How're You Gonna Keep 'Em Down On the Firm?
Sean Durham and Eric Rabinowitz of IHS HelpDesk Service uncovered a hidden growth strategy when they realized that rampant employee turnover was affecting their bottom line.
Published January 1998
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COMMENT ON THIS ARTICLEWhen you're pulling out all the stops to hire new workers, it's easy to overlook one obvious talent pool: current employees. Slash turnover--as IHS HelpDesk did--and you may uncover a hidden growth strategy
The company should have been growing like crazy. And there were numbers to prove it.
No matter how long SÉan Durham and Eric Rabinowitz spent poring over their exhaustive status reports--supplied each week by the full-time statistician they employed--they couldn't seem to pinpoint the source of one perplexing problem: why IHS HelpDesk Service's revenues were nearly 20% short of their projections. Durham is president of Leveraged Technology, a $21-million computer consulting firm in New York City. Rabinowitz serves as president of IHS, its subsidiary. In the seven years since Rabinowitz had written the business plan for IHS, the company's market segment--supplying on-site contract workers to staff internal technical-support lines at Fortune 500 companies--had exploded, which enabled IHS to double in revenues every year. Until 1996, anyway. "We thought we were concentrating on the right things to grow the business," says Rabinowitz, who notes that the two had aimed their efforts at marketing and recruiting. "But we were basically running in place."
Not that their efforts weren't plainly visible in August 1996. Thanks to an intensive direct-mail program, the company had no shortage of customers. In 1994, Rabinowitz had hired a marketing consultant who introduced him to a procedure called "drip." Modeled after hydroponics, a type of farming in which plants are cultivated in a water-based solution, the strategy entailed frequent mailings to prospects and clients to keep IHS firmly implanted in their minds, by showering them with such offbeat premiums as miniature crystal balls, packets of forget-me-not seeds, and worry dolls. What mattered most was not the contents of the message but the continual reminders of the company's existence. The system was paying off: IHS was receiving at least 60 requisitions--orders from a customer for an on-site analyst--a month, a sixfold increase in eight months.
IHS kept up with that demand as best it could. If Rabinowitz couldn't recruit folks with the ideal technical background, he wasn't above drafting particularly friendly busboys and flight attendants. Well aware that it took certain personality traits to work on a help desk--empathy, intensity, endless patience--in 1994 he had begun using personality tests to screen candidates. Unsatisfied with the 12 tests he tried, Rabinowitz enlisted a consultant to develop a customized test.
All of Rabinowitz and Durham's efforts were targeted toward boosting what they considered the company's critical number: the count of employees "on billing," or at a customer site generating revenues. In August 1996, IHS had 139 employees on billing; by December 1996 that figure had risen to 160. Still, Rabinowitz and Durham had projected sales of $13 million for IHS in fiscal 1997, but two months into that fiscal year, projected revenues were running closer to $11 million.
Rabinowitz and Durham couldn't deny that they had been missing opportunities to generate revenues: of those 60 to 80 monthly requisitions, they were typically able to fill only about half. Why was that, exactly? As they cast their eyes over the employee-trend analysis--a report that usually earned not much more than a collective glance--the answer started to come into focus. The report, which listed the weekly count of employee arrivals and departures, showed a distinctly unhealthful trend. During the summer of 1996, rare was the week when newbies outnumbered quitters. And the weeks were adding up. According to the company's statistician, annual turnover for 1996 was likely to set a record: 300%. What's more, 30% of new hires weren't staying even as long as three months. "Our recruiters were working double-time just to maintain the current level of business," says Durham.
The two had always fretted about turnover rates, but they resigned themselves to thinking that, unlike the other numbers they tracked, there wasn't much they could do to change them. In the computer business, that level of churn was just an accepted cost of doing business. Except that the generally accepted rate in the help-desk industry was 50%, on average. "It crept up on us," says Rabinowitz. "We had always been generating these reports, but our eyes were always on growth. We figured we could always find more employees."
But now turnover looked like an increasingly insidious threat. Sure, rising requisitions could absorb some of the costs. But for how long? What if new business fell off to the levels they had seen just six months earlier? "We thought, 'If the turnover continues and the reqs die off, we're in deep trouble,'" says Rabinowitz, who is 41. "Maybe even out of business." The key to future growth, Durham began thinking, might depend more than they ever realized on retaining employees. The two scratched out some calculations. "We figured if we just paid more attention to our employees, we didn't necessarily have to get any more business," says Durham, 39. "We could just keep the current customer base, take moderate inbound opportunities, and we'd grow very nicely."
