Analyse Staff Turnover, Its Cost and Effects on the Business and Develop Strategies to Improve Retention.

Analyse staff turnover, its cost and effects on the business and develop strategies to improve retention. Subject: Human Resource Management MGT 201 Student Name: Brenda Lai (YUN-CHU LAI) Student Number: 00038680T Lecturer: Alison Knight Staff turnover, or labour turnover, is a percentage of a number of employees that leave a firm in a period of time. Reasons for leaving can be voluntary, such as resignation, relocation to another company or any other personal reasons that cause the employees unable to continue the job.It may also be involuntary such as being terminated due to poor job performance, absenteeism or violation of work policies. Companies that have too low or too high turnover rate are generally inefficient and low-productive. Firms that have high turnover rate will have an overall decreasing in competency and productivity because the frequent replacement of workers as well as increasing in costs. However, it is not necessarily true that the lower the turnover rate, the b etter for the business. Businesses that have very low turnover rate could result in a tiring, inactive and demotivating work environment.As employees form the backbone of every organization, it is critical for managers to analyse the causes for high or low turnover rate, develop retention practices and maintain a steady, satisfied workforce. Turnover costs for many organizations are high and can have significant impacts on the financial performance of an organization. Turnover costs can be categorized into two kinds, direct costs and indirect costs. Direct costs include recruitment, selection and training of new employees, expense of advertising positions, and costs of temporary replacement of employees.Indirect costs, which refer to loss of efficiency and productivity, can be caused by a variety of reasons such as inefficiency and lack of experience of the newly appointed employees, breakage of tools caused by mishandling of equipment by new employees, lack of cooperation and coord ination between old and new employees, costs of increased supervision and support for the new employees, the time used for reading resumes and interviewing the candidates. The costs mentioned above are only general ideas that can be found in most businesses, however turnover costs can vary from different industries.For example, as a sales company, losing one sale could mean losing more than one important client at the same time. If the business is service-based, employers need to make sure they keep key employees. If employees leave, the company can face serious problems due to lack of professional services resulting in high staff turnover which could cost the business more than anything else. Smart companies pay attention to retaining of employees and minimize the act of turnover, which will then be discussed more in details in the following paragraphs.In a human resource perspective, for most organizations the goal is to lower staff turnover, maintain consistency in the workforce and train more skilled employees. High staff turnover can be costly to the business financially and also create problems internally. Internal problems include low employee morale, low employee royalty and stressful employees. This can then lead to decrease of productivity and efficiency. On the other hand, companies that have a low staff turnover rate are generally more productive and successful. (This is not an assumption; low voluntary turnover might sometimes be a negative for organizations.Details will be discussed at the next paragraph. ) Reasons being are that the employees trust each other, respect their leaders and feel a sense of belonging while working in the company. Employees in a positive and motivated work environment are normally more loyal and willing to dedicate their personal energy to the job. In addition, an organization that offers a better payroll system compared with others with similar jobs is likely to have lower turnover rate. Companies that offer satisfyin g bonuses and incentives tend to entice their employees to stay longer.Another reason for companies that have low turnover is that they help the employees to see the career benefits that lie ahead for them to achieve. Ultimately people search for settlement and a long-term career that helps to reach their goals. Therefore a well thought out career plan for employees is always a good way to keep them engaged. For instance, most hotels offer management training programmes for employees who have worked in the establishment over 1-2 years. It encourages employees who desire a long-term career goal to remain, and to continuously dedicate their skills to the hotel.Hotels also offer department transfer opportunities for employees who have been in the firm over 6 months or 1 year. By doing so, the hotel can keep the workers that are loyal to the company, and reducing some of the costs of training if they are transferred or promoted to or within a similar department. Overall a low staff turn over means a more productive, positive and efficient work environment and in some cases, successful business. It is important for companies to keep the staff turnover rate down, however according to Dr.John Sullivan who is an expert in recruitment management says that from his experience, voluntary turnover rate below 4% is not a good sign and should be taken into serious discussions by the company. (Dr. J. Sullivan, 8/8/2011, Final Thoughts, http://www. ere. net/2011/08/08/a-low-turnover-rate-could-mean-that-you-have-ugly-employees/). The article says that a low voluntary turnover rate could at the same time mean the employees in the firm are unskilled therefore seemed unattractive to other competitors or unambitious to seek external jobs.A very low voluntary turnover could sometimes be caused by inactive management or a lack of courage to terminate unsuitable employees. It is also crucial for companies to receive exit or a post-exit interview for feedback from departing employees. With almost no circulation in human resource, companies will find it difficult to understand its problems that could cause failure of the business. Companies that have zero or very low voluntary turnover rate is like a stagnant pool of water, with no fresh and clean water coming in, implying lack of new ideas, skills and competitive intelligence that are brought in by new employees.It is always good to recruit on a regular basis. Having skilled new employees input can make the current employees feel threatened and having to compete with them, as a result of creating a motivated and competitive environment. Eventually the lazy and unambitious employees will be forced to leave. Well-managed companies with exceptional management and retention practices generally maintain low voluntary turnover rates, but higher involuntary rates to keep development processes running and avoid talent decay.One of the key ways to prevent high employee turnover is to instill in them a sense of belonging, loyalty and commitment. The following are some ideas to accomplish this. Initially, human resources or recruitment managers want to ensure they recruit the â€Å"right people†. The right people meaning candidates who share similar values, principles and goals with the company. This ensures long-term employee loyalty and retention, because they have the commitment before they start working in the organization. Secondly, providing employees with opportunities for advancement help them to view what they will be in, in the following years.Most employees feel motivated if they have clear vision of what potential positions are available for them in the future at a higher level. To value employees’ voice and contribution and give them praise, helps to build up trust and loyalty between employers and employees. Thirdly, companies with a well-developed compensation package create a favorable environment for employees. The package should include variety of pay scale, incentives , bonuses, welfare and benefits. Additionally, leveling the workload and being flexible with working hours have become a critical issue for employers to look at.Employers should recognize the quality of work life is getting more important for employees. Most importantly, having an exit interview is always a good way to find out the reasons why employees leave and issues that should be addressed to reduce a high staff turnover. Retention practices assist organizations to keep their key employees from leaving to work for other competitors and maintain a healthy turnover rate. To develop a retention strategy, managers firstly need to understand the reasons why people leave. It can be environmental or motivational problems.Low performers tend to leave more often than high performers. However high performers could also leave due to lack of promotional opportunities, training or recognition for effective performance. By implementing exit and post-exit interviews can help managers to under stand what employees need and things they can improve on. Job satisfaction plays an important role in retaining employees. It gives employees a sense of belonging, prestige, a status or authority and power in the organization. Feeling satisfied within their position generally creates motivation.When staff are motivated, they are more likely to perform a higher quality of work. Employees who have good work performance deserve rewards. Businesses often use bonuses, commissions, compensation or employee benefits to reward staff to make sure they keep up the good work. Companies with a substantial reward system and employee welfare are more likely to retain their key employees from leaving the company and work for other competitors. For example, Google offers a list of employee benefits that is called â€Å"I-bet-you-don’t-have-that-where-you-work†.It includes flexible hours for nearly every professional employee, casual dress everyday, pets allowed to work, onsite dental care, free massage and yoga, free drinks, free meals and many other benefits that most employees desire. (HCA Online, 25/07/2006, http://www. hcamag. com/article/a-look-inside-the-google-talent-machine-112999. aspx). Retention and recruitment of key employees will be more critical in the following years as the baby boomer generation moves towards retirement, which leads to shortage of skills in the industry. Managers that recognise their staff as their greatest asset generally are more successful than others who don’t.A successful business requires several factors; one of the most important and most irreplaceable things is its competitive advantage(s). By retaining key employees, the people that create or help to maintain competitive advantages, companies are more likely to achieve its long-term goals and make desirable profits. For example, Google is well known for its special recruitment system and attractive retention strategies that every employee dreams about. One of Goo gle’s interesting programmes is called â€Å"Working with 20 per cent time†. (HCA Online, 25/07/2006, http://www. hcamag. om/article/a-look-inside-the-google-talent-machine-112999. aspx). It means that the employee works one day a week on their own to research individual selected projects that the company funds and supports. Google have crafted every position and element in the workplace so that all employees are working on projects that interest them, continuously learning and being challenged positively to do more. This programme makes the work itself become an attraction and retention force, a driver of motivation and innovation, and a feeling that the employees themselves are adding value to the company.What Google have done is not only make their employees want to remain and work for them but also continually create and develop skilled people. With Google’s perfect retention strategies, they are confident to retain valuable employees and create a positive c ycle. In conclusion, it is essential for organizations to understand staff turnover rates and analyze the cause and effects of turnover, in order to maintain it in a healthy and favorable level. This paper has discussed the costs, causes and effects for high staff turnover, and also the negative impacts on businesses with a very low turnover rate.It has also mentioned a diverse range of ideas on how to prevent a high staff turnover, as well as develop a thorough retention strategy that encourages key employees to remain within an organization. Some successful real life examples have been provided from the company ‘Google’ have been mentioned and referenced. Overall recruitment and retention are substantial factors for a successful business. Reference List: â€Å"A Look Inside the Google Talent Machine†, â€Å"HCA Online†, , assessed date: 28/03/2013 Dr. J.Sullivan, 8/8/2011, â€Å"A Low Turnover Rate Could Mean That You Have Ugly Employees†, â€Å" RER. net†, < http://www. ere. net/2011/08/08/a-low-turnover-rate-could-mean-that-you-have-ugly-employees/>, Assessed date: 27/03/2013 F. John Reh, â€Å"The High Cost Of High Employee Turnover†, â€Å"About. com Management†, < http://management. about. com/od/money/a/The-High-Cost-Of-High-Employee-Turnover. htm> Assessed date: 27/03/2013 K. May, â€Å"Causes & Effects of High & Low Staff Turnover†, â€Å"Demand Media†, â€Å"Chrone†, < http://smallbusiness. chron. com/causes-effects-high-low-staff-turnover-33939. h