks with this appointment?
They have no senior leadership experience; it’s their first time as part of a senior leadership team.
They haven’t run a department before, and it is different to just having your own team. They now need to lead with and through others.
There is a potential issue with a new member of their team, as they were unsuccessful.
They have a lot more responsibility in a sector and organisation that they are unfamiliar with.
What could happen:
Rosa may struggle to get up to speed; there are a lot of new things to take in.
They may lack confidence which could impact their smooth transition.
That lack of confidence and issues with the team could lead to them questioning if the role is right for them. Rosa could choose to leave.
If there are issues with the transition because Rosa is unsupported or doesn’t have an effective onboarding experience, then this will impact the performance and engagement of the team.
What is the financial impact if these costs are realised?
Let’s look at the type of financial risks.
Rosa’s annual salary: £75,000, and additional costs £15,000.
You may have needed to pay more than budgeted due to market conditions.
Estimated Cost Risk = £90,000
Recruitment fees: For this type of role, 22%
This doesn’t include the time of key stakeholders in the selection process or other costs associated with recruitment.
Estimated Cost Risk = £16,500
Impact of a poor/slow transition: There is up to a 15% impact on the performance of their direct reports.
The annual budget costs of this direct team are £270,000.
Estimated Cost Risk = £40,500
Costs of attrition for the team: In addition to the above, 20% could leave.
For team members, you are normally looking at 50-150% of their salary as the cost of losing them.
Taking it at 50% and choosing 2 from the top, middle and bottom of the team.
Estimated Cost Risk = £222,000
Cost of attrition for losing Rosa: Research indicates that 23% of new starters have left in the first 12 months.
For senior leaders, the attrition cost is between 150-400% of their salary. If we take the lower amount of 150%
Estimated Cost Risk = £112,500
Total Financial Risk = £481,500
OK, that is a terrifying number and is a worst-case scenario, but the reason the stats are available is because this does happen.
We will all have been in teams where a new leader comes in who is inexperienced or not effective enough. It does impact the performance of the team, and it has different effects on all individuals. We’ve all seen people move on with that new leader arriving for multiple reasons. We also know how it feels when we have a new leader who is confident, capable, and effective. There will still be a period when things just aren’t quite right up until they have successfully transitioned.
You will not be able to eliminate all your financial risks by ensuring new leaders have a brilliant onboarding experience, but you will be able to aid their successful transition to integration and mitigate the risks by reducing their likelihood or at least the level to which they could happen.
It isn’t reasonable to expect no dip in productivity in the team when a new leader starts, but reducing the impact to 5% instead of 15% saves, in this example, about £27,000.
There are other non-financial impacts of poorly onboarding your new leaders. They, too, will have an impact on the bottom line, but these are more about culture and employee experience.
If your new leaders have poor onboarding, they are less likely to stay, and that causes more disruption for the team and your customers or stakeholders. These new leaders are less likely to promote your organisation to others they view as talent.
It dents the confidence of the team in the organisation’s ability to attract, enable, and retain great leaders. This makes it less likely that they would want to seek promotion internally.
How to combat this.
Take stock and recognise the needs of your individual new recruits.
Ensure they have a brilliant onboarding experience (here’s access to my free guide) but make sure you tailor it to their needs.
As part of the onboarding, put a development and support plan in place that will move them from onboarding to integrating successfully. This is especially important when leaders are new to your organisation or moving into a more senior role for the first time.
Check in regularly to identify issues or risks that could be presented. This includes checking in with the team.
Here’s a useful report from McKinsey about the importance of successfully transitioning leaders into their new roles. You’ll see some of the research that I’ve captured above; the report allows you to get deeper into that and the other areas they covered.
I’d love to hear more about your experiences of onboarding leaders and where you’ve had success, but also the impacts of some of these risks being realised.
Please share them in the comments to start the conversation with this People Pros community.