BearingPoint’s Q3 earnings call - part 1

To BE or not BE

Several news groups and Wall Street firms covered BearingPoint’s (BE) Q3 results this week but one point was not well covered, if at all. Look at this bullet point that is at the bottom of a list of points BE has on their investor site regarding the most recent earnings:

“Voluntary attrition was 25.4 percent compared to 26.6 percent for the third quarter of 2007”

Service organizations have a tough time sustaining headcount, maintaining great client service and being profitable when one out of four employees leave annually. Worse, imagine how tough it is to run projects (or the firm) when this rate has gone on for more than one year. It costs money, real money, to recruit, orient and train new staff, even replacement staff. Every day a new employee is in training is a day they aren’t chargeable. High turnover is really expensive. Long-term, high turnover is devastating to a service firm. By my estimate, their rate of voluntary attrition is twice what it should be.

What analysts should be asking are these questions:

- Why is this voluntary attrition so high? - Why is attrition so high in an economy where you would think everyone would be trying to hang onto their jobs?

The root cause analysis of this could be really illuminating.

My guesses about BE’s continuing high attrition rate are:

- Many employees know the company is likely to be sold off in parts or as a whole. These workers would rather take their career destiny into their own hands rather than wait for some unknown acquirer to decide it for them

- Many of the best and brightest may already have left or are leaving. If so, some of those who are left will want to leave and join their compadres at other firms.

- Consultants are often type-A, career advancement oriented people. If they suspect their employer is experiencing flat or declining sales, they’ll (correctly) suspect that career advancement options will become constricted, closed or delayed as the firm no longer needs as many people in top levels. Being bright and ambitious in a firm that won’t/can’t promote you is no fun.

- Some workers are doing their job and that of people who’ve recently left. Even if replacements are secured, they must be brought up to speed. This is disruptive and no fun.

High voluntary attrition can have an accelerating, detrimental effect on a service firm. It is really hard to turn it around and if it doesn’t slow down fast, it will likely kill the organization. The only way to slow it down is to:

- Convince workers that their firm and their careers are safe. This has to be truthful to work, though. Management that says nice things to workers but tells Wall Street another story will be found out as the hypocrites they are.

- Re-commit to career advancement and the dignity of workers. In a tough time, many service leaders cancel training, force workers to work through vacations, etc. to maintain client satisfaction or utilization levels, etc. These actions tell employees that their needs are below those of the client and the employer. Sure, times are tough but without energized people a service firm has no assets and no chance of winning long-term.

- Re-assure workers, Wall Street, etc. of client successes. The firm must rebuild its brand and reputation with clients, shareholders and employees. Often the latter group is forgotten. Consistently remind everyone of the value each of them (and as a collective group) is delivering to clients. Profits follow success.

Turning around low morale and high attrition in service firms takes work and time. The workforce needs to see continuous efforts on the part of management to improve the situation. They need to see long-term structural improvements (not just short-term inducements) that suggest that management is committed to driving the firm well into the future. They also need to see that management is willing to roll up its shirt sleeves and do some heavy lifting at clients, too.

Once upon a time, I was asked to help turnaround a large tech & services firm. The prognosis wasn’t too good for this firm as it relied on a technology that was fading out of popularity with businesses. Management, even in spite of the dire circumstances facing the company, wouldn’t give up its ostentatious company cars, its primo front row parking spaces in front of the headquarters building and other perks that separated them from the rank and file. When executives persist in flying class while the company is tanking and employees are being asked to ‘sacrifice a bit more’, the company is doomed and employees know it.

Genuine change is what employees want and need to see (not artifice).