Firms need to track turnover volatility as much as turnover rates, write Matthew Call, Anthony Nyberg and Rob Ployhar

Call, Matthew

Nyberg, Anthony

Ployhart, Rob

LSE Research Online

blogs.lse.ac.ukhttp://blogs.lse.ac.uk/businessreview/2015/10/06/companies-face-special-challenges-when-employee-departures-pick-up-speed/Companies face special challenges when employee departurespick up speed“Do I have the staff to get the job done today?!” This is a critical question that is not necessarily answered bylooking at the company’s average rate of employee departure, or turnover rate. Though annual turnover rates willremain an important metric in evaluating the overall health of an organisation’s human capital managementsystem, our research suggests it may be just as important to understand, in a more granular manner, the relativespeed at which employees flow out — or turnover volatility.As an analogy, think of farmers monitoring rainfall in order tomanage their crops. How much information would they gleanabout the likelihood of a productive harvest by looking atannual average rainfall levels? Was there a period of droughtfor two months and then a storm that caused flooding — bothscenarios resulting in crop devastation? Or was there asteady flow of rain that consistently fed the needs of theresultantly healthy crop? Similarly, there is a large differencebetween a steady flow of staff turnover in an organisation andhighly volatile changes in employee departures.Understanding volatility in turnover is critical for atleast three reasons.First, operational effectiveness requires a certain amountof employees (i.e., a critical mass) at all times. Losingpeople spread evenly throughout the year (dispersed)might not pose a large risk as long as there are sufficientremaining staff members to cover operations. However,when employees are lost in a short period of time,remaining staff levels could drop below the critical massneeded for operations—not to mention the vast increase injob demands that will be placed on remaining members ofthe team. We note that both of these scenarios (dispersedand clustered turnover events) could have the exact sameannual turnover rate.Second, beyond jeopardising operations, clusteredturnover events are more likely to harm the culture andrelational network of the organisation (i.e., the unwrittennorms regarding where expertise, information, andsolidarity can be found). This is because norms and cultureare passed on to new employees, in large part, by theremaining ones and in the event of clustered turnover, therelatively few remaining people in the team will have lessinformation about and time to share company norms. In theextreme, clustered turnover could dramatically re-engineera company culture—with the nature of the culture changebeing so rapid as to give managers less influence over theculture change process.Third, higher volatility in turnover sends a louder messageto the remaining employees about the stability of their workenvironment. Turnover can be contagious due to thepotential decrease in social network and an increase in jobdemands. Clustered turnover events also act as a largershock to the organisation as a whole. The fact that it losesseveral employees in a small period of time is more likelyto provoke remaining ones to question why theorganisation is doing a poor job of managing its humancapital and whether they themselves should remain withthe company.Understanding volatility in turnover is critical for atleast three reasons.What does the data say?We obtained data from 988 stores of a large US retail chain (with about 100 employees per store). In thissample, changes in turnover rates negatively impacted store profit above and beyond the absolute rate ofemployee replacement. Specifically, a change in turnover rate of 18 percent (one standard deviation increase) ledto an 8.9 percent decrease in quarterly store profit ($170,642 or $682,571 annually) — this is in addition to thenegative effect of losing employees and replacing them with new ones.The same turnover rate could have different impacts on different stores, depending on their previous rates ofemployee replacement. For example, store A had a previous turnover rate of 10 percent (changing from 10 to 20percent) and store B had a previous turnover rate of 30 percent (changing from 30 to 20 percent). Even thoughthey both currently have an absolute turnover rate of 20 percent, store A may be panicking because its turnoverrate has effectively doubled and store B may be celebrating because it has dramatically reduced its relative rate.Forecasting the flowOur research suggests that managers should monitor changes in turnover as well as absolute turnover rates. Bynoticing trends in employee departures (e.g., perhaps more employees tend to leave in the summer months),managers can more appropriately address recruiting in advance to meet the demands of turnover volatility.Additionally, being aware of competitive labour market dynamics (i.e., a competing store opening up in the area)can help managers take a proactive approach to managing turnover volatility. Thus, we conclude that an activeapproach to managing the challenges that turnover volatility presents should be a part of every organisation’shuman capital management strategy.Featured image credit: K2 Space CC-BY-2.0 Inside photo credit: Creativity103 CC-BY-2.0Matthew Call is pursuing a Ph.D. in Business Administration at University of SouthCarolina’s Darla Moore School of Business. He holds a Bachelor of Science degree inManagement from Brigham Young University, 2003. His research takes a multidisciplinaryapproach to understanding the nature and consequences of human capital resources atmultiple levels (e.g., individual, group, organisational) and across time—blending relevantideas from the fields of organisation behaviour, human resources and strategy. Anthony Nyberg  is an Associate Professor at the Darla Moore School of Business at theUniversity of South Carolina, where he teaches Negotiations, Compensation, and Strategic Human Resources.His research focuses on human capital, primarily within strategic human resource management with emphaseson performance, compensation, employee movement, international human resources, and executive succession. Rob Ployhart is the Bank of America Professor in Business Administration at the University of South Carolina’sDarla Moore School of Business.  He is an internationally-known HR scholar with a focus onrecruitment, personnel selection, staffing-related legal issues, and employee/leadershipdevelopment. Dr. Ployhart is also an active consultant and has worked with private and publicorganizations on all types of staffing and HR topics.Copyright © 2015 London School of Economics

Companies face special challenges when employee departures pick up speed

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