Turnover - Is it Always Bad?
Last night the Washington Nationals won the 2019 World Series bringing Washington D.C. its first baseball championship in 95 years. If you live in the Philadelphia area (I do) or are a baseball fan in general you will know that Bryce Harper, previously Washington's best player and former National League Most Valuable Player, joined the Philadelphia Phillies as a free agent this past year after signing a 13 year, $330M contract. While Harper was with Washington, the Nationals lost every playoff series in which they participated. Not to say the Nationals didn't have success as a lot of teams would love to make the playoffs 4 times in 7 years. I discussed with my son this morning how sometimes turnover can be a positive for an organization - it sure seemed to work out for the Nationals last night (maybe not so good for the Golden State Warriors for you NBA fans).
Turnover - The Negative Impact
Turnover is a big CRO challenge for a variety of reasons:
The cost to recruit an employee can cost as much as $5,000 and training costs could be another $1,200 or more.
There are costs that can't be quantified if your replace with a poor employee. Employee morale, customer service and company reputation can all be adversely impacted.
Customer and project team disruption - clients are very sensitive to project team turnover (as they should be) as that is the team they "were buying" when they contracted with the CRO.
The list could go on and on. How many of you have experienced these scenarios?:
A key member of a bid defense team resigns either right before or after a customer awards the business. CROs then have to scramble to find a replacement that the customer will find satisfactory.
A high functioning member of an existing project team resigns mid-project. If the project is running well, it creates a risk for both the sponsor and the CRO.
A key leader takes a new opportunity outside the organization. How will the news impact the former leader's team? How will they react to their replacement.
Suffice to say all companies good and bad experience and deal with turnover - the sun still comes up the next day. When you consider a $200B recruiting industry exists that centers around creating turnover, its no wonder between 24-27% of all Americans change jobs each year.
Turnover - When It Can Be a Positive
Not all turnover is bad, that doesn't mean the person leaving wasn't effective or well liked or not a great employee. Sometimes that is greener on the other side and sometimes it isn't. Let's use the Washington Nationals as a base case.
New Opportunity for Young Talent
The last 3 roles I have taken came because the incumbent decided to take on a new opportunity outside the organization. In all 3 cases, I was younger and less experienced than my predecessor, but was given the "stretch" opportunity. The Nationals didn't let Bryce Harper leave because he wasn't talented or they didn't think he was a good fit. Supposedly they offered him $300M to stay, but they didn't increase their offer because they had a young superstar (Jaun Soto) to become the new face of the organization. Below are their statistics from this past season:
The results are pretty similar, I'd say that Soto had a slightly better year. However, Soto's salary was about $9.4M less than Bryce Harper's making the switch that much more advantageous to the Nationals. Additionally, Harper's contract still costs another $320M over the next 12 years - Soto's won't increase much in the near-term. That gave the Nationals the ability to spend their money elsewhere.
Strengthening Other Parts of An Organization
Saving money on Harper, allowed the Nationals to focus on another key aspect of their team: Pitching. Below are the starting pitching statistics for the Nationals in 2018 vs 2019:
Starting pitchers won 6 more games, loss 17 less games and won 66% of games started in 2019 vs. 53% in 2018. As a team, the Nationals won 11 more games in 2019 vs 2018, which resulted in a return to the playoffs. Two new names in 2019, Patrick Corbin and Anibal Sanchez were signed as free agents. Corbin and Snachez went a combined 25-15, making huge contributions to the revamped pitching staff. Essentially the money saved on Bryce Harper was redeployed to improve the pitching staff. Of course Corbin pitched the last 3 innings of last night's game 7 to get the win.
Injection of New Ideas
I'll single out another baseball organization where turnover at the manager position resulted in continued success. Joe Madden was a very successful and popular coach of the Tampa Bay Devil Rays. He brought to small market Devil Rays to the World Series and eventually left to take the manager position with the Chicago Cubs, one of baseball's historical franchises. Kevin Cash took over before the 2015 season and is now known as an innovative successful manager in his own right. You can see below that Tampa Bay has had back to back 90 win seasons and made the playoffs this year as a Wild Card team.
What is remarkable is that Tampa Bay has one of the lowest payrolls in baseball and has been able to compete with big spenders like the Yankees, Red Sox and Astros. They have done so via a great player development program and using innovative strategies to win baseball games. Kevin Cash created and implemented the idea of an "Opener" - which is using a good relief pitcher to pitch the first 1-2 innings of a game and then switch to a starting pitcher. The concept is that hitters have more success against pitchers the 3rd time around the batting order (USA today reports that batting averages increase from .247 to .270 from the first to the third time facing a pitcher in a game). As you can see below, the strategy worked, Tampa Bay had the second best pitching staff in all of baseball in 2019.
The point of the article is not that turnover is a great trend to have in your business. Whether you are Google, Apple or Clinipace (I like mentioning Clinipace in a sentence with those companies), turnover will occur no matter what. The point of the article is that great companies and management teams don't panic when turnover occurs. They take a step back, assess the situation and try to resolve in a thoughtful measure process - and sometimes, like the Washington Nationals, turnover result in a great outcome.
Jason Monteleone is CEO of Clinipace & President at Pivotal Financial Consulting, LLC. Clinipace is a global mid-size CRO with operations in the Americas, Europe and Asia-Pac serving small and mid-size pharma and biotech sponsors. Pivotal provides Divestiture Assistance, Acquisition Advisory Services and Strategic Planning to the Pharmaceutical Outsourcing Industry. Jason can be reached at firstname.lastname@example.org, email@example.com. Follow me on Twitter @JMPivotal. Sign up for Jason's latest blogs and updates at my www.pivotalfinancialconsulting.com.