Staff turnover is when employees exit the organization. It is calculated as voluntary exits divided by the total headcount. No employer will want to lose staff if the staff member creates value. There has been debate about whether turnover affects the performance of the organization or not. In this article, I will share scientific research findings on the impact of staff turnover on business performance.
For various reasons, the level of voluntary staff turnover in Zimbabwe is high for certain professions. Others attribute the staff turnover to poor salaries, while others blame the economic environment.
From a layman's point of view, staff turnover brings disruptions, affects the team's performance, and costs money to replace new employees. Others worry that staff turnover leads to sharing proprietary company knowledge with competitors as employees move from one organization to another. These are all plausible concerns, but what does science say about the impact on business performance?
Some researchers have found that turnover allows the organization to bring in new people to replace poor performers who may have left. New employees who have established relationships with clients in a particular sector bring immerse social capital value for the business. Some researchers, like Ableson et al. (1984), argue that staff turnover is necessary to reduce stagnation in business entities and improve innovation.
In one study, researchers found a positive correlation between staff turnover of part-time sales agents and labour productivity for the same group.
Others have argued that the impact of turnover must be interpreted in context; who is leaving, industry norms and the nature of the organization.
Hausknecht and Trevor (2011), through their meta-analytic studies, support that staff turnover hurts the organization's performance.
Hancock(2011) and colleagues discovered interesting findings on staff turnover and company performance in a meta-analytic study (Review of Employee Turnover as a Predictor of Firm Performance). The relationship between staff turnover and performance was negative (r=-0.3). This means that as more people leave the organization, company performance decreases.
The negative impact of staff turnover on company performance is high in the manufacturing and transport sectors(r= -0.7). This is largely due to company proprietary knowledge that the departing employees possess. The next strongest negative relationship between staff turnover and company performance was found in the professional sectors (banking and information technology with a correlation of r= -0.5). This has been attributed to the nature of the workforce, which comprises knowledge workers. The weakest link between staff turnover and company performance was found in the retail and food industries(r= -0.4). These two sectors attract low-knowledge and low skills workers.
The impact of staff turnover was higher for supervisory roles(r= -0.08) than non-supervisory(r= 0.02) ones. The organization's size matters when assessing the negative impact of staff turnover, with a high negative impact in big organizations compared to small organizations.
The relationship between staff turnover and business performance indicators was the strongest with quality and customer service indicators. Surprisingly turnover had no significant relationship with financial performance or labour productivity indicators.
The results indicate that staff turnover significantly negatively impacts business performance. The negative effect also depends on factors such as organizational size and skills.
The next article will examine the factors that force people to leave organizations. We will go into what scientific research says about these factors and what organizations can do to address the challenge of staff turnover.
Memory Nguwi is an Occupational Psychologist, Data Scientist, Speaker, & Managing Consultant- Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm.