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EFFECT OF LABOUR TURNOVER ON ORGANIZATIONAL PRODUCTIVITY
CHAPTER ONE
- INTRODUCTION
- Background of the Study
Employee turnover refers to the rate at which an employer gains and losses employee, how long the staff tend to leave and join the organization (Armstrong, 2006). In his book, Horton (2007state that it is becoming a major issue for the organizations especially for the low cadre jobs. There are many contributors to this scenario that are significant to the employee turnover. Such aspects can stem from both the company as well as the employees (Izzack,2010).The employers are more concerned with the turnover as it impacts negatively and a very expensive aspect of the business world (Thomas,2003).
According to Martin (2005) when employees leave the company, the employer has to incur a considerable amount of direct and indirect expense. The costs of employee turnover can be staggering ranging from consuming quite a substantial amount of annual wage that an employer would otherwise pay to its workforce (Linda, 2002). The costs of employees turnover normally includes; advertising expenses, headhunting fees, resource management expenses, loss of time and efficiency, work imbalance, and employee training and development expenses for new joiners (Harrie,2002). The company may quarterly calculate employee turnover rates to meliorate the factors causing the turnover (Miller, 2006). If the company determines the most common causes of employee turnover, it would certainly be able to take the necessary steps for recruiting and retaining well-qualified personnel (Armstrong, 2006).
According to Martin (2005) a huge concern to most companies is that employee turnover is a costly undertaking especially in organizations that thrives and values viability of the business. Employees’ wages, company benefits, employee attendance, and job performance are all factors that contribute to employee turnover (Dessler, 2009).According to Murphy (2009) companies take a deep interest in their employee turnover rate because turnover affect the running of the business by creating disruptions which results to reduced production and profits of the organization. Replacing an employee demands that time should be taken to induct the new employee on new roles and responsibilities which is a cost to the
organization (Anthony, 2006).
These expenses of staff turnover facing organizations include the cost of training and development, loss of efficiency, new hires and customer retention. Depending on the industry, and the job role, the annual wages and salaries range between 30-200% of a single employer (Trevor,W. (2004). This is more impactful on the lower paying jobs and they tend to cost companies less per replacement of an employee than do higher paying job roles. However, they incur the cost more often. For these reasons, most companies focus on employee retention strategies regardless of pay levels (McClelland, 2003).
According to Oregon (2004) most companies find that employee turnover can be reduced when issues affecting employee’s morale are addressed. This is mainly through offering employees benefits such as reasonable flexibility with work and family balance, performance reviews, and performance based incentives, along with traditional benefits such as paid holidays or sick days (Murphy, 2009).The extent to which a company will go to in order to retain employees depends not only on employee replacement costs, but also on overall performance of the company (Phillip, 2009). If a company is not getting the performance it is paying for, replacement cost can be an enormous price to pay in the long run (Bratton, 2003).
According to Blahna (2005) high turnover can be a serious obstacle to organizational efficiency, quality, and profitability of firms of all sizes. For the smallest of companies, a high turnover rate can mean that simply having enough staff to fulfill daily functions is a challenge, even beyond the issue of how well the work is done when staff is available (Richard, 2008).Turnover is no less a problem for major companies, which often spend millions of dollars a year on turnover-related costs (Miller, 2006). For service-oriented professions, such as management consulting or account management, high employee turnover can also lead to customer dissatisfaction and turnover, as clients feel little attachment to a revolving contact (Brian,2009).Customers are also likely to experience dips in the quality of service each time their representative changes (Miller,2006).
Horton (2007) uses cross-section study of the inter-industry variation in male and female employee turnover in UK manufacturing companies, The number of discharges over four weeks found very high. The annual rate of employee turnover was estimated by taking an average of the quarterly observations. This shows a wide variation, the annual male employee turnover rate was lowest at 8.5 per cent in Mineral Oil Refining (262) and highest at 77 per cent in Jute (415) in American corporate companies. Similarly the female rate ranged from 12.4 per cent in Mineral Oil Refining to 81.9 per cent in Fruit and Vegetable Products (218). The male employee turnover rate across all manufacturing was 29.9 per cent. Employee turnover is clearly greater among females. Seven in every ten MLHs had a female rate in excess of 40 per cent.
Miller (2006) uses multinational cross panel regressions to explore the extent of employee turnover in the organization which may trim down growth and development of any organization and the overall economy. His paper finds a substantial impact of employee turnover on economic growth based on data from East Asia, Africa, South Asia and the Middle East. His results suggest that employee turnover in education and management has a direct impact on economic growth through throbbing change in management lowering the average quality of human capital.
According to Robbins (2003), staff turnover is costing South African organizations millions of rands in decreased efficiency. Staff turnover is estimated at 40 billion rands a year. The cost of staff turnover and the impact thereof on productivity alone is enough to depress any human resource manager and the organization. There might be a delay of service delivery while waiting for the replacement staff to arrive. In addition, there might be production losses while assigning and employing replacement staff (Ziel & Antointette, 2003). Often the organization experiences a waste of time due to inexperienced replacement of staff. Management and other staff spend valuable time not doing their job but trying to orientate the replacement staff.
1.3 Problem Statement
Employee turnover can be harmful to a company’s efficiency if skilled workers often leave the organization and the work population contains a high percentage of novice workers (Armstrong, 2009). According to a research study carried out by the Ministry of Energy in conjunction with the United Nation Development Program (Maxwell, 2010), statistics revealed that for the last 2 years, more than 35% of employees working for private sector organizations exited to other companies. The efficiency of many organizations have thus been threatened by huge costs/expenditure incurred on recruitment and selection of new staff to replace the work force gap created by the leaving employees (Premeaux, 2000).
In the recent past, there has been noticeable decline in the efficiency of many organizations in especially from the private sectors (Ali, 2010). According to Fredrick (2010), the contribution of private sector Organizations towards the growth and development of Kenyan economy has declined compared to the previous decade where private sector had a strong positive effect on Kenyans economy. This downward trend according to (Edward, 2010) has been influenced by high level of employee turnover that impacts negatively on organization efficiency.
According to Maxwell (2010), a key problem to employees’ turnover is that the organization loses the most experienced and skilled staff that the organization had invested heavily in training on various organization job task functions. This therefore means that, the organization must incur huge costs in terms of time and finance to train the newly recruited staff in order to make them effectively adapt to organization working environment and demonstrate the required skills and experience.
According to Phillip (2009) employees turnover influences allocation of the job tasks functions to inexperienced employees who lacks technical knowhow on effective execution of organization services, this greatly degrades the quality of organization services and as result, low level of customer satisfaction is realized. The organization sales revenue declines and this lowers the level of organization efficiency.
According to Paul (2009), as result of increased level of employees’ turnover rates, many organizations have turned on application of various employees’ retentions strategies such as employees’ benefits, increased remuneration and offering of various employees rewards. This however has led to increased organization expenditure and realization of a declined profit margin (Duncan, 2008).
For the last 3 years, COCA COLA PLC has experienced an increased rate of employees’ turnover and this had a negative impact on organizational efficiency. In the year 2010 alone, the employees’ turnover was 25% and the organizational efficiency dropped with 6%. Previous studies undertaken by Ali (2010), Fredrick (2010), Edward, (2010), Premeaux, (2000), Paul (2009), Duncan (2008), Maxwell (2010) and Phillip (2009) only highlighted evidence on the existence of employee turnover problems but did not offer any practical solution on how organizations should manage turnover to realize increased organizational efficiency. This has hence created a major knowledge gap on employee turnover management hence this study aims to fill the missing gap by determining the impacts of employee turnover on organization efficiency with a specific reference to COCA COLA PLC. The findings obtained influenced towards coming up with effective recommendations on how organizations should minimize employees’ turnover rates and realize increased efficiency.
1.4 Purpose of the Study
The overall objective of the study was to assess the impacts of employee turnover on organizational efficiency.
1.5 Research Questions
The study sought to answer the following research questions
- To evaluate the causes of employees’ turnover?
- To assess the impact of employees’ turnover on organizational efficiency?
- To determine the mitigating strategies of reducing employees’ turnover?
1.5 Significance of the Study
- Researchers and Academicians
The findings of this study are expected to be of great significance to various researchers involved in human resource development research activities. The documented report of this study will be easily acquired from the library and it will equip the learners with more knowledge and skills on factors contributing to employee turnover in all NGO’s and other private sector organizations. The study will further make a myriad of contributions to the literature on employee turnover which will be part of articles useful by researchers who want to further this study and to other wider stakeholders in the academic circles.
1.5.2 NGOs
The study will be of great significance to the all NGO’s and all organizations since it will highlight some of the critical challenges hindering increased growth and development in organizations of any kind. COCA COLA PLC through various stake holders will hence facilitate development of operational policies that influence increased rate of staff retention in the organization.
1.5.3 Other Organizations
The findings of this study are of great significance to not only NGO’s but all organizations in the country since by using the analyzed results, human resource managers in all organizations will be in a better position to understand the causes of employee turnover rates and be conversant with the best staff retention strategies to manage high staff turnover rates.
1.6 Scope of the Study
The study was confined to COCA COLA PLC headquarter offices situated in Nairobi to enable the management to disclose much information concerning the employee turnover problems. The data collection period was between May and June 2015.
1.7 Definition of Terms
- Employee Retention
This is an effort put in by the employers in an attempt to keep employees in the
organizations (Spencer, 2001).
1.7.2 Employee Turnover
Employee turnover refers to the rate at which an employer gains and losses employees (Armstrong, 2006).
1.7.3 Motivation
Motivation is defined as a psychological force that determines the direction of a person’s behavior in an organization, a person’s level of effort and a person’s level of persistence (Gareth, 2008).
1.7.4 Organizational Efficiency
The capacity of an organization, institution, or business to produce desired results with a minimum expenditure of energy, time, money, personnel, materiel (Mesh, 2012)
1.8 Chapter Summary
The chapter gave the background of the study and how employee’s turnover affects the organizational efficiency. It has also gives the reasons why employee turnover should be of concern to the organizations and why measurers needs to be put into place to curb this problem. To assist in unraveling this, the research questions have been stipulated with a clear focus on where the research will be based.
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