The true cost of retention

In recent years companies have begun to realise the importance of employee retention. Just as in the customer’s experience, the employee’s experience is fundamental to retention, improving performance, and attracting new talents. Within this competitive scenario, employees are becoming more and more empowered and the psychological contract between employer and employee has fundamentally changed.

Replacing employees is a large investment. A company must spend significant time and money to search for the best talent through advertising, recruitment agencies, screening, interviewing, and hiring. The cost of employee attrition varies based on the role of the employee and their salary/wage level. According to Forbes, the cost of an entry-level position turning over is estimated at 50% of that employee’s salary. For mid-level employees, it’s estimated at 125% of their salary, and for senior executives, a whopping 200% of their salary.

Even if it is difficult to measure, attrition also has emotional implications. When an employee leaves the organisation, others can feel demotivated and challenged to do the same. Likewise, companies are afraid of losing knowledge which is difficult and costly to recover.  

Researchers and leaders have identified strategies that will improve the employee experience and save companies money and distress. Even though some of these solutions have been demonstrated to be effective, the challenge of reducing organisational attrition is still open to innovation. Integration of data analytics and organisational psychology could open up to new directions and offer a new perspective on the problem of retention in the organisation.  

Psychological contract

Employees prioritise experiences and learning over stability. This new attitudes resulted in the need to implement strategies that cover a 360-degree people development. The most effective strategies are the ones that support employee development, thorough supervision and coaching, continuous learning and culture. Companies like Netflix, Wholefoods, Amazon and more shared the experience of investing in recruiting, culture and consequently in retention. The interesting lesson is that no solution fits all companies. Each organisation should explore and be curious about its human resources and identify effective strategies for the whole company and specific teams.

The Harvard Business Review proposed a framework for attracting and retaining talent, which includes four main factors: brand, opportunity, purpose, and culture.  Brand relates to the position of the company in the market space; purpose refers to the value and the commitment of the organisation to its employees and society. The opportunity it the perks offered to the employee, whereas culture is defined by the story of the company and its relevance and its impact for each employee. Looking at those four features could be a tool to explore the question of retention in an organisation. 

Another notable contribution is from a study conducted by Margie Sutherland and Wilhelm Jordaan. They questioned the possibility to identify the most critical variables and underlying factors affecting the retention cognitions amongst knowledge workers. They segmented a sample of 306 knowledge workers in South Africa in nine. Their findings are interesting as they initiate conversations around the value of differences. 

Personalisation is a key for customer retention today: and it can also be an important element of employee retention. Personalisation means understanding and recognising differences in motivation, attitude and behaviour and consequently offering solutions that satisfy those differences. For example, if we consider, motivation theories, one employee could be motivated by the need for achievement, seeking to master complex challenges, finding solutions, overcoming goals, and meeting high standards of quality or success. This individual may be a risk of attrition; however, proposing challenging tasks, offering continuous learning and help to visualise and controlling his achievements could impact his loyalty to the organisation while satisfying his needs. 

Endings and beginnings 

Endings are never easy: they provoke primitive feelings of death and finality, of being got rid of or disposed of. As in life, organisational endings can be premature, murderous or well prepared. Endings can also represent a beginning, regeneration or a new stage in the existence of an organisation. The capacity to process and ending and to give space for something new to happen is essential for companies in this competitive market. According to Peter Marris, new experiences can be assimilated when they are placed in the context of a familiar, reliable construction of reality. It seems that attrition in an organisation can be seen as an opportunity to change and innovation if the introduction of a new employee is within a process of awareness and integration. 

Edgar Henry Schein defined culture as a pattern of basic assumptions invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, is to be taught to new members as the correct way to perceive, think, and feel in relation to those problems. 

Every time a new member joins a group, those basic assumptions and collective copy mechanisms, are challenged. The group/team will try to teach the new member the roles of the game, and compare his or her performance to an unconscious expectation. This phase is extremely rich in information if supported employees and managers can learn about their functioning, empowering change and transform loss into innovation. All the team should be involved in processing loss and developing an awareness of group function, developing emotional intelligence and self-awareness. Within this framework, the hiring, onboarding processes can be used as an opportunity for training and consolidation of groups culture, reducing monetary costs and create footprints for future predictions. 

Data-driven behaviour change 

In 2015 the Mckinsey quarterly was titled, ‘Power to the new people analytics’. Just two years after, According to Bersin by Deloitte, Sixty-nine per cent of organisations were building integrated systems to analyse worker-related data, and seventeen per cent already had real-time dashboards to visualise that data in real-time. The speed of the analytics into the HR practice is exponential. How can analytics impact one of the biggest HR challenges- retention? What are the challenges and opportunities? 

The first challenge is the integration, organisation and cleaning of relevant data. Most big organisations have five to seven systems of recording their human resources data. This means that data are scattered all over the place, and it is difficult for analytic teams to create accurate predictions. The use of integrative third-party platforms could facilitate and speed up the process of integration. Likewise using behavioural theories could help reduce the number of variables, using a different type of analysis, prioritising efforts while producing powerful insights.

The second challenge is the quality of the data available; a predictive model is only as good and actionable as its data. At McKinsey, they combine various data sources with machine-learning algorithms. The process starts from qualitatively generating ideas and a set of hypotheses to the then ran on different algorithms and to get insights at a broad organisational level. These analyses lead to the opportunity to identify specific employee segments. These insights are then tested using workshops and focus groups. 

The presented processes could be more compelling if supported by a psychological framework that guides the collection, analysis, interpretation and intervention. The Tavistock Institute developed a model of understanding and intervening in an organisation called systems psychodynamics. This model deals with the individual and group emotional aspects that lie deep below the surface within organisations, as well as considering the organisation as an open system, in continuous exchange with the environment. Corporate conservatism and the need for control over innovation often downplay the role of emotions and focuses on other scientific methods to manage organisations. A heavy data-driven approach, if not moderate by a psychological understanding of the organisation and its people, risks to create a superficial and not long-lasting intervention. 

The other challenge of data approach to HR is the ethical implication and effect on employee trust and the company’s transparency. David Green, pioneer of people analytics, discuss the ethical implications on data-driven HR supported by the last articles and researches on the matter. Even if GDPR had introduced regulation of the use of data in organisations, as mentioned by David Green, the way we collect and use data inside companies still needs to change in a post-GDPR world fundamentally. The arguments are various, and it is worth to investigate best practices and challenges. 

Interesting, when it comes to retention the possibility to empower employees to own their data, letting them feel in charge of their development which will nonetheless establish reciprocity, well known to be extremely effective in brand loyalty. Develop dashboards or feedback systems of relevant features of employees experience in organisation, would be beneficial for both parties, increasing trust and collaboration. 

Conclusions 

In conclusion, the true cost of attrition is the cost experience in the transition from an old mentality to a new one. This implies revisiting and implementing innovation in all the processes that include people in the organisation. 

Are you having issues with retention?