HRO: Another look at employee attrition and it's costs

As the economy improves, we are likely to hear more about the impact of employee attrition. Soon, retention will have to become a focus of employers and human capital management consultants and HR Outsourcing providers. Several demographic and cultural factors are contributing to this impending shortage. Domestic population growth in total has been slowing. Investment in US public education has not kept pace with demand for increasingly better educated, higher skilled workers.

For the first time in decades, we haven't had a region or economic sector from which we can borrow qualified human resources. Baby boomers are reaching retirement age. The following generations, Gen-X and Gen-Y, much smaller in numbers, are unable to fill the void. Offshoring is providing some relief for employers, but the supply of talent is likely to be insufficient to meet the demand.

We want to address turnover because, it's expensive, it's non-productive and it's frustrating. An often-cited Harvard Business Review article estimated the cost of turnover at around 150% of an employee's annual salary. With turnover, customer service levels inevitably suffer. There is a high correlation between departing employees and departing customers - some say that customers leave at twice the rate employees leave.

People usually don't leave for money or opportunity alone. Something else isn't working for an employee to be tempted to leave for money or opportunity. Several situations work together to cause attrition. Often these are a combination of low unemployment and high wages, challenges to employees' inherent loyalty and job design.

Attrition Defined 

There are three types of attrition. These are: 
 

• Market Driven - based on the demand for a particular skill or ability in temporarily low supply (self-correcting in normal markets). The typical initial reaction by employers to market driven attrition is to increase wages, offer better benefits, escape the market by relocation or site migration or relax hiring standards.
• Workload or Stress Driven - on the actual capacity to perform the work required. This is when there are not enough of the right people.
• Process Driven - variables associated with job design and/or the organization. In some industries and organizations there is a belief that attrition has always been there and always will be there. Addressing this scenario produces the most lasting results.

Typically, in organizations experiencing systemic or chronic attrition, a cycle develops. The following diagram illustrates how this spiral occurs. 

 
As one can see, attrition normally brings decreased productivity. People leave causing others to work harder. This contributes to more attrition, which contributes to increasing costs, lower revenue. This often forces additional cost reductions and austerity measures on an organization. This in turn makes working more difficult, causing the best performers with the most external opportunities, to leave. 
  

 
We believe there are two primary drivers of voluntary attrition. These are, no one likes to feel inadequate and, in most organizations, it is easier to leave than stay and try to alleviate the problem. People feel inadequate when communication is either incomplete or unreliable. Choices are either absent or insufficient. Often, the challenges in these situations are unclear, unsatisfying or overwhelming. People will give up trying to change things when promises are not specific, not kept or are not fulfilled in a timely manner. Additionally, when expectations are thwarted, changed arbitrarily or unfulfilled, people will lose motivation. Other common demotivators are when commitments are unacknowledged, vague or incompatible.
Rarely do organizations create environments where employees can meaningfully participate in activities, which will reduce turnover.

Attrition is commonly thought of as people terminating employment. We suggest there are two distinctly different types of attrition. These are:

Empty Chair Attrition: Employees quit and leave

Warm Chair Attrition: Employees quit and stay

We think organizations should measure attrition according to its impact upon tenure. This "tenure equity" concept, the aggregate value of employee experience relative to process complexity, is really about the value of an employee, measured by experience and knowledge gained in months of service.

 
 
We think organizations should resist arbitrary comparisons for determining "acceptable" turnover, or going by industry standards - tenure equity should be calculated for each department or position by considering process complexity. There is a point of diminishing returns - except for the value of group experience and being part of the team (the "social network value"). If you can't increase tenure equity, decrease process complexity. 
  
 

 
Managing tenure equity is most important in organizations having the following characteristics:

• High process complexity
• A need for rigorous process integrity
• Short or very stringent cycle time requirements
• High or escalating customer expectations 
   

Typically, companies with one or more of the above characteristics must focus on their core business and lack the time and resources to provide sufficient HR services internally. This puts them in a critical position, as it is exactly this group of companies that is most adversely affected by poor retention rates. Outsourcing either all or part of their human resources departments is not only a viable option for such organizations, but possibly the optimal one. 
  
 

 
HR Outsourcing

HR Outsourcing is the next frontier in the global outsourcing phenomenon. Many organizations, both large and mid-size, are taking advantage of the maturing HR outsourcing provider market. Hewitt's merger with Exult, the EDS and Towers Perrin joint venture, and the big deals closed by IBM and ACS have brought HR to the forefront of the BPO world. As the large-scale, multi-tier outsourcing providers consolidate their hold on the HR market, specialized vertical providers are likely to emerge offering companies the chance to selectively or partially outsource their HR functions.

While many view the outsourcing of any internal function as simply a means to reduce costs, we believe the true value lies in achieving Enterprise Effectiveness through the proper management of tenure equity via increased employee retention - something that HR outsourcing providers are demonstrating their increasing ability to accomplish.

HR outsourcing provider Convergys recently successfully addressed the high turnover rate in its own customer contact centers through an innovative program that employs tactics borrowed from consumer marketing. According to a recent Workforce Management article, Convergys realized savings of more than $57 million dollars in costs associated with turnover over a four-year period. As a result of this program, the company received the publications' 2005 Optimas Award for financial impact.

High turnover rates have long been a problem in customer contact centers. Convergys' demonstrated ability to apply best practices to themselves is an indication of the progress that has been made in the emerging HR outsourcing field. While HR outsourcing is not a "one size fits all" solution for increasing employee retention, it certainly is an avenue that must be investigated as the economy continues to improve and attrition rates begin to rise.

Source : www.alsbridge.com