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A study on the level of commitment towards retention practices in IT and Non IT companies in Chennai.

a research paper by Dr.G.Ramanaiah Professor, SRM University Ph: 9840399342 drgr2005@hotmail.com & Lavanya L Research Scholar, Dravidian University Ph: 9840121858 netlavan@gmail.com

December 2010

UNDERTAKING

We hereby declare that the research paper titled A study on the level of commitment towards retention practices in IT and Non IT companies in Chennai is our original work and has not been published or sent for publication or under review in any other journal/magazine or been presented in any conference/seminar.

Dr.G. Ramaniah

Lavanya L

A study on the level of commitment towards retention practices in IT and Non IT companies in Chennai.
* Dr.G. Ramanaiah ** Lavanya L

ABSTRACT
There is no magic wand to make employees stay with the organization. Retaining is challenging with the current day knowledge work force; and organizations are increasingly taking efforts in this direction. Many innovative retention practices are in force but attrition has also become unavoidable. Now the question arises whether the companies are committed towards its retention practices. This research was conducted to answer this question in both IT and Non-IT companies. 30 samples in each category were chosen from Chennai City and questionnaire was administered. Findings show that IT companies should identify the difference between avoidable and unavoidable departure and take measures to retain their key talent. They should treat their employees as an asset and not as cost. Employee-centric work culture and Performance-linked salary and bonuses are the factors to be improved in Non-IT segment. The results show that there is definite commitment towards retention practices but there is a difference in commitment levels in IT and Non IT companies. Key words: Retention practices, Employee-centric work culture, commitment levels, productivity, recruitment cost.

*Professor, Department of Management Studies, SRM University, Kattangulathur, Chennai. drgr2005@hotmail.com ** Research Scholar, Dravidian University, Kuppam, A.P. netlavan@gmail.com

A study on the level of commitment towards retention practices in IT and Non IT companies in Chennai.

Introduction
In this era of globalization, employees are blessed with good opportunities. As soon as they feel dissatisfied with the current employer or the job, they switch over. Also, competition for talent is on the increase, and many companies are going to great lengths to retain their best employees. A recent survey results show that employee turnover can cost the organization almost 4 to 5 times more than an annual employee salary. So, an effective retention strategy needs to be in place. Employee retention involves a lot of energy, efforts and resources but the results are worth it. Employee retention involves 5 major things Compensation, Environment, Growth, Relationship and Support. Creation of retention strategy means involving these factors and placing the employees needs and expectations at the centre of the companys long-term agenda in order to ensure the professional satisfaction of the employee and create a trusted relationship. In this stable relationship, the employee stays in the company by personal choice based on free will and considered decision.

Concept of Employee Retention

Employee retention is a systematic effort by employers to create and foster an environment that encourages current employees to remain employed by having policies and practices in place that address their diverse needs. Employee retention is commonly considered to mean the ability to maintain a stable workforce. Employee retention is a process in which the employees are encouraged to remain with the organization for the maximum period of time or until the completion of the project. The above definitions drive home the point that retention is conscious effort by the organization to ensure that its employees are happy and stay with them. Employee retention is beneficial for the organization as well as the employee. Employee retention is a concern for companies in this strong job market.

Organization of paper
After the introduction, Literature review is presented in Section I, Methodology is given in Section II, Section III deals with Findings and Discussion and Suggestions and Conclusion are presented in Section IV.

Section-I: Literature Survey and Review


Reichheld (1996) asserts that the vital factor in retaining customers is retaining employees. Kirschner (1998) proposes that firms with an employee turnover of 10 percent or less have a customer retention rate advantage of as much as 10 percent over a firm with an employee turnover of 15 per cent or more. Therefore, a high employee retention rate causes a higher customer retention rate, which results in higher profits and growth in net income. This implies that employee retention is key to customer retention. Workforce Growth Slows, AMA's 13th Annual Workforce Survey (1999) shows More Hiring, More Firing, More Companies Doing Both at Once; Corporate Restructuring and Reengineering Result in Both Job Cuts, and Additions NEW YORK, October 26, 1999.

As more companies hire, fire and do both concurrently, the overall growth of the workforce is slowing, according to the findings of the American Management Association's (AMA) 13th annual survey of the U.S. workforce. The survey of 1,192 large and mid-sized firms shows that staffing increased by an average 5.0 percent in the twelve months ending in June 1999, compared to 7.7 percent in the prior twelve months. Of those surveyed, 77.2 percent reported creating new jobs, up from 72 percent in the previous twelve-month period, while 49.6 percent eliminated jobs, up from 40.9 percent previously. Actual downsizing, or net reductions in the workforce, rose to 24.1 percent of the surveyed companies from 21.9 previously. Many job cuts were offset by concurrent hiring: 36 percent of surveyed firms both created new jobs and cut existing jobs in the period, up substantially from 27.1 percent previously. Davis and Landa (2000) observed that customer loyalty, the outcome of superior customer service, and investor loyalty, the outcome of protected and enhanced shareholder value, are each dependent upon the business gaining the commitment and loyalty of its employees. Karia and Asaari (2006) believe that teamwork has a significant positive impact on job satisfaction and employee commitment because the greater the extent of teamwork, the greater is the enhancement of job-related attitudes. A Retention Checklist: How Do You Rate? Human Resource Magzine, Benjamin Chaminade (2007) Benjamin Chaminade is an expert in talent management and staff retention solutions, and has written several books on topics such as employer branding and employer of choice practices. In his article A retention checklist: how do you rate? he mentions the following survey results While employee retention is an important issue, important enough for 62 per cent of participants in a recent TMP survey to create a tailored retention program, it is still being confused with remuneration strategy. According to the last Australian Institute of Managements national survey, large companies recorded higher annual salary increases this year than last, of between 4.3 per cent and 4.7 per cent.

But retention is not a money matter. It is a voluntary move by the company to create an environment which engages employees for the long term. This attachment relationship is durable and constant and links the employee to their company, by common values and by the way in which the company responds to the needs of the employee.

Elisa Moncarz, Jinlin Zhao, Christine Kay (2009) have revealed in their research that Corporate Culture, Hiring and Promotions and Training practices influence nonmanagement employee retention. At the same time, Hiring and Promotion practices impact management retention, as well. Moreover, Organizational Mission, Goals and Direction, and Employee Recognition, Rewards and Compensation were found to positively reduce non-management employee turnover.

Rationale for the study


The above review of literature reveals that the studies conducted are related to what would retention mean to organizations, hiring and firing concurrently in organizations, talent management including retention and so. But, there is no study related to commitment levels of organizations towards retention practices. The IT companies has been in talent crunch and adopted the retention practices early which were suitably followed in other industries as well. But, how far the organizations are committed to put their words into practice; and also is it same across industries these are the questions which will be answered in the study.

Section-II: Methodology Objectives of the study


The objectives of the study are as below (a) To identify the level of commitment towards retention practices by companies in IT and Non-IT sector in Chennai. (b) To compare the commitment towards retention practices by companies in IT and Non-IT sector in Chennai. (c) To categorise companies based on their retention practices.

(d) To suggest measures to improve on retention practices.

A descriptive research design was adopted and the study was conducted in Chennai city among various IT and Non-IT companies. Non-IT respondents were any company not under IT sector (Eg. Automobile, Apparel, Engineering, Packaging, Auto parts, etc.). The sample size is 60 (30 from IT industry and 30 from Non-IT industry) and convenient sampling method was adopted. The source of data is primary data. Secondary data relevant to the study was collected from websites and journals. Percentage analysis and chi-square analysis were used for data analysis. Chi-square analysis was done on SPSS Ver.12.0 Tool for data collection The instrument used for the purpose of data collection was developed by Benjamin Chaminade to assess the commitment of companies to keep its employees engaged. The researcher administered the questionnaire personally and the respondents were asked to give yes or no to each of the statements in the questionnaire. The interpretation was done based on the following

(a) If the score is under 5 for 20, The company is regularly in the job
market and finding it increasingly difficult to attract staff. Retention is not a priority for such companies are more into thinking that a salary and a job would satisfy the employees. It is time to research the individual satisfaction and personalised retention. These companies are Yet to start with their retention practices.

(b) Between 5 and 10: The retention practices of the company are largely
inspired by the concept of the carrot and the stick and are centred on financial reward and Friday drinks. But the company has to recognise that this mass motivation, used to obtain better productivity has reached its limits. Retention is not about one size fits all. These companies, though have retention programs, they are just beginners and indeed have a long way to go.

(c) Between 10 and 15: The company is conscious that their employees are
as important as their clients and that they need to concentrate on the former to assure satisfaction of the latter. The company knows what is at stake with retention and they are committed to answer employees

demands in a culture of engagement. Excellence is on its way! These companies are runners and soon to reach the winning position.

(d) Between 15 and 20: The company is an employer of choice and


everybody should know it. These companies are the winners but care should be taken that they maintain their feather on their cap at all times!

Section-III: Findings and Discussion


The respondents were categorized under 4 categories based on the tool used and the data collected was analysed using percentage analysis and chi-square analysis.

CATEGORISATION Sector IT Non-IT I (yet to start) II (Beginners) 3 III (Runners) 10 11 IV (Winners) 20 16

It is evident from the above table that none of the respondents in IT sector fall under category I and II. Out of 30 IT companies, 10 companies fall under Category III which means that the company is conscious that their employees are as important as their clients and that they need to concentrate on the former to assure satisfaction of the latter. The company knows what is at stake with retention and they are committed to answer employees demands in a culture of engagement. 20 companies are under category IV titled as winners. These companies are Employer of choice and must have definitely obtained similar titles for their retention practices. These companies should ensure that they keep setting trends for the rest to follow. As far as Non-IT companies are concerned, 3 respondents fall under Beginners category. These respondents are largely inspired by the concept of the carrot and the stick and are centred on financial reward. But the company has to recognise that this mass motivation, used to obtain better productivity has reached its limits. Retention is not

about one size fits all. They have to formulate strategies to motivate the high-performer and show way out to the non-performer. 11 respondents fall under category III and 16 fall under category IV. None of the respondents are under category I.

Chi-Square Analysis
1. There is a significant difference between employee-centric culture and industry. The chi-square value is 20.000 at 1 degrees of freedom and p value is 0.000 which is significant @ 1%. Hence, the stated hypothesis is accepted. 2. There is a significant difference between employee well being and industry. The chi-square value is 5.455 and p value is 0.020 which is significant at 5%. Hence the stated hypothesis is accepted. 3. There is a significant difference between industry and performance-linked bonus practices. The chi-square value is 9.231 and p value is 0.002 which is significant at 1%. Hence the stated hypothesis is accepted. 4. There is a significant difference between industry and key employee retention practices. The chi-square value is 6.667 and p value is 0.01 which is significant at 1%. Hence the stated hypothesis is accepted. 5. There is a significant difference between industry and measuring the effect of retention strategy. The chi-square value is 8.523 and p value is 0.004 which is significant at 1%. Hence the stated hypothesis is accepted.

Key Findings

The key findings of the study are presented below separately for Non-IT and IT companies

Employee-centric work culture is prevalent only in 50% of Non- IT companies. This


shows that the companies do not have employee centered retention strategies. The more a company is employee-centric the more it is towards employee retention. Else this leads to high turnover. It is apparent from the study that only 57% of these companies are able to maintain their turnover less than the industry average. The companies (57%) do not spend much on their retention program and hence, keep spending on recruitment. It is a well-known fact that the cost of recruitment is higher than retention. Hence, these companies should ensure that retention practices are effectively implemented and also that they continuously measure the effect of their retention strategy. This is necessary because only such measurements will reveal whether the retention strategy is effective or not. The study reveals that only 57% of the companies adopt this practice.

It is significant to note that only 37% of IT companies spend more time and money
on retention practices compared to recruitment costs. This leads to high turnover which is evident from the study that only 33% of companies have turnover less than industry average. The companies should effectively implement retention strategies and also concentrate on measurement of the effect of retention strategy. Also, many companies (53%) do not use job satisfaction survey to understand the requirements of their employees. Retention strategies are more effective if they based on inputs from the employees. Job satisfaction survey will help organization to identify on those inputs/requirements of the employees.

Section-IV: Suggestions and Conclusion Suggestions


From the above findings and analysis, the following suggestions are made

1. It is essential for companies to know why an employee leaves and the difference between an avoidable and unavoidable departure. IT companies should concentrate more on this and ensure that they retain their key employees. 2. Employees are an asset and not a cost to the company. The IT companies should ensure that their employees are aware that their companies treat them so; so that they work with pleasure and not in pain. 3. The Non-IT companies should promote employee-centric culture so that the internal customers (employees) are treated at the same level as external customers. This would create a sense of respect of the company towards them (Employees) and motivate them to stay with the company. 4. Also, the Non-IT companies should provide the employees with opportunity for them to understand how their work contributes to the bottom line of the company. This would assure them that they are valuable and their efforts contribute towards the profit and growth of the company. 5. Performance- linked salaries and bonuses are though not new, is not much in Non-IT companies. It is a motivation and retention tool which the companies can make use of. 6. Not only implementing the retention strategy is required, but also the measurement of the effect of strategy paves way for better understanding of the companys position. This should be increased in Non-IT companies. 7. The rate of turnover is higher than the industry average which shows that the retention practices are not effectively implemented in these companies. The companies should understand why their employees leave and what measures can make them stay. 8. It is well-known that cost of hiring is higher than cost of retaining the employee. Hence the companies should ensure that they spend time and resources for their retention program. 9. Job satisfaction survey is a useful tool to understand the employees requirements. This should be carried out on a regular basis in the companies.

Conclusion

We can conclude that the commitment levels towards retention is present in both IT and Non-IT companies whereas, the IT companies, as said are pioneers in this and the Non-IT companies are catching up with them. But the current levels of commitments is not enough to retain the talent. The companies, Non IT in particular and IT in general should realize that employees are asset and not cost, offer performance linked salaries, conduct job satisfaction surveys periodically, provide employee centric culture etc which will go a long way in retaining the employee, sustain and grow in the competitive business environment. The companies should understand it is the internal customer who is to be taken care of first only then he contributes for external customer satisfaction. Retention practices should be continued and made effective to yield better results than the present. Do hope the above suggestions listed may help the Indian inc. to improve on their retention practices and achieve a score of 20-20.

References
1. Comeau-Kirschner,C. Making Retention work, Management Review, Vol.8, No.11, 1998, pp.15-21. 2. Davis, T. and Landa M. Creating Shareholder Value: Impossible Dream or Achievable Business Objective?, Canadian Manager, Vol. 25 NO.2, 2000 pp.2328. 3. Elisa Moncarz, Jinlin Zhao, Christine Kay, An exploratory study of US lodging properties' organizational practices on employee turnover and retention, International Journal of Contemporary Hospitality Management Volume: 21 Issue: 4 2009. 4. IDS (2000), Improving Staff Retention, IDS HR Studies, 692, July 2000. 5. Karia N and Asaari, M.H.A.H (2006), The effects of Total Quality Management Practices on Employees work-related Attitudes, The TQM Magazine, Vol.18, No.1, 2006, pp.30-43. 6. Reichheld , F.F., The Loyalty Effect, Harvard Business School Press, 1996, Boston, MA. 7. Rothwell W (2007) Organisation retention assessment. In E.Beich, The 2007 Pfeiffer annual: Consulting (pp. 177-188). 8. http://www.humanresourcesmagazine.com.au/articles/24/0C03C824.asp? Type=60&Category=919

9. http://www.eweek.com/article2/0,1895,2078486.asp 10. 11.

http://retention.naukrihub.com/retention.html http://wfnetwork.bc.edu/new/glossary_entry.php?term=Retention, %20Definition(s)%20of&area=All http://www.contentwriter.in/articles/hr/employee-retention.htm

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Employee retention strategy questionnaire Name (Optional) Designation Company (Optional) Industry Please rate your companys position on the following activities and characteristics y = Yes, n = No 1. My company is well regarded by people looking for work and employees say flattering things about their job. 2. I have an employee-centric culture that values internal customers as much as external ones. 3. My employees have ample opportunity to understand how their work contributes to the bottom line of the company.

4. I provide my employees with opportunities for growth and development. 5. I provide a comfortable, safe work environment and I have a good reputation in the community. 6. My leadership is accessible and provides vision and direction. 7. I care for the wellbeing of my people by making employees lives easier and less stressed. 8. I know how much it costs me to replace every employee who resigns/needs to be replaced. 9. I know the reasons for these departures and the difference between an avoidable and an unavoidable departure. 10. I know why employees stay or leave my company and what keeps them engaged. 11. The rate of turnover in my company is lower than the average in the industry. 12. I spend more time and money on my retention program than on recruitment. 13. Salaries and bonuses are linked to performance or the development of competences. 14. Our managers are trained to select, identify, guide, coach, reward and retain their people. 15. I know my job forecast and professional development plan for the next two years. 16. My employees are aware that they are an asset in which one needs to invest and not a cost to reduce. 17. I use a job satisfaction or engagement survey in order to understand the requirements of my employees. 18. I know who the talented employees in my company are.

19. I think that my company does what is needed in order to retain its valuable employees. 20. I regularly measure the effect of my retention strategy.