The Impact of Staff Turnover and Retention Strategies
The Impact of Staff Turnover
There is some debate about the level at which staff turnover rates have to reach in order to inflict measurable damage on an employer. The answer varies from organization to organization. In some industries, it is possible to sustain highly successful businesses with turnover rates that would make it impossible to function in other sectors. Some chains of fast-food restaurants, for example, are widely reported as managing with turnover rates in excess of 300 percent. This means that the average tenure for each employee is only four months (Ritzer 1996: 130; Cappelli 2000: 106). DiPietro et al. (2007) cite statistics from the USA that show staff turnover rates in the restaurant industry generally to be 104 percent, an average figure that is kept so high because of poor retention rates in the low-paying, fast-food sector. Yet the companies concerned are some of the most successful in the world. By contrast, in a professional services organization, where the personal relationships established between employees and clients are central to ongoing success, a turnover rate in excess of 10 percent is likely to cause damage to the business.
There are sound arguments that can be made in favor of a certain amount of staff turnover.
Firstly, it is fair to say that organizations need to be rejuvenated with ‘fresh blood’ from time to time if they are to avoid becoming stale and stunted. This is particularly true at senior levels, where new leadership is often required periodically to drive change forward. More generally, however, new faces bring new ideas and experiences which help make organizations more dynamic.
Secondly, it is possible to argue that a degree of turnover helps managers to keep firmer control over labor costs than would otherwise be the case. This is particularly true of organizations which are subject to regular and unpredictable changes in business levels. When income falls, it is possible to hold back from replacing leavers until such time as it begins to pick up again. In this way, organizations are able to minimize staffing budgets while maintaining profit levels during leaner periods. Redundancy bills are also lower in organizations with relatively high staff turnover because they are able to use natural wastage as the main means of reducing their workforce before compulsory lay-offs are needed.
Thirdly, it can be plausibly argued that some employee turnover is ‘functional’ rather than ‘dysfunctional’ because it results in the loss of poor performers and their replacement with more effective employees.
The arguments against staff turnover are equally persuasive.
Firstly, there are the sheer costs associated with replacing people who have left, ranging from the cost of placing a recruitment advertisement, through the time spent administering and conducting the selection process, to expenses required in inducting and training new employees. On top of these, there are less easily measurable losses sustained as a result of poorer performance on the part of less experienced employees. For larger organizations employing specialist recruiters, these costs can add up to millions of pounds a year, with substantial dividends to be claimed from a reduction in staff turnover levels by a few percentage points.
Secondly, a major argument in favor of improving staff retention results from a straightforward recognition that people who leave represent a lost resource in whom the organization has invested time and money. The damage is all the greater when good people, trained and developed at the organization’s expense, subsequently choose to work for competitors.
Finally, it is argued that high turnover rates are symptomatic of a poorly managed organization. They suggest that people are dissatisfied with their jobs or with their employer and would prefer to work elsewhere. These moves thus send a negative message to customers and help create a poor image in the labor market, making it progressively harder for the organization affected to recruit good performers in the future. We may thus conclude that the case for seeking to reduce staff turnover varies from organization to organization. Where replacement employees are in plentiful supply, where new starters can be trained quickly and where business levels are subject to regular fluctuation, it is possible to manage effectively with a relatively high level of turnover. Indeed, it may make good business sense to do so if the expenditure required to increase employee retention is greater than the savings that would be gained as a result. In other situations, the case for taking action on turnover rates is persuasive, particularly where substantial investment in training is required before new starters are able to operate at maximum effectiveness. Companies which achieve turnover rates below their industry average are thus likely to enjoy greater competitive advantage than those with relatively high rates.
Staff Retention Strategies
The straightforward answer to the question of how best to retain staff is to provide them with a better deal, in the broadest sense, than they perceive they could get by working for alternative employers. Terms and conditions play a significant role, but other factors are often more important. For example, there is a need to provide jobs which are satisfying, along with career development opportunities, as much autonomy as is practicable and, above all, competent line management. Indeed, at one level, most of the practices of effective human resource management described in this book can play a part in reducing turnover. Organizations which make use of them will enjoy lower rates than competitors who do not. Below we look at six measures that have been shown to have a positive effect on employee retention, focusing particularly on those practices which are not covered in any great depth elsewhere in the book.