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The financial impact of an empty chair in the organization

Oksana LavriFuture work expert7. March 20249 min read

Calculating the costs associated with an empty chair
Impact of unfilled specialized positions on organizational efficiency and costs
HRForecast solutions to combat the high cost of an empty chair

The UK faces an acute technical skills shortage with a gap of 91% and Europe at 44%, which has worsened over the past 4-5 years, exacerbating the challenge of attracting talent. It costs an average of $4,425 to onboard an entry-level employee, and hiring mistakes can cost up to 30% of an employee’s salary. The hiring process takes an average of 42 days, with agencies charging 15 to 30% of an employee’s annual salary, emphasizing businesses with vacant positions.

Tangible and intangible losses of an empty chair for the organization

Obtaining digital skills becomes a near-universal requirement for employees, whatever industry and roles we’d talk about. Digital skills include a vast range of competencies: from using the internet, computers, and software, working with social media and communication tools, to online security, data privacy management, information search skills, and more.

The demand for digital literacy is unsurprisingly skyrocketing. For instance, in the UK alone, digital skills are listed in 82% of online advertised openings. Openings that require digital skills represent a variety of sectors, including manufacturing, where machining and engineering software skills are in high demand.

Apparently, while workforce digitalization is essential for organizations, it also breaks new ground for employees: job roles requiring digital literacy are paid higher, help promote career development, and even avoid the risk of automation. For instance, specific digital skills such as design, writing, or communication are difficult to automate and remain critical for business.

Calculating the costs associated with an empty chair

Let’s calculate the cost associated with an empty chair using the example of a tech company based in Germany with annual revenue of €150 million and a talented workforce of 2,500 employees specializing in various tech roles. In calculating the cost associated with an empty seat, Employee Value Cost (EVC) is a key metric used to determine the daily value each employee adds to the company’s bottom line. Let’s break down the calculation and the role of Average Daily EVC in assessing the financial Impact of vacant tech positions.

The focus here is on determining the financial Impact of a vacant tech position daily and annually.

*The calculations presented below are illustrative examples that offer a general idea. Actual values may vary based on specific circumstances, and the figures should be interpreted as approximations rather than precise representations of individual cases.

Average Daily EVC =Company annual revenue/Number of employees ÷ Number of working days in a year in Germany (230).

In the case of the Tech company example: Average daily EVC = €150,000,000 / 2500 ÷ 230 = €282.61

It indicates that, on average, each employee at the tech company contributes approximately €282.61 to the company’s daily revenue.

Cost of empty seat = Average Daily EVC × Percentage of vacant seats.

Let’s assume that among the 30 tech positions, 50% are currently unfilled. Thus, the cost of an empty seat is calculated as €282.61 × 0.50 ≈ €141.30.

Therefore, each empty tech seat at the tech company costs approximately €141.30 per day. Considering 30 vacant tech positions and 230 working days for a year, the cumulative cost reaches a substantial €975,450.

In addition to the immediate visible cost of €141.30 per day for each empty tech seat, there are other indirect financial implications for the tech company, especially when the vacant position requires specific, hard-to-find skills.

Impact of unfilled specialized positions on organizational efficiency and costs

The vacancy of specialized positions in the organization can significantly undermine its efficiency and increase costs. Such vacancies disrupt workflow, delay project implementation, increase the workload of existing staff, and require additional hiring and training costs, ultimately affecting the bottom line.

Lost productivity and efficiency. The absence of essential skills can slow down processes and tasks, reducing productivity and financial losses for the company. Many companies recognize the urgency of closing these skills gaps and implement various strategies to mitigate the problem. Reskilling programs are becoming increasingly popular because they help develop important skills in high demand, such as critical thinking, decision-making, and leadership.
Project delays, quality impact, and customer satisfaction. When specialized roles are fulfilled, it can prevent project timelines from stretching and jeopardize the output quality. It can lead to additional costs for correcting issues and harm the organization’s reputation, possibly resulting in client dissatisfaction. Skilled professionals often directly impact customer satisfaction and loyalty, especially in roles that interact with clients or influence product/service quality. A vacancy in such positions can lead to diminished customer service, affecting satisfaction and potentially leading to customer loss, impacting revenue. For example, research indicates that businesses that prioritize customer satisfaction can see a significant increase in revenue, with 83% of companies that focus on customer satisfaction also seeing an increase in revenue.
Training costs for replacement. Hiring new staff for specialized roles often incurs significant training costs to bring them up to the required competency level. This includes formal training programs and the time it takes for the new hires to become fully productive. Comparing, hiring new employees can be costly, with the Society of Human Resource Management estimating the expense to exceed $4,000 per hire, while training an existing employee averages around $1,111 annually.
Impact on innovation and competitiveness. Skilled professionals are essential for fostering innovation and ensuring an organization’s competitive edge. Their adaptability and response to market shifts are crucial, especially when critical roles are vacant, severely affecting an organization’s innovation and market reactivity. McKinsey highlights the difficulty organizations encounter in hiring and retaining top talent, noting that a vast majority doubt their recruitment efficacy and retention strategies. This talent deficit, particularly in key roles, may lead to innovation stagnation and financial losses as firms struggle to adapt to market alterations. Moreover, comprehensive people development strategies, like effective onboarding and continuous learning, are vital for retaining and nurturing skilled professionals, ensuring organizational resilience and sustained competitiveness.
Employee morale and turnover costs. Research indicates that increased workloads and responsibilities on existing employees due to the absence of key team members can lead to burnout, decreased morale, and higher turnover rates, which incurs significant costs for organizations regarding recruitment and training. Additionally, such conditions negatively impact team cohesion and performance, exacerbating organizational challenges. These findings underscore the importance of balanced workloads and adequate support to maintain employee well-being and organizational efficiency.

HRForecast solutions to combat the high cost of an empty chair

Accurate benchmarking data for time to fill

HRForecast aims to enhance the precision of benchmarking data for the “time to fill” metric by delving into the specifics of roles and locations. It’s crucial to consider unique aspects like job titles, required skill levels, and industry types to compare time-to-fill metrics across various positions accurately. Additionally, location factors such as the urban or rural setting, local employment rates, and economic conditions are vital. Understanding these nuances helps tailor recruitment strategies to specific circumstances, improving the efficiency and effectiveness of the hiring process.

This approach also emphasizes the importance of analyzing the hiring process, from candidate sourcing channels to the ins and outs of screening and interviewing. By reviewing historical data and outcomes like the quality of hires and offer acceptance rates, organizations can gain insights into what works well and what doesn’t. This retrospective analysis, combined with a forward-looking perspective on future job profiles, enables hiring managers to anticipate and prepare for evolving skill requirements, thereby aligning recruitment efforts with strategic business goals.

To stay competitive and responsive, HRForecast encourages the adoption of innovative recruitment technologies and methodologies, such as artificial intelligence and continuous process improvement. These advancements support the creation of robust talent pipelines and enhance employer branding, attracting top talent more effectively. By continuously refining their recruitment strategies based on detailed data analysis and market trends, organizations can optimize their hiring processes, reducing the time to fill vacancies while ensuring they attract and retain suitable candidates for future success.

Demand analysis

HRForecast’s demand analysis provides a comprehensive view of workforce planning analytics. Users begin by accessing the Demand Analysis section within the Analytics tab, where they can select specific demand scenarios and planning years and apply necessary filters. The analysis is visualized through the Workforce demand bar chart, which illustrates changes in workforce demand across the selected planning period, either comparatively across years or as absolute figures for each year.

Source: HRForecast

Filters are crucial in refining the analysis, with options to segment data by attributes like driver categories and impacts. This granularity helps in understanding specific influences on demand. The Impact on workforce demand charts also offer insights into how factors, including external drivers and manual adjustments, shape workforce needs.

Source: HRForecast

Another critical feature is the demand trends table, which showcases the direction of demand for different roles or attributes, helping to pinpoint areas of growth or decline. This nuanced view aids in strategic decision-making and workforce optimization. Lastly, the platform lets users download the analyzed data in various formats, facilitating further analysis or integration into reports.

Demand for specific job roles and skills in the market

Empowering companies to gain insight into the need for specific jobs and skills in the marketplace allows them to strategically align their workforce development with future industry trends, ensuring sustainable growth and competitiveness. This approach increases the organization’s adaptability to changes and ensures its position as an advanced leader in its field. Through effective skills management and workforce upskilling, businesses can turn their human capital into a dynamic asset ready to meet the challenges of tomorrow.

Transform your skills. It is crucial for businesses to continually adapt and evolve their workforce’s skill set to stay competitive. Companies can strategically plan their workforce development by understanding and forecasting the demand for specific job roles and skills, ensuring they remain agile and responsive to market changes.
Skills management. Effective skills management allows organizations to identify and bridge the skill gaps within their workforce. By leveraging tools that map business strategies to future job roles and skills, companies can ensure their employees are prepared for the demands of tomorrow, enhancing their overall performance and competitiveness.
Get skill set transparency. Utilizing platforms like smartPeople helps organizations clearly understand their existing workforce capabilities. By tracking skills distribution and identifying gaps, businesses can take preemptive measures to address deficiencies, ensuring they are well-equipped to meet future demands.
Embrace future skills and jobs. Businesses can anticipate future requirements and adapt by benchmarking against industry competitors and integrating labor market trends into their strategic planning. This approach enables organizations to tailor their workforce development strategies, fostering a culture of continuous learning and adaptation.
Upskill your workforce. Addressing the skill gaps through targeted upskilling initiatives ensures that employees remain relevant and capable of meeting evolving job demands.

Incorporating these strategies enables businesses to respond to current workforce demands and anticipate and prepare for future trends, ensuring they maintain a competitive edge in their respective industries. The testimonial from Siemens GBS highlights the practical benefits of such a data-driven approach, emphasizing its value in making informed workforce decisions and staying ahead in the market.

Identify hiring patterns and skill preferences across industries, aiding in targeted talent acquisition and development

Using market intelligence tools to identify hiring patterns and skill preferences across industries aids in targeted talent acquisition and development. Here are several key insights derived from the passage:

Strategic decision-making. Using the right tools allows organizations to understand their competitive stance deeply, helping them make informed decisions that optimize business processes and workforce performance.
Future skills and job architecture. Building a job architecture incorporating state-of-the-art roles and the latest skills ensures the organization remains relevant and competitive.
Hiring efficiency and location strategy. Understanding the best locations for talent in terms of availability and cost can significantly improve hiring efficiency and reduce expenses. Companies can leverage geographic advantages by strategically choosing where to hire while maintaining cost-effectiveness.
Demand analysis and labor market trends. Keeping abreast of labor market trends and how they compare to competitors’ hiring practices enables organizations to be proactive in their recruitment strategies.
Future fit analysis. This analysis helps organizations understand the evolving importance of various skills and their market value, aiding in developing a competitive and future-oriented workforce.

This information is crucial for strategic decisions that enhance talent acquisition, workforce development, and overall business success.

Assess how companies are preparing for future market needs based on the skills they seek

Siemens and Wacker Chemie AG addressed future market needs by leveraging HRForecast’s analytics to assess and compare their workforce skills with market trends and competitors. Siemens identified future roles and competencies, benchmarking against industry standards, while Wacker focused on analyzing and updating engineering roles to ensure they remain relevant and competitive. Both companies utilized data-driven insights to strategically align their workforce planning with future market demands, highlighting a proactive approach to workforce development.

Trend analysis

The trend analysis by HRForecast for the telecommunications industry highlights the sector’s challenges amid rapid technological advancements. The analysis emphasizes the need for companies like Telekom to adapt by identifying emerging trends such as 5 G adoption, IoT integration, and AI implementation. These trends necessitate upskilling the workforce, particularly in the face of competition from tech giants like Amazon and Google.

Key steps in the project approach include collecting global macroeconomic data, processing it with AI and machine learning to enhance its usability, performing targeted analytics to identify industry-specific insights, and formulating strategic recommendations for business and talent development. These recommendations include investing in emerging technologies, fostering a culture of continuous learning, and implementing agile talent acquisition strategies.

Key outcomes for Telekom involve understanding market trends to define necessary skill sets, identifying technology gaps, gaining insights into competitors’ strategies, and utilizing the smartPlan solution. This tool provides real-time data on market trends, competitor activities, and talent availability, enabling Telekom to make informed decisions and stay ahead of the curve. This comprehensive analysis aids Telekom in staying competitive and responsive to the industry’s rapid transformation.

Help businesses adapt to and invest in skills and roles gaining traction

Helping businesses adapt to and invest in emerging skills and roles is critical to staying competitive in a rapidly developing industry landscape and adapting and investing in emerging skills and roles to stay competitive, as shown by Continental’s skills-based strategy. This approach aligns workforce skills with business needs, emphasizing continuous learning and adaptability. The skills pyramid concept further aids in evaluating the economic value of different skill levels, guiding decisions in hiring, training, and compensation. By understanding these dynamics, companies can enhance their workforce development strategies, focusing on high-value skills relevant to market demands and adjusting for geographical differences in skill valuation to maintain a competitive edge.

Location analysis

The location preferences feature in smartPeople is crucial for enhancing user profile visibility and alignment with geographic preferences. Users can specify their desired locations, including cities, states, or countries, and indicate openness to remote work, improving their profile’s relevance in search results. The intuitive system allows users to set a current location, adjust proximity settings, and update preferences to ensure their professional profile remains accurate and reflective of their career goals.

The analysis, as demonstrated by HRForecast’s project with IAV GmbH, involves a rigorous data collection, structuring, and analysis. It focuses on labor market supply and demand, costs, and potential locations’ broader economic and social environment. The result is a thorough, data-driven recommendation that supports companies like IAV in making informed decisions about establishing new locations. It provides insights into labor market dynamics, competitor presence, and economic factors, thereby aiding strategic planning and development in line with global talent distribution.

Offer insights into where and how much competitors are investing in talent acquisition

The importance of market intelligence for talent acquisition and workforce planning is becoming increasingly apparent as organizations strive to navigate the competitive talent environment effectively. For example, a workshop by Florian Fleischmann of HRForecast highlighted the need for HR professionals to go beyond internal data to use external market knowledge to make informed decisions. Insights from such workshops highlight the need to integrate algorithms and external data into a comprehensive analysis that helps understand labor market trends, skill requirements, and necessary adaptations in hiring strategies as skills evolve. This approach improves the efficiency of the work architecture and plays a key role in the internal development of the workforce and adaptation to changing role demands.

In addition, integrating market information into workforce analytics marks a transformational step in strategic management. Organizations using this intelligence can gain detailed insights into competitor strategies, skills in demand, and the best places to attract talent, thus informing strategic decisions about managing and attracting talent. For example, insights into competitors’ talent acquisition investments can guide organizations in benchmarking their efforts, understanding competitive positioning, and identifying areas for improvement or differentiation.

Assist in making informed decisions about where to allocate resources for hiring and in understanding the cost implications of different recruitment strategies

By estimating the financial return on various workforce investments, such as improving workforce fit rate, reducing HR-related costs, and enhancing learning and development (L&D) efficiency, businesses can plan their budgets effectively and prioritize spending where it yields the most significant impact. The HRForecast ROI calculator aids in quantifying the value of strategic workforce planning, internal recruiting, location analysis, and skills management, ensuring that investments are directed towards initiatives that enhance productivity and reduce overheads. Engaging with HRForecast provides a clearer understanding of the potential returns and supports strategic decision-making, enabling companies to optimize their human capital investments for better financial outcomes.