How to Reduce Turnover Peaks in a Projectized Organization. Introduction

Transcription

1 Human Resources Management 1 How to Reduce Turnover Peaks in a Projectized Organization Introduction Our company is a private Italian company that delivers turnkey solutions in the technology area. It was established in 98 and actually counts 36 full-time employees. All of the employees are university graduates except seven with an average age of 28 years. All of the company s business comes from new projects which led the company to adopt a projectized organization. The company s organization is lean and mean; its upper management is composed of a CEO who is also the general manager and three project managers as shown in the diagram: Figure 1: Organizational Structure of the company Situation Since the company operates in a niche market, its resources are very specialized and difficult to find in the market place. The organization invests heavily in training its

2 Human Resources Management 2 resources and losing an employee is of major concern. The company estimates a net loss of 9500$ for each resigning employee. In the last years, the company suffered high turnover during the initial and final phases of projects but very low turnover during the other phases. This information is usually difficult to detect in large corporations but because of the company s projectized organizational structure, the short period of two years elapsed time that we considered, and the low number of employees, we were able to gather the following information: Project Start date Finish date Employees Major turn- Number of employees name involved over period who left the company A /01/05 4 B /01/06 4 C Ongoing / D Ongoing / E Ongoing / Table 1: Turnover information Only directly after the finish of the two projects and the start of the other three, a dramatic turnover was noticed. A total of thirteen employees left the organization in these periods while only one employee left in a period not related to project start or finish. To calculate the turnover, we will consider the company s fiscal year as the turnover period i.e. from March to March. The turnover rate is calculated as the sum of employees who left and were engaged in that period divided by the average number of employees. The table below illustrates these numbers:

3 Human Resources Management Total Mar Nov Jan Mar Nov Dec Jan Mar Aug Number of employees hired Number of employees left Number of active employees Average active employees in period Sum of employees hired and left Turnover rate Table 2: Human Resources Department turnover table Although there seems to be an improvement in the yearly turnover rate, the 2006 rate is still far from the average national turnover rate for service companies. Problem to be Resolved The company spends a lot of time and money in recruiting and training its employees and does not want them to leave every time a new project starts or a project finishes! We will examine the possible causes of the excessive turnover problem in a projectized organization and will give recommendations on how to implement strategies to reduce the turnover and its financial impact. Technical/Theoretical Background To start researching the literature, we will break the problem into smaller logical problems: causes of turnover, projectized organization, expert recommendations, strategy implementation, excessive turnover, the cost of excessive turnover. Causes of turnover Before suggesting solutions for the problem of turnover, it is important to understand the causes that lead to this event. Dr. Petrillose gives a list of these causes: Ineffective communication about job expectations Inability to listen well and ask the right questions respectfully Wage problems

4 Human Resources Management 4 Under-utilization of skills Adverse working conditions Lack of opportunity for advancement through seniority Lack of well-organized training program (Pertrillose, 98). Surline adds other factors such as corporate culture and workers involvement in the decision making process. He argues that as the labor market gets smaller, companies become more competitive in their compensation structure making corporate culture more important than ever. Employees are less loyal to their organizations, they want more involvement in decision making and they see in their work a realization of themselves and this is a fundamental reason for their leave in case their job doesn t satisfy them (Surline, 99). Projectized organization PMBOK defines projectized organizations as organizations where most of the resources are involved in project work, and project managers have a great deal of independence and authority. Organizations that deal with projects as their core business find it easier to handle more projects in a projectized organization than in a functional organization (Project Management Institute, 2000). Expert s Recommendations Once we understand why staff is leaving, we can build and implement strategies to retain them. Experts recommend a retention strategy built on a strong combination of compensation, training, growth opportunity and a culture that fosters a feeling of being valued and supported by management (Surline, 99).

5 Human Resources Management 5 Strategy implementation Successful strategy formulation does not guarantee successful strategy implementation; it is always more difficult to do something (strategy implementation) than to say you are going to do it (strategy formulation). Implementing strategies may require such actions as altering sales territories, adding new departments, closing facilities, hiring new employees, developing new employee benefits, training new employees, transferring managers among divisions, and building a better management information system. Management issues central to strategy implementation include establishing annual objectives, devising policies, allocating resources, altering an existing organizational structure, revising reward and incentive plans, minimizing resistance to change, improving HR effectiveness, and if necessary downsizing (David, 2005). Excessive Turn-over Turnover is the gross movement of workers in and out of employment (Pertrillose, 98). Surline in his article on staff retention underlines that: excessive turnover ultimately results in poorer service to members and additional burdens on remaining staff in addition to financial losses. Now, how do we define excessive turnover? In literature, we find that different markets have different average turnover rates. According to a study conducted by Mercer Inc., service oriented companies have a turnover rate of 20% on a yearly basis (Mercer, 2006). Other literature indicates that services in the area of technology have an annual turnover average rate of 12%. We may conclude that on average, service

6 Human Resources Management 6 companies that have a turnover rate that exceeds 16% can be considered as companies with excessive turnover. Cost of turnover A study conducted by the Bureau of National Affairs (BNA) indicated that the cost may reach 10,000$ or more if you are lucky enough to find the right person (Surline, 99). According to the U.S. Department of Labor, Bureau of labor Statistics 55% of US workers often think of quitting or actually plan to quit within a year (Emmerich, 2001). A study by the American Management Association shows that filling a job opening takes an average of 41 to 51 days and that losing an employee generally costs 50% to 200% of the employee's annual compensation (Emmerich, 2001). Finally, according to the Harvard Management Update, 89% of managers are misguided in their belief that employees care only or primarily about monetary compensation (Branham, 2005). Situational Analysis Results of employees survey To understand the why of the excessive turnover we conducted random sample interviews with the company s personnel (Norusis, 2006). These interviews gave the following results: 1. Performance: All project managers agree that newly formed project team spend at least 2 months before they start to successfully perform. However, literature confirms that project teams usually undergo four stages forming, storming, norming, and performing (Guffey, 2003). This explains the difficulty that project teams find at project start-up.

7 Human Resources Management 7 2. Goals: Almost all of the employees that are working on a project in its mid or final stage know exactly the project charter and goals. Almost seventy percent of the employees working on newly started projects do not know the exact goals that their team needs to fulfill. Employees that are not completely aware of their team s goal, feel frustrated because they cannot perform effectively as they used to do during the mid and final stages of the previous projects. 3. Role and responsibility: More than 90 percent of the members involved in projects that are in their final stage, i.e. one or less months before the project finishes, do not know what is cooking for them in the next project. Similarly, 80 percent of the employees that are involved in new projects do not know what is expected from them in this new role. However, employees who are working on projects that are in their mid stages are completely aware of their roles and responsibilities. 4. Salary: Ninety five percent of the employees that are involved in projects that are in their final stage are not happy with their actual salary. When asked about the reason of their dissatisfaction, they argued that their project experience had given them a great potential to earn more. More than 70 percent of the employees that are working for a newly started project are dissatisfied with their income. The company s salary plan is on a yearly basis and is due on March. No particular salary issues were encountered in members working for projects in their mid stages. 5. Skills: More than eighty percent of the employees that are working on a newly started project think that their skills are not sufficient to fulfill the job.

8 Human Resources Management 8 Even though they can t describe the job exactly, they still have this vague feeling. While the majority of those working on a project that is in its final stages think that their skills are sufficient. People working in projects in their middle stages think they have enough skills to fulfill their tasks. 6. Expectations/career: Almost all of the employees that are working in a project that is in its final stages expect both career development and salary increase immediately after project termination. Sixty percent of the members working in newly started projects are not sure what the project will bring to them and are afraid of the consequences. Project members involved in projects that are in their mid stages strive to reach the team s goal regardless of career issues. 7. Organizational fitness: Almost all of the employees working on projects in their middle stages feel they are an essential part of the project team. They think that projectized organization is the best organization for their company. Most of the employees that are involved in projects at their final stages feel they are part of an organization rather than of a project and are suspicious about the organizational design of their company. Employees working in projects at their initial stages are confused and do not exactly know if they feel more the organization spirit or that of the project. The table below summarizes the results of our study:

9 Human Resources Management 9 % Yes % No For project managers, please answer the following question: Is project team performance always equal during the four stages of the project? For employees that are working on a project in its initial stage, please answer the following questions: Do you know exactly the project charter and goals? Do you fully know what the company expects from you in the next three months? Are you happy with your actual salary? Are your skills sufficient to fulfill the job? Do you expect career development in the next three months? Do you expect salary increase in the next three months? Do you think that the company's organization is best for you and the company? For employees that are working on a project in its middle stages, please answer the following questions: Do you know exactly the project charter and goals? Do you fully know what the company expects from you in the next three months? Are you happy with your actual salary? Are your skills sufficient to fulfill the job? Do you expect career development in the next three months? Do you expect salary increase in the next three months? Do you think that the company's organization is best for you and the company? For employees that are working on a project in its final stage, please answer the following questions: Do you know exactly the project charter and goals? Do you fully know what the company expects from you in the next three months? Are you happy with your actual salary? 5 95 Are your skills sufficient to fulfill the job? Do you expect career development in the next three months? 95 5 Do you expect salary increase in the next three months? 95 5 Do you think that the company's organization is best for you and the company? Table 3: Summary of questionnaire results From the above results, we can define the potential causes that lead employees who work with projects in the initial or final stages to suffer from such an excessive turnover rate. We will use the positive reinforcement motivation theory together with all the expert recommendations to establish a retention strategy that will allow the company to retain its most important assets - its human resources. The positive reinforcement motivation theory is the administration of positive consequences that tend to increase the likelihood of repeating the behavior in similar settings (Hunt, Osborn, & Schermerhorn, 2003). To do so, we will discuss each issue separately and define actions to reduce its impact on turnover and finally we will analyze what behavior we expect from the members.

10 Human Resources Management 10 Our recommendations will also take into consideration the actual market requirements and offerings, the organization culture, and the employees behavior. All the changes that may arise in any of these factors may influence in a way or another these recommendations. The company should assess continuously the pitfalls/benefits earned by the employees and the organization itself due to a change in these factors and amend this strategic plan accordingly. Strategic directions To develop our strategic directions and propose ways to implement them, we will discuss the causes that create the effect i.e. turnover, propose strategic actions to resolve these causes, define expected employee behavior and ways to measure changes in behavior, and propose a strategy implementation plan. The causes we will discuss are those that result from our employees survey, mainly: unclear goals in new projects, unclear role and responsibility in new project, dissatisfaction about salary plan, dissatisfaction about owns skill level in new projects, dissatisfaction about employee involvement, and employees confusion about organizational structure. 1. Unclear goals in new projects Strategic actions Expected Behavior Ways to measure changes Organizational Learning and Employee Involvement: Assign to the project managers (PM) the responsibility of involving team members Team members will feel enthusiastic about the next experience since they were involved in the decisionmaking process Use questionnaires to capture the level of satisfaction of employees in the new job and compare it to their previous level.

11 Human Resources Management 11 in selecting future assignments in other projects. Project team members will select from the different options available the best opportunity that fits their skills Employee Involvement: Reward the PM whose resources moved to a new project but did not leave the company after three months of working in the new project Employee involvement: Reward team members involved in new projects that know their project objectives PM s will do their best to get the resources involved soon. They will strive to get the best opportunity for their resources that are about to be released Team members will try their best to understand the goal of the new project. Use HR turnover table to detect improvement or deterioration in turnover rate three months after each project finishes Use questionnaires to capture information about project goals from employees one month after project startup. Compare your finding with those in the project plan.

12 Human Resources Management Dissatisfaction about salary plan Strategic actions Expected Behavior Ways to measure changes Integrated Production Technology: Include detailed roles and responsibilities matrix (RRM) in the project plan. This allows new team members to know exactly if the new job respects their skills and expectations Self-directing Work Teams: Create selfdirecting work teams having a common quality driver such as competency centers to increase specialization and better define roles By reading the RRM, potential team members will be able to understand if the role in the new project fits their skills The existence of self-led pools of resources having similar skills will be beneficial to the whole group Measurement process: periodically check that all employees have a copy of the RRM of the project they work in HR to act as a coordinator for competency centers

13 Human Resources Management Dissatisfaction about salary plan Strategic actions Expected Behavior Ways to measure changes Change salary policy: Change salary review from a yearly basis to a project-end basis. Reward employees based on project margins Employees will immediately understand that they will get what they deserve. They know why they are praised and when Involve employees in bid management phase to allow them to participate in the margins setting. Share cost allocation process with them during project development. Management feedback on employee performance should be done on a weekly basis and when necessary and not just before the salary review milestone 4. Dissatisfaction about owns skill level in new projects Strategic actions Expected Behavior Ways to measure changes Total Quality Management and Integrated Production Technology: All employees must plan, The monthly skills report will allow the employees to understand where they stand and which are the areas that they need to work on so that The company will produce a monthly skills report and will use divulgate this report to employees using the management information

14 Human Resources Management 14 build, and control that a perfect match occurs system. The company will their skills reflect the organization s needs. Employee Involvement: The above action needs the involvement of all the employees Organizational Learning: The organization must perform periodic assessment of its skills inventory and its business needs. between their skills and the skills required by the company Understanding the advantages and the limitations that each individual has in his skills inventory allows for a better match between the job requirements and the individual skills. This creates a better workplace and reduces the turnover This information must be shared with the employees to allow them to cover the skill gaps give recommendations to employees about their actual versus required and planned skills The company will produce a monthly skills report including actual and forecasted skills The company will produce a monthly skills report including actual and forecasted skills. Management should also update its training program to fill-in the skills gap

15 Human Resources Management Dissatisfaction about employee involvement Strategic actions Expected Behavior Ways to measure changes Employee Involvement and Integrated Production Technology: Solving the previous issues related to goal, role and responsibility, and salary would solve a big part of this issue. The promotion criteria should be clear and accessible to all employees to allow each of them to pursue his/her own career objectives. When members of the organization have fair and feasible expectations, their self-fulfillment will increase employees performance and trust towards their organization. This ultimately reduces the turnover phenomenon Build a better management information system to allow the spread of this information in the company and to receive feed-back. Use questionnaires to learn the degree of employees satisfaction 6. Employees confusion about organizational structure Strategic actions Expected Behavior Ways to measure changes Employee involvement: Employees understanding of the Employees that understand that they are an essential part of the organization and The organization must divulgate the organization chart, through the use of

16 Human Resources Management 16 organization is essential. Understanding who does what and from that the organization structure evolves for the benefit of the whole integrated production technology i.e. the Intranet. Periodical management and where to get the information is a must organization, build a feeling of loyalty towards the organization Employees that live the organization experience in a harmonious manner are more attracted to their companies and this will reduce their willingness to search for other external opportunities organizational conferences updates to assist the employees in understanding the organizational changes and the corporate culture are also required Strategy implementation plan We know that the best way to reduce excessive turnover is to address all the strategic actions that we discussed previously. However, we also know that organizations have limited resources. To get the best payback for our strategic actions, we will apply Pareto s theory to select the main strategic actions that create major satisfaction. Focusing on these few strategies dramatically improves quality of work life (Evans, & Lindsay, 2002).

17 Human Resources Management 17 Strategic actions Count Employee Involvement 7 Integrated Production Technology 3 Self-directing Work Teams 1 Change salary policy 1 Total Quality Management 1 Organizational Learning 1 Table 4: Results sorted by percentage No Figure 2: Pareto Chart The above chart evidences that employee involvement and integrated production technology are the most important strategies that the company needs to focus on. Management should evaluate, based on the resources it posses, if it can address and implement these two strategies or just focus on the first! Whatever management s decision is, the strategies to implement are identified and the implementation process and the means of measuring progress are also established. There is only one thing left to do: Doing it! Conclusions Implementing the selected strategies will reduce excessive turnover and will maintain the most important asset of the company; it s employees! However, these

18 Human Resources Management 18 strategies should be integrated with the overall strategic plan. Management should ensure that including these strategies is beneficial for the stakeholders and for the employees. Stakeholders are not only the owners of the company, but the suppliers, the customers, the environment, and the government. When a strategy is beneficial to such stakeholders and employees, most probably it should respect ethical standards. Employee involvement and integrated production technology improve the quality of work life (QWL) in that organization. This is the best remedy to fight excessive turnover. We understand that some strategic actions that we recommended are out of the norms, such as the salary review based on project close-date rather on a fixed yearly basis, and this requires a different thinking approach and the full support of the organization as well as the employees. However, in a fierce and competitive market, keeping your best assets cannot be achieved if you stay in the norm; you need to be the best!

19 Human Resources Management References American Psychological Association. (2001). Publication Manual of the American Psychological Association (5th ed.). Washington, DC: Author. Branham, L. (2005, April 27). Why Employees Leave: Reasons 'Hiding in Plain Sight' The Globe and Mail. C.1. Emmerich, R. (2001). Controlling the Costs of Mismanagement and Turnover. The CPA Journal Evans, J. R., Lindsay, W. M. (2002). The Management and Control of Quality (5th ed.). Cincinnati, OH: Thomson Learning. Guffey, M. E. (2003). Business Communication: Process and Products (4th ed.). Upper Mason, OH: Thomson South-Western. Hunt, J. G., Osborn, R. N., & Schermerhorn, J. R. (2003). Organizational Behavior (8th ed.). NJ: John Wiley & Sons, Inc. McNerney, D. J. (96, August). Creating a Motivated Workforce. HR Focus. 73 (8) 1-4. Mercer Inc. (2006). Mercer Human Resource Consulting. Retrieved December, 2006, from Norusis, M. J. (2006). SPSS 14.0 Guide to Data Analysis. Upper Saddle River, NJ: Prentice-Hall. Petrillose, M. J. 98. Improving Bottom-line Results by Managing Turnover and Absenteeism. The Bottom Line. 13 (5), Project Management Institute. (2000). A Guide to the Project Management Book of Knowledge. NJ: Automated graphic Systems. Surline, T. (99). Staff Retention Strategies. Credit Union Executive Journal