Prosperity in India is making it harder for outsourcing providers to find and retain qualified employees to fill positions. The tight labor market has companies searching for new workers but they may be overlooking one of the best ways of finding them – that is, to lose their existing ones. A typical high performance US company has a benchmark turnover rate of three to five percent per year. Rates any higher than these can cost a US company millions of dollars per year. Indian firms have reported rates as high as 50 percent. Even modest levels of turnover - 10-20 percent - are disruptive to lean organizations. So the question is how do outsource providers who have significant operations in India manage turnover.

Organizations typically underestimate the impact of turnover

A recent case study of a client found that they did not think they had a turnover problem. Their turnover was higher than the benchmark but the same or less than their competitors. However, when they estimated:

The company was shocked to see the cost was much higher than they anticipated. Even reducing turnover a few percent can mean a significant return on investment.

Here are some ideas that can help lower turnover rates:

Realize that all turnover is not equal

Distinguish voluntary turnover (separation) from involuntary turnover (termination or being fired). Termination may be profitable as poor performing employees are culled from the company. What hurts is when good employees quit.

Companies also differentiate short-term from long-term employees.

Turnover of short-term employees is often due to an unrealistic job interview during the hiring process. Prospective employees are given promises that are not kept or they can be given a "rosy picture" of job conditions that are simply not true. Giving prospective employees a realistic preview - even to the point of exaggerating the negative aspects of the job - does not significantly reduce the number of people who accept the job, but can reduce turnover by more than half during the first year.

When long-term employees quit, their loss is the most expensive and the most painful to the organization. They take with them training, skills, experience, productivity and the social bonds that contribute to other employees wanting to come to work. So, provider focus on managing the turnover of longer-term employees is critical.

Avoid excuses: "If only we could hire better people" or "They all leave for better money". These make someone outside the organization responsible for your problems and prevent an organization from making effective changes. The first step in reducing turnover is to analyze the organization to identify the underlying causes of it.

What causes employees to quit or stay?

Research firms have identified five factors:

Commitment

Commitment had the strongest influence on desire to stay. When employees were proud of the company and shared its ideals and values, they wanted to stay.

Action: Ensure providers have a clear vision and values statement. "Walk the talk." They should be able to remind their employees how their work makes your customers' lives better and should be made to feel as if they are an extension of your company. Involvement in charities or community groups - good PR can increase employee pride in the company. The best companies in India have begun to do this to the point of even getting family members of the employee involved in company activities.

How do their employees see their future with your company?

Action: Is their recognition program meaningful to employees? They must establish clear career paths. Identify development projects that would be interesting to experienced employees and beneficial to the company. Identify other benefits and "perks" that don't have to cost much but can be used to reward good performance.

Job Satisfaction

Are their employees enthusiastic to come to work each day? Is their work satisfying?

Action: Identify the factors that satisfy employees. (What do you like best about your job and the company?) Identify factors that are a source of dissatisfaction. A climate survey, interview, or focus group is a great way to measure job satisfaction among workers. The best providers have done research to measure their employee satisfaction, can articulate it and have initiated improvement measures.

Stress

A high stress work environment clearly contributes to employee turnover. Even seemingly low levels of stress can cause people to quit their jobs.

Action: Look for sources of stress: Red tape; clumsy procedures; Hard-to-get information; Unrealistic deadlines; Work Interruptions; Heavy workload; poor communication. Any process deficiencies at the provider will be magnified when a process is outsourced, so mitigation of those deficiencies and a strong process to manage them are crucial in choosing an outsource provider.

Fairness

When managers are unfair or play favorites, employees quit.
Action: Find out from your employees what is fair and unfair about the workplace. Fairness needs to be defined from their perspective - not yours. Are people promoted for the right reasons? Are jobs posted and made available to internal employees first? Are the criteria for raises and promotions clear? How do you assign offices? Equipment? Parking? Projects? Are employees recognized for clear and fair reasons?

Focus your energy on specific issues

One thing that makes humans unique is our ability to focus energy. Whether to heat a home or to cut steel with a laser, focusing energy where it's needed produces significant results. Focusing time and resources on a specific problem is likely to produce measurable benefits to the organization.

What about money?

The most common reason given for quitting is the prospect of more money. If your provider company pays below industry average, people may be leaving for more lucrative jobs. But why won't some employees reveal that pay is their motivation for quitting?

Perhaps money is a politically delicate issue - workers who raise the issue feel they could be in for retaliation. Ultimately, careful and frequent analysis of your provider compensation package - and their action to improve it when needed - is key in keeping employees happy.

Improving turnover significantly increases productivity and profits, because addressing provider turnover issues uncovers root problems that impact other parts of your organization.