Turnover: Good in Moderation or Bad in any Event?
One line of thinking is that any turnover is a loss of human capital and costly to repair. An alternative argument is that some turnover is a good thing, bringing in fresh blood – or more specifically, presumably, fresh ideas.
An article that forces one to think this through has recently been published by two US academics (Park and Shaw, 2013) who conducted a meta-analysis (an overview of a large number of studies) on the relationship between turnover and organisational performance. They wanted to settle the issue of whether there was a straight line negative correlation between turnover and performance or whether this relationship started off with little negative, or perhaps even a positive, impact of turnover on performance, only converting to a negative relationship if turnover got out of hand.
The authors do not seem entirely to settle this point but their headline finding is that, across a large number (371) of studies, there is an economically significant negative relationship (a correlation of -.15) between turnover and performance. However, this is only true of voluntary turnover (i.e., people quitting) and turnover due to downsizing. It did not hold good for involuntary turnover (i.e., dismissal) but that is hardly surprising as presumably organisations do not customarily dismiss people who are a great loss.
The study gives a lot of detail on differences between industry sectors (e.g., the deleterious effect of turnover holds particularly good for banking but is not evident for retail). However, the overall conclusion is that “lower turnover is always better” (p.283).
This is an interesting study that should force HR Directors to think through the desirable level, if any, of turnover among the different categories of staff they employ. The study does not provide all the answers but serves as a catalyst to seeking a policy. Most HR Directors probably have a sense of an acceptable level of turnover but this study might help them explicate this further and challenge their assumptions.
How Can Human Assets Help?
Our expertise in talent management can help you in the following ways:
- Making explicit what level of turnover is acceptable in different categories of staff – e.g., from graduate trainees to directors.
- Identify why people leave.
- Pinpoint people more likely to leave.
- Take action to limit turnover.
Our publication – Holding on While Letting Go: A Director’s Guide to Contemporary Talent Management takes note of the subtleties of the contemporary employment relationship and advocates engaging people by identifying and meeting their needs within a triangular model of motivation (covering the remuneration package, future employability and intrinsic satisfaction).
Park T-Y., and Shaw, J. D. Turnover rates and organisational performance: A meta-analysis. Journal of Applied Psychology, 2013, vol 98 no 2, pps 268 ? 309.Woodruffe C., Lyons, W. and Silver, J.: Holding on While Letting G A Director's Guide to Contemporary Talent Management