Wednesday, June 11, 2014

Employee Turnover: The Consequences of Simultaneous Entry and Exit of Many Employees

Harvard Business School Professor Robert S. Huckman and his colleagues -  Hummy Song and Jason R. Barro - have published a new working paper about employee turnover.   They focused on what they call "cohort turnover" - i.e., the "planned simultaneous exit of a large number of experienced employees and a similarly sized entry of new workers."   In what companies and industries does this type of mass simultaneous exit occur?  Huckman and his co-authors focused on the turnover of residents in teaching hospitals.  That simultaneous entry and exit occurs in July each year at major teaching hospitals.  Experienced residents depart, and new graduates of medical school arrive. 

The scholars summarized their findings as follows:

"This annual cohort turnover results in increased resource utilization (i.e., longer length of hospital stay) for both minor and major teaching hospitals and decreased quality (i.e., higher mortality rates) for major teaching hospitals. Particularly in major teaching hospitals, we find evidence of a gradual trend of decreasing performance that begins several months before the actual cohort turnover and may result from a transition of responsibilities at major teaching hospitals in anticipation of the cohort turnover."

Do their findings apply in other industries?  The scholars suggest that this type of cohort turnover occurs in political administrations and military units.  I agree that the findings have interesting implications for those two settings.  It's particularly frightening to think about the impact in political administrations, as newly elected officials often try to enact major changes in their "first hundred days."  In other words, they are perhaps most active in establishing new policies during the precise period when resource utilization and output quality may be the lowest!  

Other industries experience this challenge, perhaps to a lesser degree.  For instance, the auditing, consulting, and investment banking businesses all hire large number of college and business school graduates each year.  At the same time, many young employees leave these firms to head off to earn an MBA.  Thus, summer turnover can be quite high in these industries.  I'm sure readers of the blog can find other industries who face this problem as well. 

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