Attrition & Retention: A Predictive Model

Attrition & Retention: A Predictive Model

(Behavioral explanation on employee turnover & retention)

WHITE PAPER

Author:

Santanu Basu


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Abstract:

This work is aimed at identifying causal factors of attrition & retention and to

produce a predictive model that could help to plan reduced attrition and

increased retention at management level. This study is triggered due to high

attrition scenario in BTO. Key points of this work are

Attrition & Retention are mutually exclusive, having different set of

factors

A combination Herzberg’s Dual Factor Theory of Motivation, Hackman

& Oldham’s Job Characteristic Model and ASA frame work helps best to

model the current attrition in the industry.

There are 8 set of factors which explains attrition and 4 set of factors

which explains retention

A combination of Employee Motivation, Employee Satisfaction, Employee

Involvement & Life Interest and Work Compatibility ensure prolonged

association of an employee to an Organization.


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Table of Contents

1. Attrition: Growth Impediment to the Industry……………………………….4

2. Attrition Scenario in BTO & Objective .......................................................... 5

3. Literature Review ............................................................................................. 6

4. Attrition Factors ............................................................................................. 10

5. Retention Factor ............................................................................................. 12

6. Modified Hackman & Oldham's Job Characteristic Model ........................... 13

7. Basic Models for Attrition & Retention ........................................................ 14

8. References ...................................................................................................... 15


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Attrition: Growth Impediment to the Industry

FY2012 stands out as a landmark year – while the Indian IT-BPO industry weathered uncertainties in the global

business environment, this is also the year when the industry is set to reach a significant milestone – aggregate

revenue for FY2012 is expected to cross USD 100 billion (NASSCOM).

Within Software and services exports, IT services accounts for 58 per cent, BPO is nearly 23 per cent and

ER&D and Software Products account for 19 per cent (NASSCOM).

The industry continues to be a net employment generator - expected to add 230,000 jobs in FY2012, thus

providing direct employment to about 2.8 million, and indirectly employing 8.9 million people (NASSCOM).

The industry’s share of total Indian exports (merchandise plus services) increased from less than 4 per cent in

FY1998 to about 25 per cent in FY2012 (NASSCOM).

NASSCOM actually estimated $220-280 billion of business opportunity for BPO export by 2012 and a stretch

target of $50 Billion export revenue (2.5% cont. to GDP) was set for the industry. One of the possible

impediments to this phenomenal growth, forecasted in parallel was lack of talent pool. Forecasted shortage of

0.8-1.2 million entry level graduates which may be further accentuated by the competition from domestic

Retail, Insurance, Telecom, Banking & BPO industries as the advantage of paying higher salary at the entry

level is getting eroded.

Software and services revenues (excluding Hardware),

comprising nearly 87 per cent of the total industry

revenues, expected to post USD 87.6 billion in FY2012;

estimated growth of about 14.9 per cent over

FY2011(NASSCOM).

Within Software and services exports, IT services

accounts for 58 per cent, BPO is nearly 23 per cent and

ER&D and Software Products account for 19 per cent

(NASSCOM).

The industry continues to be a net employment generator

- expected to add 230,000 jobs in FY2012, thus

providing direct employment to about 2.8 million, and

indirectly employing 8.9 million people (NASSCOM).

The industry’s share of total Indian exports (merchandise

plus services) increased from less than 4 per cent in

FY1998 to about 25 per cent in FY2012 (NASSCOM).

‘Aspiring Minds’ National IT/ITeS Employability

Study, 2012, shows that only 38.2% of fresh

graduates are employable in BPO

Close to 3 million graduates every year in India

Banking sector & it’s DSAs along with Retail &

Hospitality sectors are equally good pay master for

fresh graduates. These sectors are also growing at

equally good pace.


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Inadequate talent pool coupled with an attrition rate of 55% posing threats to cost competitiveness & differential

maturity advantage of Indian BPO over the other competitors like Philippines, China & Sri Lanka

Dealing with lack of employability needs lot many stake holders to get involved and though a needed step,

definitely a lengthy one to show improvements.

Attrition one the other hand is a controllable factor within the industry itself hence it is essential at this point to

understand employee turnover from causal perspective to find out the contributing factors and to come out with

a strategy to manage it in a way which could provide advantage in terms of cost, efficiency, and Customer

satisfaction.

Attrition Scenario in BTO:

From April, 11 to April 12, account BTO had an attrition count of 250 which is nearly 50% of the total work

force. Scenario of people leaving at so high rate posing challenges in terms of loss of return over investment to

hire, lost opportunity cost, loss of revenue. All of these are impacting the top line and bottom line both. Below

is the derived hard cost per attrition for an account having strength of 20 billable FTE, billable @ 40 GBP/day

with a hiring lead time of a month and two months training period before the billing starts (GBP to INR @ 76).

This gets even worse when customer starts panicking of losing efficiency and process knowledge.

Objective of this work is to produce a model which explains employee turnover in relation with prevailing

external & internal environment, indicates key contributing factors to help to formulate attrition control and

retention strategies.

Literature Review:

Though details are available around the tenure and system given high level reasons, we lack insight with respect

to demography and actual reasons due to unavailability/inaccessibility of details like findings of exit interviews

etc. Hence most of the work was done through literature review and other research works already done in this

field. The literature review was extensive in the field of ‘Behavioural Science’ and ‘Organizational Behaviour’.

Though there are pre-existing theories explaining various factor of work motivation, one which incorporates all

the aspects to predict attrition and retention was difficult to find. Moreover there could be industry wise

variations in the possible outcome with uniqueness of industries. BPO being a very new industry it was felt to

have some reference exclusive to the industry. Also it was felt to check the viability of the existing theories in

the Indian context as most of the researches done in this field in Western Context. Two empirical researches

done in India, (one exclusive to BPO with 500 respondent in NCR region, in the year of 2008, and another in


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labour industry with close to 1500 respondent) were picked up to add the contextual as well as the empirical

aspects of this work.

Though the field of ‘Organizational Behaviour’ emerged during Second World War with the practice and

findings of Behavioural Science getting embraced in the industries, attempt of explaining human behaviour has

its root way back to Hedonism of ancient Greece, which described human behaviour as rational, conscious &

deliberate attempt to avoid pain and discomfort & to secure comfort and pleasure. The journey goes through the

thoughts of Freud’s addition of unconscious behaviour to Content and Context theories of work motivation. All

of the modern work in this field postulates from the fact that there is a motive to every action. Motive is a felt

need and human behaviour is directed to satisfy the felt needs. Work motivation theory evolved through

Maslow’s need hierarchy and developed in broadly two groups of thoughts, content and process. It is difficult to

ascertain a single model as most effective as all of them are drawn from one perspective or the other. Moreover

empirical research to provide proofs of effectiveness should be taken in to the consideration. Hence focus was

to identify the work which is closest to describe the problem in consideration and valid in terms of empirical

research already done. Herzberg’s Dual Factor theory (1950) is one such. It was formulated through a study

done in 1950 on the accountant and the engineers in and around Pittsburgh. He used critical incidental method

while collecting the data. People surveyed were asked to narrate one incident each from their work – life

experience when they particularly felt happy and unhappy.

According to Herzberg, there are ten maintenance or hygiene factors. These are company policy and

administration, technical supervision, interpersonal relationship with supervisors, interpersonal relationship with

peers, interpersonal relationship with subordinates, salary, job security, personal life, working conditions and

status. These are not intrinsic part of a job, but they are related to conditions under which a job is performed.

They produce no growth in a worker’s output; they only prevent losses in worker’s performance due to work

restrictions. These maintenance factors are necessary to maintain at a reasonable level of satisfaction in

employees. Any increase beyond this level will not provide any satisfaction to the employees; however, any cut

below this level will dissatisfy them. As such, these are also called as ‘dissatisfiers’. Since any increase in these

factors will not affect employee’s level of satisfaction, these are of no use for motivating them.

Along with those he identified factors which are capable of having a positive effect on job satisfaction often

resulting in an increase in one’s total output. Herzberg (1959) includes six factors that motivate employees and

labeled those as ‘motivators’. Those are achievement, recognition, advancement, works itself, possibility of

growth, and responsibility. Most of these factors are related with job contents. An increase in these factors will

satisfy the employees; however, any decrease will not affect their level of satisfaction. Since, these increase

level of satisfaction in the employees; these can be used in motivating them for higher output.

Herzberg maintains that potency of various factors is not entirely a function of the factors themselves. It is also

influenced by the personality characteristic of the individuals. From this perspective, individuals could be

classified into two segments, motivation seekers and maintenance seekers. The motivation seekers generally are

individuals who are primarily motivated by the ‘satisfiers’ such as advancement, achievement and other

factors associated with work itself. On the other hand, the maintenance seekers tend to be more concerned

with factors surrounding the job such as supervision, working conditions, pay, etc.,

Herzberg concluded that job satisfiers are related to job content and that job dissatisfies are allied to job context.

Herzberg labeled the satisfiers motivators, and he called the ‘dissatisfiers’ as hygiene factors. The term

‘hygiene’ refers (as it does in the health field) to factors that are preventive; in Herzberg’s theory the hygiene

factors are those that prevent dissatisfaction. Taken together, the motivators and the hygiene factors have

become known as Herzberg’s (1959) two-factor theory of motivation or dual-factor theory of job satisfaction.

This theory seems to build on the Maslow’s theory that a satisfied need is no longer a driver. Lack of Job

Satisfaction could be identified as the primary motive explaining employees turn over and can be simply

defined as the feeling employees have about their job. The works around Job Satisfaction predicts that a

satisfied employee will produce more quantitative and qualitative output and will remain close to the

organization and propose reduction of the likelihood of absenteeism and employee turnover.


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A more recent work in this field is Hackman & Oldham’s job characteristic model (1976).

This postulates that there are five core job characteristics (skill variety, task identity, task significance,

autonomy, and feedback) which impact three critical psychological states (experienced meaningfulness,

experienced responsibility for outcomes, and knowledge of the actual results), in turn influencing work

outcomes (job satisfaction, absenteeism, work motivation, etc.). The five core job characteristics can be

combined to form a motivating potential score (MPS) for a job, which can be used as an index of how likely a

job is to affect an employee's attitude and behaviour. The motivating potential score (MPS) can be calculated,

using the core dimensions discussed above, as follows

Jobs that are high in motivating potential must be high on at least one of the three factors that lead to

experienced meaningfulness, and also must be high on both Autonomy and Feedback.[17] If a job has a high

MPS, the job characteristics model predicts that motivation, performance and job satisfaction will be positively

affected and the likelihood of negative outcomes, such as absenteeism and turnover, will be reduced.

Another Dimension to employee turnover can be observed through ASA framework proposed by Schneider

Schneider (1987) asserted that “the people make the place” and that organizational culture, climate and

practices are determined by the people in the organization. This theory is closely related to psychology. This

Schneider (1987) asserted that “the

people make the place” and that

organizational culture, climate and

practices are determined by the people

in the organization. This theory is

closely related to psychology. This

theory is part of the socialization

process, new members in organizations,

according to the framework, fit in a

specific organization.


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theory is part of the socialization process, new members in organizations, according to the framework, fit in a

specific organization.

In an updated ASA frame work in 1995, Schneider mentioned that not only the person is particularly important

in the organizational context and added the dimension that the people are responsible for the structure,

processes and culture of the organization.

According to him, attributes of people, not the nature of external environment, or organizational technology, or

organizational structure, is the fundamental determinant of organizational behaviour’. The people are functions

of an Attraction-Selection-Attrition cycle.

Attraction: People are differentially attracted to careers as a function of their own interests and personality

(Holland, 1985). Other signs of attraction are researched by Tom (1971) and Vroom (1966). They have stated

that people search environments that fit by their personality and that people would like to obtain their outcomes

by selecting a specific organization.

Selection: Organizations select people who they think are compatible for many different kinds of jobs. In that

way organizations end up choosing people who share many common personal attributes, although they may not

share common competencies.

Attrition: The opposite side of attraction. When people do not fit an environment they tend to leave it. When

people leave the environment a more homogenous group stays than those were initially attracted to the

organization.

Implications of the model are:

1) The difficulties of bringing change in organizations: Organizations have great difficulty when trying to

change, because they not contain people with the appropriate inclinations. When the environment changes an

organization will not be aware and probably not be capable of changing.

2) The utility of personality and interest measures for understanding organizational behaviour: It is difficult for

an organization to apply these topics for individual employees, who all have different compatibilities. This

model makes it clear that reaching conclusions for the best structure more information is needed on the kinds of

people working in the organization.

3) The genesis of organizational climate and culture: climate and culture are not easily defined in an

organization, most often they exist when people share a common set of assumptions, values and beliefs.

4) The importance of recruitment: on personnel selection is paid a lot of attention. Surprisingly, on personnel

recruitment, in which way the vacancies are communicated, is not paid much attention.


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5) The need for person-based theories of leadership and job attitudes. The research on this area is depressing

according to Schneider (1987). It is believed that the attitudes of people are created by the conditions of the

work place.

Literatures reviewed to identify the uniqueness of BPO industry. A comprehensive sociological study done on

the BPO industry in 2006 on the BPO employees located in and around Bengaluru, and a similar one done in

2004 covering Noida geographically were closely followed for this purpose and the below findings can be

highlighted in this context.

1. Most of the workforce in the industry is very young, over 80% less than 25 years old.

2. Study showed that the gender ratio is even however another report from NASSCOM states that

industry wise gender ratio is actually reversed as 31 men to 69 women.

3. Most of the workforce are from local lower middle class & middle class urban background and at least

graduates.

4. Fathers of 70% of the employees surveyed were executives or managers in public or private sector,

govt. officers, professionals or in business, 21 % are employed in lower level white collar (clerical) jobs or blue

collar jobs while 9% are self-employed. No one reported agriculture as father’s occupation.

5. 58% of fathers were graduates or above, 38% had completed 12th or 10th, only 1 reported not

completed 10th.

6. Identity of the workforce is more individualistic than collective.

7. Nature of work is more controlled and specific hence creates monotony.

8. Management control over the work and process is pan optical.

All three theories discussed so far form the theoretical frame of reference to explain attrition in this work and

empirical data out of the research works mentioned earlier now reviewed in reference to the theoretical

framework. The outcome was then structured to predict a reliable model to explain attrition from causal

perspective, which can be used as an effective tool to formulate strategies basis the uniqueness of the industry to

tackle the challenge.

Findings:

The research on the leather industry proves that the work motivation theories, Herzberg’s Dual motivation

factor theory in particular, holds valid with moderate changes in the factors (salary found out to be a motivator

and not a hygiene factor). The study on the BPO industry reveals that Job Characteristic model, moderated with

redefined job dimensions to include the extrinsic factors can explain attrition and retention very well when

combined with the personal characteristics. Employee Motivation, Employee Satisfaction, Employee

Involvement & Life Interest and Work Compatibility are the determining factors for prolonged association of an

employee to an organization.


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Some of the interesting facts came out from both the research work are

• Attrition and retention are mutually exclusive, they are not opposite sides of the same coin

• Opposite of Job Satisfaction is No Job Satisfaction

• Opposite of Job Dissatisfaction is No Job Dissatisfaction

• As attrition and retention have separate and discrete set of factors, need is to have two models

explaining attrition & retention exclusively.

Attrition:

A set of eight factors could be identified as causes of attrition, each could be further sub divided.

Low Self Fulfillment, Mystified Career Path & Unfavourable Working Conditions came out to be non-

significant in general. These factors were further tested for demographic variation, although all these factors

proved to be significant some variances with across the demography could be observed as below.


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Low Perceived Value is the most significant sub-factor. It had been observed that the gap between actual level

and expected level of employee motivation is growing at equal pace as the industry.

New employees join the

industry with excitement

(because of high salary &

vibrant work culture) which

results in higher level of

motivation. However this soon

gets faded out and the gap

between actual and expected

level of motivation increases as

the employee spends time in the

industry.

This causes a vicious cycle of

employee turnover. With the

increasing motivational gap,

perceived value even gets

lowered causing and results in

lower efficiency which in turn

makes the employees unable to

deliver and quit the job this

even lower down the perceived

value. This explains why 50%

of the employees who quit,

leave the industry as well. The

low perceived value of these

employees also creates an

attitude of taking the BPO jobs

as stop gap for the future

employees.


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Retention:

A set of four factors could be identified to be influential to retention, each could be further sub divided.

Employee Motivation, Employee Satisfaction, Employee Involvement & Life Interest and Work Compatibility

are the determining factors for prolonged association of an employee to an organization. These factors were

further tested for demographic variation, although all these factors proved to be significant some variances with

across the demography could be observed as below:


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Basis the above observations a modified version of Hackman & Oldham’s Job Characteristic model can be

build which could act as theoretical frame work on which the basis management tool can be built separately for

attrition & retention factors.

Modified Version of Hackman & Oldham’s Job Characteristic Model:

Basic Model for attrition:


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Basic Model for Retention:

Involvement vs. Intrinsic Motivation: Effect on Employee Retention

In short term, focus should be on conscious retention practices for STRUGGLERS & DISGRUNTLED

quadrants however with the increase of involvement practices eventually all the 4 quadrants will be covered.

ASA frame work proposes that People get ‘Attracted’ to the career as a function of their abilities, interest &

personalities & Organizations ‘Select” basis the Organizational Need. Once selected employees over the time

find themselves either ‘Fit’ in the prevailing organizational culture or ‘Attrite’. This process forms a cohort

group of ‘Fit’ people within the organization. Though communication is easier within this cohort group

however in the long term this group fail to cope up with the external environmental changes and become a

resistance factor for any internal change initiative.

Hence though we could have more predictability on the retention probability of an employee if we try to find

out if the employee would be ‘Fit’ while ‘Selection’, it may, in the long term, adversely impact required

diversity. Hence it is also essential to ensure to have periodical inflow of fresh thoughts and ideas in group of

specific number of people, while planning retention.


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References:

Employee Attrition and Retention: Exploring the Dimensions in the urban centric BPO Industry (Santoshi Sen

Gupta)

Dual Factor Theory of Motivation: A Replication in Indian context (Dr. Mohammed Galib Husain & Dr.

A.Thirupathy)

WORK, CULTURE, AND SOCIALITY IN THE INDIAN IT INDUSTRY: A SOCIOLOGICAL STUDY

(Carol Upadhya & A.R.Vasavi)

ASA FRAMEWORK: AN UPDATE (B. Schneider, H.W.Goldstien & D.Brent Smith)

Do People Make the Place? An Examination of Attraction-Selection-Attrition Hypothesis (Robert.D.Bretz Jr.

Ronald.A.Ash, Gregory F. Dreher)

NASSCOM-EVEREST INDIA BPO STUDY (Roadmap 2012-Capitalizing on the Expanding BPO Landscape)

National IT/ITeS Employability Study (aspiringminds).

Attrition & Retention: A Predictive Model

Leadership & Management

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