Feature

Is attrition always bad for an organization?

Sudipta Dev finds out the difference between desirable and undesirable employee turnover.

While organizations lament the challenges that they have to constantly encounter as a consequence of employee turnover, the truth is that all attrition is actually not detrimental for an organization. It is in fact a myth that every time an employee walks out of the door, the organization suffers. Some attrition is desirable and necessary for organizational growth and development. The point is how to differentiate between what is commonly known as “good attrition” from “bad attrition”. It is a thin line, which is not always easy to understand.

It benefits an organization when certain employees leave, whose continuation of service would have negatively impacted productivity and profitability of the company. There are also some people who have a negative and demoralizing influence on the work culture and team spirit. This, in the long-term, is detrimental to organizational health. On the contrary, when the departure of certain employees creates a setback (most often temporary) in terms of work continuity and progress, is commonly considered bad attrition. The time and investment lost in hiring and developing these people along with the cost of finding a replacement and bringing him up to the productivity level, all come at a high price.

The term “healthy attrition” is used to signify the importance of less productive employees voluntarily leaving the organization. Vikram Bhardwaj, Managing Director, Redileon executive search believes that the criteria is performance. “In the performance analysis of the ones who have left, if the proportion of high performers leaving is higher, the attrition is not good or healthy. Plain numbers and attrition figures do not signify anything without a deeper analysis of the above,” said Bhardwaj.

Benefits of healthy attrition

Desirable attrition also includes termination of employees with whom the organization does not want to continue a relationship. It can be through resignation or by employer. The significant question is: how does healthy attrition benefit an organization? Dr J K Nair, COO and Executive VP, California Software Company, lists a few advantages:

• Removes bottleneck in the progress of the company
• Creates space for the entry of new talents, external as well as internal
• Helps planting “ambassadors” in the ecosystem who can have a positive impact on the growth of the organization
• Assists in evolving high performance teams

It also sends a necessary message to the other employees that there is no place for incompetence. “Typically when you walk out people, you are setting an example. Certain things are non-compromising. Deadwoods in any organization have a debilating impact on people,” stated Arun Rao, VP-HR, AppLabs. These are the people who are not able to scale their performance as per expectations, lack potential for future or need disciplinary action. Furthermore, as the rewards are limited, business pressures do not allow the management to over-reward the performers, but when undesirable employees leave the company, the good employees can be given the share that they deserve.

There is also a flip side to the situation—the fact that good attrition is a pointer to the failure of the existing system and processes in the organization in hiring the right employee, grooming and training him to be a productive worker. NR Ganti, Chairman and Managing Director, SQL Star International, asserted that any attrition in any form is bad for an organization. “It means that a wrong choice was made at the beginning,” he pointed out. The only plus point is that the realization has initiated action that will lead to cutting loss.

Analyzing the impact

Productivity and profitability are both impacted, either negatively and positively, according to the type of attrition. Even good attrition is indicative of loss as recruitment is a time consuming and costly affair. “It is tantamount to investment that has gone astray. Having said that, good attrition minimizes the adverse impact on business while bad attrition accentuates the loss,” stated Nair. The cost of hiring is sometimes not less than two to three times the salary of the employee.

The impact on work progress is tremendous, particularly if a project is underway and one of the key people leaves. “It leads to dip in entire organizational efficiency, and a lot depends on how it is able to cover the setback,” pointed out Rao.

Organizations should execute top of the line retention policies in the right earnest and consistency. They should be more employee-centered and look for further ways to “bond” employees to their companies. “Company performance is optimally aligned to the skills its employees possess. High attrition implies that certain necessary skills are vulnerable or are not present due to employees being lost. This results in lower than optimal levels of business performance. If the skills are constantly not available, the situation gets compounded into a crisis with key projects, revenues, etc., getting affected. Business is then reduced to just managing crisis,” added Bhardwaj. For example, a 2 percent attrition difference can make a significant difference in the ultimate business impact.

Managing the problem

There is no sure-fire solution to control attrition. The only way out is to manage it well. This can be done by having cautious hiring with proper systems and processes in place to ensure that only the right talent is inducted into the company. Those found lacking in particular skills or competence should be informed of the expectations from them and put through a training process. Continuous skills upgradation opportunities should also be provided to good employees for their growth and development. “Career management, ESOPs, increments, rewards, and ambience are significant retention measures,” said Ganti, reminding that both kinds of attrition are unhealthy for business. When productive people leave it is understandably bad, but even when desirable attrition happens (after crossing six to seven months), it definitely impacts the business. It is loss of opportunity and investment gone badly.

Consequently organizations like Calsoft have tried their best to ensure that attrition is kept below the industry average. “Today an employee is clear on his needs and what he wants out of the job. This makes the function of employee life cycle management more critical and one that requires more attention and focus. By carefully tuning and aligning employee aspirations with the company’s overall objectives, to a large extent, attrition can be substantially reduced,” stated Nair.

Constant analyses of the causes that lead to employee turnover will go a long way in curbing the problem from the root stage. The top management should continuously focus on the issue and implement effective recruitment and retention measures.

sudipta.dev@expressindia.com