Attrition Rates Project Report

For more Notes, Presentations, Project Reports visit hrmba.blogspot.com mbafin.blogspot.com a2zmba.blogspot.com

“If employees are to be products, their shelf-lives are getting shorter” In the best of worlds, employees would love their jobs, like their coworkers, work hard for their employers, get paid well for their work, have ample chances for advancement, and flexible schedules so they could attend to personal or family needs when necessary. And never leave. But then there's the real world. And in the real world, employees, do leave, either because they want more money, hate the working conditions, hate their coworkers, want a change, or because their spouse gets a dream job in another state. So, what does all that turnover cost? And what employees are likely to have the highest turnover? Who is likely to stay the longest? Defining Attrition: "A reduction in the number of employees through retirement, resignation or death" Defining Attrition rate: "the rate of shrinkage in size or number"

1 _______________________________________________________________________ _

Attrition is beginning to significantly affect offshore ROI. Just as businesses faced a scarcity of talented IT resources during the dotcom era, organizations in offshore countries such as India are experiencing similar pains. Skilled employees are hopping from job to job and taking with them the customer knowledge and technical expertise that any company needs. Their salaries are increasing, along with their perks, benefits, and bonuses.

Defining the attrition problem Global outsourcing and the astounding amount of foreign direct investment pouring into China, Russia, and India have created tremendous opportunities and competition for talented IT professionals in those countries. The downside of this increased competition is a rising rate of attrition, particularly in India. Fiscal third-quarter 2005 (ended December 2004) results filed by Infosys, Wipro, Satyam, and TCS listed attrition rates between 7.6% and 17.7%. Vendors that we have interviewed place the numbers much higher, at 25%–60%, while an April 2005 BusinessWeek article estimated an attrition rate of 60%, with some India service providers experiencing up to 80% turnover. To put these attrition numbers into perspective, if a company has 100 programmers and an attrition rate of 25%, then 25 of its IT staff will leave each year. Think about the time and money it took to find, interview, hire, train, and coach those 25 people. Now think about losing them and starting the hiring and training processes anew. How do the hiring and training processes break down in terms of total costs in India? The typical time for advertising, interviewing, screening, negotiating, and hiring a new employee is about two weeks. Companies usually allot one week for programmers to become familiar 2 _______________________________________________________________________ _

with the new business, two more weeks for technical training, and one last week for customer training. Now imagine a 25% attrition rate and replacing 25 of these programmers each year. Based on a yearly salary of $15,000 for the human resource person and $25,000 for the programmer,

it

would

cost

an

additional

$63,000

annually

in

acquisition and employee training costs. After considering these figures, it quickly becomes apparent why companies are investing in strategies to prevent attrition.

Reasons for attrition It is not easy to find out as to who contributes and who has the control on the attrition of employees. Various studies/survey conducted indicates that every one is contributing to the prevailing attrition. Attrition does not happen for one or two reasons. The way the industry is projected and speed at which the companies are expanding has a major part in attrition. For a moment if we look back, did we plan for the growth of this industry and answer will be no. The readiness in all aspects will ease the problems to some extent. In our country we start the industry and then develop the infrastructure. All the major IT companies have faced these realities. If you look within, the specific reasons for attrition are varied in nature and it is interesting to know why the people change jobs so quickly. Even today, the main reason for changing jobs is for higher salary and better benefits. But in call centers the reasons are many and it is also true that for funny reasons people change jobs. At the same time the attrition cannot be attributed to employees alone. •

Organizational matters:

3 _______________________________________________________________________ _

The employees always assess the management values, work culture, work

practices

and

credibility

of

the

organization.

The

Indian

companies do have difficulties in getting the businesses and retain it for a long time. There are always ups and downs in the business. When there is no focus and in the absence of business plans, non-availability of the campaigns makes people to quickly move out of the organization.

•

Working environment:

Working environment is the most important cause of attrition. Employees expect very professional approach and international working

environment.

They

expect

very

friendly

and

learning

environment. It means bossism; rigid rules and stick approach will not suit the call center. Employees look for freedom, good treatment from the superiors, good encouragement, friendly approach from one and all, and good motivation. •

Job matters:

No doubt the jobs today bring lots of pressure and stress is high. The employees leave the job if there is too much pressure on performance or any work related pressure. It is quite common that employees are moved from one process to another. They take time to get adjusted with the new campaigns and few employees find it difficult to get adjusted and they leave immediately. Monotony sets in very quickly and this is one of the main reasons for attrition. Youngsters look jobs 4 _______________________________________________________________________ _

as being temporary and they quickly change the job once they get in to their own field. The other option is to move to such other process work where there is no pressure of sales and meeting service level agreements (SLA). The employees move out if there are strained relations with the superiors or with the subordinates or any slightest discontent. •

Salary and other benefits:

Moving from one job to another for higher salary, better positions and better benefits are the most important reasons for attrition. The salary and offered from MNC companies in Bangalore, Delhi and Mumbai have gone up very high (Rs 15000 to Rs 18000 per month) and it is highly impossible for Indian companies to meet the expectation of the employees. The employees expect salary revision once in 4-6 months and if not they move to other organizations. •

Personal reasons:

The personal reasons are many and only few are visible to us. The foremost personal reasons are getting married or falling in love or change of place. The next important personal reason is going for higher education. Most of the BE, MCA and others appear for GATE examination or other examinations and once they get cleared they quickly move out. Health is another aspect, which contributes for attrition. Employees do get affected with health problems like sleep disturbances, indigestion, headache, throat infection and gynecological dysfunction for lady employees. Employees who have allergic problems and unable to cope 5 _______________________________________________________________________ _

with the AC hall etc will tend to get various other health problems and loose interest to work. •

Poaching:

The demand for trained and competent manpower is very high. Poaching has become very common. The big companies target employees of small companies. The placement agencies have good days for doing more business. The employees with 4-6 months experience have very good confidence and dare to walk out and get a better job in a week's time. Most of the organizations have employee referral schemes and this makes people to spread message and refer the know candidates from the previous companies and earn too. •

Employee’s advocate: One of the main reasons why employees leave companies is

because of problems with their managers. An HR professional can be termed

an

employee’s

advocate

and

a

bridge

between

top

management and employees at all levels. There is a huge gap between HR professionals and employees in terms of understanding challenges and delivering requirements. HR has not really understood the problems associated with employees’ careers and jobs. The company’s overall plans and strategies also depend on HR professionals as they voice employees’ problems and requirements. The HR department should have genuine interest in the employees’ welfare…it is responsible for making sure that their expectations are met. By doing this it is easier to meet the company’s business targets.

6 _______________________________________________________________________ _

Handling attrition? Earlier the retention was the sole responsibility of HR Department and at the most the department heads will be accountable for the retention of

talent.

In

companies

the

wheels

have

changed

and

multi

dimensional approach needs to be adopted. More of concerted efforts only would help to retain the talent. Everyone has to contribute to hold the employees little longer period. All the leading companies are trying several methods to retain the talent and few of those innovative HR practices are: (based on a survey) •

Providing stimulating work environment:

7 _______________________________________________________________________ _

In terms of stated work pressure, only 17% have claimed ‘light pressure’. This may point to a reasonably high-pressure environment in conventional terms, not realized as most respondents have no other industry experience. The atmosphere at the workplace however, was generally positive. Almost half worked more than 45 hours per week.

•

Free transport and free food:

Majority of the breaks were for meals and there were no significant problems faced in taking the breaks.

8 _______________________________________________________________________ _

Almost 2/3rd employees travel more than 10 kms to work everyday. This is a huge strain on quality time available with the family and ostensibly results in stress in numerous ways compared with other industries. The root cause is that most BPOs are located outside the city as government lands have been allocated to the MNCs at better rates there.

9 _______________________________________________________________________ _

Although taxi / bus services are provided by most employers, as many as 30% workers travel crammed (more than 5 persons to a taxi). What’s more, 79% waste more than 30 minutes of their productive lives everyday waiting for commute. Interestingly, lower salary workers get no such benefits. •

Good rewards and recognition programmes:

As many as 56% admitted to being asked to work overtime. 44% refused the question implying that conditions are created such that all probably are coerced into working overtime. The oppressive part was further that as high as 41% claimed to not having been paid for overtime.

•

Recreation clubs, Canteens, Entertain programmes , fun activities with in the work area:

Many companies have canteens though the quality of food is not great.

10 _______________________________________________________________________ _

•

Good pay and benefits:

A huge 58% of starters are dissatisfied with their promised packages vis-à-vis delivered salary.

11 _______________________________________________________________________ _

•

Other practices include:

- Promotions and salary increase on a regular basis. - Better learning opportunities, Encourage enroll for distance learning programmes. - Regular holiday packages, gifts, outings etc. All the above activities are being undertaken to a greater extent or little more in all large Companies. Surprisingly the attrition rate is not coming down in any of the companies, but it is going up and it may increase in the coming days. This is a time to introspect as to what is lacking in the approach. One thing is missing is attention to individual needs. Employees have varied expectations and it is becoming difficult to understand them and by the time you make an attempt to understand the expectation changes and it is still becoming difficult to meet the customized demands or expectations. To quote an example, if a friend leaves, another close friend will also leave and he will lure 12 _______________________________________________________________________ _

another 3-5 persons. Moving for higher education and marriage are the major reasons for attrition. To tackle these will be impossible with any type of strategies and approaches. The HR personnel have become silent spectators and start hunting for new personnel to replace. The broader approach is to bring sanctity in the recruitment process like demand the relieving letter from the previous company, have nonhire agreements with the companies in the particular area. It is not easy to bring the entire company under a forum. Nasscom has attempted to bring out certain guidelines on the matter and the impact is not felt yet. The MNC culture, high salary level and benefits offered by them are the only two major aspect of attrition and no one can halt them doing so. •

How Insights Can Help Build Strong Manager/Employee Relationships:

The Insights Discovery System is based on perspectives and attitudes relevant to understanding organizational and cultural requirements and needs of people in relation to motivation and leadership. The understanding of individual differences that Insights provides is fundamental to improving communication, co-operation and building effective and high morale teams. This understanding is what bridges the gap between manager and employee. The Insights Discovery System generates reports that reveal personal preferences or triggers of each individual - including issues that cause stress. In essence, Insights can bring about a closer relationship between employee and manager to enable both parties to better adapt, connect and understand one another.

13 _______________________________________________________________________ _

An employee may be highly competent but his or her style may be different from that of the direct manager. The "Value to a Team" section of an Insights report provides crucial information to a manager who tends to evaluate all employees against one set of standards. Insights can help managers recognize the value and uniqueness of each

person's

contributions

then

reward

them

accordingly.

Insights also serve as a communication vehicle for discussions about an employee's current and future interests. Insights help managers and employees better identify what values (needs) are most important to each individual and how these values impact the person's attitude towards work. Values can range from an employee feeling stable and secure to someone enjoying challenge. The Insights Discovery System is a powerful workforce enhancement tool. It can: - Enhance the effectiveness, commitment and retention of an incumbent

workforce though increased understanding of human

behavior - Motivate and retain employees whose basic monetary and material needs

may have been satisfied, but who are seeking their internal

drives - Improve HR planning and development - Identify motivational and managerial issues related to interpersonal style -

Reduce the impact of turbulence and organizational transition on

employee commitment and productivity.

14 _______________________________________________________________________ _

How to save high attrition rates? •

How much would you invest to keep your employees focused and

happy?

This is the question on the minds of CEOs and managers worldwide as the technology boom lifts and the employment market opens. From the employer's perspective, employees are an investment. You interview to make sure an individual has good work ethic, motivation, and drive. Most of the time, employees are considered a financial investment. Yet there's much more to it than that. There is a significant emotional investment that is crucial to accelerating business strategies and reaching organizational goals. You probably know someone who owns an outdated, overused vehicle but won't entertain the thought of trading it in even though they can afford to upgrade. Why, you might ask, do they keep it? Well, the owner has probably invested substantial time, money and care into keeping it in top condition, not to mention the dependability that has taken them to countless doctors appointments, baseball practices and events. It seems senseless to throw it away. The cost of replacing the vehicle would be enormous compared to the cost of upkeep on the old one. Even with inanimate objects, we become accustomed to personality and quirks and develop a common trust.

15 _______________________________________________________________________ _

When this same logic is applied to employees, we find the cost of replacing employees comparable to that of investing in a new automobile. Recruitment, hiring, benefits and administrative costs put an organization upside down on the investment.

Thankfully, companies have come to realize that keeping employees is more cost-effective than replacing them. Retaining valuable employees has other benefits - retaining the vault of knowledge that's been accumulated, skills learned and trust and relationships they have built with •

customers

and

co-workers.

People Are Not Easily Replaced

Even

though

today's

pool

of

unemployed

workers

is

deep,

organizations choose to spend more time and resources on retaining existing employees than starting from scratch. Yes, there are financial reasons behind this focus on retention. However, there are many other contributing factors such as the effect attrition has on customer service, corporate culture and employee morale and loyalty. All these factors can and will be effected by turnover. Basically, when good people leave an organization they take their training and knowledge and often times, relationships with them. •

Drivers of Turnover

Turnover

is

often

driven

by

corporate

restructuring

and

tight

competition for key talent. For many firms, surprise employee departures can have a significant effect on the execution of business plans and may eventually cause a parallel decline in productivity. This 16 _______________________________________________________________________ _

phenomenon is especially true in light of current economic uncertainty and following corporate downsizing when the impact of losing critical employees increases exponentially. When managers or supervisors are asked why good people leave, most respond, "It’s about money." Or, they dismiss the departure matter-offactly by stating the employee "received a better offer." Contrary to popular belief, research indicates that money is not even on the list of top five reasons employees give when asked why they are leaving an organization. When viewed from the employees' perspective, a healthy organization is one in which people are generally satisfied with the quality of their work life. On most days they feel good about going to work. They feel empowered to help shape decisions that affect them, they have the resources and skills to satisfy customer needs and they are generally confident in the abilities of the leadership team. From the organization's perspective, the organization is healthy if it is viable as measured by profitability, competitive market position and customer satisfaction. A healthy organization also responds well to the need for change; it is adaptive and thereby ensures its future meaning that following a major upheaval or transition, the healthy organization rebounds and employees remain committed. Bottom line, it is the role of the manager, that most influences an employee's decision to stay or depart from an organization. People will leave if they don't like their manager - even when they are well paid, receive recognition and have a chance to learn and grow. In fact, disliking or not respecting the boss is the primary reason for talent 17 _______________________________________________________________________ _

loss. Research shows the reasons for employee departures are (in descending order): 1. Employee/manager relationship 2. Inability to use core skills 3. Not able to impact the organization's goals, mission 4. Frequent reorganizations; lack of control over career 5. Inability to grow and develop 6. Employee/organization values misalignment 7. Lack of resources to do the job 8. Unclear expectations 9. Lack of flexibility; no 'whole life balance' 10.

Salary/benefits

It is very important to know that the above factors are often NOT the ones mentioned in most attrition studies published by individual organizations. Additionally, this information does not match the data frequently obtained during an employee's exit interview when asked about the reasons for departing. The rationale behind this discrepancy is that exit interviews are frequently conducted by the departing employee's manager or HR manager, hindering honest responses. Typically,

employees

are

hesitant

to

tell

these

company

representatives the truth for fear of burning bridges or getting a bad reference.

18 _______________________________________________________________________ _

How to curb attrition? •

Money is not everything Although the importance of higher packages is slowly diminishing,

among fresher or laterals with less than three years of work experience, money is still considered to be the highest priority. Employees want not only work recognition, but also extra perks." A number of professionals are looking at more challenging jobs. "In several cases, faced with a choice between more money and a challenging job, employees have opted for the latter as it allows them to learn new technology and increase domain expertise." People analyze the training programmes of prospective companies with those of their current organization, which means that how an organization grooms an employee is weighed to a greater extent. This is because they know that developing next-level skills will keep them ahead in the job market, and finally result in better compensation. They also look for a job with higher levels of responsibility, better learning opportunities. •

Vision and objectives

19 _______________________________________________________________________ _

The next level of communication, a crucial part of retention, starts with acquainting employees with the company’s vision and objectives.

Organizations successful in retaining employees clearly

pass on their goals and achievements. Conducting regular meetings and

updating

company’s

employees,

status

especially

and achievements

new

entrants,

is

must.”

a

about

the

They should

concentrate on leadership and brand building as people prefer to be associated with a brand. Respect for the job should be created by BPOs. The youth should feel proud to be a part of the billion-dollar industry.

Mentoring and handholding new recruits from day one to four months are important tasks; during this period, they should be familiarized with the culture of the company. It is at this time that new entrants experiment with different options. Hence they should be exposed to the best values the company has.” If they are informed about regular happenings in the company, employees will be confident about the future and not try to look for better options. •

Treat employees like Customers

Even while companies strive to understand which organizational, job, and reward factors will contribute to holding back employees, industry experts have found several loopholes at the top management and HR management level. Companies should have a similar approach to employees and customers. If a company strives to retain an employee in the same way it tries to retain a customer, him leaving the organization could be out of question. 20 _______________________________________________________________________ _

Since software professionals have different priorities at different points of time, organizations need to structure their offer-mix while recruiting new hires, as well as promoting potential ones. Communication is the foundation

for

the

entire

process

of

managing

attrition.

This

communication begins right from recruitment. In cases of peer pressure, an employee aims to join a well-known company. This could be achieved by brand building, which attracts the right talent and helps in retention as well. Understanding

an

employee’s

needs

at

various

levels

is

a

recommended HR practice.

•

Firing

Sometimes, firing can look like attrition. Looking at firing and attrition together in a different light, firing can be an excellent tool to contain attrition. Attrition can simply be defined as employee leaving his current job due to reasons like, job pressure, health problems, personal reasons, inefficient boss, lack of job security etc. All the above reasons are interlinked and can be the reasons for good workers to quit. If the team has under-performers who despite given sufficient support and training is unable to perform, but they continue to be part of the team damage the morale of the team. A performer will not want to be part of the team, which has non-performers because he will have to compensate

for

the

non-performer,

thereby

increasing

his

job

output/pressure. A continuous job pressure results in health problems. Having frequent health problems not only reduces his performance, but also affects him financially. At this juncture, the performer realizes 21 _______________________________________________________________________ _

that he is working with an inefficient manager who is not capable of “cleaning up” the team by firing non-performers. With the above, the performer employee feels insecure and resigns. Firing non-performers can be an efficient tool to contain attrition. •

Consider feedback

It is important to take feedback from employees through different means and work with the HR department to iron out differences. As industry experts point out, feedback can be got in two ways—during the employee’s tenure, and through exit interviews. Inputs can be secured

from

existing

employees

through

various

employee

relationship management tools. The Wipro Listens and Responds initiative at Wipro aims to capture the concerns and grievances of its employees. “The feedback we get through this tool will be analyzed, and action will be taken on it. Our employees are very excited that their feedback is being taken seriously,” says Sahoo. Exit interviews help management learn the reasons why employees leave the company; based on their revelations, the organization can address the problems of existing employees, thereby curb attrition. •

Spend Time Developing and Benchmarking Incentives

Whenever the demand for a professional in a particular field heats up, the perks associated with the job start to pile up. Standard perks for an India-based "fresher" (a new entrant in the IT services industry with little work experience) typically include free transportation, educational assistance, healthcare benefits, performance-based bonuses, onsite cafeteria, stock options, and interest-free loans to absorb the cost of relocation or maybe to finance the purchase of a two-wheeler. 22 _______________________________________________________________________ _

According to Wipro's web site, its employees even have access to an agency that will handle such "domestic chores" as paying bills, thereby giving IT workers more free time. An important part of designing incentives is aligning them with market benchmarks. As far as salaries, HR firm Hewitt Associates reports that India showed the largest overall salary increase in the Asia-Pacific region in 2004. Salaries in India grew by 11.6% overall, while China trailed with a 6.4%–8.4% hike, the Philippines showed a 7.4%–7.7% increase, and Korea saw wages jump by 6.4%–6.8%. Salary increases for middle managers in India were even more dramatic: Nasscom, India's software association found that salaries for middle managers rose by as much as 30% in the last two years. These salaries are often paired with expansive benefit packages that include standard entrylevel benefits as well as special services such as help finding and buying a home or enrolling children in school. Captive centers and IT service providers have to offer innovative compensation and benefits—or risk losing valued employees to competitors. Nonstop evaluation and benchmarking are "need to do" activities for IT managers. •

Subsidize Education and Certification

In the United States, many companies reimburse employees for advanced degrees or certifications that relate to their area of expertise. Until recently, the opposite was true in India, but that trend has begun to change as businesses have discovered that a significant portion of their attrition problems stem from employees leaving to pursue a master's degree. Several offshore service providers have 23 _______________________________________________________________________ _

teamed with universities to offer their workers management-level master's courses at a subsidized rate, and watched attrition rates drop as a result. For example, Cognizant Technology Solutions, an IT service firm with 17,000 employees, partially reimburses Indian staff that pursues master's degrees at BITS, a higher-education institution located in Pilani, India. Business process outsourcing (BPO) player 24/7 Customer, in association with the Indian Institute of Management Bangalore, launched a management-education seminar series called "Beyond Knowledge," through which 24/7 aims to educate employees about the BPO industry and discuss related careers. Multiple providers have followed the lead of Cognizant and 24/7. In several offshore countries, advanced degrees are considered crucial to social standing. It's important for U.S. firms with little international experience to recognize this desire among employees and design programs accordingly. •

Change Locations

The high prices and resource crunch in top-tier Indian cities such as Bangalore and Mumbai have led many companies to execute alternative location strategies. Many vendors are sending work to tiertwo cities (Hyderabad or Chennai) or even tier-three cities (Noida or Chandigarh), where labor and real estate costs as well as attrition may be cut in half. Such benefits come at a price: The infrastructure quality lags that of more advanced cities, and the search to find qualified people may take longer.

24 _______________________________________________________________________ _

Another option to combat the rising attrition rates in India is to locate in other countries. Sykes Enterprises, for example, disclosed that it is relocating the customer contact management work at its Bangalore, India, facility because the center delivered an inadequate return and a limited competitive advantage. The Tampa-based company thinks the work is better suited for the other Asia-Pacific offshore centers in its portfolio, such as China. Sykes expected to incur total charges of approximately $0.8–$1.5 million for its plan to relocate work. •

Rotate Employees

Employees who don't feel challenged by their work often leave. In response, companies such as TCS have programs

that rotate

employees into different disciplines about every two years and expose them to new locations, projects, and technologies. L&T InfoTech, a software solutions provider with 4,000 employees and six development centers in India, has implemented a similar program. Offshore employees are asking for a clear career path with increased responsibility and frequent recognition of achievement. Established U.S. and European multinational companies have long had learning programs that set expectations for performance goals such as learning a particular tool or proprietary software. Companies practicing off shoring need to provide new challenges and opportunities for skills development through training or job rotation. It may become the only reason your best employees stay with you. •

Combat Poaching by Encouraging Referrals

25 _______________________________________________________________________ _

Rather than going through a prolonged posting process and screening a deluge of résumés, some companies poach employees directly from their competitors and offer to double salaries or buy out contracts on the spot to scale up quickly. Poaching is generally a bad idea, as it drives up salaries and discourages employee loyalty. An employee referral program can serve as an alternative and effective recruiting strategy. Satisfied employees can be a company's best sales tool and add a personal touch that a print or radio campaign lacks. A Voice & Data survey of the top 15 Indian outsourcing companies with 1,000-plus employees found that referrals constituted 23% of new hires. For some companies, the number was even higher, at 40%. The study also observed that recruits hired through employee referral programs are "stickier"; that is, they stay with companies longer than non-referrals. •

Just Ask: Are Your Employees Satisfied?

Retention is inextricably linked to employee satisfaction, so it pays to periodically survey employees —hopefully before their exit interviews —about job satisfaction issues, and act on the data gathered. The aim is to determine why some employees depart and some remain with the company, and to define the traits of productive, successful employees. Many companies examine the reasons employees leave, which don't reveal as much as the reasons they stay. An important aspect of implementing a retention program understands that it should not be one-size-fits-all. If incentives are meant to keep employees happy, then they truly have to be designed with the employee in mind. Too often, employers and employees disagree on 26 _______________________________________________________________________ _

what constitutes a good incentive. For example, a company might reward a father with three young children a monetary bonus as thanks for working overtime for five months straight. To the father, however, days off might have been more attractive, since they would have allowed him to spend time with his family. Knowing

your

employees

and

personalizing

rewards

makes

a

difference. The global workforce has different, individualized needs, and organizations should tailor incentives for their employees if they want to retain them. If your company doesn't bother, don't be surprised if workers head for the door as soon as year-end bonuses are handed out or stock options vest. •

Spend More Time Recruiting

With huge projects ramping up within exceedingly short windows, it can be hard to convince management to allot more time to the recruiting process. However, it's difficult to retain good employees if the company doesn't have a process to hire the right people in the first place. Simple measures, such as incorporating skills tests that relate directly to the job in question, can help companies to determine whether the applicant is indeed an expert programmer or merely an intermediate programmer. Having employees interview candidates also may increase the chances of success, as these employees can better identify potential personality clashes that HR personnel may not spot.

Costs of Turnover The impact of employee turnover on company performance is often understated by organizations. This describes how the cost of turnover 27 _______________________________________________________________________ _

is can be calculated using some basic organizational parameters. The purpose of this document is to provide talent cost of turnover calculator with insight into how costs are calculated and the reasons why certain costs were include or excluded form the calculator. The calculator should only be used as a guide in understanding the impact of turnover on a company. If the desire is to understand the true cost of turnover then it is suggested that a greater degree of analytical work is undertaken. The key areas used in the calculation of turnover are:  •

Administration and sourcing costs

These include the administration of the termination and recruitment functions together with the costs associated with interviewing, testing and attracting applicants. •

New Hire costs

Once a person has been employed an organization generally spends significant resources in the induction and administration of bringing them into the organization.

•

Lost productivity

28 _______________________________________________________________________ _

The hidden costs associated with lost productivity of employees prior to leaving the organization and new less skilled employees are one the largest components of the total cost associated with turnover. •

Dysfunctional and avoidable turnover

Determining the level of dysfunctional and avoidable attrition provides a perspective on the scope of control that a company has to manage their turnover costs. Determining the cost of turnover is the first step in the process of developing a management plan. To deal with an attrition

issue

effectively

the

reasons

for

turnover

and

an

understanding of the demographics of turnover need to be understood. Undoubtedly, the financial costs of turnover have attracted the attention of academics and practitioners alike. Besides the more familiar costs associated with the administration of terminated employees the economic costs such as productivity losses need to be included in any calculation. In particular, departure of employees especially experienced or talented ones - may threaten overall firm productivity or client retention. Furthermore, personnel losses may endanger the firm’s future opportunities in the marketplace or the morale of their remaining work force. Human resource accounting experts Cascio, Hom and Griffeth define exit expenses as having two main components - direct and indirect costs. A company incurs both direct and indirect costs that result in losses in production dollars and overall production volume, as well as increased administrative costs. Direct Costs are actual dollars spent each time an employer has to attract, select, and induct a replacement for an employee who leaves the organization. Indirect costs are those expenditures attributable to

29 _______________________________________________________________________ _

turnovers affects on production - that is costs for incomplete or disrupted work, loss of quality, etc. The cost of turnover can be calculated by measuring the time taken to administer each activity plus the direct costs such as advertising costs. The turnover costs calculated using the calculator represent dollars spent. The potential loss of revenue if these dollars were invested elsewhere or through lost productivity is not calculated. Therefore, the figures are an indication of the minimum costs that the organization is subjected to when an individual leaves the company. •

Administration & Sourcing costs

The most visible cost of turnover is incurred by organizations in the area of recruitment administration and sourcing. The time associated with processing terminated employees and recruits places a burden on organizations where staff turnover is excessively high. The assumption is that this is largely an administrative task conducted by people at 80% of the average company salary. In addition the direct costs to a company for recruitment agency and advertising costs are highly transparent. 1. Process Administration: Resignation Administration The time taken to administer a resignation will include activities such as: conducting exit interviews & processing of administrative tasks. The time taken to perform these activities is ideally measured as a result of analyzing the processes involved.

30 _______________________________________________________________________ _

Recruitment Administration A large amount of time is often spent in administering the recruitment process. Writing the job ad, posting it onto job boards, organizing agencies and reference checking all require the use of organizational resources, whether internal staff or outsourced. The hours spent involved in these activities does need to be factored into the cost of turnover. 2. Sourcing Costs: Agency expenses The cost of sourcing a successful applicant from an agency may be one of the largest single direct costs associated with recruitment. Advertising costs The cost associated with posting job ads to job boards or traditional media such as newspapers can be significant. The average cost per vacancies is used within the calculation. 3. Interview Costs: Interview A core component of recruitment administration is the cost associated with interviewing applicants. Interviews make use internal resources. The more interviews held and the greater the number of candidates interviewed the larger the costs associated with these activities. Testing Companies are making greater use of psychometric and aptitude testing in their recruitment processes. These tests can be costly to 31 _______________________________________________________________________ _

administer and as such need to be factored into the overall attrition costs.

Travel Companies may pay the costs associated with bringing an applicant to the interview location. Although this may not be done for every candidate an average is used in the I4 calculator. •

Cost of New Hire

The two costs measured in this area are the administrative tasks associated with inducting a new hire into the organization and the associated induction training. When measuring the cost of attrition sometimes the total cost of training that an individual has received whilst in the employment of an organization is included. However, as all learning undertaken by employees will be used back on the job an add value to the business it is inappropriate to count it as a cost of attrition. Also, where particular jobs have high training, often there is a corresponding lower rate of pay which acknowledges the investment that the organization is making in the individual, eg. Youth wages. One aspect of training directly associated with turnover, however, is the induction of new staff to the organization. High staff turnover will necessitate greater levels of resources being made available to induct new employees. It is the opportunity costs of these resources that must also be calculated. 1. Induction Administration

32 _______________________________________________________________________ _

The process of induction into an organization can involve a substantial amount of time. The activities included here would include the processing

of

new

hires

into

organization

systems

(HR)

and

introductions to fellow employees.

Induction Fixed Costs The fixed costs associated with inductions include the cost of materials such as induction kits and staff manuals. Induction Training Any initial training received by an employee on joining the company. This includes the costs of the materials, presenters and the opportunity costs associated with the new employee taking time off work to participate. Relocation Expenses Similar to travel these cost are incurred by companies in an effort to source the best talent for alternate locations. An average cost needs to be captured as part of the calculation process. •

Productivity Losses

The most detrimental aspect of staff turnover is lost productivity. Evidence has found that leavers often miss work or are tardy before they depart. Deery and Iverson argue that according to progression-ofwithdrawal models the productivity of leavers may deteriorate before they depart.

33 _______________________________________________________________________ _

Turnover is commonly viewed as belonging to a family of withdrawal behaviors that physically distance employees from unpleasant work settings. Serving a common psychology function, withdrawal actions reduce the time spent in an adverse environment and thus reduce job dissatisfaction. Studies have shown that employees leaving a company will have a greater level of absenteeism prior to leaving. Excessive sick leave is not only costly, but is also an early warning signal that an individual may be considering resigning from the organization. Not only does staff take more sick leave but Hom and Griffeth state that their overall productivity decreases as well. Furthermore, resignations may disrupt other employees’ work if their work depends on the leavers or they must assume the leavers’ duties. The second effect of loss of productivity occurs when new hires join the organization. They will not have the networks, understanding of organizational processes or product/service knowledge to be effective. Studies have shown that a new hire will generally take between 3- 8 months to become effective in their new role. The longer period is associated with more senior roles. •

Excluded costs

Not all the costs associated with turnover have been included in the i4 attrition calculator. Costs that cannot be accurately measured or assumed have been excluded. These costs, although hidden, may be the most critical in terms of organizational impact. Examples of hidden costs are included below to highlight the organizational impact of attrition. 34 _______________________________________________________________________ _

•

Employee Demoralization

Turnover may erode the morale and stability of those who remain employed.

Their morale suffers because they lose friends and may

interpret motives for quitting as social criticisms about the job. A belief that a leaver has a “better” job elsewhere may change employees’ perceptions of their jobs. As a result stayers may denigrate their present position in the light of superior alternatives and begin contemplating other employment. This phenomenon may lead to a cycle of attrition whereby employees leaving a company prompt other to do the same. •

Impaired Quality of Service

Turnover also hinders the delivery of service and retention of customers. Attrition among service personnel impairs customer service because understaffed branches delay or withhold service. Unlike experienced leavers, new employees may also provide less competent or less personalized service because they do not know the clients and can’t meet customer expectations through lack of knowledge and experience. If satisfied employees make customers feel well treated, disgruntled employees may provide careless service before they leave. Turnover also interrupts the transmission of service values and norms, which are the essential underpinnings of high quality service, to successive generations of employees. Customers' perceptions, attitudes and intentions seem to be affected by what employees’ experience, both in their specific role of service employees and their more general role of organizational employees. It has been found that there is a high 35 _______________________________________________________________________ _

correlation between employee turnover and customer turnover. Therefore, the cost of decreased customer satisfaction and loyalty should be taken into account when considering staff turnover. •

Turnover reason & cost impact

Just as attrition can lower productivity, incur financial costs, and undermine

stayers'

morale,

turnover

can

have

the

opposite

ramifications under certain circumstances or for certain firms. That is that the exit of marginal performers may improve overall firm productivity, while new replacements for leavers can

infuse

companies with new ideas and technology. Though turnover is obviously

costly,

personnel

administrative staff - can

shrinkage

-

especially

among

nonetheless reduce overhead costs. Further

resignations may create more job and empowerment opportunities for employees who remain in firms. •

Functional and Dysfunctional Turnover

Departing from conventional beliefs, some academics point out that turnover can prevent stagnation and complacency, facilitate change and innovation, and displace poor performers. Turnover is not inherently

negative.

Although

it

creates

personnel

costs,

the

organizational consequences of turnover are dependent on who leaves and who stays. The departure of good performers is construed as dysfunctional turnover - representing a loss to the organization - for their replacements are likely to be of lower caliber. The departure of poor performers is viewed as functional turnover - because they are apt to be replaced by better performers. Research into whether high performers or low performers leave tends to have found mixed results. 36 _______________________________________________________________________ _

A meta-analysis conducted by McEvoy and Cascio found that generally it is the poor performers that will leave their place of work. There are two possible explanations for this: firstly, terminated staff has on average a lower tenure than current staff and so have not had the time or opportunity to develop the skills necessary to perform well; or the current

performance

management

systems

which

exist

are

encouraging high performers to stay and poor performers to quit. •

Avoidable and Unavoidable

Further differentiation should occur between organizationally avoidable turnover and organizationally unavoidable turnover. For example, organizations cannot control (that is, it is unavoidable) turnover caused by an employees death, or by an employee’s quitting to follow a relocating spouse. It is important to identify carefully those exits that are avoidable and those that are unavoidable. After all, leavers whose departures are unavoidable resemble stayers more than they resemble the leavers whose departure is avoidable; they do not resign because they are unhappy with their jobs or the organization. Despite the appeal, determining whether exits are avoidable or unavoidable may prove difficult because employees may falsify reports of their reasons for leaving, they may not wish to burn their bridges behind them. The cost of attrition is only calculated on the level of avoidable turnover. There is no benefit in including the cost of unavoidable turnover since a company has no control over these events and can therefore not put in place action plans to minimize the negative consequences of staff turnover. 37 _______________________________________________________________________ _

Article ‘Attrition at Call Canters’ The evolving BPO industry has got the perplexing issue of managing human resources, says BHIMA RAO Attrition of employees in the call centre industry is mind-boggling and it is creating havoc for the industry and especially for the HR department. The attrition rate varies from minimum 30 per cent to a maximum 90 per cent per annum. The software also saw this rate till the incident of September 11, 2001. I wonder why the attrition rate was not so high in any other new industry like telecom, retail stores, banking etc. Who has to introspect, how much responsibility should be 38 _______________________________________________________________________ _

borne and are we collectively contributing directly or indirectly for the attrition. Attrition is not a new problem and it has existed earlier and will continue to exist in any industry. But there is a limit for every thing. The call center industry is new and every one is in a great hurry to make some thing or do some thing, become someone in the sun rise industry. The government, promoters, management team, employees, consultants, media and so many others play a major role in developing any new industry and extend helping hand for stabilization and finally growth of the industry. Our country is fortunate to be identified as one of the best places for BPO and the beginning is really good. Now the growth of BPO industry is mainly depending on the cost effectiveness and quality of the manpower. All other factors are being taken care by the government through liberalized laws, providing infrastructure like telecom and we are best in the IT. The cost effectiveness will depend mainly on controlling the running cost and quality is dependent on the manpower employed. Attrition of employees increases the cost of recruitment and training. It has impact on maintaining the quality and competent manpower to meet the standards set by international customers. •

Four reasons why youngsters quit BPOs

What drives young people to quit call centres and data processing units as fast as they join them? As industry attrition rates (how soon people quit jobs) climb as high as 80 percent in some companies, human resource executives in various BPO firms tried to pinpoint the reasons that make young people between the ages of 22 and 26 39 _______________________________________________________________________ _

shuffle jobs in months. They were participating in a seminar on key HR issues for the BPO industry in Bangalore today. This is what they came up with. 1. BPO not seen a long term career "This industry is still not being accepted for a long term career," said Mphasis BPO Services' chief human resources officer Manab Bose. 2. High aspirations that the industry cannot meet BPO employees have high aspirations. They want to see 'wealth' in this lifetime and have low respect for authority. This is because most BPO employees have immense family support. 3. Good talent is prone to poaching ICICI OneSource President and CEO Raju Bhatnagar said the pulls of the market (poaching by competitors) cannot be countered easily. BPO firms try to pick the best talent, he explained, and good talent is prone to be poached or to shifting jobs. He suggested that firms should instead look at the average person, train and retain him/ her for the longer haul. 4. Employees face pressure at home and at work Philips Software CEO Bob Hoekstra felt BPO employees are in a piquant situation, having to handle pressure both from their customers and at home.

40 _______________________________________________________________________ _

"There is an enormous conflict in age group [in terms of the fact that] youngsters are serving mature customers, and they are prone to make mistakes," he said.

Case Study 'I'll never work at a call centre again!' Subhash Mukherjee | November 18, 2004 The BPO/ITES sector is only expected to grow larger, and more profitable, over the next few years. Most young people are eager to jump on the money-making BPO bandwagon.

41 _______________________________________________________________________ _

But is working for a BPO all that it's made out to be? No, says Subhash Mukherjee (name changed on request), who recently quit his job at a call centre. This, in his own words, is his story: I am 20 years old. I was recently hired by a call centre in Kolkata to work for an overseas-based company. I was earning Rs 7,500 per month. My workday began with calls I had to answer for five hours continuously, without a break. As soon as I was through with one call, the next one would be waiting. There was no time for me to even say a few words to the person sitting next to me. After five hours of constantly answering calls, I would get a 20-minute break. Then, I would take calls again for another three hours. Without a break. I would take around 350 calls a day. One day, I reached breaking point. After taking 156 calls at a stretch, my throat started to hurt terribly. I paused to take a breath and, in the process, I missed a call. The calls that are directed to us were constantly monitored by a machine. Immediately, it alerted my supervisor to the fact that I had missed a call. My supervisor came and asked me why I was in the 'wrap mode'. What this means is that my dialer shows a red bar when the person on the other end of the line hangs up without getting a response. The red bar is an indication that I did not take the call -- that the call was not 'live'. At that moment, I just wanted to pick up my bag and leave. 42 _______________________________________________________________________ _

Permanently. Instead, I stayed calm for the duration of my hours at work. I fielded all my calls till 1 am. But I had made up my mind -- I would quit this job with its inhuman pressures and its lack of empathy for employees. Workplaces like this have only one goal -- to make money. This job expects you to work even if you are feeling ill; even if your throat hurts. You cannot take even a 10-second break; the dialer throws calls at you continuously and you have to start pitching (taking them) immediately. If you do not respond to the person at the other end of the line, s/he might hang up. That shows on your machine. You have to ask for permission to go to the toilet. Often, your request is denied by your supervisor. You repeat the same five sentences 350 times a day. Isn't it pathetic? When I started out, there was no pressure. Gradually, though, the stress grew beyond the levels of human tolerance. Working at the call centre was a great learning experience for me. Now, it was time for a break. When I worked, I had no time to watch a film, no time to read a book, no time to meet friends, no time to swim. For the last few months that I worked at the call centre, I had time only for two meals a day. As a result, I lost my appetite. I would return home at 2.30 am and go to sleep at 4 am. I would get up at noon and go back to work at 3.30 pm. Now that I have quit, I can go out with my friends. I can spend time rediscovering myself. With the approximately Rs 65 per hour that I made, I can buy a few books and have some fun. Maybe that will take away the pain that came with this job. But, believe me; the money could in no way make up for the pain!

43 _______________________________________________________________________ _

I'll never work at a call centre again. Nothing is worth the ordeal I went through.

For more Notes, Presentations, Project Reports visit hrmba.blogspot.com mbafin.blogspot.com a2zmba.blogspot.com

44 _______________________________________________________________________ _