Reducing Employee Turnover: Break Up Long Streaks of Difficult Work

Source: SHRM

We know that many employees find challenging work to be rewarding.  They want to feel that their work is meaningful, and that they are making an impact on others.  At the same time, we have watched employee turnover soar at many organizations in recent years.  Does that mean many employees are not being challenged sufficiently?  Do they find their work tedious and mundane?  Or, are they quitting becuase of burnout driven by other factors?  

Maurice Schweitzer, Polly Yang, and David Daniels have conducted a fascinating study that sheds light on one reason employees may be quitting their jobs.  In an ingenious research design, the scholars studied almost 2 million text conversations among over 14,000 volunteers at a crisis hotline.  These volunteers engaged in some very difficult and stressful conversations with callers seeking assistance.  However, not all calls posed an equal level of stress and challenge.  Some conversations were less tense and demanding than others.   The scholars found that the overall difficulty of the work did not affect turnover among the staff members.  However, the sequencing of the work mattered a great deal.  Here is a summary of their findings, as reported by Knowledge @ Wharton: 

While the content of the conversations influenced the quit rate of volunteers, the data revealed that the order of the conversations mattered even more. Volunteers who experienced long streaks of hard conversations were 22% to 110% more likely to quit. Conversely, breaking up these hard streaks by reassigning tasks to different volunteers would “reduce volunteer quitting rates by 22%, boosting prosocial behavior and likely saving lives,” the authors wrote in the paper.

The scholars go on to explain how long streaks need to be broken up by some simpler tasks to reduce employee burnout.  In short, "When people evaluate a sequence of past events, they disproportionately focus on “streaks” (long streaks of similar events in a row) and on “ends” (the most recent event)."  The scholars have a recommendation for leaders who tend to rely heavily on certain "stars" to constantly take on the most challenging work:

Schweitzer noted the natural tendency for managers to turn to the same reliable employees over and over again to get things done, especially on a deadline. But he urged those bosses to throw some lighter duties into the mix to prevent burnout and bitter feelings.  “Counterintuitively, adding a bit of extra work — specifically, adding easier assignments — can keep workers more motivated, by preventing streaks of hard tasks from being created,” he said.

Not-so-Hidden Costs of Employee Turnover

Source:  Workstyle 

We all know that employee turnover can be very expensive.  Searching for, hiring, onboarding, and training new employees proves to be a costly endeavor for most firms.  If turnover increases, these costs can become quite burdensome.  A new study documents another significant cost of employee turnover - the decrease in product quality that can result from that loss of experienced and knowledgeable employees.  The paper is titled, "The Hidden Cost of Worker Turnover: Attributing Product Reliability to the Turnover of Factory Workers" by Ken Moon, Prashant Loyalka, Patrick Bergemann, and Joshua Cohen.  

The scholars studied the failure rates of 50 million cellphones produced by a major Chinese manufacturer and tracked the performance of those phones over four years of customer use.   Here's an excerpt from Knowledge@Wharton documenting the findings: 

• Each percentage-point increase in the weekly turnover rate for workers increased product failure by 0.74% to 0.79%.
• Failure was 10.2% more common for devices produced in the high-turnover weeks following payday, which was once a month, than for devices produced during the lowest-turnover weeks immediately before payday.
• In other weeks, the assembly lines experiencing higher turnover produced an estimated 2% to 3% more field failures on average.
• The associated costs amounted to hundreds of millions of dollars.

Why Employees of Acquired Firms Leave in Droves (And Can We Predict Turnover In Advance?)

Source: Flickr

The Wharton School's J. Daniel Kim has written a good paper titled, "Predictable Exodus: Startup Acquisitions and Employee Departures." Kim finds that 33% percent of workers brought into a company through an acquisition of a startup leave within 12 months, compared to 12 percent of other employees with similar backgrounds. Why do they leave? Could we actually predict whether such high turnover will occur BEFORE we make a deal and acquire a startup? Kim has developed a rather ingenious strategy for examining that question. He explains how he constructed a measure he calls "startup affinity." 

I track employee departures prior to the acquisition along with their destinations. While these individuals leave before the acquisition, their decisions to join a young firm or an established company provide useful information for predicting their peers’ post-acquisition retention outcomes. When aggregated up, these mobility choices reflect the firm’s tendency to attract workers who prefer to transition to startups rather than established firms. Following this reasoning, I define firms to have a strong affinity for startups if their former employees – who leave prior to the acquisition – systematically tend to move to other young companies.

Kim then goes on to examine the relationship between startup affinity and worker turnover after an acquisition:

I find that the pre-acquisition departure patterns strongly predict the acquired employees’ decision to stay with the buyer. In short, target companies with a strong affinity for startups exhibit much higher rates of turnover following an acquisition. Furthermore, these effects are magnified when the acquiring firm has a lower startup affinity than the target firm, lending empirical support to the role of organizational mismatch. Therefore, ex-ante differences in the target and buyer’s organizational type largely explain why many acquisition deals fail to retain the new workers while others succeed in capturing talent. 

What does this mean for larger firms employing an acquisition strategy to target technology and talented employees at startups in their industry or a related market?   Companies have to do some strong self-diagnosis before embarking on an acquisition spree.  They have to understand their current workforce and culture, and in so doing they can assess whether they are a good match for the target firm's employee population.   Remember, those workers don't get to choose to be employed by the acquiring firm.  They have chosen to work at that startup.  They can then vote with their feet after the deal.  If there's a strong mismatch between the employee population and the acquiring firm, you can expect a significant dose of turnover.  Perhaps that's not concerning to some executives, but in many cases, a big chunk of the value of the deal is tied to the intellectual capital embodied in the workforce.  If those folks leave, what is left?  Often, the remaining physical assets (technology, etc.) aren't worth nearly enough to justify the takeover price if the workers leave in droves.  

Why People Quit

Why do people quit their jobs?  Fast Company reported this week on a new analysis conducted by Glassdoor.   The firm studied approximately 5,000 workers who switched jobs over the past decade.   They found that three most important reasons for quitting are:

• Company culture
• Employee salary
• Getting stuck in the same job for long periods of time

The firm discovered that, "On average, we find that a 10% higher base pay is associated with a 1.5% higher chance that a worker will stay at the company for their next role."  In addition, the probability of quitting rises by 1% for every 10 extra months someone stays in the same role at a company. 

What didn't matter as much with regard to quitting?  Interestingly, "they found that while work-life balance, liking their senior leadership, and benefits may matter for overall employee satisfaction, they don’t impact turnover."

What are the Signs that Employees are Considering Quitting Their Job?

Timothy Gardner and Peter Hom have conducted some useful research about the signs that might emerge before an employee quits his or her job.  They describe these cues as "pre-quitting behaviors."  These include things such as acting less like a team player than usual, or becoming less enthusiastic about the organization's mission.  They also might become less committed to long-term schedules and deadlines, and they may become less interested in working with customers.  In this piece for Harvard Business Review, Gardner and Hom explain one of the most interesting aspects of their research:

The most interesting take-away from this second phase of our research were the behaviors that did not survive our screening process. Note that the 13 key behaviors do not include “wearing dressier clothes to work,” “leaving a resume on the printer,” or “missing work for doctors’ appointments more frequently than usual.” These and many similar behaviors, which have entered into managers’ folklore of key signs of impending departure, were rarely observed or did not statistically hang together with the core behaviors representing a general predilection to quit. Such behaviors may predict future turnover, but not as consistently as the 13 core pre-quitting behaviors across a wide range of jobs, industries, and geographies.

Hire a Superstar or Dump a Toxic Worker?

Should you make it a priority to hire the next superstar talent for your team, or remove the toxic worker who is dragging the group down?  Which action has the most impact?  Kellogg's Dylan Minor and his co-authors have examined this question.  They define toxic workers as those who engage in violations of company policy and/or act unethically.   These scholars find that toxic workers actually induce others around them to behave inappropriately at times.  Moreover, these people drive good people away, leading to costly turnover in the organization and a talent drain. For these reasons and others, they can do serious damage to a team.  These scholars actually quantified the positive impact of adding a superstar to your team versus the impact of removing a toxic team member.  They conducted their study based on more than 58,000 hourly service workers at 11 firms.   They found that removing the toxic member and replacing them with an average performer created more than twice the value of simply adding a superstar to the team to replace an average member. 

Does Working From Home Improve Productivity?

Stanford researchers Nicholas Bloom, James Liang, John Roberts, and Zhichun Jenny Ying have conducted an interesting new study regarding the benefits and costs of working from home.  The scholars conducted an experiment at Ctrip, a Chinese travel agency.  They randomly assigned call center employees to either work from home or work in the office for a nine month period.  What did they find?  Those employees who worked from home experienced a 13% performance increase.  A portion of that increase came from working more minutes per shift (i.e. they took fewer breaks and fewer sick days).  The other portion derived from taking more calls per minute.   The attrition rate for home workers dropped significantly in this study.  These workers also appeared more satisfied with their jobs.   Did quality suffer though?  It did not.  The home workers appeared to be more productive, while not sacrificing the quality of their work. 

Does this mean that home workers always will be more productive?  Not necessarily.   We have to be careful about generalizing these findings.   This study pertained to call center workers.  We may find that other types of work do not experience the same increases in productivity.  For instance, perhaps some forms of work require much more intense coordination among members of a team.  In those instances, home working may bring more challenges and may not lead to productivity increases.  It would be terrific to see a new study examining a different type of work. 

Market Basket and the Benefits of Low Employee Turnover

As the crisis at Massachusetts-based supermarket Market Basket rages on, it's worth noting that Consumer Reports just ranked the retailer as one of the top 10 supermarkets in the United States.  I also found an article this week on Boston.com quite interesting, because it explored the question of how Market Basket could keep prices so low while offering employees compensation and benefits that exceeded those provided by rivals in the industry.  The article, by Adam Vaccaro, cites low employee turnover as one key to the firm's success.  I thought that I would do a bit of research on the economic cost of high turnover.  I went to the Hay Group's website, since that firm has done a great deal of research on issues related to employee compensation.   The Hay Group examined the economic benefit of having a highly engaged workforce coupled with low employee turnover (the two obviously are related... if you have high engagement, you are likely to have low turnover).  Here is what they found:

Similarly companies with high levels of engagement show turnover rates at 40 percent lower than companies with low levels of engagement. However, companies that both engage and enable employees demonstrate a total reduction in voluntary turnover of 54 percent... For an organization with 20,000 employees and an annual voluntary turnover rate of eight percent, the cost of turnover is approximately $56 million (assuming an average salary of $35,000). Reducing the voluntary turnover rate by 40 percent would yield annual savings of $22.4 million. But reductions in turnover through high levels of engagement and enablement would yield savings of over $30 million annually, a difference of more than $7.5 million.  

The Hay Group research also shows that highly engaged employees are likely to far more productive.  As a result, the firm achieves substantial additional economic benefits.  What can firms do with these economic gains from the combination of high engagement, low turnover, and high productivity?   Certainly, they can pile up healthy profits.  However, in the case of a firm such as Market Basket, it appears that they were able to share that economic value with customers and employees as well.  Employees received solid compensation and benefits, while customers enjoyed low prices.  Of course, all of these gains are at risk if the Board cannot move to resolve the leadership crisis at the firm.  As of now, the workers are standing strong in support of their former CEO.  The Board continues to examine a potential sale, either to that former CEO or to another party.  

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.