Kirk LaughlinBy Jag Dalal
Loyalty is a virtue of the past. Employees used to commit to their employers for life and generations of family remained loyal to their employers. Employers, in turn, were also loyal to their employees and built towns around their places of business so employees would have a stable life. Carnegie, Firestone and Tatas all built towns and generations of families lived and worked for them. All of that has changed. BPO is not the only industry where mutual loyalty is lost, but it is an industry that has seen factors not seen in other industries.
We have seen an extreme increase in employee turnover in many of the countries. Twenty percent of annual employee turnover has become a norm. There are many locations where the turnover has risen to 50-60 percent, and it has seriously impacted service delivery as well as profitability of BPO companies.
Factors Causing the Turnover
There are socio-economic as well as business factors that are causing the turnover to be high for outsourcing businesses. Turnover also differs depending on the geography and cultural differences.
Social Factors: In a recent speech, I identified one of the factors as “westernization” of workforce. In developing countries, especially in Asia, workers were happy to have a job and were willing to work long hours, including over time. There was dedication to completing work and a strong desire to “please” their superiors and customers. As “western” work standards were introduced, workers were compensated for non -standard work hours and more job opportunities better suited to their life-style (commute, normal work hours etc) emerged. As worker’s privileges increased – such as more break time, access to a relaxing environment (one that I call “Starbucks effect”) – workers began seeking for employers who provided them benefits.
The second social factor that has impacted turnover is the relocation of work. In the past, workers, especially young ones, stayed close to their family and only considered relocating as a last resort. This facilitated their work habits with a familial infrastructure when required.
Grandparents and family members would take care of the family during an emergency or provide child care on a regular basis. This social structure has changed dramatically in many countries. People now relocate farther from their homes and use trains and airlines for traveling back and forth. There is a loss of family infrastructure and, as a result, workers are reluctant to work longer hours and on odd shifts.
Economic Factors: With increasing competition for skilled employees, providers started to entice workers with higher pay and other benefits. Workers soon discovered that they could increase their wages significantly just by taking a job with a company down the street. Employees are also becoming more interested in equity interest in employers and are savvy about companies’ market financial conditions and positioning. This has created both a gap and a promised opportunity (when going public) for non-public companies.
Employees have also started comparing non-monetary benefits and are becoming more selective in choosing employers. For example, on-site daycare is a rather unusual benefit in many developing countries. As mentioned above, when a worker does not have a family support system, this becomes a desirable benefit.
Maturity Factors: Outsourcing organizations have grown rapidly and have built up larger organizations in a shorter period of time than established professions. As a result, organizations have had to quickly train and develop their workforce, and more importantly, the management team. Since most educational programs only provide foundations and not practical industry based experience, providers have had to create and deploy their own development programs – whether it is process knowledge or English proficiency.
Employees soon discovered that by going through such a program, they increased their marketability and could demand higher compensation by turning to a competitor. Thus, the loosening of loyalty, coupled with their ability to leverage on-job training, created a more mobile workforce.
Another impact of high and fast growth has been a dearth of qualified, experienced middle level managers. Companies have responded by poaching middle level managers from their competition, in turn, creating a market demand that employees use to their advantage.
Impact of Higher Turnover: The obvious impact of high turnover is a higher cost of recruiting, training and retaining employees. Employers have to maintain a large recruiting organization and have to constantly search among available candidates, including those working for their competitors.
Ironically, this has further exacerbated the turnover problem for the industry as a whole. Providers have had to increase their compensation – salary as well as benefits – in order to stay competitive in the marketplace. In recent years, many of the offshore providers have indicated that they have had reduced margins from the business in order to cope with these salary increases.
Annual increases of over 10-15 percent have become norm for most locations, and these increases cannot be offset with increased delivery prices, since most economies are not growing at that rate. For example, many of the U.S. companies either do not allow price increase due to “cost of living” adjustment or limit it to the generally accepted U.S. cost of living changes which have been around 2-4 percent annually.
Providers are also finding that they cannot retain and motivate middle level managers. This increases delivery and management exposure and reduces continuity and work-customer experience. Customers, who are not used to seeing gaps in middle management, find this frustrating and feel that they are being used as a training ground for the providers.
Managing Turnover Successfully
This is an issue resulting from high growth and success. Companies did not have to face this in the past, when the labor pool was bigger. Providers made sure that they kept recruiting on a large scale, knowing that the business would grow to use those employees, and at the same time, backfill the openings.
Now that growth slowed, this approach is no longer an effective solution for high employee turnover. Early on, the human resources department was mostly dedicated to recruiting and training. Now, those departments have to start thinking like older established businesses and create functions like, organizational development, succession planning and employee relations/communication.
My experience has shown that well managed providers now include human resources as a key organization in building and maintaining the delivery organization. They constantly survey the marketplace and establish benchmark salary and benefit programs competitively. They also develop strong relationships with educational and training institutions so that they have a steady stream of qualified candidates for consideration. I know of companies who have recruited college graduates even when their business is not demanding a high recruiting level. These companies believe that such actions create a level of loyalty for college students and administrators.
Companies that are facing high turnover of middle and senior management have also started a more formal succession planning program where employees are made aware of their future predicted roles and levels. This approach helps employees see where they can go in the future and what they need to learn/develop before being promoted.
Employee counseling about current and future development needs are integrated with training and job exposure programs and communicated to employees. Middle and upper level management have come to recognize – just as in established industries – that human resource management is as critical a part of their job as designing and managing delivery solutions to their customers.
Retaining Employees
Companies are also designing retention and promotion programs that can address their employee’s needs more effectively. One of the more common retention strategies has been to offer a “sign up or retention” bonus to employees that is paid over multiple years – enticing employees to remain with the company.
Loyalty may be a virtue of the past but companies can create programs that generate a level of continuity and stability in the workforce. It’s expected that the outsourcing industry will continue to grow for the foreseeable future, but competition for workers will also increase. (The graying of the workforce” is already a common theme for developed and developing countries). In order to succeed, companies will have to strengthen their human resources programs as well as their products and services.
Jagdish(Jag) Dalal is Founder and President of JDalal Associates LLC (JDA) and Managing Director, Thought Leadership for IAOP and a world-renowned consultant in the field of outsourcing. Dalal is a Certified Outsourcing Professional (COP®). He can be reached at JDalal@JDalalAssociates.com
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