Can Employee Attrition Ever Benefit a Company? Exploring the Upsides and Downsides

We are all aware that attrition results in a lot of losses, not only in terms of cost but also employee morale. However, I want to know whether attrition can also be useful to an organization. Does it affect an organization in a positive way.

Hi Anusha,

Well, this is like out-of-the-box thinking. A good question indeed. I would say attrition does not actually help any organization; but to put it a little offbeat; I would comment that the organization has another chance to choose the best headcount pertaining to their line of business. They could probably take the latest attrition cases as case studies for effective recruiting.

Regards,
Harish

Hi Harish,

Thanks for your reply. I do feel that attrition can bring some benefits. As you mentioned, it can help in terms of acquiring new talent and also in reducing costs, as new recruits are usually more cost-effective than existing employees. Additionally, new hires may bring fresh and innovative ideas to the company.

Please let me know if you need any more information.

Thank you.

Hi,

Sometimes, attrition may be useful for small companies, especially very small R&D firms where the product is already developed, and only people are required to manage or customize the products.

For example, a Software Developer from REC or IIT will be costly for a startup company. Their expertise is needed to develop the product. Once the product starts rolling, that level of expertise may not be required. In that case, if the person stays, you have to pay them more and give them sufficient work. In this scenario, I think attrition is beneficial. However, until employees here, also consider the following cases:

High Performer with High Potential
If individuals of this caliber are leaving, the company is losing valuable talent.

Low potential with High Performance
Individuals in this category are the backbone and dark horse of the company.

Low Potential and Low performance
If individuals of this nature leave, then there are no issues.

High Potential Low Performer
For individuals in this category, if they can be corrected, that's fine. If they can't be corrected, it's better to let them go.

You need to assess which kind of people are leaving.

Regards,

Vinay
9866254387
http://finance.groups.yahoo.com/grou...ResourceOnLine

Dear,

A very relevant and futuristic question!

In my view, some attrition is very useful for any organization, with the only exception that outgoing people are not key persons for the org. Some attrition helps in infusing fresh blood into the org, and moreover, it may also drain out disengaged employees of your org.

I know one such company which is in trouble because of less attrition in the top management, i.e., Ranbaxy. They are fighting hard to replace their top-level managers with new ones as the oldies are not leaving their spot. PSUs are also facing the same problem - "no attrition."

I can put it like "running water is fresh; if it stays for too long, it becomes stagnant, then it starts to stink."

Regards,
Deepak

Hi Anusha,

Definitely an offbeat question, but yes, attrition is useful to some companies. Many companies like ICICI Bank have a high attrition rate. Here, their main aim is to utilize the resources of all employees, i.e., insurance agents. So, even if that employee leaves, they still have customers.

High attrition is harmful at higher levels in the hierarchy, but it's very common at lower levels. It's good for a company sometimes as they can acquire fresh talent at a cheaper rate.

As it's famously said, every coin has two sides; attrition has its pros and cons, but unfortunately, its cons outweigh the pros.

Regards,
Namrata

Hello Anusha,

Attrition is rapidly growing in the BPO industry nowadays.

I feel I am too young to speak about this as I am still in my B.Tech 1st year. But I too want to have a say here. Please read this:

What is the biggest challenge for the BPO industry in India today? Well, it is a no-brainer: Attrition! The main reason for this is the hike in salaries.

Industry experts feel that as the industry was still in its nascent stage, there were a lot of strategies available to reverse this trend and make it an attractive employer.

NASSCOM ITES-BPO forum has identified HR as one of the key challenges of the ITES-BPO industry and has formed a special task force to address short-term challenges such as attrition and long-term challenges such as ensuring the availability of a skilled talent pool.

To arrest this trend, companies can look into various options like good rewards, bonding programs, flexible working hours, and a stronger career path. With attrition rates ranging between 30-60 percent in the BPO industry, HR specialists feel that a scientific and analytical approach should be implemented.

The tremendous turnover rate is undeniably one of the main problems faced by the BPO industry globally. HR specialists at the Nasscom summit brainstormed on various approaches to handle this issue - either declare war on attrition and tackle it head-on, or adopt a more scientific analytical approach.

Paychecks alone are not enough to retain employees. Management also needs to consider other aspects like a secure career, benefits, perks, and communication. The attrition battle could be won by focusing on retention, making work a fun place, having education and ongoing learning for the workforce, and treating applicants and employees the same way one treats customers.

Companies need to go for a diverse workforce, which not only means race and gender diversity but also includes age, experience, and perspectives. Diversity, in turn, results in innovation and success. The 80:20 rule also applies to recruitment, she quipped, since studies showed that 80 percent of the company's profit comes from the efforts of 20 percent of the employees. So BPOs need to focus on roles that have the most significant impact.

According to experts, the cost of attrition is 1.5 times the annual salary. Age should not be a barrier for training employees and could, in fact, bring more stability to the company.

Attrition in the Indian BPO Industry:

A rubbing away or wearing down by friction.

A gradual diminution in number or strength because of constant stress.

A gradual, natural reduction in membership or personnel, as through retirement, resignation, or death.

Repentance for sin motivated by fear of punishment rather than by love of God.

What is the biggest challenge for the BPO industry in India today? Well, it is a no-brainer: Attrition!

The business process outsourcing (BPO) industry in the country, which is expected to employ around one million people by 2008, is facing the challenge of finding quality human resources given the current attrition rate of around 50 percent.

Analysts say attrition rates vary by 20%-40% in some firms, while the top ones average at least 15%. Nasscom, in a report, said the outsourcing industry was expected to face a shortage of 262,000 professionals by 2012.

The size of the Indian BPO market is likely to be around $9-12 billion by 2006 and will employ around 400,000 people, ICRA said in its Indian BPO industry report.

Mercer India said the industry should look beyond the traditional areas of recruitment, and some thought should be given to employing physically challenged people and housewives. The reasons for the high rate of attrition were due to various factors like salary, work timings, other career options, adding that there is always the danger of costs increasing while billing rates decline.

With 245,100 people employed at the end of March 31, 2004, against 171,100 last year, the industry witnessed a hiring growth rate of about 40-42 percent. On the hiring front, the industry absorbed about 74,000 people in 2003 despite the attrition rate of 45-50 percent being a matter of concern.

Attrition rates in the IT-enabled business process outsourcing sector have come down from the 30-33 percent being witnessed of late to about 25 percent now, according to statistics compiled by the National Human Resource Development Network.

Attrition rates %:

US: 42%

Australia: 29%

Europe: 24%

India: 18%

Global Average: 24%

If you compare attrition rates for a Voice and Non-voice process, then attrition rates are significantly lower in a non-voice process. As the industry moves up the value chain and becomes a full-scale BPO player, attrition rates will further decrease.

For BPO service providers, moving up the value chain is critical, given the attrition rates in the industry, which are on average higher in low value-added segments (in call centers) compared to higher value-added segments like engineering.

It will not be possible for the industry to arrive at a blanket agreement on poaching, but bilateral agreements between companies are being signed. Basic norms are being put in place, and a code of ethics is being stressed upon by the industry. Companies are being encouraged to adopt responsible behavior to ensure that the industry does not become a victim of its actions. The industry needs to be aggressive but not cannibalistic.

To ensure a consistent flow of trained manpower in the future, the industry needs to work with the government to introduce courses at a school and college level that are in line with the requirements of the ITES-BPO industry. India has one of the largest pools of English-speaking graduate workforces. The challenge for the industry is not in employment but employability. The industry is also hiring professionals from outside the industry to meet its steady supply of manpower.

Honest corporate managers will tell you that to make offshoring work, you need at least a 300% to 400% wage spread between American software writers, engineers, accountants, and call-center employees and their Indian and Chinese counterparts. Labor costs have to be very low overseas -- not just lower -- to compensate for time-shifting, managing over such long distances, and decreased productivity.

A high attrition rate, price wars, poor infrastructure, and lack of data protection laws could derail India's booming outsourcing industry. This seemed to sum up the views of BPO fraternity at the Nasscom summit here.

Surya,

Very good analysis of attrition in the outsourcing industry. Keep it up.

Others:

Views put forward are fresh and of value. Yes, in certain cases, attrition (but only if properly analyzed and directed) can be of considerable assistance. In other cases, where attrition is of high performers with high potential which the organization cannot really afford to lose, it is a danger signal and needs to be battled with motivation and career enhancement. A challenge for all.

At the same time, lack of attrition in certain positions where the incumbents have low performance and low potential but are nonetheless refusing to move out is another problem which has to be tackled with selective weeding out and golden handshakes.

All in all, a very interesting topic. Keep it up, CiteHR members!

Jeroo

Hi,

Thank you for all your views. Yes, I agree that if the attrition is among the low performers, it's beneficial to the company. A company like GE has made it a matter of policy to retrench 10% of its least productive workers every year. However, it still remains one of the biggest challenges for today's HR managers.

Regards,
Anusha

Hi Anusha,

Your question is indeed thought-provoking for many.

Attrition is also important for organizations. It infuses fresh blood, new thinking, cross-industry perspective, vertical/industry/domain knowledge, and updates, and perhaps to some extent, lower compensation as well.

Professional organizations believe that the performance of employees in any company follows a bell curve, i.e., some are excellent performers, most are average-good-very good, and some are low performers. Forced/planned attrition or consequential attrition (i.e., as a consequence of low recognition to employees) is good for companies.

Low performers may not be given an increment or a good increment and thus leave. That's good. As they say, some churn is important and is a must. Also, some employees are a drag on the organization, working for long years, and thus gradually entering a higher salary bracket with yearly increments that are hardly justifiable. They must leave to give room for the infusion of better educated/skilled people, sometimes even at a lower compensation.

But the downside is greater. Good employees or recognized/recognizable talent also often leave for various reasons. That's bad for any organization.

Attrition thus has both sides, bad and good. The contention is that both must be well balanced, which is often not the situation. Actually, the subject is more complex than it sounds. There are also issues of employee integrity, dedication, loyalty, trustworthiness, etc., that mostly long-standing employees have proven over the years. Companies also yearn for these qualities.

Rahul

9968270580

Hi Anusha,

This is a very critical question. We are currently in a kind of 50-50 situation. What would happen if the TLs are terminated? Of course, for an outsider, it is an attrition, but internally, we need to freshen up. Attrition serves as a filtering process. If the company is heading in the right direction with all systems and policies in place, then, for the sake of a few bad apples, the company should not compromise on its stringent policy.

Regards,
DG

I would like to second Anusha. GE surely has been continuing that for a long time, and smaller companies wait for this annual ritual to hire their offloads. A survey based on "why people stick around for a long time" is rightly due so that we can get a fresh insight.

Surya