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Report on attrition rates of bpo and ites


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Report on attrition rates of bpo and ites

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  • 1. “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 amplechances for advancement, and flexible schedules so they could attend topersonal or family needs when necessary. And never leave.But then theres the real world. And in the real world, employees, do leave,either because they want more money, hate the working conditions, hatetheir coworkers, want a change, or because their spouse gets a dream job inanother state. So, what does all that turnover cost? And what employees arelikely to have the highest turnover? Who is likely to stay the longest?Defining Attrition: "A reduction in the number of employees throughretirement, resignation or death"Defining Attrition rate: "the rate of shrinkage in size or number"Attrition is beginning to significantly affect offshore ROI. Just as businessesfaced a scarcity of talented IT resources during the dotcom era, organizationsin offshore countries such as India are experiencing similar pains. Skilledemployees are hopping from job to job and taking with them the customerknowledge and technical expertise that any company needs. Their salariesare increasing, along with their perks, benefits, and bonuses. 1________________________________________________________________________
  • 2. Projectsformba.blospot.comDefining the attrition problemGlobal outsourcing and the astounding amount of foreign direct investmentpouring into China, Russia, and India have created tremendous opportunitiesand competition for talented IT professionals in those countries. Thedownside 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 ratesbetween 7.6% and 17.7%. Vendors that we have interviewed place thenumbers much higher, at 25%–60%, while an April 2005 BusinessWeekarticle estimated an attrition rate of 60%, with some India service providersexperiencing up to 80% turnover.To put these attrition numbers into perspective, if a company has 100programmers and an attrition rate of 25%, then 25 of its IT staff will leaveeach 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 startingthe hiring and training processes anew.How do the hiring and training processes break down in terms of total costsin India? The typical time for advertising, interviewing, screening,negotiating, and hiring a new employee is about two weeks. Companiesusually allot one week for programmers to become familiar with the newbusiness, two more weeks for technical training, and one last week forcustomer training. Now imagine a 25% attrition rate and replacing 25 ofthese programmers each year. Based on a yearly salary of $15,000 for thehuman resource person and $25,000 for the programmer, it would cost anadditional $63,000 annually in acquisition and employee training costs. After 2________________________________________________________________________
  • 3. Projectsformba.blospot.comconsidering these figures, it quickly becomes apparent why companies areinvesting in strategies to prevent attrition.Reasons for attritionIt is not easy to find out as to who contributes and who has the control on theattrition of employees. Various studies/survey conducted indicates that everyone is contributing to the prevailing attrition. Attrition does not happen forone or two reasons. The way the industry is projected and speed at which thecompanies are expanding has a major part in attrition.For a moment if we look back, did we plan for the growth of this industry andanswer will be no. The readiness in all aspects will ease the problems to someextent. In our country we start the industry and then develop theinfrastructure. All the major IT companies have faced these realities. If youlook within, the specific reasons for attrition are varied in nature and it isinteresting to know why the people change jobs so quickly. Even today, themain reason for changing jobs is for higher salary and better benefits. But incall centers the reasons are many and it is also true that for funny reasonspeople change jobs. At the same time the attrition cannot be attributed toemployees alone.• Organizational matters:The employees always assess the management values, work culture, workpractices and credibility of the organization. The Indian companies do havedifficulties in getting the businesses and retain it for a long time. There arealways ups and downs in the business. When there is no focus and in theabsence of business plans, non-availability of the campaigns makes people toquickly move out of the organization. 3________________________________________________________________________
  • 4.• Working environment:Working environment is the most important cause of attrition. Employeesexpect very professional approach and international working environment.They expect very friendly and learning environment. It means bossism; rigidrules and stick approach will not suit the call center. Employees look forfreedom, good treatment from the superiors, good encouragement, friendlyapproach from one and all, and good motivation.• Job matters:No doubt the jobs today bring lots of pressure and stress is high. Theemployees leave the job if there is too much pressure on performance or anywork related pressure. It is quite common that employees are moved from oneprocess to another. They take time to get adjusted with the new campaignsand few employees find it difficult to get adjusted and they leaveimmediately. Monotony sets in very quickly and this is one of the mainreasons for attrition. Youngsters look jobs as being temporary and theyquickly change the job once they get in to their own field. The other option isto move to such other process work where there is no pressure of sales andmeeting service level agreements (SLA). The employees move out if there arestrained relations with the superiors or with the subordinates or anyslightest discontent.• Salary and other benefits:Moving from one job to another for higher salary, better positions and better 4________________________________________________________________________
  • 5. Projectsformba.blospot.combenefits are the most important reasons for attrition. The salary and offeredfrom MNC companies in Bangalore, Delhi and Mumbai have gone up veryhigh (Rs 15000 to Rs 18000 per month) and it is highly impossible for Indiancompanies to meet the expectation of the employees. The employees expectsalary revision once in 4-6 months and if not they move to otherorganizations.• Personal reasons:The personal reasons are many and only few are visible to us. The foremostpersonal reasons are getting married or falling in love or change of place. Thenext important personal reason is going for higher education. Most of the BE,MCA and others appear for GATE examination or other examinations andonce they get cleared they quickly move out.Health is another aspect, which contributes for attrition. Employees do getaffected with health problems like sleep disturbances, indigestion, headache,throat infection and gynecological dysfunction for lady employees. Employeeswho have allergic problems and unable to cope with the AC hall etc will tendto get various other health problems and loose interest to work.• Poaching:The demand for trained and competent manpower is very high. Poaching hasbecome very common. The big companies target employees of smallcompanies. The placement agencies have good days for doing more business.The employees with 4-6 months experience have very good confidence anddare to walk out and get a better job in a weeks time. Most of theorganizations have employee referral schemes and this makes people to 5________________________________________________________________________
  • 6. Projectsformba.blospot.comspread message and refer the know candidates from the previous companiesand earn too.• Employee’s advocate: One of the main reasons why employees leave companies is because ofproblems with their managers. An HR professional can be termed anemployee’s advocate and a bridge between top management and employees atall levels. There is a huge gap between HR professionals and employees interms of understanding challenges and delivering requirements. HR has notreally understood the problems associated with employees’ careers and jobs.The company’s overall plans and strategies also depend on HR professionalsas they voice employees’ problems and requirements. The HR departmentshould have genuine interest in the employees’ welfare…it is responsible formaking sure that their expectations are met. By doing this it is easier to meetthe company’s business targets. 6________________________________________________________________________
  • 7. Projectsformba.blospot.comHandling attrition?Earlier the retention was the sole responsibility of HR Department and at themost the department heads will be accountable for the retention of talent. Incompanies the wheels have changed and multi dimensional approach needsto 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 theleading companies are trying several methods to retain the talent and few ofthose innovative HR practices are: (based on a survey)• Providing stimulating work environment:In terms of stated work pressure, only 17% have claimed ‘light pressure’. Thismay point to a reasonably high-pressure environment in conventional terms,not realized as most respondents have no other industry experience. Theatmosphere at the workplace however, was generally positive. Almost halfworked more than 45 hours per week. 7________________________________________________________________________
  • 8.• Free transport and free food:Majority of the breaks were for meals and there were no significant problemsfaced in taking the breaks.Almost 2/3rd employees travel more than 10 kms to work everyday. This is ahuge strain on quality time available with the family and ostensibly resultsin stress in numerous ways compared with other industries. The root cause isthat most BPOs are located outside the city as government lands have beenallocated to the MNCs at better rates there. 8________________________________________________________________________
  • 9. Projectsformba.blospot.comAlthough 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 forcommute. 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 thequestion implying that conditions are created such that all probably arecoerced into working overtime. The oppressive part was further that as highas 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. 9________________________________________________________________________
  • 10.• Good pay and benefits:A huge 58% of starters are dissatisfied with their promised packages vis-à-visdelivered salary. 10________________________________________________________________________
  • 11.• Other practices include:- Promotions and salary increase on a regular basis.- Better learning opportunities, Encourage enroll for distance learningprogrammes.- Regular holiday packages, gifts, outings etc.All the above activities are being undertaken to a greater extent or little morein all large Companies. Surprisingly the attrition rate is not coming down inany of the companies, but it is going up and it may increase in the comingdays. This is a time to introspect as to what is lacking in the approach. Onething is missing is attention to individual needs. Employees have variedexpectations and it is becoming difficult to understand them and by the timeyou make an attempt to understand the expectation changes and it is stillbecoming difficult to meet the customized demands or expectations. To quotean example, if a friend leaves, another close friend will also leave and he willlure another 3-5 persons. Moving for higher education and marriage are the 11________________________________________________________________________
  • 12. Projectsformba.blospot.commajor reasons for attrition. To tackle these will be impossible with any typeof strategies and approaches. The HR personnel have become silentspectators and start hunting for new personnel to replace.The broader approach is to bring sanctity in the recruitment process likedemand the relieving letter from the previous company, have non-hireagreements with the companies in the particular area. It is not easy to bringthe entire company under a forum. Nasscom has attempted to bring outcertain guidelines on the matter and the impact is not felt yet. The MNCculture, high salary level and benefits offered by them are the only two majoraspect 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 attitudesrelevant to understanding organizational and cultural requirements andneeds of people in relation to motivation and leadership. The understandingof individual differences that Insights provides is fundamental to improvingcommunication, 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 personalpreferences or triggers of each individual - including issues that cause stress.In essence, Insights can bring about a closer relationship between employeeand manager to enable both parties to better adapt, connect and understandone another.An employee may be highly competent but his or her style may be differentfrom that of the direct manager. The "Value to a Team" section of an Insightsreport provides crucial information to a manager who tends to evaluate allemployees against one set of standards. Insights can help managers recognize 12________________________________________________________________________
  • 13. Projectsformba.blospot.comthe value and uniqueness of each persons contributions then reward themaccordingly.Insights also serve as a communication vehicle for discussions about anemployees current and future interests. Insights help managers andemployees better identify what values (needs) are most important to eachindividual and how these values impact the persons attitude towards work.Values can range from an employee feeling stable and secure to someoneenjoying challenge.The Insights Discovery System is a powerful workforce enhancement tool. Itcan:- Enhance the effectiveness, commitment and retention of an incumbentworkforce though increased understanding of human behavior- Motivate and retain employees whose basic monetary and material needsmay 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 employeecommitment and productivity.How to save high attrition rates? 13________________________________________________________________________
  • 14.• 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 thetechnology boom lifts and the employment market opens.From the employers perspective, employees are an investment. Youinterview to make sure an individual has good work ethic, motivation, anddrive. Most of the time, employees are considered a financial investment. Yettheres much more to it than that. There is a significant emotionalinvestment that is crucial to accelerating business strategies and reachingorganizational goals.You probably know someone who owns an outdated, overused vehicle butwont entertain the thought of trading it in even though they can afford toupgrade. Why, you might ask, do they keep it? Well, the owner has probablyinvested substantial time, money and care into keeping it in top condition,not to mention the dependability that has taken them to countless doctorsappointments, baseball practices and events. It seems senseless to throw itaway. The cost of replacing the vehicle would be enormous compared to thecost of upkeep on the old one. Even with inanimate objects, we becomeaccustomed to personality and quirks and develop a common trust.When this same logic is applied to employees, we find the cost of replacingemployees comparable to that of investing in a new automobile. Recruitment,hiring, benefits and administrative costs put an organization upside down onthe investment. 14________________________________________________________________________
  • 15. Projectsformba.blospot.comThankfully, companies have come to realize that keeping employees is morecost-effective than replacing them. Retaining valuable employees has otherbenefits - retaining the vault of knowledge thats been accumulated, skillslearned and trust and relationships they have built with customers and co-workers.• People Are Not Easily ReplacedEven though todays pool of unemployed workers is deep, organizationschoose to spend more time and resources on retaining existing employeesthan starting from scratch. Yes, there are financial reasons behind this focuson retention. However, there are many other contributing factors such as theeffect attrition has on customer service, corporate culture and employeemorale and loyalty. All these factors can and will be effected by turnover.Basically, when good people leave an organization they take their trainingand knowledge and often times, relationships with them.• Drivers of TurnoverTurnover is often driven by corporate restructuring and tight competition forkey talent. For many firms, surprise employee departures can have asignificant effect on the execution of business plans and may eventually causea parallel decline in productivity. This phenomenon is especially true in lightof current economic uncertainty and following corporate downsizing when theimpact of losing critical employees increases exponentially.When managers or supervisors are asked why good people leave, mostrespond, "It’s about money." Or, they dismiss the departure matter-of-factlyby stating the employee "received a better offer." Contrary to popular belief, 15________________________________________________________________________
  • 16. Projectsformba.blospot.comresearch indicates that money is not even on the list of top five reasonsemployees give when asked why they are leaving an organization.When viewed from the employees perspective, a healthy organization is onein which people are generally satisfied with the quality of their work life. Onmost days they feel good about going to work. They feel empowered to helpshape decisions that affect them, they have the resources and skills to satisfycustomer needs and they are generally confident in the abilities of theleadership team.From the organizations perspective, the organization is healthy if it is viableas measured by profitability, competitive market position and customersatisfaction. A healthy organization also responds well to the need for change;it is adaptive and thereby ensures its future - meaning that following a majorupheaval or transition, the healthy organization rebounds and employeesremain committed.Bottom line, it is the role of the manager, that most influences an employeesdecision to stay or depart from an organization. People will leave if they dontlike their manager - even when they are well paid, receive recognition andhave a chance to learn and grow. In fact, disliking or not respecting the bossis the primary reason for talent loss. Research shows the reasons foremployee departures are (in descending order):1. Employee/manager relationship2. Inability to use core skills3. Not able to impact the organizations goals, mission4. Frequent reorganizations; lack of control over career5. Inability to grow and develop6. Employee/organization values misalignment 16________________________________________________________________________
  • 17. Projectsformba.blospot.com7. Lack of resources to do the job8. Unclear expectations9. Lack of flexibility; no whole life balance10. Salary/benefitsIt is very important to know that the above factors are often NOT the onesmentioned in most attrition studies published by individual organizations.Additionally, this information does not match the data frequently obtainedduring an employees exit interview when asked about the reasons fordeparting. The rationale behind this discrepancy is that exit interviews arefrequently conducted by the departing employees manager or HR manager,hindering honest responses. Typically, employees are hesitant to tell thesecompany representatives the truth for fear of burning bridges or getting abad reference. 17________________________________________________________________________
  • 18. Projectsformba.blospot.comHow to curb attrition?• Money is not everythingAlthough the importance of higher packages is slowly diminishing, amongfresher or laterals with less than three years of work experience, money isstill considered to be the highest priority. Employees want not only workrecognition, but also extra perks." A number of professionals are looking atmore challenging jobs. "In several cases, faced with a choice between moremoney and a challenging job, employees have opted for the latter as it allowsthem to learn new technology and increase domain expertise." People analyzethe training programmes of prospective companies with those of their currentorganization, which means that how an organization grooms an employee isweighed 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 inbetter compensation. They also look for a job with higher levels ofresponsibility, better learning opportunities.• Vision and objectives The next level of communication, a crucial part of retention, startswith acquainting employees with the company’s vision and objectives.Organizations successful in retaining employees clearly pass on their goalsand achievements. Conducting regular meetings and updating employees,especially new entrants, about the company’s status and achievements is amust.” They should concentrate on leadership and brand building as peopleprefer to be associated with a brand. Respect for the job should be created byBPOs. The youth should feel proud to be a part of the billion-dollar industry. 18________________________________________________________________________
  • 19. Projectsformba.blospot.comMentoring and handholding new recruits from day one to four months areimportant tasks; during this period, they should be familiarized with theculture of the company. It is at this time that new entrants experiment withdifferent options. Hence they should be exposed to the best values thecompany has.” If they are informed about regular happenings in thecompany, employees will be confident about the future and not try to look forbetter options.• Treat employees like CustomersEven while companies strive to understand which organizational, job, andreward factors will contribute to holding back employees, industry expertshave found several loopholes at the top management and HR managementlevel. Companies should have a similar approach to employees andcustomers. If a company strives to retain an employee in the same way ittries to retain a customer, him leaving the organization could be out ofquestion.Since software professionals have different priorities at different points oftime, organizations need to structure their offer-mix while recruiting newhires, as well as promoting potential ones. Communication is the foundationfor the entire process of managing attrition. This communication begins rightfrom recruitment. In cases of peer pressure, an employee aims to join a well-known company. This could be achieved by brand building, which attracts theright talent and helps in retention as well.Understanding an employee’s needs at various levels is a recommended HRpractice. 19________________________________________________________________________
  • 20.• FiringSometimes, firing can look like attrition. Looking at firing and attritiontogether in a different light, firing can be an excellent tool to containattrition. Attrition can simply be defined as employee leaving his current jobdue to reasons like, job pressure, health problems, personal reasons,inefficient boss, lack of job security etc. All the above reasons are interlinkedand can be the reasons for good workers to quit. If the team has under-performers who despite given sufficient support and training is unable toperform, but they continue to be part of the team damage the morale of theteam. 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 resultsin health problems. Having frequent health problems not only reduces hisperformance, but also affects him financially. At this juncture, the performerrealizes that he is working with an inefficient manager who is not capable of“cleaning up” the team by firing non-performers. With the above, theperformer employee feels insecure and resigns. Firing non-performers can bean efficient tool to contain attrition.• Consider feedbackIt is important to take feedback from employees through different means andwork with the HR department to iron out differences. As industry expertspoint out, feedback can be got in two ways—during the employee’s tenure,and through exit interviews. Inputs can be secured from existing employeesthrough various employee relationship management tools. The Wipro Listensand Responds initiative at Wipro aims to capture the concerns andgrievances of its employees. “The feedback we get through this tool will be 20________________________________________________________________________
  • 21. Projectsformba.blospot.comanalyzed, and action will be taken on it. Our employees are very excited thattheir feedback is being taken seriously,” says Sahoo. Exit interviews helpmanagement learn the reasons why employees leave the company; based ontheir revelations, the organization can address the problems of existingemployees, thereby curb attrition.• Spend Time Developing and Benchmarking IncentivesWhenever the demand for a professional in a particular field heats up, theperks 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 workexperience) typically include free transportation, educational assistance,healthcare benefits, performance-based bonuses, onsite cafeteria, stockoptions, and interest-free loans to absorb the cost of relocation or maybe tofinance the purchase of a two-wheeler. According to Wipros web site, itsemployees even have access to an agency that will handle such "domesticchores" as paying bills, thereby giving IT workers more free time.An important part of designing incentives is aligning them with marketbenchmarks. As far as salaries, HR firm Hewitt Associates reports that Indiashowed 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 sawwages jump by 6.4%–6.8%. Salary increases for middle managers in Indiawere even more dramatic: Nasscom, Indias software association found thatsalaries for middle managers rose by as much as 30% in the last two years.These salaries are often paired with expansive benefit packages that includestandard entry-level benefits as well as special services such as help findingand buying a home or enrolling children in school. 21________________________________________________________________________
  • 22. Projectsformba.blospot.comCaptive centers and IT service providers have to offer innovativecompensation and benefits—or risk losing valued employees to competitors.Nonstop evaluation and benchmarking are "need to do" activities for ITmanagers.• Subsidize Education and CertificationIn the United States, many companies reimburse employees for advanceddegrees or certifications that relate to their area of expertise. Until recently,the opposite was true in India, but that trend has begun to change asbusinesses have discovered that a significant portion of their attritionproblems stem from employees leaving to pursue a masters degree. Severaloffshore service providers have teamed with universities to offer theirworkers management-level masters courses at a subsidized rate, andwatched attrition rates drop as a result.For example, Cognizant Technology Solutions, an IT service firm with 17,000employees, partially reimburses Indian staff that pursues masters degrees atBITS, a higher-education institution located in Pilani, India. Businessprocess outsourcing (BPO) player 24/7 Customer, in association with theIndian Institute of Management Bangalore, launched a management-education seminar series called "Beyond Knowledge," through which 24/7aims to educate employees about the BPO industry and discuss relatedcareers. Multiple providers have followed the lead of Cognizant and 24/7.In several offshore countries, advanced degrees are considered crucial tosocial standing. Its important for U.S. firms with little internationalexperience to recognize this desire among employees and design programsaccordingly. 22________________________________________________________________________
  • 23.• Change LocationsThe high prices and resource crunch in top-tier Indian cities such asBangalore and Mumbai have led many companies to execute alternativelocation 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. Suchbenefits come at a price: The infrastructure quality lags that of moreadvanced cities, and the search to find qualified people may take longer.Another option to combat the rising attrition rates in India is to locate inother countries. Sykes Enterprises, for example, disclosed that it is relocatingthe customer contact management work at its Bangalore, India, facilitybecause the center delivered an inadequate return and a limited competitiveadvantage. The Tampa-based company thinks the work is better suited forthe other Asia-Pacific offshore centers in its portfolio, such as China. Sykesexpected to incur total charges of approximately $0.8–$1.5 million for its planto relocate work.• Rotate EmployeesEmployees who dont feel challenged by their work often leave. In response,companies such as TCS have programs that rotate employees into differentdisciplines about every two years and expose them to new locations, projects,and technologies. L&T InfoTech, a software solutions provider with 4,000employees and six development centers in India, has implemented a similarprogram.Offshore employees are asking for a clear career path with increasedresponsibility and frequent recognition of achievement. Established U.S. and 23________________________________________________________________________
  • 24. Projectsformba.blospot.comEuropean multinational companies have long had learning programs that setexpectations for performance goals such as learning a particular tool orproprietary software. Companies practicing off shoring need to provide newchallenges and opportunities for skills development through training or jobrotation. It may become the only reason your best employees stay with you.• Combat Poaching by Encouraging ReferralsRather than going through a prolonged posting process and screening adeluge of résumés, some companies poach employees directly from theircompetitors and offer to double salaries or buy out contracts on the spot toscale up quickly. Poaching is generally a bad idea, as it drives up salaries anddiscourages employee loyalty.An employee referral program can serve as an alternative and effectiverecruiting strategy. Satisfied employees can be a companys best sales tooland 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-plusemployees found that referrals constituted 23% of new hires. For somecompanies, the number was even higher, at 40%. The study also observedthat 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 toperiodically survey employees —hopefully before their exit interviews—aboutjob satisfaction issues, and act on the data gathered. The aim is to determinewhy some employees depart and some remain with the company, and todefine the traits of productive, successful employees. Many companies 24________________________________________________________________________
  • 25. Projectsformba.blospot.comexamine the reasons employees leave, which dont reveal as much as thereasons they stay.An important aspect of implementing a retention program understands thatit should not be one-size-fits-all. If incentives are meant to keep employeeshappy, then they truly have to be designed with the employee in mind. Toooften, employers and employees disagree on what constitutes a goodincentive. For example, a company might reward a father with three youngchildren a monetary bonus as thanks for working overtime for five monthsstraight. 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. Theglobal workforce has different, individualized needs, and organizationsshould tailor incentives for their employees if they want to retain them. Ifyour company doesnt bother, dont be surprised if workers head for the dooras soon as year-end bonuses are handed out or stock options vest.• Spend More Time RecruitingWith huge projects ramping up within exceedingly short windows, it can behard to convince management to allot more time to the recruiting process.However, its difficult to retain good employees if the company doesnt have aprocess to hire the right people in the first place. Simple measures, such asincorporating skills tests that relate directly to the job in question, can helpcompanies to determine whether the applicant is indeed an expertprogrammer or merely an intermediate programmer. Having employeesinterview candidates also may increase the chances of success, as theseemployees can better identify potential personality clashes that HR personnelmay not spot. 25________________________________________________________________________
  • 26. Projectsformba.blospot.comCosts of TurnoverThe impact of employee turnover on company performance is oftenunderstated by organizations. This describes how the cost of turnover is canbe calculated using some basic organizational parameters. The purpose ofthis document is to provide talent cost of turnover calculator with insight intohow costs are calculated and the reasons why certain costs were include orexcluded form the calculator. The calculator should only be used as a guide inunderstanding the impact of turnover on a company. If the desire is tounderstand the true cost of turnover then it is suggested that a greaterdegree of analytical work is undertaken.The key areas used in the calculation of turnover are:• Administration and sourcing costsThese include the administration of the termination and recruitmentfunctions together with the costs associated with interviewing, testing andattracting applicants.• New Hire costsOnce a person has been employed an organization generally spendssignificant resources in the induction and administration of bringing theminto the organization. 26________________________________________________________________________
  • 27.• Lost productivityThe hidden costs associated with lost productivity of employees prior toleaving the organization and new less skilled employees are one the largestcomponents of the total cost associated with turnover.• Dysfunctional and avoidable turnoverDetermining the level of dysfunctional and avoidable attrition provides aperspective on the scope of control that a company has to manage theirturnover costs. Determining the cost of turnover is the first step in theprocess of developing a management plan. To deal with an attrition issueeffectively the reasons for turnover and an understanding of thedemographics of turnover need to be understood.Undoubtedly, the financial costs of turnover have attracted the attention ofacademics and practitioners alike. Besides the more familiar costs associatedwith the administration of terminated employees the economic costs such asproductivity losses need to be included in any calculation. In particular,departure of employees - especially experienced or talented ones - maythreaten overall firm productivity or client retention. Furthermore, personnellosses may endanger the firm’s future opportunities in the marketplace or themorale of their remaining work force. Human resource accounting expertsCascio, Hom and Griffeth define exit expenses as having two maincomponents - direct and indirect costs. A company incurs both direct andindirect costs that result in losses in production dollars and overallproduction volume, as well as increased administrative costs. Direct Costsare actual dollars spent each time an employer has to attract, select, andinduct a replacement for an employee who leaves the organization. Indirect 27________________________________________________________________________
  • 28. Projectsformba.blospot.comcosts are those expenditures attributable to turnovers affects on production -that is costs for incomplete or disrupted work, loss of quality, etc.The cost of turnover can be calculated by measuring the time taken toadminister each activity plus the direct costs such as advertising costs. Theturnover costs calculated using the calculator represent dollars spent. Thepotential loss of revenue if these dollars were invested elsewhere or throughlost productivity is not calculated. Therefore, the figures are an indication ofthe minimum costs that the organization is subjected to when an individualleaves the company.• Administration & Sourcing costsThe most visible cost of turnover is incurred by organizations in the area ofrecruitment administration and sourcing. The time associated withprocessing terminated employees and recruits places a burden onorganizations where staff turnover is excessively high. The assumption isthat this is largely an administrative task conducted by people at 80% of theaverage company salary. In addition the direct costs to a company forrecruitment 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. 28________________________________________________________________________
  • 29. 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 administer and as such need to be factored into the overall attrition costs. 29________________________________________________________________________
  • 30. 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 HireThe two costs measured in this area are the administrative tasks associatedwith inducting a new hire into the organization and the associated inductiontraining. When measuring the cost of attrition sometimes the total cost oftraining that an individual has received whilst in the employment of anorganization is included. However, as all learning undertaken by employeeswill be used back on the job an add value to the business it is inappropriate tocount it as a cost of attrition. Also, where particular jobs have high training,often there is a corresponding lower rate of pay which acknowledges theinvestment that the organization is making in the individual, eg. Youthwages. One aspect of training directly associated with turnover, however, isthe induction of new staff to the organization. High staff turnover willnecessitate greater levels of resources being made available to induct newemployees. It is the opportunity costs of these resources that must also becalculated.1. Induction AdministrationThe process of induction into an organization can involve a substantialamount of time. The activities included here would include the processing ofnew hires into organization systems (HR) and introductions to fellowemployees. 30________________________________________________________________________
  • 31. 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 LossesThe most detrimental aspect of staff turnover is lost productivity. Evidencehas found that leavers often miss work or are tardy before they depart. Deeryand Iverson argue that according to progression-of-withdrawal models theproductivity of leavers may deteriorate before they depart.Turnover is commonly viewed as belonging to a family of withdrawalbehaviors that physically distance employees from unpleasant work settings.Serving a common psychology function, withdrawal actions reduce the timespent in an adverse environment and thus reduce job dissatisfaction.Studies have shown that employees leaving a company will have a greaterlevel 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 31________________________________________________________________________
  • 32. Projectsformba.blospot.comresigning from the organization. Not only does staff take more sick leave butHom and Griffeth state that their overall productivity decreases as well.Furthermore, resignations may disrupt other employees’ work if their workdepends on the leavers or they must assume the leavers’ duties.The second effect of loss of productivity occurs when new hires join theorganization. They will not have the networks, understanding oforganizational processes or product/service knowledge to be effective. Studieshave shown that a new hire will generally take between 3- 8 months tobecome effective in their new role. The longer period is associated with moresenior roles.• Excluded costsNot all the costs associated with turnover have been included in the i4attrition calculator. Costs that cannot be accurately measured or assumedhave been excluded. These costs, although hidden, may be the most critical interms of organizational impact. Examples of hidden costs are included belowto highlight the organizational impact of attrition.• Employee DemoralizationTurnover may erode the morale and stability of those who remain employed.Their morale suffers because they lose friends and may interpret motives forquitting 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 resultstayers may denigrate their present position in the light of superioralternatives and begin contemplating other employment. This phenomenonmay lead to a cycle of attrition whereby employees leaving a company promptother to do the same. 32________________________________________________________________________
  • 33.• Impaired Quality of ServiceTurnover also hinders the delivery of service and retention of customers.Attrition among service personnel impairs customer service becauseunderstaffed branches delay or withhold service. Unlike experienced leavers,new employees may also provide less competent or less personalized servicebecause they do not know the clients and can’t meet customer expectationsthrough lack of knowledge and experience.If satisfied employees make customers feel well treated, disgruntledemployees may provide careless service before they leave. Turnover alsointerrupts the transmission of service values and norms, which are theessential underpinnings of high quality service, to successive generations ofemployees. Customers perceptions, attitudes and intentions seem to beaffected by what employees’ experience, both in their specific role of serviceemployees and their more general role of organizational employees. It hasbeen found that there is a high correlation between employee turnover andcustomer turnover. Therefore, the cost of decreased customer satisfaction andloyalty should be taken into account when considering staff turnover.• Turnover reason & cost impactJust as attrition can lower productivity, incur financial costs, and underminestayers morale, turnover can have the opposite ramifications under certaincircumstances or for certain firms. That is that the exit of marginalperformers may improve overall firm productivity, while new replacementsfor leavers can infuse companies with new ideas and technology. Thoughturnover is obviously costly, personnel shrinkage - especially amongadministrative staff - can nonetheless reduce overhead costs. Further 33________________________________________________________________________
  • 34. Projectsformba.blospot.comresignations may create more job and empowerment opportunities foremployees who remain in firms.• Functional and Dysfunctional TurnoverDeparting from conventional beliefs, some academics point out that turnovercan prevent stagnation and complacency, facilitate change and innovation,and displace poor performers. Turnover is not inherently negative. Althoughit creates personnel costs, the organizational consequences of turnover aredependent on who leaves and who stays. The departure of good performers isconstrued as dysfunctional turnover - representing a loss to the organization -for their replacements are likely to be of lower caliber. The departure of poorperformers is viewed as functional turnover - because they are apt to bereplaced by better performers. Research into whether high performers or lowperformers leave tends to have found mixed results. A meta-analysisconducted by McEvoy and Cascio found that generally it is the poorperformers that will leave their place of work. There are two possibleexplanations for this: firstly, terminated staff has on average a lower tenurethan current staff and so have not had the time or opportunity to develop theskills necessary to perform well; or the current performance managementsystems which exist are encouraging high performers to stay and poorperformers to quit.• Avoidable and UnavoidableFurther differentiation should occur between organizationally avoidableturnover and organizationally unavoidable turnover. For example,organizations cannot control (that is, it is unavoidable) turnover caused by anemployees death, or by an employee’s quitting to follow a relocating spouse. Itis important to identify carefully those exits that are avoidable and those that 34________________________________________________________________________
  • 35. Projectsformba.blospot.comare unavoidable. After all, leavers whose departures are unavoidableresemble stayers more than they resemble the leavers whose departure isavoidable; they do not resign because they are unhappy with their jobs or theorganization.Despite the appeal, determining whether exits are avoidable or unavoidablemay prove difficult because employees may falsify reports of their reasons forleaving, 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 acompany has no control over these events and can therefore not put in placeaction plans to minimize the negative consequences of staff turnover. 35________________________________________________________________________
  • 36. Article - ‘Attrition at Call Canters’The evolving BPO industry has got the perplexing issue ofmanaging human resources, says BHIMA RAOAttrition of employees in the call centre industry is mind-boggling and it iscreating havoc for the industry and especially for the HR department. Theattrition rate varies from minimum 30 per cent to a maximum 90 per cent perannum. 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 newindustry like telecom, retail stores, banking etc. Who has to introspect, howmuch responsibility should be borne and are we collectively contributingdirectly or indirectly for the attrition.Attrition is not a new problem and it has existed earlier and will continue toexist in any industry. But there is a limit for every thing. The call centerindustry is new and every one is in a great hurry to make some thing or dosome thing, become someone in the sun rise industry. The government,promoters, management team, employees, consultants, media and so manyothers play a major role in developing any new industry and extend helpinghand for stabilization and finally growth of the industry.Our country is fortunate to be identified as one of the best places for BPO andthe beginning is really good. Now the growth of BPO industry is mainlydepending on the cost effectiveness and quality of the manpower. All otherfactors are being taken care by the government through liberalized laws,providing infrastructure like telecom and we are best in the IT. The costeffectiveness will depend mainly on controlling the running cost and quality 36________________________________________________________________________
  • 37. Projectsformba.blospot.comis dependent on the manpower employed. Attrition of employees increasesthe cost of recruitment and training. It has impact on maintaining the qualityand competent manpower to meet the standards set by internationalcustomers.• Four reasons why youngsters quit BPOsWhat drives young people to quit call centres and data processing units asfast 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 invarious BPO firms tried to pinpoint the reasons that make young peoplebetween the ages of 22 and 26 shuffle jobs in months. They wereparticipating in a seminar on key HR issues for the BPO industry inBangalore 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 MphasisBPO Services chief human resources officer Manab Bose.2. High aspirations that the industry cannot meetBPO employees have high aspirations. They want to see wealth in thislifetime and have low respect for authority. This is because most BPOemployees have immense family support.3. Good talent is prone to poachingICICI OneSource President and CEO Raju Bhatnagar said the pulls of themarket (poaching by competitors) cannot be countered easily. BPO firms try 37________________________________________________________________________
  • 38. Projectsformba.blospot.comto pick the best talent, he explained, and good talent is prone to be poached orto shifting jobs. He suggested that firms should instead look at the averageperson, train and retain him/ her for the longer haul.4. Employees face pressure at home and at workPhilips Software CEO Bob Hoekstra felt BPO employees are in a piquantsituation, having to handle pressure both from their customers and at home."There is an enormous conflict in age group [ in terms of the fact that]youngsters are serving mature customers, and they are prone to makemistakes," he said. 38________________________________________________________________________
  • 39. Projectsformba.blospot.comCase Study - Ill never work at a call centre again! Subhash Mukherjee | November 18, 2004The BPO/ITES sector is only expected to grow larger, and more profitable,over the next few years. Most young people are eager to jump on the money-making BPO bandwagon.But is working for a BPO all that its made out to be?No, says Subhash Mukherjee (name changed on request), who recentlyquit 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 foran 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 wouldbe waiting. There was no time for me to even say a few words to the personsitting next to me. After five hours of constantly answering calls, I would geta 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, mythroat started to hurt terribly. I paused to take a breath and, in the process, Imissed a call. The calls that are directed to us were constantly monitored by a 39________________________________________________________________________
  • 40. Projectsformba.blospot.commachine. Immediately, it alerted my supervisor to the fact that I had misseda 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 theother end of the line hangs up without getting a response. The red bar is anindication that I did not take the call -- that the call was not live. At thatmoment, I just wanted to pick up my bag and leave. Permanently. Instead, Istayed 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 quitthis job with its inhuman pressures and its lack of empathy for employees.Workplaces like this have only one goal -- to make money. This job expectsyou to work even if you are feeling ill; even if your throat hurts. You cannottake even a 10-second break; the dialer throws calls at you continuously andyou have to start pitching (taking them) immediately. If you do not respondto the person at the other end of the line, s/he might hang up. That shows onyour machine. You have to ask for permission to go to the toilet. Often, yourrequest is denied by your supervisor.You repeat the same five sentences 350 times a day. Isnt it pathetic?When I started out, there was no pressure. Gradually, though, the stressgrew beyond the levels of human tolerance. Working at the call centre was agreat learning experience for me. Now, it was time for a break. When Iworked, I had no time to watch a film, no time to read a book, no time to meetfriends, no time to swim. For the last few months that I worked at the callcentre, I had time only for two meals a day. As a result, I lost my appetite. Iwould return home at 2.30 am and go to sleep at 4 am. I would get up at noonand go back to work at 3.30 pm. Now that I have quit, I can go out with myfriends. I can spend time rediscovering myself. With the approximately Rs 65 40________________________________________________________________________
  • 41. Projectsformba.blospot.comper hour that I made, I can buy a few books and have some fun. Maybe thatwill take away the pain that came with this job. But, believe me; the moneycould in no way make up for the pain!Ill never work at a call centre again. Nothing is worth the ordeal I wentthrough. 41________________________________________________________________________