Attrition & Retention: A Predictive Model

Attrition & Retention: A Predictive Model
(Behavioral explanation on employee turnover & retention)
WHITE PAPER
Author:
Santanu Basu

 Wipro Ltd. Page 2 of 15
Abstract:
This work is aimed at identifying causal factors of attrition & retention and to
produce a predictive model that could help to plan reduced attrition and
increased retention at management level. This study is triggered due to high
attrition scenario in BTO. Key points of this work are
 Attrition & Retention are mutually exclusive, having different set of
factors
 A combination Herzberg’s Dual Factor Theory of Motivation, Hackman
& Oldham’s Job Characteristic Model and ASA frame work helps best to
model the current attrition in the industry.
 There are 8 set of factors which explains attrition and 4 set of factors
which explains retention
A combination of Employee Motivation, Employee Satisfaction, Employee
Involvement & Life Interest and Work Compatibility ensure prolonged
association of an employee to an Organization.

Table of Contents
1. Attrition: Growth Impediment to the Industry……………………………….4
2. Attrition Scenario in BTO & Objective .......................................................... 5
3. Literature Review............................................................................................. 6
4. Attrition Factors............................................................................................. 10
5. Retention Factor............................................................................................. 12
6. Modified Hackman & Oldham's Job Characteristic Model........................... 13
7. Basic Models for Attrition & Retention ........................................................ 14
8. References...................................................................................................... 15

Attrition: Growth Impediment to the Industry
FY2012 stands out as a landmark year – while the Indian IT-BPO industry weathered uncertainties in the global
business environment, this is also the year when the industry is set to reach a significant milestone – aggregate
revenue for FY2012 is expected to cross USD 100 billion (NASSCOM).
Within Software and services exports, IT services accounts for 58 per cent, BPO is nearly 23 per cent and
ER&D and Software Products account for 19 per cent (NASSCOM).
The industry continues to be a net employment generator - expected to add 230,000 jobs in FY2012, thus
providing direct employment to about 2.8 million, and indirectly employing 8.9 million people (NASSCOM).
The industry’s share of total Indian exports (merchandise plus services) increased from less than 4 per cent in
FY1998 to about 25 per cent in FY2012 (NASSCOM).
NASSCOM actually estimated $220-280 billion of business opportunity for BPO export by 2012 and a stretch
target of $50 Billion export revenue (2.5% cont. to GDP) was set for the industry. One of the possible
impediments to this phenomenal growth, forecasted in parallel was lack of talent pool. Forecasted shortage of
0.8-1.2 million entry level graduates which may be further accentuated by the competition from domestic
Retail, Insurance, Telecom, Banking & BPO industries as the advantage of paying higher salary at the entry
level is getting eroded.
Software and services revenues (excluding Hardware),
comprising nearly 87 per cent of the total industry
revenues, expected to post USD 87.6 billion in FY2012;
estimated growth of about 14.9 per cent over
FY2011(NASSCOM).
Within Software and services exports, IT services
accounts for 58 per cent, BPO is nearly 23 per cent and
ER&D and Software Products account for 19 per cent
(NASSCOM).
The industry continues to be a net employment generator
- expected to add 230,000 jobs in FY2012, thus
providing direct employment to about 2.8 million, and
indirectly employing 8.9 million people (NASSCOM).
The industry’s share of total Indian exports (merchandise
plus services) increased from less than 4 per cent in
FY1998 to about 25 per cent in FY2012 (NASSCOM).
 ‘Aspiring Minds’ National IT/ITeS Employability
Study, 2012, shows that only 38.2% of fresh
graduates are employable in BPO
 Close to 3 million graduates every year in India
 Banking sector & it’s DSAs along with Retail &
Hospitality sectors are equally good pay master for
fresh graduates. These sectors are also growing at
equally good pace.

Inadequate talent pool coupled with an attrition rate of 55% posing threats to cost competitiveness & differential
maturity advantage of Indian BPO over the other competitors like Philippines, China & Sri Lanka
Dealing with lack of employability needs lot many stake holders to get involved and though a needed step,
definitely a lengthy one to show improvements.
Attrition one the other hand is a controllable factor within the industry itself hence it is essential at this point to
understand employee turnover from causal perspective to find out the contributing factors and to come out with
a strategy to manage it in a way which could provide advantage in terms of cost, efficiency, and Customer
satisfaction.
Attrition Scenario in BTO:
From April, 11 to April 12, account BTO had an attrition count of 250 which is nearly 50% of the total work
force. Scenario of people leaving at so high rate posing challenges in terms of loss of return over investment to
hire, lost opportunity cost, loss of revenue. All of these are impacting the top line and bottom line both. Below
is the derived hard cost per attrition for an account having strength of 20 billable FTE, billable @ 40 GBP/day
with a hiring lead time of a month and two months training period before the billing starts (GBP to INR @ 76).
This gets even worse when customer starts panicking of losing efficiency and process knowledge.
Objective of this work is to produce a model which explains employee turnover in relation with prevailing
external & internal environment, indicates key contributing factors to help to formulate attrition control and
retention strategies.
Literature Review:
Though details are available around the tenure and system given high level reasons, we lack insight with respect
to demography and actual reasons due to unavailability/inaccessibility of details like findings of exit interviews
etc. Hence most of the work was done through literature review and other research works already done in this
field. The literature review was extensive in the field of ‘Behavioural Science’ and ‘Organizational Behaviour’.
Though there are pre-existing theories explaining various factor of work motivation, one which incorporates all
the aspects to predict attrition and retention was difficult to find. Moreover there could be industry wise
variations in the possible outcome with uniqueness of industries. BPO being a very new industry it was felt to
have some reference exclusive to the industry. Also it was felt to check the viability of the existing theories in
the Indian context as most of the researches done in this field in Western Context. Two empirical researches
done in India, (one exclusive to BPO with 500 respondent in NCR region, in the year of 2008, and another in

labour industry with close to 1500 respondent) were picked up to add the contextual as well as the empirical
aspects of this work.
Though the field of ‘Organizational Behaviour’ emerged during Second World War with the practice and
findings of Behavioural Science getting embraced in the industries, attempt of explaining human behaviour has
its root way back to Hedonism of ancient Greece, which described human behaviour as rational, conscious &
deliberate attempt to avoid pain and discomfort & to secure comfort and pleasure. The journey goes through the
thoughts of Freud’s addition of unconscious behaviour to Content and Context theories of work motivation. All
of the modern work in this field postulates from the fact that there is a motive to every action. Motive is a felt
need and human behaviour is directed to satisfy the felt needs. Work motivation theory evolved through
Maslow’s need hierarchy and developed in broadly two groups of thoughts, content and process. It is difficult to
ascertain a single model as most effective as all of them are drawn from one perspective or the other. Moreover
empirical research to provide proofs of effectiveness should be taken in to the consideration. Hence focus was
to identify the work which is closest to describe the problem in consideration and valid in terms of empirical
research already done. Herzberg’s Dual Factor theory (1950) is one such. It was formulated through a study
done in 1950 on the accountant and the engineers in and around Pittsburgh. He used critical incidental method
while collecting the data. People surveyed were asked to narrate one incident each from their work – life
experience when they particularly felt happy and unhappy.
According to Herzberg, there are ten maintenance or hygiene factors. These are company policy and
administration, technical supervision, interpersonal relationship with supervisors, interpersonal relationship with
peers, interpersonal relationship with subordinates, salary, job security, personal life, working conditions and
status. These are not intrinsic part of a job, but they are related to conditions under which a job is performed.
They produce no growth in a worker’s output; they only prevent losses in worker’s performance due to work
restrictions. These maintenance factors are necessary to maintain at a reasonable level of satisfaction in
employees. Any increase beyond this level will not provide any satisfaction to the employees; however, any cut
below this level will dissatisfy them. As such, these are also called as ‘dissatisfiers’. Since any increase in these
factors will not affect employee’s level of satisfaction, these are of no use for motivating them.
Along with those he identified factors which are capable of having a positive effect on job satisfaction often
resulting in an increase in one’s total output. Herzberg (1959) includes six factors that motivate employees and
labeled those as ‘motivators’. Those are achievement, recognition, advancement, works itself, possibility of
growth, and responsibility. Most of these factors are related with job contents. An increase in these factors will
satisfy the employees; however, any decrease will not affect their level of satisfaction. Since, these increase
level of satisfaction in the employees; these can be used in motivating them for higher output.
Herzberg maintains that potency of various factors is not entirely a function of the factors themselves. It is also
influenced by the personality characteristic of the individuals. From this perspective, individuals could be
classified into two segments, motivation seekers and maintenance seekers. The motivation seekers generally are
individuals who are primarily motivated by the ‘satisfiers’ such as advancement, achievement and other
factors associated with work itself. On the other hand, the maintenance seekers tend to be more concerned
with factors surrounding the job such as supervision, working conditions, pay, etc.,
Herzberg concluded that job satisfiers are related to job content and that job dissatisfies are allied to job context.
Herzberg labeled the satisfiers motivators, and he called the ‘dissatisfiers’ as hygiene factors. The term
‘hygiene’ refers (as it does in the health field) to factors that are preventive; in Herzberg’s theory the hygiene
factors are those that prevent dissatisfaction. Taken together, the motivators and the hygiene factors have
become known as Herzberg’s (1959) two-factor theory of motivation or dual-factor theory of job satisfaction.
This theory seems to build on the Maslow’s theory that a satisfied need is no longer a driver. Lack of Job
Satisfaction could be identified as the primary motive explaining employees turn over and can be simply
defined as the feeling employees have about their job. The works around Job Satisfaction predicts that a
satisfied employee will produce more quantitative and qualitative output and will remain close to the
organization and propose reduction of the likelihood of absenteeism and employee turnover.

A more recent work in this field is Hackman & Oldham’s job characteristic model (1976).
This postulates that there are five core job characteristics (skill variety, task identity, task significance,
autonomy, and feedback) which impact three critical psychological states (experienced meaningfulness,
experienced responsibility for outcomes, and knowledge of the actual results), in turn influencing work
outcomes (job satisfaction, absenteeism, work motivation, etc.). The five core job characteristics can be
combined to form a motivating potential score (MPS) for a job, which can be used as an index of how likely a
job is to affect an employee's attitude and behaviour. The motivating potential score (MPS) can be calculated,
using the core dimensions discussed above, as follows
Jobs that are high in motivating potential must be high on at least one of the three factors that lead to
experienced meaningfulness, and also must be high on both Autonomy and Feedback.[17] If a job has a high
MPS, the job characteristics model predicts that motivation, performance and job satisfaction will be positively
affected and the likelihood of negative outcomes, such as absenteeism and turnover, will be reduced.
Another Dimension to employee turnover can be observed through ASA framework proposed by Schneider
Schneider (1987) asserted that “the people make the place” and that organizational culture, climate and
practices are determined by the people in the organization. This theory is closely related to psychology. This
Schneider (1987) asserted that “the
people make the place” and that
organizational culture, climate and
practices are determined by the people
in the organization. This theory is
closely related to psychology. This
theory is part of the socialization
process, new members in organizations,
according to the framework, fit in a
specific organization.

theory is part of the socialization process, new members in organizations, according to the framework, fit in a
specific organization.
In an updated ASA frame work in 1995, Schneider mentioned that not only the person is particularly important
in the organizational context and added the dimension that the people are responsible for the structure,
processes and culture of the organization.
According to him, attributes of people, not the nature of external environment, or organizational technology, or
organizational structure, is the fundamental determinant of organizational behaviour’. The people are functions
of an Attraction-Selection-Attrition cycle.
Attraction: People are differentially attracted to careers as a function of their own interests and personality
(Holland, 1985). Other signs of attraction are researched by Tom (1971) and Vroom (1966). They have stated
that people search environments that fit by their personality and that people would like to obtain their outcomes
by selecting a specific organization.
Selection: Organizations select people who they think are compatible for many different kinds of jobs. In that
way organizations end up choosing people who share many common personal attributes, although they may not
share common competencies.
Attrition: The opposite side of attraction. When people do not fit an environment they tend to leave it. When
people leave the environment a more homogenous group stays than those were initially attracted to the
organization.
Implications of the model are:
1) The difficulties of bringing change in organizations: Organizations have great difficulty when trying to
change, because they not contain people with the appropriate inclinations. When the environment changes an
organization will not be aware and probably not be capable of changing.
2) The utility of personality and interest measures for understanding organizational behaviour: It is difficult for
an organization to apply these topics for individual employees, who all have different compatibilities. This
model makes it clear that reaching conclusions for the best structure more information is needed on the kinds of
people working in the organization.
3) The genesis of organizational climate and culture: climate and culture are not easily defined in an
organization, most often they exist when people share a common set of assumptions, values and beliefs.
4) The importance of recruitment: on personnel selection is paid a lot of attention. Surprisingly, on personnel
recruitment, in which way the vacancies are communicated, is not paid much attention.

5) The need for person-based theories of leadership and job attitudes. The research on this area is depressing
according to Schneider (1987). It is believed that the attitudes of people are created by the conditions of the
work place.
Literatures reviewed to identify the uniqueness of BPO industry. A comprehensive sociological study done on
the BPO industry in 2006 on the BPO employees located in and around Bengaluru, and a similar one done in
2004 covering Noida geographically were closely followed for this purpose and the below findings can be
highlighted in this context.
1. Most of the workforce in the industry is very young, over 80% less than 25 years old.
2. Study showed that the gender ratio is even however another report from NASSCOM states that
industry wise gender ratio is actually reversed as 31 men to 69 women.
3. Most of the workforce are from local lower middle class & middle class urban background and at least
graduates.
4. Fathers of 70% of the employees surveyed were executives or managers in public or private sector,
govt. officers, professionals or in business, 21 % are employed in lower level white collar (clerical) jobs or blue
collar jobs while 9% are self-employed. No one reported agriculture as father’s occupation.
5. 58% of fathers were graduates or above, 38% had completed 12th or 10th, only 1 reported not
completed 10th.
6. Identity of the workforce is more individualistic than collective.
7. Nature of work is more controlled and specific hence creates monotony.
8. Management control over the work and process is pan optical.
All three theories discussed so far form the theoretical frame of reference to explain attrition in this work and
empirical data out of the research works mentioned earlier now reviewed in reference to the theoretical
framework. The outcome was then structured to predict a reliable model to explain attrition from causal
perspective, which can be used as an effective tool to formulate strategies basis the uniqueness of the industry to
tackle the challenge.
Findings:
The research on the leather industry proves that the work motivation theories, Herzberg’s Dual motivation
factor theory in particular, holds valid with moderate changes in the factors (salary found out to be a motivator
and not a hygiene factor). The study on the BPO industry reveals that Job Characteristic model, moderated with
redefined job dimensions to include the extrinsic factors can explain attrition and retention very well when
combined with the personal characteristics. Employee Motivation, Employee Satisfaction, Employee
Involvement & Life Interest and Work Compatibility are the determining factors for prolonged association of an
employee to an organization.

Some of the interesting facts came out from both the research work are
• Attrition and retention are mutually exclusive, they are not opposite sides of the same coin
• Opposite of Job Satisfaction is No Job Satisfaction
• Opposite of Job Dissatisfaction is No Job Dissatisfaction
• As attrition and retention have separate and discrete set of factors, need is to have two models
explaining attrition & retention exclusively.
Attrition:
A set of eight factors could be identified as causes of attrition, each could be further sub divided.
Low Self Fulfillment, Mystified Career Path & Unfavourable Working Conditions came out to be non-
significant in general. These factors were further tested for demographic variation, although all these factors
proved to be significant some variances with across the demography could be observed as below.

Low Perceived Value is the most significant sub-factor. It had been observed that the gap between actual level
and expected level of employee motivation is growing at equal pace as the industry.
New employees join the
industry with excitement
(because of high salary &
vibrant work culture) which
results in higher level of
motivation. However this soon
gets faded out and the gap
between actual and expected
level of motivation increases as
the employee spends time in the
industry.
This causes a vicious cycle of
employee turnover. With the
increasing motivational gap,
perceived value even gets
lowered causing and results in
lower efficiency which in turn
makes the employees unable to
deliver and quit the job this
even lower down the perceived
value. This explains why 50%
of the employees who quit,
leave the industry as well. The
low perceived value of these
employees also creates an
attitude of taking the BPO jobs
as stop gap for the future
employees.

Retention:
A set of four factors could be identified to be influential to retention, each could be further sub divided.
Employee Motivation, Employee Satisfaction, Employee Involvement & Life Interest and Work Compatibility
are the determining factors for prolonged association of an employee to an organization. These factors were
further tested for demographic variation, although all these factors proved to be significant some variances with
across the demography could be observed as below:

Basis the above observations a modified version of Hackman & Oldham’s Job Characteristic model can be
build which could act as theoretical frame work on which the basis management tool can be built separately for
attrition & retention factors.
Modified Version of Hackman & Oldham’s Job Characteristic Model:
Basic Model for attrition:

Basic Model for Retention:
Involvement vs. Intrinsic Motivation: Effect on Employee Retention
In short term, focus should be on conscious retention practices for STRUGGLERS & DISGRUNTLED
quadrants however with the increase of involvement practices eventually all the 4 quadrants will be covered.
ASA frame work proposes that People get ‘Attracted’ to the career as a function of their abilities, interest &
personalities & Organizations ‘Select” basis the Organizational Need. Once selected employees over the time
find themselves either ‘Fit’ in the prevailing organizational culture or ‘Attrite’. This process forms a cohort
group of ‘Fit’ people within the organization. Though communication is easier within this cohort group
however in the long term this group fail to cope up with the external environmental changes and become a
resistance factor for any internal change initiative.
Hence though we could have more predictability on the retention probability of an employee if we try to find
out if the employee would be ‘Fit’ while ‘Selection’, it may, in the long term, adversely impact required
diversity. Hence it is also essential to ensure to have periodical inflow of fresh thoughts and ideas in group of
specific number of people, while planning retention.

References:
Employee Attrition and Retention: Exploring the Dimensions in the urban centric BPO Industry (Santoshi Sen
Gupta)
Dual Factor Theory of Motivation: A Replication in Indian context (Dr. Mohammed Galib Husain & Dr.
A.Thirupathy)
WORK, CULTURE, AND SOCIALITY IN THE INDIAN IT INDUSTRY: A SOCIOLOGICAL STUDY
(Carol Upadhya & A.R.Vasavi)
ASA FRAMEWORK: AN UPDATE (B. Schneider, H.W.Goldstien & D.Brent Smith)
Do People Make the Place? An Examination of Attraction-Selection-Attrition Hypothesis (Robert.D.Bretz Jr.
Ronald.A.Ash, Gregory F. Dreher)
NASSCOM-EVEREST INDIA BPO STUDY (Roadmap 2012-Capitalizing on the Expanding BPO Landscape)
National IT/ITeS Employability Study (aspiringminds).

Attrition & Retention: A Predictive Model

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