Human Resource Management – ‘Attrition’

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“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"

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

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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 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.

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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:

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

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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 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

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and unable to cope 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.

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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:

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.

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 Free transport and free food:

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

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.

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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.

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 Good pay and benefits:

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

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 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 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.
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The broader approach is to bring sanctity in the recruitment process like demand the
relieving letter from the previous company, have non-hire 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.
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.

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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.

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,

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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. 

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

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execution of business plans and may eventually cause a parallel decline in productivity.
This 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-of-factly 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 loss. Research
shows the reasons for employee departures are (in descending order): 

1. Employee/manager relationship
2. Inability to use core skills

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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. 

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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

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 employees, especially new entrants, about the
company’s status and achievements is a must.” 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.

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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.

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

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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 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

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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. 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 entry-level
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 teamed with universities to offer their
workers management-level master's courses at a subsidized rate, and watched attrition
rates drop as a result.

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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 tier-two 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.

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

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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

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?

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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 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.

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Costs of Turnover

The impact of employee turnover on company performance is often understated by

organizations. This describes how the cost of turnover 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

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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 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

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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.

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.

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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 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

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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

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

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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-of-withdrawal models the productivity of leavers may
deteriorate before they depart.

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.

 Employee Demoralization

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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 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

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productivity, while new replacements for leavers can infuse companies with new ideas
and technology. Though turnover is obviously costly, personnel shrinkage - especially
among administrative staff - can 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. 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

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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.

Article -
‘Attrition at Call Canters’

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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 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

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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 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.

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"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.

But is working for a BPO all that it's made out to be?

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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. 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

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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!

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

Subhash Mukherjee quit his job in mid-October. He is now pursuing an Economics

degree at the Kolkata State University.

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