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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"

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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

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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:

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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

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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

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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:

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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.

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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

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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 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.

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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.

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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.

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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

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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

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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.

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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

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 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.

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.

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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

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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.

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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

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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 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.

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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

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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

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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

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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

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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.

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 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

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 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

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

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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.

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• 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

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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 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.

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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.

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 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

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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

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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.

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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.

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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!

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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

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