Human Resource Executive, January 27, 2010, Wednesday

Human Resource Executive

January 27, 2010, Wednesday

Human Resource Executive


Managing Turnover's Disruptions

The study of a hotel and casino chain by Cornell University found that large work units and those with a high percentage of newcomers had the most trouble dealing with turnover-induced disruption and were the worst at satisfying customers. While the study offers some helpful strategies, some experts say HR's role is limited and that front-line managers must be made accountable for retention.

By Tom Starner

It's common knowledge that service-industry employers suffer the highest turnover rates -- typically estimated at 50 percent or higher -- in business. But, accepting those rates as a fait accompli is a bad idea, according to a new study from the Cornell University Industrial and Labor Relations School's Center for Advanced Human Resource Studies.

There is little doubt that such turnover -- which often results in faltering operations, productivity, employee morale and customer service -- eats away at profits, according to research by Ithaca, N.Y.-based Cornell.

But the study helps shed some light on a few specific strategies HR can use to help their service-industry businesses compete and succeed.

Bottom line, says Cornell ILR School assistant professor John Hausknecht, who conducted the research with two colleagues, service firms will succeed if HR practitioners better understand why workers quit and find ways to minimize the disruption to customer service.

"Our study found that that it is possible to manage turnover in ways that keep good service flowing to customers," Hausknecht says.

Hausknecht says the most surprising finding was not that turnover hurts customer service, which of course it does, but in which conditions it is most damaging. The study found that large units (for the study, a median of 165 employees) and those with a higher percentage of newcomers had the most trouble dealing with turnover-induced disruption.

Conversely, smaller units (median of 28 employees) and those with more experienced employees were able to buffer turnover's potential negative effects on customers.

"Previous research has documented the detrimental effects of turnover on different outcomes, such as productivity, and in different industries, such as banking and food service," Hausknecht says. "But our study extends these findings to customer outcomes in the leisure/hospitality industry, an industry plagued by high turnover, yet one where companies rely heavily on service quality as a source of competitive advantage."


The researchers studied more than 5,000 employees in 75 workplaces at a large U.S. hotel and casino chain. Hausknecht says the study chose the service industry because of its high annual quit rates. They primarily examined whether service quality is impaired by employee turnover, and if so, how managers, both in HR and in the business units, can make the situation better.

Among other things, the study, published in the latest edition of the Journal of Applied Psychology, finds that:

* As rates of voluntary turnover climb within key business units, customers are more likely to report poor customer service.

* When new workers arrive, established workers have to take time away from customer service to train the new workers in procedures and company culture.

* Work units with many new employees have more trouble managing turnover and receive the lowest customer service ratings.

The findings suggest that companies that aim to provide high-quality customer service while dealing with high turnover should structure their organizations into small work units; quickly introduce new workers to the organization's culture while training them for the job; examine reasons why large work groups are less efficient and try to improve on them; and hire, promote and transfer workers mindfully to avoid large pockets of newcomers in certain areas, Hausknecht says.

"Turnover is a multifaceted problem, so line-manager support is a big help in managing it," he says. "But there are things HR can do to help reduce its impact on an organizational-structure level."

Chicago-based Warren Cinnick, a director with PricewaterhouseCooper's People and Change practice, says the Cornell research "struck a couple of accurate chords," based on his experience with clients.

"For one, smaller work groups always seem to do better than large ones," he says.

Yet, during tough times, employers may reduce management layers and increase the supervisory overview from, say, 10 to 20 direct reports.

"They think it's a way to save money, [but it] doesn't always work out real well," he says. "Instead, productivity goes down and quality goes down. It's yet another reminder that there is a tipping point whereby you get a work group size too large, and bad things happen."

Cinnick also says the Cornell research points out how the "experienced vs. new hire" ratio can determine how turnover can negatively impact customer service in the service industry.

"If you have a lot of repetitive units, that repeat the same work, it's a good idea to keep an eye on the number of experienced employees and move them ... to balance out the newbies," he says, adding that HR should take steps to measure the tenure ratio in various units.

Also, he says, HR can use data to uncover the way heavy turnover in any one area is a sign that that the leader in that area is weak.

"HR's role is to be the scorekeeper and the source of timely and objective and conclusive feedback to management about those topics, and then tying them to the output of the company," Cinnick says. "The strong HR person stands up, [says] 'These are the numbers on the scorecard and let's do something about it.' "

According to Roberta Chinsky Matuson, president of Northampton, Mass.-based Human Resource Solutions, and the author of the soon-to-be-published book, Tossed IntoManagement! The New Manager's Guide to Influencing Up and Down the Organization, HR can do little to boost retention because it's the job of the hiring managers, the CEO and his or her team.

"We know that people leave their bosses, not their jobs," she says. "So the best that HR can do is to help their organizations focus on improving management skills."

She says HR can also help the organization by improving the quality of hires -- both management and non-management -- who are brought into the organization, which will, in turn, dramatically reduce the costly turnover that impacts customer-service levels throughout.

"What happens so often is that managers aren't held accountable, so the best HR practices won't mean much," she says. "If senior management isn't going to hold middle management accountable, HR's efforts are a waste of time."

Richard Finnegan, founder of the Retention Institute in Orlando, Fla., and author of "Rethinking Retention in Good Times and Bad," which recently was excerpted on BusinessWeek.com, agrees.

He says the Cornell study underscored that it's a lot easier to talk about turnover and retention than to fix it, while illustrating very effectively the high "hidden" costs of employee turnover.

"HR professionals are strapped because the CEO says, 'Turnover is high, so fix it,' but HR doesn't know what to do," Finnegan says. "The result is to roll out programs -- things like more communications, surveys, etc. But the shortcoming of that strategy is that a big chunk of the retention attack is on the operating side of the company."

Finnegan, who calls himself a "recovering HR director," says turnover kills certain industries, and yet there has been no established, research-based process to fix it -- just HR programs that have not been very effective.

"No one has ever said, 'Here is what to do,' " he says. "Hiring, benefits and purchasing all have a process, but not retention."

Finnegan says his 14-year study of retention and turnover resulted in the belief that "the way you cut turnover is the same way you improve sales, service quality and safety."

"You create shared responsibility between staff support and operations. In HR, they are stuck with this thing called turnover, and the operations people blame everyone but themselves, so there is no accountability."

The key starting point is for HR to present the finance department with a cost model, to put a real price on turnover -- from all possible angles.

"Once you put dollars and cents on it, you can get started fixing it," he says.

Employees quit because they can, and only stay if they can get something unique from their employer, Finnegan says.

"Supervisors drive retention and turnover, so it's critical to hold them accountable for retention losses. You can't get there just by doing HR programs," he says. "Right now, the way most employers approach turnover is much like solving medical problems using leeches. If first-line supervisors are not held accountable, you will never truly reduce turnover."

January 27, 2010

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