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Turnover effect on quality

Turnover:

turnover is the act of replacing an employee with a new employee

Since 1983, numerious studies have looked into the detrimental effects that companies suffer from high turnover.

First and foremost, high turnover costs companies a fortune.

Popular sources including Gallup publish alarming articles such as:

A trillion dollars.

That's what U.S. businesses are losing every year due to voluntary turnover. And the most astounding part is that most of this damage is self-inflicted.

The American think tank ‘The Center for American Progress’ published a more thorough meta-study where they reviewed 11 relevant research papers on the cost of employee turnover. Here’s the quote:

Very highly paid jobs ... tend to have disproportionately high turnover costs as a percentage of salary (up to 213 percent)

NB: They consider ‘very highly paid’ jobs to yield up to $200 000 per annum

This indicates that for every employee who either quits or is laid off, the overall price the company pays might be as high as twice their yearly salary.

It’s pretty easy to calculate the direct turnover costs. Consider calculating the costs your company would incur. Just factor in the following expenditures (taken from the study mentioned above):

  • ‘separation’ costs: exit interviews, severance pay
  • temporary cover costs
  • replacement costs: advertising, agency fees, hiring (screening / interview / selection / bg-checks / signup bonus / relocation costs)
  • training costs
  • reduced quality, potential for increased errors and waste

You will most certainly find the last cost (associated with the quality loss) quite hard to measure. Maybe you can check the increased number of defects as folks did in this study:

Despite the manufacturer’s extensive quality control efforts, including stringent testing, each percentage point increase in the weekly rate of workers quitting from an assembly line (its weekly worker turnover) is found to increase field failures by 0.74%–0.79%.

But stats like this can be collected only for cases when there’s a clear separation between production and consumption of manufactured goods. This separation allows us to isolate the productive operations from many environmental disturbances.

I would say that the detrimental effect that high turnover causes on quality should be considered an indirect turnover cost.

Furthermore, the software development industry is an industry with a high proportion of intellectual labour, and software product quality is highly dependant on employees’ cognitive skills and emotions.

Detrimental effects on knowledge, motivation and emotions are obviously indirect turnover costs. This study suggests splitting indirect turnover costs into the following categories:

  • Lost productivity for the departing employee
  • Lost productivity due to the need to hire temporary employees
  • Coping with a vacancy or giving additional work to other employees
  • Costs incurred as the new employee learns their job, including reduced quality, errors, and waste
  • Damaged employer brand
  • Reduced morale
  • Lost clients and lost institutional knowledge

After writing articles on how information flow efficiency, emotions, knowledge, feedback style and interest all influence quality, I find it quite evident that all of these areas suffer with every person leaving the team.

There’s no way to measure precisely how much worse the quality gets, all we know: it gets worse.

What exactly happens to a team when its member leaves?

  • team communication graph is shattered, new connections must be established and normalised
  • team morale is shattered, and social dynamics of fear or uncertainty emerge

When an employee leaves the team, the team is destroyed and the new one must be assembled.

In some cases, the cost of reassembling the team is low. For example, when the team expected the employee’s departure.

Sometimes, the cost is ridiculously high. For example, the informal leader of the team is fired. This could result in further employee departures.

In any case, as quality depends greatly on information flow efficiency, it seems obvious that a company focused on quality should aim to invest in retaining the team.

To keep employees engaged and productive for an extended period, it is essential to assess the primary causes of turnover.

After examining 23 research papers, I have compiled a list of reasons for employee turnover that appear to be fairly consistent across various industries and cultural contexts:

  • low level of compensation
  • bad work schedule and conditions
  • lack of career opportunities and training
  • boredom
  • high level of stress, toxic workplace environment
  • lack of feedback and recognition
  • lack of trust and autonomy

I would like to divide these turnover causes into two categories: rational and emotional.

Individuals seldom depart their current employment without first exploring alternative options or even securing a job offer from another company. This offer typically outlines the salary, work schedule, conditions, and potential career advancement opportunities. It is reasonable to assume that individuals can weigh these aspects of the new opportunity against their current work environment, enabling them to make a rational decision to leave.

Some reasons for leaving a job are more emotionally driven, such as boredom, excessive stress, insufficient feedback, inadequate training, lack of trust, autonomy, or recognition. An individual cannot be sure beforehand whether their new workplace will be free of these issues. Therefore, when an employee resigns due to one or more of these factors, it suggests that they have grown weary of the negative emotions that have been perpetuated by management over an extended period.

I contend that understanding and addressing rational turnover reasons is comparatively simpler: employees who resign demonstrate that other organizations provide higher compensation or improved conditions. By comparing direct (and indirect, if possible) turnover costs with the discrepancy between your company's compensation and market rates, you can adjust accordingly. This approach will significantly reduce employees' intentions to leave for rational reasons.

It is crucial to prevent a recurrence of this situation, as the departure of any employee for logical reasons still negatively impacts the team. When one person leaves, it plants the idea in others' minds that there may be better opportunities elsewhere.

Addressing emotional turnover reasons is a more challenging endeavor: employees build up distrust and fatigue over an extended period, and even if management abruptly and effectively ceases any detrimental team practices, improvements will not be immediate. The process of rebuilding trust is steep and takes time.

While it may appear straightforward to identify the most common reasons for turnover in your organization through exit interviews, these interviews can be influenced by the same emotional detachment that prompted the employee to leave in the first place. The more an individual dislikes the company, the less reliable the information gathered during the exit interview will be.

If you are certain that rational reasons are addressed successfully and your company provides really competitive compensation and work conditions, you need to address the emotional reasons even if the exit interviews data is not reliable.

Furthermore, resolving these issues will enhance employee motivation and performance, leading to a synergistic impact on the overall organization.

I will also evaluate strategies for addressing the most common emotional reasons behind employee turnover.

Boredom and lack of recognition

In this article, I have identified the emotion of interest as a significant motivator for prolonged and productive work.

Individuals typically lose interest when they cannot perceive the effect of their efforts on others' lives or when their tasks are simply monotonous.

To combat boredom, involve employees in dogfooding and encourage direct communication with customers, this approach will foster a stronger connection between employees and the outcomes of their work.

Moreover, refrain from breaking down stories into tasks; allow the team to handle this process (if required). Tackling problems rather than merely completing tasks makes the work much more engaging.

Stress

A primary source of workplace stress stems from deadlines and the responsibility of providing estimations.

Estimations and deadlines are often not rationally necessary, yet they remain a prevalent practice.

It may be worth considering their complete elimination.

Furthermore, contemplate eliminating another major stress-inducing element — performance reviews.

Distrust

Trust is defined as:

Trust is the willingness of one party (the trustor) to become vulnerable to another party (the trustee) on the presumption that the trustee will act in ways that benefit the trustor. In addition, the trustor does not have control over the actions of the trustee.

Game theory demonstrates that businesses can attain greater long-term prosperity by fostering a foundation of trust with employees from the outset. This can be achieved by hiring staff and investing in their compensation without exerting excessive control.

While it might appear evident to invest in wages and recruit suitable personnel, numerous managers are perplexed by the idea of relinquishing control over employee activities. Yet, this is the essence of trust. Intriguingly, the same person might have faith in a belay partner to execute their role effectively or a surgeon to carry out a surgery accurately, but may not extend the same level of trust to the software developers they employ.

Here are the most common practices that undermine trust:

  • KPIs and OKRs
  • layoffs
  • process or architecture decisions imposed upon teams

For further insights, check out my discussions on trust and ethics at: https://www.youtube.com/watch?v=0FOF-hOn_uQ&list=PLFtS8Ah0wZvWS37oveJ0-D5K6V7GWUpqY&index=7

You may also want to contemplate eliminating any practices that weaken trust.

Additionally, explore the suggestions in this article.

Employee turnover is among the most expensive setbacks businesses face.

Workers don't depart from environments they cherish. By fostering a supportive atmosphere and providing good working conditions, managers can encourage employees to remain and contribute effectively over an extended period.

It's never too soon to begin addressing the issues that lead to employee turnover.

References: