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What is the biggest challenge for the BPO industry in India today? Well, it is a no brainer: Attrition!The business process outsourcing (BPO) industry in the country which is expected to employaround one million people by 2008 is facing the challenge of finding quality human resources giventhe current attrition rate of around 50 percent. Analysts say attrition rates vary by 20%-40% in somefirms, while the top ones averages at least 15%. Nasscom in a report said the outsourcing industrywas expected to face a shortage of 262,000 professionals by 2012.

The size of the Indian BPO market is likely to be around $9-12 billion by 2006 and will employaround 400,000 people, ICRA said in its Indian BPO industry report. Mercer India said the industryshould look beyond the traditional areas of recruitment and some thought should be given toemploy physically challenged people and housewives. The reasons for the high rate of attrition wasdue to various factors like salary, work timings, other career options, adding that there is always thedanger of costs increasing while billing rates decline.

With 245,100 people employed at the end of March 31, 2004 against 171,100 last year, the industrywitnessed a hiring growth rate of about 40-42 percent. On the hiring front, the industry absorbedabout 74,000 people in 2003 despite the attrition rate of 45-50 percent being a matter of concern.

Attrition rates in IT-enabled business process outsourcing sector have come down from the 30-33per cent being witnessed of late to about 25 per cent now, according to statistics compiled by the

National Human Resource DevelopmentNetwork.

If you compare attrition rates for a Voice and Non-voice process, then attrition rates are significantlylower in a non-voice process. As the industry moves up the value chain and becomes a full-scaleBPO player, attrition rates will further decrease. For BPO service providers, moving up the valuechain is critical, given the attrition rates in the industry, which are on an average higher in lowvalue-added segments (incall centres) as compared to higher value-added segments likeengineering. It will not be possible for the industry to arrive at a blanket agreement on poaching butbilateral agreements between companies are being signed. Basic norms are being put in place andcode of ethics is being stressed upon by industry. Companies are being encouraged to adoptresponsible behavior in order to ensure that the industry does not become a victim of its ownactions. Industry needs to go aggressive but not cannibalistic.

In order to ensure a consistent flow of trained manpower in the future, the industry needs to workwith the government to introduce courses at a school and college level, which are in line with therequirements of the ITES-BPO industry. India has one of the largest pool of English speakinggraduate workforce. The challenge for the industry is not in employment but employability. Theindustry is also hiring professionals from outside the industry in order to meet its steady supply ofmanpower. Honest corporate managers will tell you that to make offshoring work, you need at leasta 300% to 400% wage spread between American software writers, engineers, accountants, andcall-centeremployees and their Indian and Chinese counterparts. Labor costs have to be very, verylow overseas -- not just lower -- to compensate for time-shifting, managing over such longdistances, and decreased productivity.

High attrition rate, price wars, poor infrastructure and lack ofdata protectionlaws could derailIndia's booming outsourcing industry. This seemed to sum up the views of BPO fraternity at the

Nasscom summit here.

Tackling Attrition Head-On

Industry experts feel, as the industry was still in its nascent strategy there was lot of strategiesavailable to reverse this trend and make it an attractive employer. NASSCOM ITES-BPO forum hasidentified HR as one of the key challenges of the ITES-BPO industry and has formed a special taskforce to address short-term challenges such as Attrition and also long-term challenges such asensuring availability of a skilled talent pool.
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To arrest this trend, companies can look into various options like good rewards, bondingprogramme, flexible working hours and stronger career path. With attrition rates ranging between30-60 percent in the BPO industry, HR specialists feel that a scientific and analytical approachshould be implemented. The tremendous turnover rate is undeniably one of the main problemsfaced by the BPO industry globally. HR specialists at the Nasscom 2004 summit brainstormed onvarious approaches to handle this bugbear- either declare war on attrition and tackle it head on, oradopt a more scientific analytical approach.

Pay cheques alone are not enough to retain employees. Management also needs to consider otheraspects like secure career, benefits, perks and communication. The attrition battle could be won byfocusing on retention, making work a fun place, having education and ongoing learning for theworkforce and treating applicants and employees in the same way as one treats customers.

Companies need to go in for a diverse workforce, which does not only mean race, gender diversity,but also include age, experience and perspectives. Diversity in turn results in innovation andsuccess. The 80:20 rule also applies to recruitment, she quipped, since studies showed that 80percent of the company's profit comes from the efforts of 20 percent of the employees. So BPOsneed to focus on roles, which have the most important impact. According to experts, the cost ofattrition is 1.5 times the annual salary. Age should not be a barrier for training employees and could

in fact bring in more stability to the company.

Conclusion: It is clear that there are massive costs associated with attrition or turnover and, whilesome of these are not visible to the management reporting or budget system, they are none theless real. The 'rule of thumb' appears to be very inaccurate indeed and, while it depends upon thecategory of staff, it is probably better to estimate around 80% of salary as a truer rule of thumb -and this will be on the conservative side.What does this mean? Well it means that if a company has 100 people doing a certain job paid25,000 and that turnover or attrition is running at 10%, the cost of attrition is:(Total staff x attrition rate %) x (annual salary x 80%)

100 aff at 10% attrition means 10 people leave and are replaced each year.A replacement cost of 80% of a salary of 25,000 means the cost of each replacement is20,000.

The cost of turnover is therefore 10 x 20,000 or 200,000 a year.The oncost to the overall salary bill is 8%.

Defining attrition: "A reduction in the number of employees through retirement, resignation ordeath"

Defining Attrition rate: "the rate of shrinkage in size or number"

Introduction: In the best of worlds, employees would love theirjobs, like their coworkers, workhard 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. Andnever leave.

But then there's thereal world. And in the real world, employees, do leave, either becausethey want more money, hate the working conditions, hate their coworkers, want a change, orbecause their spouse gets adream jobin 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?

Even as BPOs in India announce elaborate hiring plans for the current year, the high levels ofattrition prevalent in the sector remains an area of concern. According to several recruitmentfirms in the country, attrition in the ITeS (IT enabled services)-BPO industry is close to 60%.Interestingly, the reported figures are much lower and are about 35-40%.
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Recruiters explain that the high attrition rates significantly increase the investment that aremade in the employees in this industry. The problem of losing funds in employee acquisition ismore prominent in the high-end BPO segment. Companies invest a lot of time and money intraining a candidate for the first four months. But these investments do not always getconverted into actual profits, said Teamlease vice-president Kavitha Reddy. Teamlease is a HRoutsourcing services company. Senior officials in the ITeS-BPO sector, however, maintain thatthe rate of attrition is at best 40%.

The range of services by an ITeS-BPO player has changed over time. For instance, it hasexpanded from just accounting, billing and payment services, data-entry and low-endtransaction processing. Today, it has moved on to higher-value services to cover areas such asequity research and investment research support, financial data mining and insurance claimsprocessing.

In order to provide high-end knowledge services, vendors are often required to staffprofessionally qualified MBAs, CAs/CPAs at significantly higher salaries. The estimated peremployee hiring cost is about Rs 15,000 in the plain voice-based BPO segment. This includesthe fee paid out to the hiring agency, employee screening costs, maintaining an internal HRdepartment etc. There is a reasonable time frame involved to get an employee to deliveractual results. If the employee quits before this period, the loss to the company could be ashigh as Rs 70,000 per person, said Focus Management Consultants director Vipul Varma.

According to Mr Varma, it is estimated that the cost of acquiring a candidate is about 8.33% ofthe salary paid. In the high-end ITeS-BPO segment, the cost of getting a person productive tothe company is about Rs 1.2 lakh to Rs 1.5 lakh.

Though the high-end segment ensures a well-defined career path for individuals, theperformance levels expected of them is also very high. Many employees, who are not able tosustain constant performance monitoring, eventually end up dropping out.

Attrition Rate Haunts The Booming BPO Sector

Samar Halarnkar

The biggest problem for India's most buoyant industry is not

competitionfrom the Philippines, or the anger of American and British

workers who lose their jobs to young graduates in Gurgaon or Bangalore.

It's amma and appa. It's the midnight shifts. It's boredom. K MadeGowda watches anxiously as his daughter Nalini, 20, listens to a

presentation on a training programme for articulate young graduates,

the main resource of business process outsourcing, the industry that

hopes to make India the back-office of the world.

"If you speak in Tamlish or Banglish or Hindustani English, our

customers in England or America won't understand a word you are

saying," says Ravi Kiran,training head of PeopleOne Consulting,

addressing Nalini and 20 others crammed into a cabin in the BPO

pavilion at the Bangalore IT.com tech fair."But after the training you

get from us, you will be able to talk to anyone."PeopleOne is offering

a 10 per cent discount if you sign up for the training course right

now. It will also throw in a Timex watch for free.Mr Gowda, a graying,

state government health official is worried to the coreof his middle-class southern sensibilities. "It all sounds very good, I say," says Mr

Gowda with a frown. "But how will she come home at 4 a.m.?"After the

presentation, Nalini's face is flush with excitement. She echoes some

of her father's concerns, but she's clear about what she wants from the

BPO industry. "It will be difficult working at night,"sheSays,"but then

Idon't want to do this for more than two years."Within the infotech

sector, BPO is the rising star. Mainline IT firms held their own and

grew at a healthy 22 per cent in this year of international turmoil,

but India's BPO sector expanded at an astounding 67 per cent,helping


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western customers with everything from credit-card payments to starting

a newly brought computer. BPO is also hugely encouraged by governments

like Karnataka's because of its potential to employ thousands of ndia's

graduates who increasingly find work hard to come by. But in Bangalore

where southern conservativeness co-exists uneasily with the City's

global face, BPO's most critical resource 'people' is in very short

supply.According to estimates gathered by the Indian Express, Bangalore

needs more than 8,000 call-centre and other executives every month.

What's available is no more than 2,000."The work ethic, commitment and

education of the people here is a great,great skill," enthuses Andrew

Petersen, head of America Online (AOL), which in five months has gone

from a staff of six to 1,000. "But we need more of them." In July,

AOL's call centre in Bangalore got its first call from a suburban

housewife in Brooklyn, New York; it now serves any of the company's

35 million US customers.While raw graduates need to be expertly trained

- changed accents and names are just the start - the high-pressure

environment, repetitiveness, night shifts and cultural dislocation has

become a cause for big concern.

"Hari will become Harry, he will work this Diwali, and he will have a

holiday on July 4," says Ajit Issac, CEO of PeopleOne Consulting, which

is funded by JP Morgan Ventures. Yes, scarce venture-capital fundingfor tech in general isn't a problem for the BPO sector. "The impact of

western culture on the lives of employees, the disruption of personal

life and monotony are issues we need to address urgently."

Mr Issac suggests fun-at-work programmes, continuing education

unrelated to call- centre work and job enrichment, which implies

introducing employees to decision- making and leadership roles.

He notes that 20 per cent of Karnataka's 52,000 graduates would like to

consider a BPO career, but they would not like to stay for more than

two years on an average. "So from the start, they know they want to

leave."Indeed, the attrition rate in Bangalore BPOs nears 30 per cent,

though many companies report 60 per cent new workforce every year.

Mohan Kharbanda, vice-president of American computer giant Dell can

barely hide his excitement at the opportunities he's seen after coming

to Bangalore five months ago from the US. Apart from the popularly

known call centres, he explains how the BPO industry can do much more:

analyzing customer data,engineering requirements - and really, anything

else that a western company wants to outsource. Dell today has 32

shifts working concurrently in Bangalore. "People come and go all the

time," says Mr Kharbanda.Teams,trained and divided by geography, take

calls from the UK, US, Australia and Thailand. The niches in BPO are as

many as the entrepreneur can imagine.The sector has come a long way

from its birth four years ago as medical transcriptionists: converting

the dictated notes of American doctors to typed reports while they

slept.But the time-zone and cost advantage was negated by a gold-rush

mentality that gave the sector a bad name. It's recovered and boomedsince, thanks to some painstaking high-quality output. But cost is

still an overwhelming attraction - western companies can save as much

as 90 per cent - in setting

up a BPO in India. Everyone says it's a boundless market: $ 300 billion

worldwide, so India's frantic growth is still only just a drop, a very

tiny drop. Now, if only appa and amma understood.


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The country is fast becoming a hub of research centres. MNCs, seeing opportunity inthe wealth of human talent, have chosen India as their base for R&D activities.Where are these research centres sourcing their manpower from? Are they wooingstaff from Government-led research labs? Or are they looking at freshers from IITsand RECs? And, more important, how attractive is a research job compared to, say,a job in the corporate sector?

Business Line spoke to a few heads of research centres in the country to scan thepeople-profile at these centres.

How important is the brand name of the company in order to attract these researchscientists? And how are they wooed into the research arena? Says Dr R.K. Pachauri,Director General, Tata Energy Research Institute (TERI), ``While the brand namedoes pull research professionals into organisations such as ours, the institute,through a cautiously-built stimulating work environment, transforms them intosingle-minded environmental enthusiasts.''

Most MNC research centres offer the best of both worlds: the intellectually

stimulating atmosphere expected of an R&D centre and the compensation of acorporate in the private sector.

Astra Zeneca India Pvt. Ltd., a Bangalore-based pharma research centre, offers allthe advantages of an in-house R&D centre of a global pharma company. ``We are aresearch centre and, at the same time, belong to the industry and so we are able toattract the best people,'' says Dr. Kumud Sampath, Vice-President, BusinessDevelopment and Administration. In the late-1980s when Astra Zeneca was set up inthe country, ``We advertised for scientists and, believe me, we got responses till1995-96!'' she says.

On the other hand, TERI seldom advertises. It regularly receives resumes fromresearch professionals, including the best in the field.

But how keen are IITians and Ph.D.s from universities for a job at a research centre?Are they keen to pursue research in a good laboratory? Dr. P.J. Lavakare, formerexecutive director, US Educational Foundation in India and currently Consultant toGE and Lucent Foundations for their scholarship programmes, some of them evenopt for a smaller salary packet in return for major national projects. ``There is anincreasing tendency among MNC R&D centres to pick up Ph.D.s from our universitiesand IISc. Our young Ph.D.s may prefer that to taking up a teaching position.''

Young graduates lacking confidence of their ability to work hard and with demandingtargets -- which the industry normally likes to set -- generally take up a softer optionof joining a university or a government laboratory, says Dr. Lavakare. Also,

engineering graduates do not like to get into a research career unless they havedone their Ph.D. Most of them prefer an executive position in an industry.

He explains, ``They do not mind working rigid hours and are willing to be moreregimented and deal with jobs on the shop-floor.'' He also argues that researchopportunities for engineers are limited in India.


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At Astra Zeneca, however, there are several engineering graduates and Dr. Sampathsays, `Ìf their performance is good, they get the same designation that a Ph.D.gets. We now see that students are more focused and more pragmatic than ever.Many people see this as the stepping stone to success. There has been a bigtransition in the last 10-12 years. And the present lot have a better appreciation ofwhat they're getting at an R&D centre.''

At TERI, the HR department finds that freshers are most willing to join researchareas. Says Dr. Pachauri, ``We offer excellent learning opportunity. More thananything, there's operational freedom, research infrastructure, academic atmosphereencouraging ever `better' performance and actually experiencing the acceptance andsocial recognition of one's product as strong and perpetual incentive to be a part ofand grow within the institute.''

The opportunity for àction research', where researchers plan, research, developtheory, suggest a policy and frequently see the policy take the shape of acceptedscientific procedure, attracts freshers most to an industry R&D centre.

Do freshers have any hesitation in working for a research centre? Dr. Sampathreiterates that pharma research is a highly specialised industry and students areclear about their career path at the centre. ``Recently we advertised for molecularbiologists and about 20 students from IIT responded. All the three shortlistedcandidates had no hesitation in working at the research centre. That's because weoffer a good salary coupled with a good work environment.''

Private sector research centres often opt for campus recruitment and offer on-the-spot jobs, competing with their counterparts. They prefer major institutes such asthe IITs or the IISc and, these days, increasingly the regional engineering colleges.

DaimlerChrysler Research Centre India Pvt. Ltd., (DCRCI), a Bangalore-basedresearch centre belonging to the DaimlerChrysler AG Group based in Germany andthe US, is sourcing manpower locally. Most of them are from IISc and BITS, Pilani,says Dr. Wilfried G. Aulbur, Head, Business Development and Strategy. ``We have acritical mass of highly talented people and, except the director and I, the rest areIndians.''

Dr. Aulbur argues that while adequate compensation is important for employees,what keeps them with the company are: DCRCI's challenging research topics, itsglobal R&D for products of DaimlerChrysler AG, a strong identification with theparent company and its brands and opportunities for personal development andgrowth via new assignments, international projects and\or training.

Dr. Sampath says Astra Zeneca has a performance-based salary system. ``We

provide the latest equipment, different technology platforms, a great opportunity...these motivate our people. We have access to a huge chemical database. There arechallenges enough here.''

Is salary a constraint in the research area? Are R&D centres able to offer jobaspirants compensation much higher than what the industry offers? Dr. Lavakaresays, `Ìf we are talking of a person within the industry moving from a managerialjob to a research job, I do not think there would be such a sizeable salary difference.In fact, that can be easily protected within an industry by giving a suitable


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designation.'' The more important factor is their suitability for a research career. Ifyou are looking for people outside the industry, say educational or Governmentresearch labs, the industry always tends to offer more salary.

However, the so-called academics may not always like to get into industry, owing toits targets demanding and the uncertainty of a non-permanent job.

Dr. Pachauri emphasises that salary and work environment were constraints in mostresearch organisations earlier but, today, an excellent research environment andsuitable salary package are the norm.

What are the incentives for people to stay in research centres? Will the inherent flairfor research overweigh the monetary/perquisites consideration?

Heads of these R&D centres list some of the privileges that come with a researchjob: Job satisfaction emanating from publishing papers in research, invitations toaddress academic meetings, royalties from patents, occasional recognition forscientific achievements (possibly a Nobel prize?).

Then there are people motivated by the challenge of working in a hi-techenvironment. Aulbur asserts that DCRCI does global research for DCAG, ``Not low-end kind of work, but in encryption technology, automobile-related, aerospace-related, and IT-related areas.'' DCRCI offers R&D assignments for high technologyproducts such as the new S-class Mercedes-Benz cars or the new super Airbus, the A380. And all this at a competitive compensation, says Dr. Aulbur. A big motivatingfactor is that they have a strong identification with the parent company, DCAG.

At Astra Zeneca, it's ``a challenging research environment, freedom of actioncoupled with availability of continuously upgraded infrastructure''. This is what keepsits manpower from moving away, says Dr. Sampath.

When people jump from research centres, do they move to other similar set-ups ordo they succumb to the lure of the corporate world? Most of the time, they prefer tomove to work centres having similar kind of activities directed towardscommercialisation, though in some cases they move to industrial set-ups as well.Some research staff leave for higher studies encouraged by the intellectual andresearch environment.

Dr. Lavakare surmises, ``My guess is that people from research centres tend tomove up to the senior managerial positions or may become heads of other researchcentres.''

At Astra Zeneca, Dr. Sampath reveals, ``When people leave us, it's generally to abigger R&D centre such as Ranbaxy's or Reddy's Labs. The unit here is a small one.Though the challenges are there and the salary is one of the best in the industry, asone grows, the number of positions narrows down.''

What is the attrition rate in these R&D centres? At TERI, it varies between 9-15 percent. At DCRCI, Dr. Aulbur claims the attrition rate is very low and lies at about 5per cent. ``When we lose people, it is mostly because they want to pursue higherstudies either in India or abroad.''


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But thanks to the mushrooming of these private sector R&D centres, there is aserious crisis in national science agencies involved in atomic energy, space anddefence research, etc., as far as scientific manpower is concerned. They are notgetting fresh talent since they are not aggressively marketing themselves. Theirsalary structures are pathetic, rues Dr. Lavakare.

On the positive side, we find that young technocrats are fast becomingentrepreneurs and adding to the strength of the small-scale and medium-scaleindustry. This may be a good thing if the numbers are large. But for them to succeedwe must come up with attractive venture capital and other schemes to use theirtalent for the growth of our industry.

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Opportunities

Online courses help executives hone skills

THE ONLINE education revolution in America is beginning to take its root in

our part of the world. The Indian business world is embracing it with open

arms. It seems quite amazing that Indian business houses, which till now

were deemed to be quite laid-back compared to their Western counterparts,

are adapting to this new mode of training and development vigorously. It is

not only the IT industry, which has aficionados of online education; Industry

sectors as varied as petrochemicals, automotive and sanitaryware are having

their executives trained though this novel way.

It is not a pure coincidence that online education is making its foray into the

Indian industries. There is solid business rationale behind this development.

The burgeoning attrition rates in most industries are making the

organisations rethink their HR strategies. It is becoming a well-accepted way

to retain valuable talent by placating them through opportunities to acquire

higher qualifications and specialised skills. The conventional face-to-face

education does not meet their requirement as organisations cannot keep

their employees away from their mainstream activities for long duration.

Online training offers enormous flexibilities as employees can log on to the

Internet to access courseware anytime anywhere.

Employees are encouraged to use their free hours at home to pursue such

online courses. This format of learning is conducive to the employees, whohave itinerant lifestyles and can access the learning material wherever they

are at a given point in time. In many cases, these online courses are

customised to the unique needs of a particular industry by way of relevant

case studies, articles and discussion topics.

Enormous innovative improvements in Learning Management Systems

(LMSs), have contributed to the proliferation of online learning. These LMSs

have elaborate tools like announcement tool, assignment tool, discussion

boards, white boards, email, chat facilities and more. The interactive
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animations, quizzes and pop-up dialog boxes make the courseware lively and

interesting. The easy access and falling prices of broadband is fuelling growth

of this concept among corporate houses and individuals alike.

It is a misconception that the conventional face-to-face training offers more

interactions with participants and faculty compared to online training. Peoplehaving undergone online learning experience vouch that the interactions in

online courses are far more intense, authentic and pragmatic resulting in

deep learning. This is so because the asynchronous discussion boards allow

for reflective thinking about the postings made by fellow learners before

learners post their own views. The peer-to-peer learning is the hallmark of

online education even when faculty facilitates the online classes. The role of

the facilitator in online classes has been reduced to that of a `guide on the

side' rather than the usual `sage on the stage'. This results in an inclusive

learning environment, where every individual has an equal `say' in the class.

This is especially true when there is disparity in terms of age and experience

between learners in online classes. This is in complete contrast to the

conventional face-to-face classes in which a select few enthusiastic and

extrovert learners make their presence felt in the class by way of posing

questions and seeking responses from the professor.

Broad-band Internet has opened new vistas in online learning with the

advent of free of cost video-conferencing through freebie software like

Skype. This allows the learners to get in touch real-time with the faculty and

fellow participants. Many other software allow the instructor to deliver online

live lectures to a globally dispersed audience, who listen to the voice of the

instructor while simultaneously going through the presentations displayed on

their computer screens. It also allows the audience to pose questions (voice-

enabled) real-time to receive real-time response from the instructor. Many

software have rich features like real-time survey, remote control of any

distant participant's computer for any problem resolution. Online institutions

are also experimenting with cutting-edge technologies and concepts like

iPods, video streaming, video blogging and digital-story telling to bring in ahuman touch in the otherwise primarily text-based learning environment.

The conventional brick-n-mortar institutions are also prudently venturing into

the online learning space by way of joint ventures. India's leading business

schools like the Indian Institute of Management Bangalore (IIMB) and the

Indian Institute of Management Ahmedabad (IIMA) have tied-up with the

some pre-eminent online institutions. These initiatives would certainly help

these institutions in their vision of extending their reach to the global

audience.

Another factor, which goes in favour of online training, is the cost-benefit

ratio. Most activities happen in textual format. Corporate houses organising

such training for their staff can always revisit the ongoing or archived onlineclasses to know exactly what kind of learning experiences their delegates

have in the training programmes. This seldom happens in conventional face-

to-face training, in which most activities are verbal, resulting in hardly any

tangible evidence of the experience of the participants. This unique feature of

online training helps the organisations to review the training imparted more

factually and accordingly initiate modifications to fine-tune it further for

future batches of learners. India is the front-runner in embracing this

innovative pedagogy after the US, where it is now well ensconced in the

mainstream higher education.


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This development is a testimony to the changing outlook of the Indian

industry in the post-liberalisation and globalisation era. It also epitomises the

leading role the Indian corporate sector is bracing itself for playing in the

global arena in the times to come.

KANISHKAHere are a few observations I would like to make.

When does employee turnover become problematic?

There is no set level of employee turnover above which effects on the

employing organisation become damaging. Everything depends on the type

of labour markets in which you compete. Where it is relatively easy to

find and train new employees quickly and at relatively little cost (ie

where the labour market is loose), it is possible to sustain high

quality levels of service provision despite having a high turnover

rate. By contrast, where skills are relatively scarce, where

recruitment is costly or where it takes several weeks to fill a

vacancy, turnover is likely to be problematic from a management point

of view. This is especially true of situations in which you are losing

staff to direct competitors or where customers have developed

relationships with individual employees as is the case in many

professional services organisations.

Some employee turnover positively benefits organisations. This happens

whenever a poor performer is replaced by a more effective employee, and

can happen when a senior retirement allows the promotion or acquisition

of welcome 'fresh blood'. Moderate levels of staff turnover can also

help to reduce staff costs in organisations where business levels are

unpredictable month on month. In such situations when business is slack

it is straightforward to hold off filling recently created vacancies

for some weeks.

Measuring employee turnover

Most organisations simply track their crude turnover rates on a month

by month or year by year basis. The formula is simply:

Total number of leavers over period x 100 divided by

Average total number employed over period

The total figure includes all leavers, even people who left

involuntarily due to dismissal, redundancy or retirement. It also makes

no distinction between functional (ie beneficial ) turnover and that

which is dysfunctional.

Crude turnover figures are used by all the major surveys of employee

turnover, including the major CIPD and CBI surveys that are carried out

each year. So they are necessary for effective benchmarking purposes.

However, it is also useful to calculate a separate figure for voluntary

turnover and to consider some of the more complex employee turnover

indices which take account of characteristics such as seniority and

experience.


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A stability index indicates the retention rate of experienced employees.

Like turnover rates, this can be used across an organisation as a whole

or for a particular part of it. The usual calculation for the stability

index is:

Number of staff with one or more years service x 100 divided by

Number employed a year ago

Costing employee turnover

It is possible to compute a 'not less than' figure very easily by

working out what it costs on average to replace a leaver with a new

starter in each of your major employment categories. This figure can

then be multiplied by the crude turnover rate for that staff group to

calculate the total annual cost of turnover. The major categories of

costs to take account of are:

* administration of the resignation

* recruitment costs* selection costs

* cost of covering during the period in which there is a vacancy

* administration of the recruitment and selection process

* induction training for the new employee.

Many of these costs consist of management or administrative staff time

(opportunity costs) but direct costs can also be substantial where

advertisements, agencies or assessment centres are used in the

recruitment process.

More complex approaches to turnover costing give a more accurate and

invariably higher estimate of total costs. A widely quoted method

involves estimating the relative productivity of new employees during

their first weeks or months in a role and that of resignees during the

period that they are working their notice.

Why do people leave organisations?

Employees resign for many different reasons. Sometimes it is the

attraction of a new job or the prospect of a period outside the

workforce which 'pulls' them, on other occasions they are 'pushed' due

to dissatisfaction in their present jobs to seek alternative

employment.

Sometimes it is a mixture of both pull and push factors. For a fourth

group reasons for leaving are entirely explained by domesticcircumstances outside the control of any employer, as is the case when

someone relocates with their spouse or partner.

Recent research strongly suggests that push factors are a great deal

more significant in most resignations than most managers appreciate. It

is relatively rare for people to leave jobs in which they are happy,

even when offered higher pay elsewhere. Most staff have a preference

for stability.


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It is important to appreciate that the reasons people give for their

resignations are frequently untrue or only partially true. The use of

exit interviews is widespread yet they are notoriously unreliable,

particularly when conducted by someone who may later be asked to write

a reference for the departing employee. They are reluctant to voice

criticism of their managers, colleagues or the organisation generally,

preferring to give some less contentious reason for their departure.

attrition 115

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