Every business owner will have their own reasons for starting or owning a business. In 1970, prominent economist Milton Friedman published a famous essay in the New York Times where he argued “The primary purpose of a business is to maximize profits for its owners or stakeholders…” Most reading this blog were not in business in the 70s, so does Friedman’s statement still resonate with today’s business owners?
Think about how we do business today – the primary tools used to measure a business’ success are the Profit and Loss Statement and the Balance Sheet. Even if you believe your business exists for something beyond profit, the industry has a myopic view of what is important based on what is being measured.
The Turnover Crisis
Consider the current challenges many businesses are facing. One of the biggest issues today is employee turnover. Looking at a few numbers from the US Bureau of Labor Statistics, turnover has been, and is increasing as a major challenge.
We see a huge spike in 2020, but looking back to 2016, turnover rates were significant throughout the listed industries. Data shows replacing employees is one of the most expensive efforts for a company, and not just in cash/profit. Replacing knowledge and experience can be a slow, costly process. Adding to this the efficiencies that are negatively impacted – turnover is expensive. 2020 took what was a significant challenge for businesses and magnified it. Looking at the increase from 2019 to 2020 – the Education industry had a 42% increase; Leisure and Hospitality had a 65% increase – these numbers imply that separation rate went from bad to worse.
On a “Mission” to fix turnover
Many employers are feeling the negative impact of the spike in employees leaving in 2020, and of course they must react to that impact if they want to stay in business. But if we can take a step back, we may be able to address the root, rather than treating the symptom.
We have seen over the last few decades the evolution of how companies position themselves and these changes are positive. One part of the evolution that has come to the forefront is the idea that each company must have a vision/mission statement. I am not going to try to distinguish between a vision and mission statement. For our purposes, we will use “mission” to encompass all that is meant by both the vision and mission statements.
Part of the value of a mission statement is to help employees rally around a single purpose. The idea is to give people a reason to work there beyond just getting paid. Ok, sounds like a great concept, but how is it working overall (remember the US Bureau of Labor Statistics noted above)?
The real challenge is consistency; if you have a truly inspiring mission statement, but operate from Friedman’s statement that the only real purpose of business is to maximize profits for its owners – which message will be heard the loudest?
If this challenge is something you have been struggling with, our next few blogs will explore some ways you can make the shift away from Freidman’s 50-year-old business doctrine and embrace a 21st century HRM practice that will help you retain your most valuable asset – people.