Employee Retention Strategies: IT Industry

Abstract

Employee Turnover is a major challenge faced by the companies globally. This study has focused on IT sector. Employees are the assets of any organization and organization can not afford losing its key performers. Organizations are striving to retain their talents by implementing effective retention strategies. High Employee Turnover would subsequently have an impact on productivity and sustainability of the organization. This study is an attempt to understand the impact of Retention Strategies on Employee Turnover in IT sector in India. Bangalore, being the IT hub of India, was chosen as the location of the study. Other variables such as Welfare Benefits, Personal Satisfaction and Organizational Culture, which are said to be associated with the Employee Turnover, were also investigated as a part of this study. Intention to stay is the proxy variable which explains the employee turnover in this study. Previous research conducted by various scholars has shown that employee's intention to stay/leave determines the actual turnover.

Headnote

Abstract

Employee Turnover is a major challenge faced by the companies globally. This study has focused on IT sector. Employees are the assets of any organization and organization can not afford losing its key performers. Organizations are striving to retain their talents by implementing effective retention strategies. High Employee Turnover would subsequently have an impact on productivity and sustainability of the organization. This study is an attempt to understand the impact of Retention Strategies on Employee Turnover in IT sector in India. Bangalore, being the IT hub of India, was chosen as the location of the study. Other variables such as Welfare Benefits, Personal Satisfaction and Organizational Culture, which are said to be associated with the Employee Turnover, were also investigated as a part of this study. Intention to stay is the proxy variable which explains the employee turnover in this study. Previous research conducted by various scholars has shown that employee's intention to stay/leave determines the actual turnover.

Key words:

Employee Turnover, Employee Retention Strategies, Personal Satisfaction, Organizational Culture, Welfare Benefits, Intention to stay.

Employee turnover is a common phenomenon which many organizations are facing today. Organizations invest immensely in recruiting and developing their employees. Hence employee turnover is a potential loss for any firm. HR managers try to prevent the employee turnover by implementing effective retention strategies. Employee turnover is a common issue in Indian IT sector, though the trend has been reduced for the interim due to the recession. Still the issue becomes perpetual once the economy becomes stable.

People leave the organization due to various reasons. The experience of job related stress (job stress), the range factors that lead to job related stress (stressors), lack of commitment in the organization; and job dissatisfaction make employees to quit (Firth, Mellor, Moore, Loquet (2007). Employee can be dissatisfied with the organization due to many reasons. Personal dissatisfaction itself is a major reason for an employee to leave the firm. This dissatisfaction can arise from various factors such as compensation, job security, job autonomy, relationship with the supervisor and other colleagues etc.

Turnover intentions can arise from organizational factors as well. Organizational culture itself can be motivating or de-motivating to many employees. Some organizational cultures can be inspiring to their employees and provides an inductive environment to their employees. Organization with strong communication systems enjoy lower turnover of staff (Labov, 1997).

Voluntary quits represents an exodus of human capital investment for organizations. The subsequent replacement process entails manifold costs to the organizations. Replaced employee has to be inducted, trained and developed, which incur costs. Till one employee is substituted, production is also going to suffer which adds more costs to the firm.

In order to minimize the costs associated with the turnover, firms are implementing various strategies. Given that there is increase in direct and indirect costs of labour turnover, therefore, management is frequently exhorted to identify the reasons why people leave organizations so that appropriate action is to be taken by the management. Providing competitive salaries and other benefits, empowerment, providing stock options, flexible work hours are few of such strategies adopted by the firms to retain their staff. But how significant are these strategies to the employees? The purpose of this study was to study the impact of the retention strategies on employee turnover.

Literature Review

According to Gaan (2011) employee turnover has been a major issue pertaining to IT personnel. It has been noted frequently that IT personnel have a stronger than average tendency to leave their current employer to work for another. Employee Retention involves taking measures to encourage employees to remain in the organization for the maximum period of time. Retention is defined as a voluntary move by an organization to create an environment which engages employees for long term (Chaminade, 2007). The main purpose of retention strategies is to prevent the loss of competent employees from the organization.

According to Agarwal and Ferratt (2002), the effective utilization of IT depends on the availability of IT professionals to plan for, develop, maintain, and integrate information systems applications. The ability of organizations to retain their information technology (IT) staff has been a critical factor in the effort to achieve strategic business goals. The exit of an IT professional who knows a project inside and out can delay or even prevent the implementation of a new technology or system (Mooreand Burke, 2002). Authors also mentioned that turnover rates of 25 percent-35 percent had been reported in Fortune 500 companies over the past five years, while a supply-demand gap in the IT labour market conceivably exacerbates the IT-retention problem.

Employee turnover often results in a drain on management time, and creates pressures in workforce planning. Intangible costs include: negative impact on culture or employee morale; adverse effect on social capital; erosion of organizational memory (Dess and Shaw, 2001).

In addition to a number of direct costs associated with the process of recruiting replacement staff, there are multiple indirect and intangible costs (Clark-Rayner and Harcourt, 2000). Indirect costs include learning costs for new employees; the costs of being short staffed, with knockon effects for remaining employees; and costs to the quality of products or services, which can in turn result in lost customers (Cheng and Brown, 1998).

Retention Management

Effective retention management requires ongoing diagnosis of the nature and causes of turnover, a strategic approach to determining in what human capital markets retention has the largest impact on organizational success, and the development of an appropriately targeted and organized bundle of retention initiatives (Allen, Bryant, Vardaman, 2010). Employee retention is a process in which the employees are encouraged to remain with the organization for the maximum period of time. Employee retention is beneficial for the organization as well as the employee. Employees today are different. When they get dissatisfied, they move to other organizations. It is the responsibility of the employer to retain their best employees, if not; the organization will lose the star performers (good employees), (Gurumani, 2010).

According to Vaiman (2008), retention management has become a major source of competitive advantage in the modern and rapidly globalizing business world. Whitt (2006) in his study mentioned that increased retention means reduced employee turnover. According to Cappelli (2000) the old goal of HR management-to minimize overall employee turnover-needs to be replaced by a new goal: to influence who leaves and when. Research conducted by Agarwal and Ferratt (2002) in IT industry identified several retention practices. Additional financial incentives, increased frequency of performance appraisal, training and development opportunities were highlights of those retention practices. Griesser (1993) investigated the motivational issues among IS (Information Systems) professionals. According to him, IS employees are more resistant to changes than other professionals, and development professionals are concerned about their career development prospect.

Causes of Turnover

The causes of turnover varies from external environmental factors such as economy, to the organizational variables such as type of industry, occupation, organization size, payment, supervisory level, location, selection process, work environment, benefits, promotions and growth (Achoui and Mansour, 2007). Other factors are individual work variables such as job satisfaction, pay and working conditions (Arthur, 2001). Study conducted by Singh and Loncar (2010) revealed that pay satisfaction and job satisfaction affects turnover intention. Currivan (1999) conducted a study which examined four possible models of the causal relationship between job satisfaction and organizational commitment in models of employee turnover: (1) satisfaction precedes commitment, (2) commitment precedes satisfaction, (3) satisfaction and commitment have a reciprocal relationship, and (4) satisfaction and commitment have no significant relationship.

Reviews of the turnover literature across occupations indicate that both age and tenure are associated with voluntary job leaving. Those employees who are younger and those who have been in a job for a shorter period of time is more likely to leave the job than older or longer term employees (Cotton and Tuttle, 1986).

Organizational culture refers to 'a system of shared values and norms that define appropriate attitudes and behaviours for organizational members' (O'Reilly and Chatman 1996). It is one of the fundamental factors in developing and maintaining a high level of organizational commitment among employees. Study conducted by Gaan (2011) indicated that organizational commitment was negatively and significantly related to intention to quit and Job satisfaction negatively and significantly related to turnover intention. Organizational culture has been shown to have a direct influence on staff satisfaction and commitment (Silverthorne, 2004) and turnover intention (Macintosh and Doherty, 2005).

The intention or the actual intention to leave has been identified as the most immediate psychological determinant of actually quitting the job. Behavioural intention is one of the best methods of predicting turnover rates among staff (Egan, Yang and Bartlett, 2004).

Methodology

Population of the study was comprised of IT firms listed in NSE and also members of NASSCOM, located in Bangalore. 169 IT firms operating in Bangalore are members of NASSCOM. 50 companies from the population were approached for the study. Questionnaire was administered to 300 employees. 225 responses were received. Middle level employees and middle level managers from the ample unit were selected. Convenience sampling method was adopted for collection of data.

Instrument

The instrument was adopted from study conducted by Neenu Antony, "A study on Employee Retention Practices and its effectiveness in IT Sector" and also from Employee Retention Report, a report submitted by New York government officials, retrieved from chttp:// www.cs.ny.gov/successionplanning/workgroups/ Retention/retention.cfm> Questionnaire was standardized and validated for the present research.

Scale

Survey questionnaire has four sections. For the first two sections, Retention strategies and Welfare Benefits scoring was done based on five points Likert's scale in which Very Important = 5, Important = 4, Neutral = 3, Not very Important = 2 and Not at all Important = 1. For the next two sections, Personal Satisfaction and Organization Culture, scoring of the statements were done based on five points Likert's Scale in which Strongly agree = 5, Agree = 4, Undecided =3, Disagree = 2 and Strongly disagree = 1.

Statistical Tools

Descriptive statistics was comprised of grading number and frequencies. Further, Mean and Standard Deviation of the raw data was calculated. Factor Analysis, Regression Analysis and Pearson Correlation were the tools adopted to analyze the data and to establish the relationship between the variables. To perform the hypothetical testing, ANOVA was also used.

Figure 3 explains the variables investigated for this study. Based on the literature review, variable 'Intention to Stay' was adopted as the proxy variable (dependent variable) to study the Employee Turnover. Previous research shows that behavioural intentions of turnover are strongly related to actual turnover (Irvine and Evans, 1995). Retention Strategies, Welfare Benefits, Personal Satisfaction, and Organization Culture were the independent variables investigated under this study. Dimensions mentioned under each respective variable were included in the questionnaire to understand the perceptions of the respondents.

Hypotheses

Based on the literature review, following hypotheses were formulated.

H^sub 01^: Retention Strategies have no significant impact on Intention to Stay.

H^sub 02^: Retention Strategies, Organization Culture and Personal Satisfaction have no significant relationship with Intention to Stay.

H^sub 03^: Retention Strategies has no significant relationship with Welfare Benefits and Personal Satisfaction.

H^sub 04^: Years of Experience with the organization has no impact on employee's perception towards Retention Strategies, Welfare Benefits, Personal Satisfaction, Organization Culture and Intention to stay.

H05: Overall Years of Experience has no impact on employee's perception towards Retention Strategies, Welfare Benefits, Personal Satisfaction, Organization Culture and Intention to stay.

H06: Qualification of the respondents has no impact on employee's perception towards Retention Strategies, Welfare Benefits, Personal Satisfaction, Organization Culture and Intention to stay.

Major Findings

Results of the study proved that Retention Strategies had an impact on Intention to stay. Regression analysis explains this effect. Regression analysis was performed to find the effect of Retention Strategy on Intention to stay of the respondents. The correlation coefficient value is (R) 0. 790 for Modell, which exhibits a fair amount of correlation between the Independent variable (Retention Strategies) and dependent variable (Intention to stay), with the F-ratio being 371.197 and its associated significance level being small (P<0.05). The R square value was .625, which explains the goodness of fit of the regression model. That is, the amount of variability explained by the whole of the selected predictor variables in the model for 62.5 percent (R2 percent=.625 * xl00=62.5 percent) of variation in the dependent variable (Intention to stay).

Pearson Correlation results showed that variable Retention Strategy is highly correlated with the dependent variable Intention to stay while compared with other two constructs, Organization Culture and Personal Satisfaction. However all the constructs were statistically significant with Intention to stay at least by five percent level?

Pearson correlation also revealed that there is a relationship between Retention strategies, Personal satisfaction and Welfare Benefits. Retention Strategies were reduced into four major factors - Career Development (Factor 1), financial strategies (Factor 2), Flexi work (Factor 3) and Appraisal (Factor 4) by performing Factor Analysis. Figure 4 depicts the results of Factor Analysis.

The First factor Career Development was correlated with Welfare Benefits at 0.316 (32 percent) and with Personal Satisfaction at 0.135 or (13.5 percent) since significant value is less than 0.01; for the both, the relationship was statistically significant at one percent level. The Second factor Financial Strategies was correlated with Welfare Benefits at 0.285 (29 percent) and with Personal Satisfaction at 0.220 or (22 percent) since significant value is less than 0.01; for the both, the relationship was statistically significant at 1 percent level. The third factor Flexi work, which correlated with Welfare Benefits at 0.261 or (26 percent) and with Personal Satisfaction at 0.180 or (18 percent) since significant value is less than 0.01; for both, the relationship was statistically significant at one percent level. There was 0.107 (10.7 percent) relationship existed between fourth factor Appraisal and Welfare Benefits, in similar way, 0.016 relation exists between Appraisal and Personal Satisfaction, since significant value is not less than 0.05, the relationship is not statistically significant.

ANOVA results revealed that The Years of Experience (with the present organization) has an impact on employee's perception towards Retention Strategies. On the contrary, ANOVA results of Overall Years of Experience with the variable Retention Strategies implied that Retention Strategies may not be perceived as essential requirement for the continued sustainability based on the Overall Years of Experience.

ANOVA output of Qualification (Education) level with the variable financial strategies (Factor 2) revealed that Graduate level respondents seemed to perceive the importance of financial strategies more than Post Graduates and professionally qualified respondents. Flexi work arrangement was perceived to be an important strategy amid graduate level qualified respondents.

Rewards and Recognition for good work was perceived to be more effective and imperative for the respondents with regard to the Retention strategies. On the other hand, onsite day care facilities and contract agreements perceived to be least preferred Retention Strategy. With regard to the Welfare Benefits, Salary/Compensation was perceived to be most important aspect. Where as Recreation Benefits was perceived as least preferred aspect. Opportunities for personal growth and development were perceived to be the key aspect which determines Personal Satisfaction. Fair pay according to the contribution did not seem to translate Personal Satisfaction. Promotion prospects also found to be dissatisfactory amid the respondents. Learning opportunities in the organization were perceived to be motivating factor by the respondents. Learning opportunities seemed to be prevalent in most of the organizations studied.

Discussion

Much emphasis was given by the respondents to the strategy - Flexible work timings. Mean score of 4.05 implies this fact. On the other hand, 68 percent of the organizations do not provide this facility. Work from home/ Telecommuting strategy has a mean score of 4.14, which implies that much emphasis is given to this strategy by the respondents. But 77.78 percent of the organizations do not encourage this facility. Organizations should consider these as effective strategies to retain their talents.

Stock investment opportunities scored a mean value of 3.23, which implies that many respondents gave importance to this strategy. Unfortunately 72.44 percent of the organizations (studied) do not provide this opportunity. Financial Strategies were perceived to be much important strategy to graduates level respondents. Financial strategies (Factor 2) included Financial Support for the education, Stock Investment Plans, Contract Agreements and Employee Suggestion plans. 84.89 percent of the organizations do not provide Financial Support for the education.

Regarding Welfare Benefits, Retirement plans are not provided by 81.33 percent of the organizations where as the respondents gave much importance to Retirement plan, with a mean score of 4.79.

Organizations should understand the needs of their employees and try to implement effective retention strategies to retain their star performers. Functional employee turnover is good for the organizations, but dysfunctional employee turnover affects the productivity of the organization and the organization would lose its competitive advantage subsequently. It is the challenge for the HR managers to implement the right strategy to retain their talents.

Conclusion

Employees are the assets of any organization. No Organization can afford losing their star performers. It is the challenge of HR managers to identify the right retention strategies which their employees perceive to be effective. Every employee's perception varies. Secondary data source reveals that proper communication is necessary to generate a conducive environment in the organization.

Best way to enhance employee retention is to understand what the employees require from organization and provide it to them. Each employee's needs would be different, but organizations should be able to reach the limits and act accordingly. It is not feasible to satisfy every employee's demands. But organization should make the employees feel that employees are most valuable for the organization. By enforcing appropriate HR practices and policies, organization can instigate this feeling amid their employees.

Limitations of the Study

Other industry generalization is not possible based on this study. Perception of the employees on a national level could not be covered under this context.

Future Research

Future research can be done from management's perspective. More variables for eg., work-life balance, work environment etc., can be included in the future study.

References

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