Racecars, Space Shuttles, and Employee Turnover
Employee turnover remains a critical organizational concern, and is likely to become increasingly important. Consider the following quote:1 “Demographic shifts (aging populations, declining birthrates, economic migration), social evolution, inadequate educational programs, globalization, and entrepreneurial practices (outsourcing, off-shoring, on-demand employment) are between them causing shortages, not only in the overall availability of talent but also—and more significantly—in the specific skills and competencies required.” Even with the down economy, retention among high performers has become more difficult due to budget constraints that limit bonus and incentive pay.2 The Corporate Leadership Council reported in 2010 that 27% of employees considered “high potential” intended to leave their current organization, up from 10% in 2006. This suggests that while the economic downturn may have temporarily abated the talent crunch, competition for top talent remains fierce. Furthermore, as soon as labor markets become more favorable for employees there is likely to be substantial “pent-up” turnover.3
How can managers and HR professionals use data and evidence to effectively manage employee turnover and retention? When we work with students and businesses on understanding employee retention, one of our favorite activities puts participants in charge of a car racing team with an important decision to make. What does racing have to do with employee turnover? Even better, the case is based on statistics from a NASA space shuttle launch. What in the world (or out of this world) could the space shuttle have to do with employee turnover?
The case4 requires members of the racing team to make a decision whether or not to participate in an important race when faced with the possibility of an important mechanical malfunction. Although the case is useful for numerous purposes, such as studying group dynamics and leadership, in this context we focus on the use of data to make decisions. In the case, one of the mechanics is concerned that cold temperatures have been causing blown gaskets, and some data is provided on temperature and race results. Some groups ignore the data provided and just “go with their gut” (which is almost always to race). But even with the groups that try to use the available data there is a problem. They are provided data on the temperature at race time for races in which they have blown a gasket. Based on these data there is no relationship between temperature and blown gaskets—thus, almost all groups decide to race.
Why is this a problem? Because this approach ignores data on the temperature at race time for races in which they have not blown a gasket—by only studying one side of the outcome of interest, that is, blown gaskets, they are falling prey to a common decision making error—sampling on the dependent variable (or outcome of interest). When all of the data on temperature from all races is included there is a clear relationship between temperature and blown gaskets. This case packs additional emotional wallop because the data are based on information from the Challenger space shuttle launch that ended disastrously when O-rings failed and the shuttle exploded shortly after lift-off.
Duncan Watts discusses this widespread phenomenon as sampling bias:5 a tendency to try to learn about phenomena of interest by identifying the attributes that occur when the outcome we are most interested in occurs. To learn about rich people or successful companies, he writes, we tend to try to identify the characteristics that rich people or successful companies share. Although this might sound logical, it ignores the possibility that less rich or less successful companies may very well share many of those same characteristics. The only way to really learn about factors that differentiate successful from unsuccessful or blown gaskets from not blown gaskets is to study both kinds and look for systematic differences.
So, back to the earlier question—what does this have to do with employee turnover? Well, how do most organizations try to learn about why employees quit? They ask the quitters! They conduct exit interviews, study the attributes of leavers, or have managers, supervisors, or HR professionals check off the primary reason each person is leaving. Certainly, collecting these data from leavers can sometimes uncover important information or patterns that can be useful. However, this approach suffers from sampling on the dependent variable—only collecting data from leavers while ignoring data from stayers. It may be that most of the departing employees say they are dissatisfied with their pay—however, it might also be the case that most of the employees who stay are also dissatisfied with their pay! If that is the case, although pay dissatisfaction may be important for other reasons, it is not what is driving turnover decisions.
Returning to our opening question, how can managers and HR professionals use data and evidence appropriately to effectively manage employee turnover and retention? That is the thrust of this book. Retaining talent is important to leaders in all types of organizations. The costs associated with losing employees and recruiting, selecting, and training new employees often exceed 100% of the annual compensation for the position.6 In addition to these direct financial costs, losing employees can also lead to work disruptions, loss of organizational memory and tacit knowledge, productivity or customer service decrements, loss of mentors, diminished diversity, and even turnover contagion where other valued employees follow the leavers out the door.7 Additionally, when tough labor markets prevent many employees from moving, get ready to deal with “pent-up” turnover. When job markets improve, many employees who have had few options will be looking for new alternatives.
Despite the importance of successfully managing turnover, many retention efforts are based on misleading or incomplete data, generic best practices that don’t translate, or managerial gut instinct at odds with research evidence. In this book, we take an evidence-based management approach in which we synthesize volumes of academic research on employee turnover into a practical guide to managing retention. We intend for this resource to be valuable to a range of audiences, from CEOs who care about the impact of turnover on the organization’s bottom line to the managers who suffer the most when their best talent leaves; from human resource professionals whose career success may depend on effectively managing turnover to students mastering new knowledge and skill sets. But first, we ask: what is evidence-based management?
Evidence-Based Management
Evidence-based management refers to translating knowledge and principles based on the best available scientific evidence into organization practice, enabling managers to make decisions informed by social science and organizational research.8 In his book, Becoming the Evidence-Based Manager,9 Gary Latham discusses the art and science of management: most management books focus on the art, based on the authors’ experiences or their organizations’ best practices. However, these experiences and practices may or may not apply to your particular challenges or contexts. Fewer books focus on the science of management: methods and techniques that have been supported with rigorous research, and thus are more likely to apply across different situations. A key component of evidence-based management is the integration of research evidence (the science) with experience (the art). Applying research evidence without experience can lead to neglecting important practical realities or the context in which the evidence is being applied. Relying on experience without considering research evidence can lead to neglecting new developments and changing conditions while relying too heavily on a narrow set of experiences that may not apply in new and dynamic situations. Indeed, we think most of us would prefer a heart surgeon who has performed heart surgery before AND who is up to date on the latest methods, tools, and technologies available.
Most managers get plenty of opportunities to develop experience. However, it is more challenging to stay current with research evidence for at least two reasons. One is simply time: managers are very busy and are under constant pressure to deliver results and deal with crises in the workplace. There is limited time available for studying research that may not be immediately applicable to day-to-day concerns. The other is that research evidence is often presented in a format that can be difficult to quickly and easily digest. The gold standard for quality research is publication in a peer-reviewed journal. However, the nature of the peer-review process often results in articles written with a heavy emphasis on theory and on describing in detail complex statistical methods, but with little emphasis on the practical application of the ideas or findings. For that reason, effective evidence-based management requires systematic reviews of research evidence that are accessible and focused on translating evidence into practical implications.10 That systematic accessible review is one thing we intend to provide with this book.
Evidence-Based Retention Management
Can evidence-based management principles be fruitfully applied to employee retention? There is good reason to believe that human resource management, broadly speaking, is particularly ripe for evidence-based management. Denise Rousseau, one of the leading proponents of bringing evidence-based principles to the study and practice of management, suggests that, on one hand, many human resource professionals would have to answer “no” if asked whether they know the scientific evidence for any of the human resource practices their company uses; at the same time, human resources research is well developed, with substantial evidence related to many organizational challenges.11
Employee turnover is one such challenge. There have been thousands of research studies conducted investigating how and why employees make voluntary turnover decisions. However, many managers do not have the time or inclination to read and digest all of this research evidence, and find themselves relying on conventional wisdom or mimicking practices from other organizations. In a prominent journal dedicated to bridging science and practice, the Academy of Management Perspectives, we suggested several keys to developing evidence-based retention strategies: creating a shared understanding of turnover definitions, measurement, and costs; developing an understanding of underlying cause-and-effect principles affecting turnover decisions; adapting this knowledge to a particular organizational context; diagnosing specific relationships in your organization; and integrating these sources of information into retention strategies.12 Figure 1 summarizes this evidence-based approach to retention management. In this book, we expand on these ideas to provide a systematic review to aid in developing evidence-based retention strategies.
We think we are well positioned to provide such a review. Taken together, we have been conducting research on employee turnover for twenty years. Much of this research has been published in the field’s most rigorous and prestigious peer-reviewed journals. The research that specifically led us to write this book was sponsored in part by the SHRM Foundation, one of the world’s leading proponents of human resource-related research, and has won several prominent awards. At the same time, the bulk of this research has been conducted in the field, with dozens of organizations of different sizes, in different industries, even in different countries. We have had the opportunity to survey, interview, and speak with thousands of employees in many different job types about their turnover decisions. And we have had the opportunity to interact with students, managers, and executives in our classes, executive education, and consulting activities where we discuss talent management and retention.
Figure 1. Evidence-based guidelines for retention management (reprinted with permission, Academy of Management Perspectives).
Turnover Myths and Retention Strategies
This book proceeds with two major sections. In the first section, we identify five widely held managerial misconceptions about turnover:
•Chapter 1: Turnover Is Bad
•Chapter 2: Turnover Is All About the Benjamins
•Chapter 3: Turnover Is Driven by Job Dissatisfaction
•Chapter 4: Retention Is Simple
•Chapter 5: Turnover Is Out of My Control
For each misconception, we illustrate how it operates in many organizations; identify the kernel of truth underlying each misconception; describe what the research evidence says instead; and summarize key evidence-based practical implications related to retention management.
In the second section, we identify evidence-based retention strategies associated with seven key interaction points with employees:
•Chapter 6: Recruitment
•Chapter 7: Selection and Hiring
•Chapter 8: On-boarding
•Chapter 9: Training and Development
•Chapter 10: Compensation and Rewards
•Chapter 11: Supervision and Leadership
•Chapter 12: Engagement
For each key interaction point, we identify important principles, summarize the research evidence, and provide practical guidance for implementing retention strategies.