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A diagnostic study of employee attrition in an Indian automotive company

A diagnostic study of employee attrition in an Indian automotive company
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     Int. J. Indian Culture and Business Management,Vol. 5, No. 5, 2012 593  Copyright © 2012 Inderscience Enterprises Ltd. A diagnostic study of employee attrition in an Indian automotive company Prince Augustin ITM-BIT Collaborative Research Program, Kandivali East, Mumbai 400101, Maharashtra, India E-mail: R.P. Mohanty* SOA University, Bhubaneswar 751 030, Orissa, India E-mail: *Corresponding author Abstract:  Employee commitment, productivity and retention issues are emerging as the most critical human resource management challenges of the immediate future driven by employee loyalty concerns, corporate restructuring efforts and tight competition for key talent. This paper is centred on the critical examinations of the demographic profiles of past employees, who have exited from a major automotive company during the last five years. A construct has  been developed and checked for face validity, content validity and reliability and has been administered in a sample of 629 past employees. This study shows that in the future such organisations will be successful, if it can adapt their organisational behaviour and human resource department systems to the realities of the contemporary work environment. This includes playing an active role in assisting and advising the employee on career development decision, ensuring education and training; providing for adequate time to  pursue career development activities; encouraging cross-functional training/assignments; engaging in innovative work practices and providing meaningful feedbacks for performance improvements. Keywords:  attrition; Indian automotive company; human resource department; employee retention. Reference  to this paper should be made as follows: Augustin, P. and Mohanty, R.P. (2012) ‘A diagnostic study of employee attrition in an Indian automotive company’,  Int. J. Indian Culture and Business Management  , Vol. 5,  No. 5, pp.593–612. Biographical notes:  Prince Augustin is the Executive Vice President Human Capital of a major Indian automotive company and has been felicitated by many Indian and global professional bodies for his outstanding contribution to the field of knowledge in human resource management. He has been in a Leadership position for over 10 years and with over 25 years of experience in all facets of HR, IR, administration including organisational change and transformation. He pursues his Doctoral research in the area of employee engagement and its impact on organisation performance. He has been in many organisational development interventions to bring about significant cultural changes in a number of organisations.   594  P. Augustin and R.P. Mohanty   R.P. Mohanty is the Vice Chancellor, SOA University, Bhubaneswar, Orissa, India. He has 34 years of academic experiences in institutes of national (India) importance and in some foreign universities. He has ten years of industry experience in top management positions. He advises academic institutions and industries, supervises research scholars and undertakes sponsored research  projects. He has published more than 250 papers in scholarly peer-reviewed international journals and has also authored 8 books. Many professional institutions both in India and in abroad have honoured him. 1 Introduction This paper presents a diagnostic case study on attrition of employees (particularly  professionals belonging to the disciplines of engineering, management, finance and accounts, etc.) of a major Indian automotive company. The company has multiple manufacturing locations in India and multiple sales centres across the globe (12 countries). Employee commitment, productivity and retention issues are emerging as the most critical human resource management challenges of the immediate future driven  by employee loyalty concerns, corporate restructuring efforts and tight competition for key talents (Bhatnagar, 2007). In the recent years, many Indian companies face ‘surprise’ key talent departures, which have significantly affected the execution of business strategy and a decline in productivity. This phenomenon is especially true in light of the current economic scenario and following corporate expansion when the impact of losing critical employees increases exponentially. Recent research studies have shown that the manager, whether a front-line supervisor, a project leader, a team leader or a senior manager, actually has more power than anyone else to reduce unwanted employees departures. Why? Because the factors that drive employee satisfaction and continuance commitment are largely within the direct manager’s control. These include providing rewards, recognition and feedback, the opportunity to learn and grow, fair compensation reflecting an employee’s contributions and value to the organisation, a good work environment and career advancement. This paper is centred on the critical examination of the reasons of attrition with respect to the demographic profiles of the past employees who have left the company during the last five years. Further, it is intended to imply these dominant reasons to facilitate the development of human resource intervention strategies for arresting/restricting voluntary turnover. This paper, in essence, reflects the dynamics of individual behaviour of professionals. If organisations have to survive and grow in the current competitions for key talents, it is essential to carry out perpetually a diagnostic study to understand the reasons of attrition. 2 Understanding the phenomenon of attrition Attrition is the reduction in employees in an organisation due to retirement, resignations and deaths. Often, attrition and turnover are used interchangeably. Attrition may be voluntary and involuntary. Voluntary attrition comprises of functional and dysfunctional attrition. Functional attrition is the exit of good performers. Employees who leave an     A diagnostic study of employee attrition 595 organisation on their own discretion are examples of voluntary attrition (Price, 1977). It is the voluntary and functional attrition, which affects the performance, creates costs to the organisation and is disruptive to the routine functioning of the organisations. Some of the studies that have been conducted in the past have reported:  Leisure and retail sectors depict high attrition rates and low job tenure of 1.5–2 years, as they employ large numbers of transient employees with limited scope for development and progression.  Finance, information technology and professional services industries such as consulting, insurance, etc. employ large number of employees with specialised skills, knowledge and expertise. These employees have job tenure of 2–2.5 years and are much sought after, as there is shortage of skills.  Manufacturing, engineering, transport industries and large organisations with 5,000+ employees have longer job tenure of 3+ years. The main reasons for attrition according to Reed Consulting Report (2004) are lack of opportunities for personal and career development, issues with working relationships, compensation and benefits. There are many issues affecting turnover in the Indian companies. They are basically global competition, shifting loyalties of new generation professionals, shortage of skilled engineers – fitness for use directly by the sector, etc. On the other hand, in a competitive economy, employees are faced with opportunities with higher compensation, challenging roles and improved employee value propositions, which pull the employee from the exiting organisations. Similarly, the dissatisfaction and its antecedents push the employee away from the existing organisations. It is the pull and push factors (Ho et al., 2010), which influence the intent to turnover. The organisations put in their best efforts to acquire, develop and retain the employees by formulating innovative retention strategies and aiming at becoming the employer of choice. Dismissals, exits due to serious illness and retirements are examples of involuntary attrition. Voluntary attrition comprises of functional, which is the exit of top performers and dysfunctional which is the exit of poor performers (Loquercio, 2005). Attrition of employees is a global phenomenon and also a major concern. Employees in their early careers treat jobs as commodities and move from job to job and go on seeking for the company of their choice. Most job tenures last less than three years. Average job tenure differs across industry sectors. A list of costs related to employee turnover has been well discussed in the literature  by Cascio (1991), Fitz-enz (2000), Kay and Jordan-Evans (1999) and Herman (1999). When managers or supervisors are asked why good people leave, most respond by saying – it is about money. Or, they simply state the attrition is a general phenomenon that the employee – received a better offer. Managers often blame organisational policies or pay scales for the loss of talented employees (Kay and Jordan-Evans, 1999). Contrary to expectations, research indicates that money is not even in the top five reasons employees give when asked why they are leaving an organisation. The way an organisation distributes money indicates what management really wants. However, it sends a message to employees whether the company truly pays for performance. Incentive plans indicate service or sales to customers; and an organisation that pays and supports employee development will generously pay for academic and training courses.   596  P. Augustin and R.P. Mohanty  Salary and benefits tend to attract people to organisations but that are not usually the reasons for which employees leave (Herman, 1999). Viewed from employees’ perspective, a healthy organisation is one in which people are generally satisfied with the quality of their work life. On most days they feel good about going to work. They feel empowered to help shape decisions that affect them, they have the resources and skills to satisfy customer needs and they are generally confident in the abilities of the leadership team (O’Malley, 2000; Thomas, 2000). From the organisation’s perspective, the organisation is – healthy if it is viable as measured by its  profitability, competitive market position and customer satisfaction. A healthy organisation also responds well to the need for change; it is adaptive and thereby ensures its future – meaning that following a major upheaval or transition, the healthy organisation rebounds and employees remain committed (O’Malley, 2000). When an employee leaves an organisation it has got variety of effects that not only impact the organisation, but also the individual employee and wider society (Mobley, 1982) These can be positive or negative (Hom and Griffeth, 1995, pp.13–33; Mobley, 1982) and a greater understanding of the process of labour turnover can increase the degree to which organisation and employees within organisations can influence these effects (Dalton et al., 1981, 1982). Current explanation of employee turnover fails to offer either  predictive or explanatory power (Aquino et al., 1997). Despite an enormous literature on turnover in organisations (Mobley, 1982; Price, 1977), there is as yet no universally accepted framework for why people choose to leave (Lee and Mitchell, 1994). This  prohibits understanding the phenomena after the event, yet neither is there an accepted means of assessing the likelihood of an individual’s decision to leave in the future (Terborg and Lee, 1984), which prohibits prediction of turnover. What makes individuals, who express dissatisfaction with their jobs and organisations, desire to quit their jobs and even fully intend to quit in the near future more or less likely to actually quit? Although considerable research shows that job dissatisfaction, low organisational commitment and specially withdrawal cognitions like intentions to quit are consistent  predictor of turnover, the mechanism translating desire to quit into turnover behaviour remains ambiguous and require greater attention (Hom and Kinicki, 2001). We know a good deal about the factors that push employees to voluntarily leave organisations (e.g.  job dissatisfaction), factors that pull employees away from the organisations (e.g. alternative job opportunities) and the processes by which individual make turnover decisions. However, our ability to explain and predict individual voluntary turnover decisions remains limited. Some employees who satisfied with their jobs leave, while many who are dissatisfied stay. Alternative opportunities sometimes lead employees to quit, but often do not. Even the majority of employees who report intending to quit their  jobs do not actually do so. Attitudes typically only explain around 5% of turnover variance, while intentions to quit rarely exceed 10–15% (Griffeth et al., 2000; Hom and Griffeth, 1995), and the relationship between intentions to quit and turnover varies widely (Vandenberg and Jodi-Barnes, 1999). Broadly, we find conclusive evidences from the literature that there are three different sets of reasons of attrition. They are: economic, psychological and sociological. We attempt in this paper to study such reasons of attrition.     A diagnostic study of employee attrition 597  3 The case of an automotive company India is one of the largest passenger vehicles producing country ranked eleventh in the world and the fourth largest in heavy vehicles production. The automotive company under study is a major automobile manufacturer of utility vehicles, passenger cars,  pickups, commercial vehicles and two wheelers. The company has a global presence and its products are exported to many countries. It has made its entry into the passenger car segment in April 2007 and has made its maiden entry into the heavy trucks segment in a  joint venture with International Truck, USA. It offers over 20 models including new generation multi-utility vehicles. The company has a turnover of INR 106.15 billion, i.e. USD 2.36 (US$ 1 = INR 45), which has doubled during the last five years. Similarly, due to the expansions of manufacturing facilities and sale centres, the manpower strength at  present stands at 3,279. Therefore, the company recruits every year more than 1,400 graduate engineers and other professionals. The attrition on an average is 30% per year. Such a high rate of attrition has major consequences for this company. They are as follows:   productivity shortfall due to loss of skills  lost productivity costs  loss of expertise and knowledge  cost of overtime or temporary help to get the work done during selection and training of replacement  lost efficiency, including the interaction and institutional knowledge  lower morale of co-workers  recruiting costs (advertising, time to place ads, development of promotional materials, management of web sites)  search firm fees (often equivalent to 30% of new hire’s first year salary)  screening of applicants (time to review resumes)  interviewing time (how many people interview each applicant)  hiring costs such as testing, background checks, medical screens  relocation expenditures, temporary housing  time spent in orientation  training, assimilation into work team  loss of business relationship. Due to the major implications of the consequences stated above, a diagnostic study of employee attrition particularly engineering and management professionals is a major imperative for this company. 4 Research design This diagnostic research is designed using a structured methodology as outlined in the flowchart as shown in Figure 1 (Mohanty and Malekar, 2009).
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