Factors Impacting Attrition Rate

Keywords: business attrition rate, attrition rate factors

The goal of human resource management is to help an organization to meet strategic goals by attracting, and maintaining employees and also to manage them effectively. The exponential rate at which companies are growing, there is a constant requirement of maintaining and retaining the efficient employees. The attrition rate is one of the key problems faced by various organizations. The attrition rate is number of employees leaving the organization. Attrition = (No. of employees who left in the year / average employees in the year) x 100.

The article discusses current attrition rates of various companies and the attrition rate pattern. There are various factors that cause attrition. These can be internal and external both. There are various parameters for attracting potential employees. According to MASLOW’S NEED HIERARCHY THEORY and HERZBERG’S TWO FACTOR THEORY there are factors which are used to differentiate higher order needs from lower order needs and also factors accounting for satisfaction and dis satisfaction levels e.g. rewards for superior performers, salary rise, growth opportunities, training programmes , etc. Strategies to retain talented people, psychological environment, transparent HR policies etc. are some of the ways through which attrition rate can be reduced. Organizational environment like work culture, engaged leaders, effective communication practices, challenging assignments, international exposure, flexible work-time, quality of life, work-life-balance, etc. can increase employee engagement and improve productivity. Human resource is the most important asset of any organization and hence need to be retained.

KEY WORDS: Attrition rate, internal factors, external factors

Introduction:

The attrition factor is normally expressed as a percentage which reflects the degree of losses of employee due to various causes within a specific period of time

The rate of shrinkage of manpower in size or number.

Reduction of employees by retirement, resignation & layoff.

The term attrition is used to describe voluntary and involuntary terminations, deaths, and employee retirements that result in a reduction to the employer’s physical workforce.

Attrition is faced by every organization and is a dreaded cost of business , which can be further divided into two sections:

FUNCTIONAL ATTRITION:

Functional attrition is unavoidable, inevitable turnover. Examples include employees who retire, employees who leave for a spouse’s job transfer, and employees who leave because of health problems or to care for sick relatives. In other words, functional attrition is caused by some uncontrolled factors or circumstances that can’t be controlled or handled. In other words these factors are related to employee directly and are because of their personal reasons mostly.

PREVENTABLE ATTRITION:

Preventable turnover, on the other hand, can usually be controlled and avoided but often isn’t i.e.- Poor hiring practices, misguided policies, low salaries and inflexible corporate attitudes are some of the preventable reasons people leave companies.

Preventable turnover occurs when your company can change a policy or find a solution to keep employees from leaving but doesn’t

These are mainly caused by the changes in the policy of organization and by and large by the factors which are related to organization.

The reason for leaving the organization can be internal or external. These are:

Internal Factors

Service providers face an array of career-related, work environment and cultural concerns that are attributable to increased attrition levels:

1. Monetary considerations. The expectations of employees are increasing day by day. One of the major reasons is high demand of employees in the organizations. Many people who leaves the organization because they have been offered a higher salary. In the current competitive scenario, it is easy for employees to find positions that leverage their experience and pay better.

2. Slow career growth for internal talent. Employees with prior relevant experience are a precious commodity in today’s fast growing market. Therefore, it is not unusual for fast-growing companies to fill new jobs with external applicants who have prior relevant experience with other companies, bringing them in at one level higher than their current level or providing them a new role with greater responsibilities. This contributes to the perception by “passed over” internal talent that career growth is slow in the current organization, which results in further attrition.

3. Shift timings. The majority of the work offshored to India has typically been from the United States (though share from Europe is growing) necessitating night-shift work due to time zone differentials. The proportion of employees who can work during the Indian work-day is low. Continuous night shifts affect the health of some, while others just cannot adjust to them. As a result of cultural and social factors, some women employees leave because they are not able to convince their families of the need to work nights.

4. Monotony. In general, BPO work (especially work that has been offshored) has been repetitive, mechanical, service-level-driven and involves high transaction volumes. Younger recruits find it monotonous once they have mastered the process.

5. Working environment. Attrition due to the work environment is typically due to a lack of trust in the fairness of the system, issues around safety and care of employees, effectiveness of the channels to address employee grievances, accessibility of the senior management team and other related environmental issues.

6. Inadequate training and development opportunities. Though not one of the top reasons for attrition increases, the lack of ample opportunities to learn new skills or undergo training or further education is occasionally cited as a reason for leaving.

7. lacking on recruitment process. To ensure that they rapidly meet high demand levels, service providers are not always able to hire resources with the right skills and experience when and where they are needed.

8. Mismatched resources. Resources who are put on assignments that are not in line with their skills or career aspirations may leave if they are not rotated to a favourable assignment soon enough.

9. Stress: the various factors under this are:

Work Time

Repetitive Nature of Wok

Work Load

Irate Customers

Travel time

Call Volume

Long working Hrs.

Insufficient Breaks

Pressure to perform on metrics

Health issues

External factors

There are several “environmental factors” outside the immediate control of industry and clients that also must be considered and strategically addressed to reverse attrition:

1. Concentration of demand for talent. Most service providers are located in five to six large Indian cities (known as “Tier 1” cities), which has led to excessive concentration of demand and competition for resources in these geographies.

2. Supply Vs Demand. The demand comes from the growth of the industry and the policy of the company. These two things decide whether there is a demand of fresher or experienced employees. On the other hand, the supply comes from the educational institutions and the market. The supply from the educational institutions is enough to meet the demands of the pharmaceutical industry and IT industry but, there is a lack of experienced people in the industry, which in turn has created an imbalance.

3. Shortage of management pool. The supply of supervisory and management talent is relatively limited because it requires prior experience. Given the pace at which jobs are created in this market, it is difficult to find management staff with the optimal experience levels.

4. Career outlook. The workforce entering the BPO sector is very young and sometimes immature (entry level graduates with a three-year college degree are only 21 or 22 years old). Many of this younger population are not sure what they want to achieve in their careers and represent flight risks.

Strategies to reduce: certain strategies can be adopted to reduce attrition rate in the organizations. The different strategies can give different dimensions to control attrition rate.these are:

ƒ˜ Recruit: Focus on the right-fit model, robust evaluation procedure (both technical and practical tests) and reference checks are some of the ways of sourcing talent.

ƒ˜ Develop and train: Training helps in identifying the potential talent from employees and later helps to sharpen their latent skills. The best people have to be elevated into potential prospects of succession planning.

ƒ˜ Retain: Retention of talented employees is always the most important agenda for any company to grow. Giving them higher salaries ,Faster growth opportunities , Better performance based bonus amounts , Advanced training opportunities , Recognition awards , Reflects in the salary increase are some factors used to differentiate rewards for superior performers:

ƒ˜ Psychological relationship: psychological relationship between leaders and employees is very crucial.

Attrition rate of some Indian companies

The graph depicts that lowest attrition rate is in TCS while all other organizations face high attrition rate.

It is of no surprise that in today’s world we have the most aggressive of the business environment, and the challenge of sustaining at a competitive advantage occupies the minds of many business leaders, with the most inevitable source of having competitive advantage are the employees. The prime focussed question for the organizations is how they can gain an egde in this competitive environment.

Today businesses practices are more dependent on their top performers for innovations and providing services that differentiate a company from its fierce competitors. Therefore, corporations are rely and believe that their employees are the main assets so as to survive and win over the market.

Comparing the two eras in which employees have created new currents in the workplace and has introduced a system where retention of employees is given more attention and valu as compared to the past.

The old contract asked employees to:

work hard

be loyal

give their all

In return, they would have:

a job for life

a home away from home

regular salary increases

a good chance for a promotion

The new contract is substantially different. It states that employees must now work harder, doing not only their jobs, but the jobs of their former co‐workers who were “right sized.” In return, job security is extinct, promotions are scarce, salary increases are modest at best, and the constant uncertainty of change is almost guaranteed.

According to the research carried out by the Catalyst named as “INDIA BENCHMARKING 2010” which was the formulated into a report in 2010,

Attrition rates track organizations’ success at retaining employees by gender and level. These rates indicate whether or not members of certain groups are leaving companies or firms at disproportionate rates relative to other groups. Attrition was nearly double at the entry-level for the India-HQ companies relative to the India-Subsidiary companies. However, at the manager/director and senior manager levels, attrition was higher for women in India-Subsidiary companies compared to women in the India-HQ companies.

Conclusion:

The report provides insights into advancement of women strategies and the programs that promote women’s development and advancement. The report also draws attention to the actual representation of women by level. Undoubtedly, more action and accountability on the part of companies is required.

Diversity, especially at the top of companies both in the senior management team and the board of directors, is associated with enhanced financial performance.29 Companies that have not yet achieved full inclusion and representation at the highest levels of their organizations shouldquestion whether strategies have been effective and are driven by sustained commitment. Until then, they are unlikely to realize the full potential of their workforce or their business.

What gets measured gets done, and Catalyst believes that by tracking numbers (representation, attrition, and promotion), utilization of programs, and other metrics, gaps that exist within organizations can be identified. Leaders and decision-makers can better understand the types of change efforts that are needed to create an inclusive workplace and develop all talent successfully.

Certain facts from the report:

%attrition rate in india- Head company

%attrition in india – subsidary company

According to the research conducted by the ZONNOV MANAGEMENT CONSULTING as “Snippets: Talent Trend Analysis of India”

Attrition level for the BPO segment is highest, ranging over 30%. The attrition rate across BPO has come due to the maturity of the industry and the drop in expansion mode of other lucrative industries like aviation, retail and real-estate 60% people leave BPO units because they are offered higher salaries elsewhere while 40% leave because of stagnation in career graph, long dutyhours, night shifts and non-conducive HR policies

Due to the shortage of mid level project manager s in Product Development the

attrition has been observed in the range of 2-10%.

Organizations with 250 plus employees in PD have relatively lower attrition level

as they have reached a level of maturity and are able to control attrition rated

No doubt the attrition rates have reduced in many sectors in year 2010 as compared to 2008 .reasons can be external or internal factors influence but has increased in BPO.

This depict the emphasis made by employees on various factors which includes both internal and external factors.salary is given the most importance in every sector then comes the brand value which is amongst the top three factors which an employee wish to have in their organization.career growth peer work culture and work quality are amongst the most important and given more weightage by the employees.

The graph depicts the comparative analysis as how the higher wa

As found by the survey of silicon india Bangalore has witnessed a lower attrition rate during January-March quarter of this year with an average rate of 3.1 percent. A recent study has showed that the city observed lowest attrition level on account of factors like timely salary increments, alignment of roles with better career growth, maturity of workforce to understand the company’s situation and therefore more value for work than salary. Pune with an average rate of 5.6 percent has the highest attrition.

India is one of the countries with lowest labor wages, however in tune with the market demand, compensation levels have been increasing in

India…

As stated by economic times Human Resource managers are devising ways to retain talent next year that will see companies paying annual increments up to 30%. The average attrition in 2010 was 10% across Indian companies, a rate that may rise to 25% in 2011-12 with improved salaries.

Employees treat a 10% pay rise as satisfactory and call it a boom year when salaries jump by 30%. Indian companies are forecast to grow 9% and salaried class expects higher increments during 2011-12.

DataQuest-Employee Satisfaction Survey 2004

Attrition formula:

[(No. Of attritions x 100) / (Actual Employees + New Joined)] /100.

Examples:

1) Actual Employees No. Of people left No. Of Joined Total Employees

(Opening BAL) (Attritions) (Current Headcount)

150 20 25 155

So according to the formula: ((20 x 100) / (150 + 25)) / 100

=0.1142 i.e. 11%

Now 150 previously and now 25 joined so it makes 150 + 25 =175

Attrition Rate is 11.42% of 175 i.e. 175 x 0.1142 = 20

Therefore 175 – 20 = 155, which is the current headcount and at the same time we can say the attrition is 11.42% that shows the company lost 20 employees of 150 and 25 more joined which makes count to 175.

2) Actual Employees No. Of people left No. Of Joined Total Employees

(Opening BAL) (Attritions) (Current Headcount)

100 50 0 50

This is the special case where we are considering attritions only keeping into mind that nobody has joined in particular month.

So according to the formula: ((50 x 100) / (100)) / 100

=0.5 => 50%

Now as company had 100 previously and now 0 joined so it makes 100 + 0 =100

Attrition rate 50% of 100 i.e. 100 x 0.5 = 50

Therefore 100 – 50 = 50, which is the current headcount and at the same time we can say the attrition is 50% i.e. the company lost 50 employees of 100 and 0 joined which makes count to 50.