Essay: EFFECTS OF EMPLOYEE TURNOVER

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  • Published on: May 12, 2017
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  • EFFECTS OF EMPLOYEE TURNOVER
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CONTENT
1.0 Introduction
2.0 Literature Review
3.0 Research Objective
4.0 Method and Design
5.0 Significance and Conclusion
6.0 References
1.0 Introduction
The sole proprietorship form of business ownership accounts for circa 25 percent of employment in Nigeria. According to Vanguard (2012), this business models employs 32.41 million individuals and makes a contribution of about 46.54 per cent to the nation’s Gross Domestic Product in nominal terms.
Considering the contribution to GDP and the current state of the Nigerian economy, there is great concerns on the issue of employee turnover in these small to medium scale private establishments, most especially as a results of its effects on the productivity of the organization – we know that the healthier these firms are, the better the shape of GDP to a greater extent. Across a greater number of firms (both public and private), it is an undisputed fact that the greatest assets owned are their employees. However, despite the limited resources put into the process of recruitment, onboarding, training and development, employees eventually leave for other firms – in most cases, multinationals and direct competitor(s) for greener pastures. The limited resources that could have been ploughed back and re-invested in other proven growth drivers, development areas and rewards are lost to employee turnover.
Hence, the aim of this research proposal is to examine the relationship of employee turnover rate with organizational performance in sole proprietorship establishments.
2.0 Literature Review
Employee turnover is said to have occurred in any situation whereby there is a replacement gap as a result of employees having to leave their current jobs. The process of finding replacement to fill these gaps created is a cost to the firm and also damaging to the delivery of service. It is therefore to be considered a form of necessity for businesses to cut down the rate at which employees, (most especially essential staff) exit the business.
According to Man (2010), “employee turnover measures the movement of workers in and out of employment with particular firm, the issue and interest in measuring such movement only arose when working for an employer (rather than self-employment)”. In the works of Bureau (2008), he also defined employee turnover as “the rate at which an employer gains or loses employees”. Using clear terms, employee turnover is being described as the duration an average employee stays or the rate at which employees come into the business and leave.
Employee turnover according to Ruby (2002) was classified into internal or external. Ruby (2002), defined internal turnover as when “employees leave their current positions and take up new position within the same organization”. He further classified it as both positive and negative. Positive factors includes increased motivation as a result of change in role and supervision while negative factors includes disruption to ongoing commitments. Particular attention should be paid to monitoring both internal and external employee turnover. Moderate control to internal turnover includes but not limited to tightening up of organizational succession planning and internal recruitment policies.
Justus et al (2011) in his research, studied factors contributing to employee turnover in the sugar industry in Kenya; the outcome showed that greater proportion of employees will leave their current jobs for additional salary, fringe benefits and opportunities for personal development & growth, better working conditions and environment.
The summary of the outcomes is that voluntary type of employee turnover is the most common form organizations do experience and this is predicated on some of the conditions stated by Justus et al (2011).
The work also shows that employee turnover could impact organizational performance negatively and positively. Litheko (2008) asserted that in cases where employees leave for competitor firms, they move with trade secrets and some other business intelligence of their former firm – this creates a bigger risk and drawback as such information can be used as an advantage by competitor firms.
Employee turnover reduces the effectiveness of the organization as a result of employees not staying (Stear, 1991). It corroborates the outcomes of Ovadge (1998), which stated that “today’s highly competitive and chaotic environment requires retention of people who will be willing to perform if organization are to survive”, Chruden (1980) also acknowledge that a good indicator of how effective an organization functions is employee turnover.
The advantage to employee turnover is that replacement for leavers gives organizations to bring onboard new employees with new ideas, skills and different perspectives to tackling problems. Also, it gives opportunities for progression to employees that remain – they get to be promoted into spaces created by leavers, leading to higher remuneration. Merging roles and restructuring reduces overheads and can improve bottom line. It also enables elimination of poor performances and provides motivation for high flyers. Monetary value alone should not be attached to loss due to employee turnover.
Ongori (2007) defined employee turnover as “the rotation of workers around the labor market; between firms, jobs and occupations; and between the state of employment and unemployment”. A review of Ongori, (2007) also reveals additional reasons why employees leave their job – marital, personal, geographical, organizational and economic reasons. These further substantiated that there is really no consensus on the factors or determinants that necessitates employee turnover.
In any running business, employees are an important part of it – where they are absent, the business would be unsuccessful. According to the Bureau of labor statistics (2008), the average period sent by an employee in a firm is approximately 23 to 24 months. The Employment policy Foundation states that “it costs a company an average of $15,000 per employee, including separation costs, paperwork, unemployment; vacancy costs, including overtime or temporary employees and replacement costs including advertisement, interview time, relocation, training and decreased productivity when colleagues depart”. Employee turnover rate is lowered by providing a workplace that fosters empowered, motivated and happy individuals thereby promoting encouragement and harmony at all level; the effect is felt across the organization.
Identified strategic measure to reduce employee includes better governance around the employee recruitment and selection process, onboarding, training, role design and compensation. In a research on the employee turnover among lecturers in some selected Nigerian universities, Ologunde, Asaolu and Elumilade (2011) found out that poor work conditions, low level of optimism, lack of training and development, fringe benefit and good incentives resulted in greater proportion of turnover recorded. They both prescribed for a holistic approach of all factors (economic and non-economic) as a panacea to addressing employee turnover.
In Shukla, et al (2013)’s view, “when there is high rate of turnover, it creates problem and negative impact on an organization’s performance”. This further supports past works that organizational performance and separation of workers has a significant relationship. From the works reviewed, it can be inferred that between the rate of employee turnover and the level of organizational performance, there is exist a realistic level of substantial relationship.
However, most of the past researches on employee turnover emphasized more on big multinational firms and institutions with standard structures. Not much has been able to examine how it relates to sole proprietorship firms within the Nigerian context – i.e. what are other localized determinants to employee turnover. Findings from the study will add to existing body of knowledge and basis for further research in this domain and; thereby increasing productivity.
3.0 Research Objective
Employee turnover has a lot of implication on the organization. This ranges from monetary, behavioral, productivity through performance. When employees leave, organization has to spend money in hiring and training new staff. These cost are budgeted for in business plan but in most cases are finite; organizations have to source for supplementary budget in situations when cost of hiring exceeds plan to close this manpower gap. Also, the process of onboarding and settling in role for new employees takes an average of 2-3 months. Within this period, new employees are either being cautious of taking action or are making errors in the process of trying to perform optimally.
In cases where employee turnover is as a result of restructuring or redundancy, overall productivity in the organization declines. Employees that remain are less motivated and as such, output is impacted. When this happens, organization’s income and revenue dips. With decline in revenue, the organization would be unable to afford the cost of recruiting seasoned and experienced employee to turn the performance around.
Hence, the extensive objective of this study is to examine employee turnover within the context of Nigerian small scale businesses.
The specific objectives of the study can be stated as follows:
1. To evaluate the specific determinants of employee turnover
2. To examine the effects of employee turnover on organizational performance in sole proprietorship establishments in Nigeria.
Research Questions
The following research questions would be utilized for this study;
1. Why do employees leave the organization?
2. Why do organizations terminate employees’ appointment?
3. Does job satisfaction and employee commitment determine employee turnover?
4. Does form of business ownership determine employee turnover?
5. What impact has employee turnover got on the organization?
6. What is the relativity of turnover between departments within the organization?
To guide this study, the following hypothesis have been formulated;
– H0: Employee turnover does not result in increased human resource management cost
Ha: Employee turnover results in increased human resource management cost
– H0: Employee turnover does not result in missed revenue opportunities
Ha: Employee turnover results in missed revenue opportunities
– H0: Employee turnover does not affect employee outputs
Ha: Employee turnover affects employee outputs
– H0: Employee turnover does not reduce motivation within the business
Ha: Employee turnover reduces motivation within the business
This study is significant in adding to the body of knowledge on the impact of employee turnover on business and would help build employers’ understanding of how to tackle problems arising from employee turnover.
4.0 Method and Design
Methodology
This study would adopt a cross sectional design. According to Asika (1990), “a cross sectional design is explanatory and exploratory, and it entails collection of data to answer research questions and relationships among variables. Data for hypothesis testing would be collected through this means. Variables relevant to this research would be distributed using percentages; a form of descriptive method of analysis. There would be need to test hypothesis about proportion of one or two samples, hence Z-test would be used.
Population of Sample Size
The study population would be made up of 326 staff from all four divisions of Grinvision Nigeria Limited. The formula; n = N/(1 + Ne2) would be used to determine the sample size an error, e = 0.05.
Grinvision Nigeria Limited is a sole proprietorship firm with operations spanning across pharmaceuticals, groceries, information technology and logistics. Each division of the organization is managed by a divisional head who all reports to the business owner. It is a large sole proprietor firm.
Sampling Technique
To largely ensure that there is equal selection chance for selection into the sample, simple random sampling technique would be used. Criteria to be used to select respondents would be department (sales, operations, administration etc.), staff level (management, senior, and junior) and gender (male and female). It would enable getting different opinions and perspectives regarding employee turnover, productivity and job satisfaction.
Data Collection Instrument
The selection of accurate data for research integrity cannot be over emphasized, hence using the appropriate data collection instrument is important. Data for this research would be obtained by means of survey using cautiously prepared questionnaires. Questionnaires would be distributed to all selected samples. Data categorization would be into – employee turnover, productivity and job satisfaction. Responses that are similar would be grouped and respondents would be cited so that it would reflect opinions that are same. It is expected that categorization would be achieved without any consideration on respondent selection.
Limitation to Data Collection
Collecting data form this target would not be one with a soft landing, a few limitations have been identified in addition to ways of overcoming them;
The environment is tough at the moment and everyone is more concerned with what adds to his bottom line; anything aside this, would require additional effort and time. What this means is that respondents’ schedule are expected to be tight within this period and most time during working hour would be dedicated to more productive activities rather than responding to surveys and filling questionnaires. Also, there is the bit on openness and authenticity of information supplied. Respondents selected might feel restrained to divulge how they feel and what they know hence resulting in false positive outcome sometimes.
To mitigate this, I would be presenting this proposal to the HR team as an added value to the business. It would enable them identify where there are gaps and close out as necessary. Thus based on the benefit to them, they would be galvanizing their employees behind this research work.
5.0 Significance and Conclusion
Because most of the researches earlier conducted in this area were centered on very big organizations, this work would contribute immensely to further bring home and localize the actions required to promote employee commitment and reduce turnover rate. Aside the cost implication attached to employee turnover, the entire condition is disastrous and if not properly manager could lead to reputation damage.
An employee who exits a business in an aggrieved state, would definitely not speak well of the company in good light. We are in the technology age, and information (authentic or false) spreads easily without being confirmed. Once these information spreads into public domain, the organization suffers a reputational risk that could impact total business performance. Also, high rate of turnover could signal an organization as being unhealthy – customers and customers are scared of transacting with the business while investors are also cautious of investing behind the organization. In the long run, the bottom line suffers it all.
To some extent employee turnover could be healthy to the business if properly managed and controlled. It gives opportunity for fresh ideas and perspectives. It helps the organization drive out poor performance and maintain a pool of high flyers.
Conclusively, this study would help shed light on the below areas;
– Know the cause of employee turnover in Nigerian firm; with more focus on sole proprietor form of firms;
– Understanding the key factors responsible for employee turnover and this knowledge
– Monitoring and determining variables that influences employee turnover
– Creating organizational strategies and actions in form of processes and ways of working to minimize employee turnover
– Driving out cost through savings on training and hiring;
Ovadge (1998) defined organizational productivity as an “indication of the efficiency with which input is turned into output in an organization”. Productivity is a desired outcome for every organization. Learnings and outcomes from this research would enable organizations compete favorably and also grow their revenue in the long term. This would also help them be the preferred employer of choice to employees and preferred partner to other stakeholders.
6.0 References
Asika, N., (1991). “Research Methodology in the Behavioral Sciences”. Longman Plc., Nigeria, pp: 12-30.
Bureau of Labour Statistics; (2008). Job Opening and Labor Turnover Survey, US
Chruden, S., (1980). “Personnel Management. The Utilization of Human Resources” Florida South West Press, U.S.A., pp: 54.
Justus, W., Kombo, A., Murumba, N. & Edwin, M. (2011). ‘‘The factors contributing to Labor turnover in the sugar industry in Kenya (a case of Sony Sugar Company limited)’’International Research Journal, 2(5) 1138-1148
Litheko, E (2008) Training them young is the way to up the skills base. Sunday/Business Times, 29 June, p.26.
Man, P. (2010) History of labour turnover in the U.S
Ologunde, A.O., Asaolu, T.O., Elumilade, D.O. (2011). ‘‘Labor Turnover among University in Southwestern Nigeria’’ Issues, Solutions And Lessons. 1-21
Ongori, H. (2007) ‘‘A review of literature on employee turnover’’ African Journal of Business Management ISSN 1993-8233, 045-054
Ovadge, F., (1988). “Motivation. Getting people to do their best”. Lagos Bus. School Manag. Rev. January and June, 1: 3-7.
Ruby, A.M., (2002). “Internal teacher turnover in urban middle school reform”. J. Educ. Students Place at Risk 7(4): 379-406.
Shukla, S. and Sinha, A.(2013). ‘‘Employee Turnover in banking sector: Empirical evidence’’. Journal Of Humanities And Social Science, 11(5), 57-61.
Vanguard, (2012). http://www.vanguardngr.com/2012/12/smes-contribute-half-of-nigerias-gdp/”. Retrieved 27th July 2016.

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