Effects of Employee Turnover in Organizational Performance
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Organizations make larger investments on training and development processes of the employees and tend to keep well performing employees within the organization. Hence it is important to make sure that those employees stick with the organization and be kept engaged at the workplace.
Many studies have depicted that turning over of one employee
with an hourly wage of $8 per hour could cost an organization from $3,500 up to
$25,000. Depending on the industry, this value depends on the field of the
organization and can range from 50% to 200% of the salary and benefits that are
allocated to an employee annually
High ETO is a warning sign of lack of morale among an organization’s
workforce which is one of the main factors that affects the productivity or the
performance of any organization.
According to the December 2016 Job Opening and Labor
Turnover release by the US Department of Labor Bureau of Labor Statistics,
separation takes place when there is a resignation, layoff, retirement, or
other kinds of ETO. It was reported that an average of 4.9 million monthly
separations occurred between August to December 2016, which depicts a monthly
rate of 3.44% of total employment
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Negative effects of ETO towards organizational
performance
1. Highly Expensive
ETO can be very costly to any organization, mainly if it is
a voluntary resignation and the subsequent replacement process is required. Replacement
costs usually include finding a possible substitute from labor market,
selection between substitutes, induction processes, formal and informal
training schedules of the replacement until the substitute reaches a reasonable
performance level.
A report from research conducted by The Center for American
Progress shows that for all positions, except for executives and physician’s
jobs that require very specific skills, the typical cost of turnover was 21% of
an employee’s annual salary
2. Resulting in loss of experienced employees
Creating a culture by encouraging transfer of knowledge and succession
is a critical strategy for the development and sustainability of any organization
Statistics available on the US Department of Labor, Bureau
of Labor Statistics shows that only about 1/9 of separations are retirement
related, while 6/10 are resignations and about 3/10 are layoffs
3. Affecting the organizational productivity
Employee productivity and general performance can be negatively impacted when ETO
is high. It is clear that ETO leads to loss of experienced employees who are
aware of organizational policies and goals and their individual roles to
support those targets.
It takes some time for a newly recruited employee to get
adjusted to these roles. In a 2012 Allied Workforce Mobility Survey, about 30%
of companies mentioned that it takes more than one year for a new recruit to
reach the maximum productivity level of a resigned employee
When considering companies with a few numbers of employees,
it is especially difficult to replace employees, as they may fill a number of
different specialized roles and this can result many issues for small
businesses, which will affect their performance and productivity negatively.
4. Affecting to organizational profits
In addition to the
cost of replacing an employee, other negative effects can be combined to affect
the profits of an organization. The cost settlement of employees’ benefits and
the cost of litigations, since some separations may lead to legal disputes, collectively
affect organizational performance, which ultimately results negatively to the
overall profit of the organization(Shaikh, 2020).
Anything that tends to increase costs or reduce productivity
will definitely reduce profit. A new business usually takes months or years to
achieve some profitability and unexpected costs like high ETO can increase the
time it takes a new venture to make profits.
Positive effects of ETO towards organizational
performance
On the other hand, there are some beliefs pointing out to
the fact that companies can also benefit from increased turnover
·
New employees bring a fresh attitude to the company
and are highly motivated.
·
According to Boyan Jovanovic, from an economic
perspective, thorough evaluation of turnover levels reflects on the efforts of
matching the proper employees with the proper organization.
The effects are always dependent on the organizational setting
in which the turnover takes place.
Exploration of new possibilities or exploitation of old
certainties?
The effect of turnover on performance depends on the nature
of the task of the organizational role.
Exploration includes things that involve research,
variation, risk taking, experimentation, flexibility, and innovation.
Exploitation means things like
refinement, choice, production, efficiency, selection, implementation, and
execution.
Therefore, ETO will have a positive or negative impact on
the performance of an organization, as a consequence of the increased diversity
of perspectives brought by new employees.
Low-turnover rate or a high-turnover rate?
Turnover side-effects depend on whether the organization has
a low ETO rate or a high ETO rate. Those affecting low-turnover organizations
are generally higher than those affecting the performance of high-turnover organizations.
Low-turnover rate means that an employee stays longer in an organization that
employee works for and hence gains more experience and knowledge. If this
employee were to leave, the company loses a good portion of its experience with
that employee
A high-turnover rate means that employees are replaced
regularly and hence, do not possess much experience regarding the work they are
engaged. These employees are therefore easily replaced by a new recruit with a
similar level of experience.
Low-process-conformance or high-process-conformance?
At low-process-conformance organizations, standardized task
processes are not existing, and employees tend to perform their tasks in a
different manner, focusing knowledge and experience into individual employee. If
such an employee leaves, the organizational performance is definitely affected
since new employee does not possess the same level of experience and knowledge.
Furthermore, work mastery cannot be passed on from the previous employee to the
new one.
In contrast, at a high-process-conformance organization, the
tasks and processes are standardized and consistent across all categories of
employees, which means that all work-related information resides in the standard
operational procedures of the organization rather than the individual
Whether it is exploration, exploitation, low-turnover,
high-turnover, low-process-conformance, or high-process-conformance, it is of
high importance to note that the impacts of the ETO on the organizational
performance can be minimized by applying standard task processes or SOP’s
wherever it is possible. These are better applicable for exploitation-oriented
situations with high turnover rates.
Accountingtools, 2022. Quality of conformance
definition. Accountingtools.
Hana, U.
& Lucie, L., 2022. Staff Turnover as a Possible Threat to Knowledge Loss. Scientific
journal from the field of management and economics.
Progress, C.
f. A., 2021. Center for American Progress. [Online]
Available at: https://www.americanprogress.org/
[Accessed 27 November 2022].
Shaikh, S.
h., 2020. Impact of Turnover on Organizational Efficiency. Annals of
Contemporary Developments in Management & HR, 2(2), pp. 20-28.
Statistics,
U. b. o. L., 2022. United States Department of Labor. [Online]
Available at: https://www.bls.gov/
[Accessed 28 November 2022].
Yumpu, 2012.
Allied Workforce Mobility Survey: Onboarding and retention. AlliedHR.
A very important article. Can you further describe how to minimize the negatives effect of Employee turnover?
ReplyDeleteThank you for your feedback!
DeleteThere are several tools and strategies to reduce employee turnover rates such as Creating the Ideal Working Environment, Recruiting the Right Fit, Monitoring Employee Feedback, Employee Training and Development, Communication etc..
Employee productivity and general performance can be negatively impacted when ETO is high. It is clear that ETO leads to loss of experienced employees who are aware of organizational policies and goals and their individual roles to support those targets. It takes some time for a newly recruited employee to get adjusted to these roles.
ReplyDeleteThank you for sharing your thoughts! And indeed it is of high importance to pay attention to requirements of employees and make sure to create a work friendly environment in order to enhance overall organizational performance
ReplyDeleteAlong with reviewing, monitoring, and educating its staff, the organization must create complex and specific retention strategies in order to preserve the employees' engagement and contentment. In order to streamline processes and make workplaces more hospitable to employees, employers are increasingly looking for feedback and ideas from their staff.
ReplyDeleteI do agree with your thoughts. It is important to listen and respect ideas of others when aligning with processes. Thank you for sharing your feedback!
DeleteIndeed, that is why employers should be open minded about turnover and recruitment since that can lead to even more talented employees and create beneficial opportunities.
ReplyDeleteReduced productivity, higher recruitment expenses, unneeded time spent on new hire training, and missed revenue are all effects of excessive staff turnover. Employee morale and productivity are often low in companies with a high staff turnover rate.
ReplyDelete