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How High Employee Turnover Harms Your Performance

06.27.2013
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Earlier this year I wrote about a study exploring the impact of high employee turnover on the sales and profitability of a business. It found that in offices with low employee turnover, profits were four times as high as those in offices with high employee turnover. The rationale was that employees built up relationships with customers that were lost or disrupted when they left the company.

Despite this, the research community remain mixed on whether high turnover impacts upon performance. There appear to be some contrasting hypothesis at play.

The first suggests that turnover naturally affects performance. Those that leave are often experienced staff, and it naturally takes time to replace that expertise. They also develop the internal networks required to do their jobs well, which again is difficult to replace in the short-term.

A second hypothesis is that companies with high staff turnover don’t suffer because they never get a chance to build up the experience and connections required for staff loss to affect them. It’s literally a case of them not missing what they don’t have. They also build up significant expertise at replacing staff, even if not so hot at keeping them.

A final theory is that turnover can be beneficial to an organisation because it weeds out the poor performers whilst also bringing in fresh ideas and perspectives from outside. This theory relies on turnover being relatively low, as once it reaches two high a point the costs exceed the benefits.

A meta study of over 250 pieces of research has been concluded recently that compared the various hypothesis towards employee turnover.

It found that employee turnover was generally speaking a negative thing, with an increase of turnover by 1 standard deviation contributing towards a 0.15 drop in performance. When turnover became higher, this decrease in productivity became stronger.

Not all instances of high turnover were equally disastrous however, and they found some interesting nuances to the phenomenon.

High turnover hits some metrics more than others

For instance, they found that employee turnover affects some performance measures much more than others.

  • Customer Satisfaction and Quality showed large effects
  • Weaker effects found for employee attitudes, productivity and financial performance
  • Generally the effects were greater when measuring performance soon after the turnover, rather than moderately far or far into future

Organisation type

The kind of organisation and the way that organisation is structured also mattered a lot. They found for instance that the following types of organisations were particularly impacted

  • smaller companies
  • executive level samples
  • industries such as healthcare and hospitality, coded as ‘human-capital-centric’
  • those with so-called ‘primary employment systems’ that focus around delivery through committed employees (instead of a transactional, control-system)

So the picture is that if you’re in a knowledge critical business, high turnover is really bad news.  Here are three simple ways you can reduce employee turnover.

  1. Build strong relationships with your employees.  They aren’t there just to help you meet your numbers.
  2. Reward employees for good performance.  This could be as simple as saying thank you for a job well done.  Let them know they’re appreciated though.
  3. Provide constant feedback.  Let your staff know how their performance is on a frequent basis, and coach them to deliver better performance in future.

Republished with permission

Published at DZone with permission of its author, David Austin.

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)