The difference between good and bad attrition

Sudipta Dev on why employee turnover is not always undesirable for an organisation. Some attrition is healthy and necessary for a company

While organisations lament the challenges that they have to constantly encounter as a consequence of employee turnover, the truth is that all attrition is actually not detrimental for an organisation. It is in fact a myth that every time an employee walks out of the door, the organisation suffers. Some attrition is desirable and necessary for organisational growth and development. The point is how to differentiate between what is commonly known as "good attrition" and "bad attrition". It is a thin line, which is not always easy to understand.

It benefits an organisation when certain employees leave, whose continuation of service would have negatively impacted productivity and profitability of the company. There are also some people who have a negative and demoralising influence on the work culture and team spirit. This in the long-term is detrimental to organisational health.

All attrition cannot be termed as bad attrition.It has to be viewed in the context of performance / contribution, skills, longitivity and growth. These factors are not static for a long duration and hence attrition is bound to happen - Rajan Dutta President-HR Lupin

On the contrary, when the departure of certain employees creates a setback (most often temporary) in terms of work continuity and progress, is commonly considered bad attrition. The time and investment lost in hiring and developing these people along with the cost of finding a replacement and bringing him up to the productivity level, all come at a high price.

The term "healthy attrition" is used to signify the importance of less productive employees voluntarily leaving the organisation. Rajan Dutta, President-HR, Lupin, agrees that all attrition cannot be termed as bad attrition. He feels that it has to be viewed in the context of—

• Performance/contribution: The levels of performance being delivered by the employee
• Skills: Are his skills relevant in today's business context
• Longitivity and growth: Has he reached his peak performance and job saturation.

"The above factors are not static for a long duration of time and hence attrition is bound to happen," points out Dutta.

"In the performance analysis of the ones who have left, if the proportion of high performers leaving is higher, the attrition is not good or healthy. Plain numbers and attrition figures do not signify anything without a deeper analysis of the above" - Vikram Bhardwaj Managing Director Redileon Executive Search

Vikram Bhardwaj, Managing Director, Redileon Executive Search, believes that the critical criteria is performance. "In the performance analysis of the ones who have left, if the proportion of high performers leaving is higher, the attrition is not good or healthy. Plain numbers and attrition figures do not signify anything without a deeper analysis of the above," says Bhardwaj.

Benefits of desirable attrition

Desirable attrition also includes termination of employees with whom the organisation does not want to continue a relationship. It can be through resignation or by the employer. The question is—how does healthy attrition benefit an organisation?

Dutta points out the significant advantages—

• Infuses new blood into the organisation
• Enhances ability for execution
• New thoughts, ideas and hence more innovation and creativity at work
• Knowledge of best practices from across the industry is brought in
• Challenging status quo, which is very important and hence challenges the way we align work
• It is also an opportunity to induct employees at a lower cost with fresh skills and competencies aligned to the current need of business.

"Desirable turnover motivates not only the top management but if each and every employee shares the benefits, the lowest hierarchy motivates everybody and the next year the targets could be much higher" - Dr Kashmira Pagdiwalla Director-HR Operations Intas Biopharmaceuticals

In any organisation the rewards are limited and business constraints do not allow the management to share it with the deserving people and give them more. But when non-performers leave the organisation, it becomes possible for the performers to get their well deserved rewards.

"Turnover is straight equation between assets and liabilities. The more assets the company has, the healthier and prosperous it is. Desirable turnover motivates not only the top management but if each and every employee shares the benefits, the lowest hierarchy motivates everybody and the next year the targets could be much higher," says Dr Kashmira Pagdiwalla, Director (HR Operations), Intas Biopharmaceuticals (IBPL).

Positive attrition also sends a necessary message to the other employees that there is no place for incompetence. There is also a flip side to the situation, though the fact that good attrition is a pointer to the failure of the existing system and processes in the organisation in hiring the right employee, grooming and training him to be a productive worker.

It is true that an optimal level of attrition is healthy for an organisation, whether it is good or bad. "An average of 20-25 percent of attrition does a good churn of talent, which brings lateral thoughts to move the organisation in the right direction. Attrition also helps organisation to align to employee market needs and build in a culture to sustain their important employees," says Sampath Shetty, Vice-President, Permanent Staffing Unit, TeamLease Services. The cost of attrition can be computed with recruitment cost, productivity loss till replacement, training cost, cost of new hire and loss of sales.

Analysing the impact

Productivity and profitability are both impacted, either negatively and positively, according to the type of attrition. Even good attrition is indicative of loss as recruitment is a time consuming and costly affair. The cost of hiring is sometimes not less than two to times the salary of the employee.

Any positive impact that can be made on attrition will have a direct impact on profitability. Explains Pagdiwalla, "Retention/attrition may not be the bane of a particular industry, but a positive impact via proactive strategies will most assuredly have a significant impact on profitability.

As competition increases, companies will be under pressure to curb costs and stretch every rupee. In such situations, instead of companies focusing on business-at-hand and putting "people" issues on the back burner, they should focus on retaining high-performing employees and keeping them motivated." The best companies consequently know that in all business climates taking measures to retain valued employees saves money, preserves margins and leads to better business opportunities.

The business impact of good and bad attrition can be felt in both tangible and intangible ways. According to Dutta the tangible aspects are:

• Loss of knowledge capital
• Delay in execution of projects/assignments
• Loss of production
• Increasing cost of recruitment

On the intangible front it would result in:

• Impact on employer brand
• Burden and burnout on existing employees
• Internal information and knowledge is being shared outside
• Existing team also gets defocused/demotivated for sometime

Organisations should execute top of the line retention policies in the right earnest and consistency. Companies should be more employee-centred, to look for further ways to "bond" employees to their companies. Company performance is optimally aligned to the skills its employees possess. High attrition implies that certain necessary skills are vulnerable or are not present due to employees being lost.

This results in lower than optimal levels of business performance. “If the skills are constantly not available, the situation gets compounded into a crisis with key projects, revenues, etc, getting affected. Business is then reduced to just managing crisis," adds Bhardwaj. For example, a two percent attrition difference can make a significant difference in the ultimate business impact.

There is no sure-fire solution to control attrition. The only way out is to manage it well. This can be done by having cautious hiring with proper systems and a process in place to ensure that only the right talent is inducted into the company. Those found lacking in particular skills or competence should be informed of the expectations from them and put through a training process.

Continuous skills up gradation opportunities should also be provided to good employees for their growth and development.

sudipta.dev@expressindia.com