to reduced efficiency during these nine months. The other 70 per cent was
due to customer defections. When a salesperson left and went to a com-
petitor, a small amount of business left immediately with them, but the
long-term effects were much more serious. Usually business continued to
migrate for some time – often several years – afterwards. Hence the
massive opportunity costs of £500 000 per lost salesperson. During the
financial year 1988/89, Digital lost a total of 430 employees, at an estimated
cost of £22 million. The mean average cost was £51 000 per person. Digital
lost a total of 800 people that year from its UK work force. Assuming that
these were all voluntary departures (and basing calculations on mean
average costs), total employee turnover for 1988/89 would eventually cost
the company £40.8 million.
Digital’s employee turnover rate of 11.83 per cent compared badly with
that of its main competitor (IBM), which enjoyed a voluntary turnover rate
of only 5 per cent. The HR group decided that it would attempt to meet the
IBM figure half-way, aiming to lower Digital’s own rate to 8 per cent; rep-
resenting a saving of 259 employees and an estimated £13.2 million.
The long-term nature of the costs associated with the loss of a salesper-
son meant that the study took longer to complete than anticipated, so it
was not until 1991 that the findings were released within the company. The
figures produced by the study were based on a number of arguable
assumptions, and it has never been externally audited, but the company’s
own accountants did examine them and were satisfied that they were a fair
representation of the costs.
The report was taken very seriously by Digital’s UK board of directors.
On discovering that the company was losing around £1.6 million per year
just replacing lost secretaries, the board acted at once to correct the
problem, by awarding them a 25 per cent pay rise. The secretarial problem
was solved at a stroke, and the company was still saving money. Other
measures were planned to arrest defections by other categories of workers,
but these initiatives were overtaken by events.
By 1991, the developed world had slid into recession, and for the com-
puter industry the bubble had burst. In July 1990, the Digital Equipment
Corporation employed 123 500 worldwide; the following year it
404 Relationship Marketing
Table 5.4.2 Employee turnover – full costs (£)Salesperson Trainer Professional SecretaryDirect cost 12 400 18 000 17 000 4000
Opportunity costs 500 000 45 000 10 000 2600
Total per emp. 512 400 63 000 27 000 6600
No. emps lost 31 11 140 248
Total cost per category 15 900 000 700 000 3 800 000 1 600 000