Monday, February 4, 2008

Turnover: The Real Bottom Line.

Turnover is the rotation of workers around the labor market; between firms, jobs, and occupations; and between the states of employment and unemployment.

[1] "In-house engineering," "revolving door policy," and "management by turnover," are a few of the many colorful and euphemistic terms used to describe this organizational phenomenon. By whatever name or form, labor turnover is one of the most significant causes of declining productivity and sagging morale in both the public and private sectors. Management theorists say it lies behind the failure of U. S. employee productivity to keep pace with foreign competition.

[2] Pervasive organizational downsizing and restructuring has dampened recent interest in turnover as the subject of academic inquiry. However, attrition among key personnel or groups of strategic employees at a time when many U.S. organizations face employee shortages continues to be a bedrock business issue.

[3] Specifically, two decades of relentless downsizing have removed the negative societal connotations once associated with hop scotching from job to job, and workers are increasingly willing to abandon their job when it is economically convenient. As a result, the concept of employee loyalty has been changed forever.
[4] Furthermore, technology has created a virtual mobility that allows people to work in their homes or other locations, perhaps even in other states or out of the country. This has enormously broadened the range and ensured the privacy of a potential job hunt. There will likely be many additional scholarly explorations on the subject of turnover.

Consequences of Turnover

Excessive turnover often engenders far reaching consequences and, at the extreme, may lead to jeopardy of the organization's objectives. There may be a brain drain that negatively affects innovation and causes major delays in the delivery of services and the introduction of new programs. The smartest and most talented employees are the most mobile and the ones who are disproportionately more likely to leave.

[5] For some departments and agencies of government entities, the loss of key employees may negatively impact the quality and innovation of services delivered. As a result, it may adversely affect the satisfaction of citizens/customers.

[6] In governmental agencies or departments the customer includes not only citizens who consume services, but the employees who work there. The human relations department in an agency must provide personnel services and incentive programs that will induce the best workers to stay. It is the job of the human relations department to keep agencies staffed with the skills, inclination, temperament, and willingness to provide high quality service to citizens/customers. Hence governmental units are becoming increasingly concerned about keeping loyal and dedicated workers, reducing turnover, and increasing the duration of employment. Employee loyalty is the underpinning of customer satisfaction with the organization. An enthusiastic and loyal employee will nurture productive working relationships with customers. Consequently, it is better for an organization to keep experienced and productive employees to hire new ones. However, to get and keep loyal workers, the organization must have a long run time horizon. It must invest in its employees through training programs and value them through strong organizational vision. In the face of eroding loyalty, attracting and keeping good people is the key to strategic staffing in all industries and sectors.
[7] Employee turnover is both pervasive and costly. It cuts across every type and size of organization from low tech to high tech and from finance to sales.

[8] While the rate of turnover may vary between companies, sectors, and industries, and by division, function, tenure, gender, race, and performance level within the same organization, there are enormous adjustment costs any time an employee walks out the door.
[9] For example, a Louis Harris and Associates survey pegs the cost of losing a typical worker at $50,000.

[10] Another nationwide survey suggests that the average internal cost-per-hire for an engineer is $4,901, computer programmer $2,500, secretary $1,000, retail sales associate $350, and assembly line worker $300.

[11] The out-of-pocket or visible costs can be categorized as costs of termination, advertising, recruitment, candidate travel, selection, hiring, assignment, orientation, signing bonuses, and relocation.

[12] The cost of replacing a worker is often underestimated, because in addition to visible costs like those noted above, there are many "hidden" costs and consequences of turnover. They include disruption of customer relations, the vacancy cost until the job is filled, costs resulting from disruption of the work flow, and the erosion of morale and stability of those who remain. Further, there is the temporary loss of production and valuable time taken from customer relations while the new hire acquires job skills and achieves maximum efficiency.

[13] One estimate reveals that the cost of voluntary and involuntary employee turnover to American industry--the "find them, lose them, replace them" syndrome--is about $11 billion a year.

[14] What Causes Turnover
For years management theorists have suggested that the basic functions of management are to plan, organize, direct, and control the operations of their organization. Unfortunately, these functions tell the manager what should be done, not how to do it. Specifically, current labor force demographics suggest that the new diverse workforce will not respond to old traditional management practices.
[15] Consequently, today's managers are faced with a different workplace and workforce configuration than that of 20, 10, or even 5 years ago. They must rethink their staffing strategies for the year 2000--and beyond.

[16] Despite the metamorphic workforce and workplace, effective managers can use a variety of strategies to hire good people, influence and motivate them to perform at a consistently high level, and inhibit the departure of the more highly qualified performers. The key to curbing exits is for managers to gain insight into employees' attitudes by understanding their personality traits and core beliefs and fostering long-term and well-conceived employee development plans. The result of such turnover-reduction intervention may help organizations to improve their retention of valuable people, especially the most enthusiastic, skilled, and proficient ones.

[17] Given the high cost of turnover, investment in a well-executed retention program can yield a high rate of return. Although there is no single answer that explains all the causes of employee turnover, more is being understood about the turnover phenomenon each year. An organization can keep good workers with a holistic long-term retention strategy and the necessary programs and policies to support it.

[18] However, they must first understand the causes of employee departures. Some of the forces that underlie excessive employee separations and rehires are discussed below.
1. Hiring Practices
Putting the right people in the right position at the right time and then training them properly is one of the most critical tasks any organization faces. Good hiring and screening practices and effective job matches can expedite the speed with which new hires are moved to their profitable use.

[19] The U.S. Department of Labor estimates the expenses associated with a bad hiring decision may be as much as 30 percent of the first year's potential earnings.

[20] If the mistake is not discovered and corrected within six months, the cost goes even higher. Because of the high cost of employee exits, managers must recruit, hire, and maintain an expert work force with a coherent and comprehensive strategic vision.
[21] They must not only be sure that the hiring criteria are job related, with the new hires having the skills the organization needs, but they must be equally sure the criteria are consistent with the strategies and culture of the organization. The deployment of a built-in reward system for managers and supervisors who keep good people can help achieve that goal.

[22] Excessive turnover is driven by and is the natural and inevitable result of poor management. Overall, organizations fail because of managerial incompetency. Poor judgment, poor communication skills, lack of foresight, and a narrowly focused view of the management job are some of the reasons why managers fail in the human relations area as well as others.
Excessive turnover is driven by and is the natural and inevitable result of poor management. Overall, organizations fail because of managerial incompetency. Poor judgment, poor communication skills, lack of foresight, and a narrowly focused view of the management job are some of the reasons why managers fail in the human relations area as well as others.
[23] Furthermore, a manager with a background in finance is more likely to view the organization as a basket of assets that responds only to government's stakeholders, rather than a social institution with a concern for employees. (Stakeholders are any individual, group, or other organization that can place a claim on the organization's attention, resources, or output. Examples of a government's stakeholders are citizens, taxpayers, service recipients, the governing body, unions, interest groups, political parties, and others.) Of course, a manager with a background in production is more likely to emphasize efficiencies in processing and distribution. Such executives tend to have a "myopic" vision by concentrating their efforts on the functional areas that they know best, which often are not personnel activities. They are likely to turn quickly to labor force reductions as a way to solve competitive problems. Such an idiosyncratic view will often weaken the cohesion of the group; cause workers to lose their commitment to the organization and to disagree with company work rules and systems; create tension and conflicts between management and the workforce; and cause general frustration and dissatisfaction among subordinates over the lack of top management guidance.

[24] Managers with myopic vision often experience excessive turnover (churning), and they may end up with an insufficient number of qualified people.

[25] Further, they may not be able to get the most out of those who stay because they do not feel valued. Subordinates may be disloyal; show signs of diminished job satisfaction and poor performance; provide lackadaisical and less personalized service to clients; or when conditions become intolerable, seek to change their employment status.

Today's boss must provide strong leadership in an environment where technology is growing at a runaway pace, change is constant, and uncertainty is never ending. They must achieve organizational profit and other goals with an increasingly diverse workforce whose attitudes and values have changed greatly from the previous generation. Managing today requires ingenuity and strategic wisdom to a greater degree than at any time in our history.
Managers must keep in mind that employees are the major contributors to the efficient achievement of the organization's success. They must hire and train the right people, adapt their managerial style to today's worker, provide recognition and pay for superior performance, and create a nontoxic and productive work environment. Those managers who cannot or refuse to change face the prospect of excessive departures that can imperil the business strategy and be ruinous to the performance of their organization.

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