328 Chapter 12 • Managing Workforce Flow

MANAGING THE FLOW OF THE WORKFORCE

Managing the flow of talent through the organization is an essential part of strategic staffing.
Socialization is only the first phase of workflow management. Once new hires are socialized,
their performance must be managed, top performers need to be retained, and succession planning
must be done. Of course, when turnover occurs, the cycle begins anew. Next, we discuss turnover
in more detail.
Many companies boast about their low turnover rates, but is low turnover always ideal?
optimal turnover Optimal turnover is not the lowest turnover a firm can achieve; it is the turnover level that
the turnover level that produces the produces the highest long-term levels of productivity and business improvement. 52 Achieving
highest long-term levels of productivity
optimal turnover means understanding both the financial gains and costs of different types of
and business improvement
turnover as well as controlling who stays and who goes. Turnover can be either good or bad for
the organization depending on the departing employee. The loss of a high-performing employee
with a lot of leadership talent could cost the organization a lot of money in terms of lost revenue
and future leadership talent, but losing a low-potential poor performer opens the job for a higher-
performing replacement. Thus, the consequences the organization faces can be understood not
only by considering the recruiting and replacement costs a firm incurs as the result of the
turnover but also by comparing the cost and productivity of the former employee with the cost
and productivity of the replacement employee. 53
Although many managers are satisfied with simply minimizing turnover and measuring it
against broad industry benchmarks, others have mastered turnover as . a tool for achieving a
maximum return on their investment in their workforce. Restaurant chain Applebee's recognizes
that not all turnover has the same value. Instead of rewarding managers for keeping overall
turnover low, managers are rewarded for keeping turnover low among top-performing employees.
To create a performance-driven culture and develop a competitive talent advantage, Applebee's
divides its employees into the top 20 percent, the middle 60 percent, and the bottom 20 percent.
Applebee's assumes that the loss of a top 20 percent hourly employee costs the company $2,500,
the loss of a middle 60 percent employee costs $1,000, and the loss of a bottom 20 percent
employee actually makes the company $500. Accordingly, the company doesn ' t set retention
goals for the bottom 20 percent. Applebee's developed its own Web-based software program that
lets everyone from top executives to individual store managers identify their best employees and
determine how well managers are doing at retaining them. 54 With that said, the more money a
company spends hiring and training employees, the more expensive its turnover will be. For
companies like The Container Store, whose human resource strategies require extensively
training new employees, turnover is extremely expensive.
In addition to tracking turnover by employee quality, tracking turnover by tenure is also
useful. For many companies, the turnover of new hire. is highest during their fir I' one to twO years
on the job but much lower thereafter. Many high-perfonning sales c mpanies actually lind Lhalthe
turnover of employees in their first year or two serves as a nallU"aJ fiJter. Apparenlly, I w perf rm-
ers who are unable to meet the aggressive sales goals of their tirms actually elf-select Ollt f their
organizations quickly. The sales professionals who remain are likely t have high productivity and
long-term success with the company. 55 The appr pri at time fram e for tracking new hire tUnloyer
vades by job and by industry. In high-turnover inc1u tries, such as retailing on 111 nth mighl ~
an appropriate time for assessing new hire length of el'vice, while heallh care organization often
use a 90-day mark, and other industries use . ix-month or one-yeru' measures. 56 11) addition.
the U.S. Department of Labor's Job Openings and Labor Turnover Survey JOLT )57 collect
data from establishments on a voluntary ba .i , including lheir employment statisti cs nl~d
information about their job openings, hires, quit layoff , di charg s, and other separali n~. Tbl
S
information can help a firm forecast its turnover and interpret labor nuU'kel developments.

Types of Turnover
In addition to internal promotions and transfers. which also create vacancies, there are six P~
voluntary turnover mary type. of turnover: voluntary. involuntary, functional, dysfunctional, avojdabl~, ~o
turnover due to an employee 's choice unavoidable. 59 Voluntary turnover is when the separation is due to the employee cho os1I1g ,et
involuntary turnover
leave the organization for personal or professional reasons. The methods of voluntary LUrJ1fo~tll
turnover due to the organization include a written or verbal resignation, not reporting for work as assigned, failing to return ~ is
oye
asking an employee to leave an approved leave of absence at the end of the leave, or retirement. Involuntary turn
Chapter 12 • Managing Workforce Flow 329

when the separation is due to the organization a king the employee to leave due to factors such functional turnover
as the employee's poor performance, disability, or death, or the firm' reo tJ'Ucturing, d wn izing turnover that results in the departure
of poor performers
merger or acqui. ition. Functional turnover is the departure of poor performer. Dysfunctional
turnover i the departure f effective performer the company would have liked to retain. dysfunctional turnover
Avoidable turnover i turnov r that an employer cou ld hav prevented by addr Sillg its root turnover due to the departure of
cau e. Low pay, mployee dis ati faction, and poor \ ork and life balance j sues can all cause effective pelformers

av idabl turnover. The e factors will be discussed in mOre detail in [he next section. avoidable turnover
Unavoidable turno cr i ' LUl'I1over that cou ld not have been prevented by the emp.1 yer. This turnover an employer could have
LUi'll vel' can fe1ult from resignation ' due to an employee becoming a parenl, experiencing a prevented
erious ilLnes or death , r a spou e accepting another job requiring lhat tIle Family relocate. unavoidable turnover
Organizations generally try to minimize tUl'Ilover that i vo]ulltary dysfunctional and avoidable. turnover an employer could not have
Table 12-2 . ummarizes the types of turnover. prevented

The Causes of Voluntary Turnover

People choose to leave organizations for many rea on.', including h w de irabl they believe
leaving will be and the ease with which they can depar1. 60 Unmet expectation about the job and
organization also lead to dissatisfaction, which. in tum, lead to turnover. 61 Giving candidates
realistic job previews can reduce the likelihood of thi occurring. 62 If nn employee s job duties
are po r1y defined or the per on i given unr ali tic perf nnance goals. this an al 0 result in
voluntary turnover.63 In addition to being lured by other Opporlullitie that provide more chal-
lenging work 01' career development opportunitie people also leav job due to low pay and
benefit a lack of recognition, not having their voice heard or perceived unfairness. 64 Although
everal ludi have hown thai pOOl' perJ\ rmer are mOre likely to quit than good performers,65
the best performers may al 'o be m re likely to leave becau they have better opportunities. 66
A slllvey of 262 large U.S. companies and a complementary survey of I, 100 top-performing
employee found that mployer. and employees do not agree on the rea OilS key talent 'lay with an
employer. 57 Although top employees reported pay as one of the three primary reason. they leave an
employer, empl ye b lieved tbat promotional pportunities anel career devel pment were the
primary rea on . It eem that what employee value and what employers think they value differ.
The urvey also found that 86 per ent of c mpanie think (hey d a good job of treating their
el11pl ye welJ, but on ly 55 percent f employes agree. Table 12-3 summarizes the results of the
urvey and offer some in ight a to how employers and employees think differently about the
siluati n.
One key fa tor related to voluntary turnover i th CUJ1'em economic cJimate. Although top
perfonnel . are usually bing courted by other ompanie if the econ my i . good and jobs are plen-
tiful retaining employee both good and bad i more difficult. When the economy i oftel' and fewer
organizali n ' are [Link] it il harder for employe to leave and LUmOver rates are u ually lower.
exit interviews
Analyzing the Causes of Turnover interviews in which separated
Turnover is difficult to clll'b unl you know precisely what i au 'ing it. Because there are so employees are asked about why they
are leaving the firm. The goal is to
many rea 011 why people quit lheir job, it can be helpful fO conduct exit interviews to ask sep- acquire information that can be used
arating employees why they are I aving. The e interviews help the company acquire information to improve the working conditions of
that can be used to improve [h condition of th ir current employees and reduce future turnover. the firm's current employees

Types ofTurnover
Type of Turnover Description
Voluntary turnover The employee chooses to leave due to personal or professional reasons
Involuntary turnover The employer initiates the separation due to the employee's poor
performance, misconduct, a reorganization of the firm, and so forth.
FUnctional turnover The departure of a poor performer
Dysfunctional turnover The departure of an effective performer the company would
have liked to retain
[Link] turnover Turnover that the employer could have prevented
Unavoidable turnover Turnover that the employer could not have prevented
'-------------------------------------------------------------------------
330 Chapter 12 • Managing Workforce Flow

TABLE 12-3 Why Top-Performing Employees Leave Organizations 68

Percentage of Top-Performing Percentage of Employers'
Reasons Employees' Responses Responses
Pay 71 45
Promotion opportunity 33 68
Work-life balance 26 25
Stress 24 8
Career development 23 66
Health care benefits 22 0
Length of commute 18 4
Nature of work 18 8
Retirement benefits 17 2
Company culture 13 10
Relationship with 8 31
supervisor/manager

Note: The numbers do not total to 100 percent because each respondent chose three reasons.
Source: Reprinted with permission. All rights reserved, Towers Watson. For more information, visit
[Link]

Technology can facilitate the exit interview process. Some companies have software that e-mails
their departing employees and asks them to take online exit interviews. The software allows
managers to see how many surveys have been completed, view the firm's monthly and yearly
exit statistics, and uncover the top reasons why employees have left. The departing employees
can also include detailed comments for the firm's managers to explore further. 69
Exit interview questions should be targeted at the areas in which the organization feels it
can improve. Be strategic, and ask questions that will solicit useful information. Questions
including, "What are some things that you would do to fix problems in the workplace?", "Can
you give us the names of those you believe are involved in criminal behavior?", and "Are there
things we coulp have done to make your job more fulfilling?" can help the organization fix prob-
lems and improve the future hiring of better suited candidates. 7o
Some organizations develop formal policies to manage voluntary employee separations
and exit interviews. One of UPS's 37 principles for managing its workforce, described in a larger
policy book given to its management team, pertains to its relationships with former employees:
"We are considerate of employees who are leaving us for whatever reason. We know that the
goodwill and respect of former employees can be beneficial in future relationships. At the time
of an employee's separation from the company, we seek an opportunity to conduct a friendly dis-
cussion regard it1g both the individual's and the comp~Uly's views. Su h di Cli S ions may point
out ways in whicb we could improve our [Link] environment Or the company in genera l: 71
It i sometime ' benetlcial to wait before conducting exit intervi ws. When John on &
Johnson interviewed p opJe it identified a') regrettable losses from the organization to gel in ight
as to why they left their jobs, it learned that people felt much freer to respond honestly after ,a
measure of time had passed. J &J learned that many of those former employees' poor commutU-
cation with their supervisors did not allow them to understand how valued they were within the
72
company. As a result of those discussions, J&J rehired a lot of its former employees.
Research suggests that the former bosses of departing employees should not conduct exil
interviews, especially if they are untrained in conducting them. Employees will be reluctant 10
disclose that poor supervision was the reason for their departures, if this indeed is the case. Also,
their supervisors might selectively interpret their soon-to-be-separated employees' responses Qr
not honestly disclose what the employees said. . It
Firms can do the following to improve the validity of the information they gather VIa e)C
interviews: 73
uch as
• Have representatives from an outside company or from a neutral department, S
human resources, collect the information.
• Train the interviewers. rs.
.
• Use a questIOnnaIre. that allows the firm to systematIcally
. compare respon den t' s an. we
Chapter 12 • Managing Workforce Flow 331

• Rather than interviewing the separating employee during his or he I t working days, con-
'd' r as .
S1 er supplementmg (or even replacing) the exit interview with a post-exit questionnaire.

A ' we mentioned in . an earlier chapter. rather than severing ties with departing top
performers me compaOJ~ have done ju t the oppo ile, creating alumni networks for
ex-employee: The c~nsultlllg firm ~ain & o. mine. alumni relationships for [Link]
referrals. The firm ha . found that new hlr ourced through it alumni tend to be a better fit WIth
it cu lture and need and frequently stay I nger than other rnployees.74
Employee atisfa lion surveys can b Ip to identify problems and areas of job dissatisfac-
tion that can be addres ed and, with hope prevent additi nal turnover. UPS regularly conducts
an "Employee Relati n Index Survey, ' which mea. ures employee satisfaction and the climate
of the rgnoization. All employee have the pportunity to respond anonymously, the results are
hared with the entire organization, and UP modifi . its departmental practices and overall
training ef~ rt ba ed on the feedback. 75

Developing Retention Strategies

Although the turnover of the lowest-performing employee can be beneficial, to ucce fully
manage talent an rganiz3tion cannot focll . olely on it top performer. In urer Aviva' trategy
of managing 'the vital many' rather than ri k alienating th bulk fits workfor e by focu ing
exclusively on current high performer makes thi commitment e 'pli it. 76 Re ear h ha al 0
hown that top talent is more effective when it operate in vibrant internal networks with a
diver e range of oworkersJ? Different thing make people of different ages, genders, and
nationaliti interested in working ~ r and remaining witb a c mpany.78
Because the re(lson people tay with an employer are ften the same r a on they were
atIJ-acted to the company in lhefirst place impr ing employee retention will often make the linn
more attra tive to new applicant. In other word if a firm i uce ful at keeping its employees al-
i tied and productive, it is al 0 lIkely to have what it need 1.0 appeal t n w talent. ALo if the
retention of good performers increa es, fewer new people need to be hired. When th technology
PI' due and services provider COW experienced high turn vel' rates among it account manage in
their flfst two yea•. the company developed an extensive new account manager onboarding and
training program. After a dayl ng orientation focu ed on the company' value and goal new
account managers receive ix weeks of training. COW also developed a three-minut rea(j tic j b
preview video to help potential candidates better understand the job. The video howca es the firm'
current account managel and d cribes their rol~ , respon ibiliti , and working envir nment. The
vide i on COW' careers h mepage for p tential candidate to view prior to applying online. 79
Developing a retention plan that addre ' es th cau e of tllmover can improve the retention
of critical employees and employees in key position. Tn Table 12-4 we sUIlliTIarize some common
retention trategie that we di cuss in mOre detail next.

CHALLENGING EMPLOYEES To succe sfully compete in the . emiconductor industry, Texas

Instrument need tbe b t and brighte t employees. However, t p engineers are hard to find. To
maximize the retention of it employee, the company train its manager ' to engage th ir
ubordinates to make ure they are challenged and appre iated. Manager aL regularly con. ider
as ignment change for their empl yee to [Link] the be t u e of their skill. Nurturing and
retaining their top employees is a component of the performance review given to Texa
In trument' managers. 80 Cro -training employees can al 0 help them develop n w kill and
reduce their lurno er.

CLARIFYING PROMOTION PATHS Clear career path can al 0 improv retenti n becau e
elllploye scan m re ea ily ee where their time and et'fi 11 will tak them in the company. When
Chip tie Mexican Grill wanted to reduce the turnover of its hourly w rker ' it revised it career
path for entry-IeveJ employee and started promoting more from within. Its tw"nover rate fell a.
the Company went from filling only 20 percent of it manager po it ion internally to ftlliug 80
Percent of it managerial po iii n from within.8\ A one company representative. aid, "If you
don't have a career path that i lear good people won 't want to lay with you. People want to
~~ow thal [heir hard work i rewarded, and they can ascend through the rank nod becom a
I&ger factor in the company' succe . 82
332 Chapter 12 • Managing Workforce Flow

Retention Strategies
Clarifying Promotion Paths: A clear career path helps retain talented people interested in
moving up.
Challenging Employees: Developing skills and learning new things can keep employees
engaged.
Oeveloping Better Supervisors: Fair managers who subordinates trust can improve employee
retention.
Giving Employees Work Flexibility: Giving employees work flexibility can improve their
retention by enabling them to better balance t heir work and life demands_
Choosing a Good Location: Locating the company in a desirable area or in an area with few
competitors for the same talent can boost retention.
Providing Competitive Wages and Benefits: Giving employees competitive pay and benefits
help improve retention .
Holding Managers Accountable: Holding managers accountable for retaining top performers
and for challenging and developing their subordinates can improve their retention.
Providing Employees with Support: Staying in touch with new hires and helping them
overcome the obstacles they face to perform well can result in their retention.
Creating Mobility Barriers: Embedding employees in the company in such a way that their
value is greater inside than outside the firm due to their firm-specific knowledge decreases
the chance that they will leave.
Creating a Strong Corporate Culture: Creating a strong culture that employees find attractive
can enhance their commitment to the company.

DEVELOPING BETTER SUPERVISORS Developing better bosses can be one of the best
retention management strategies. Supervisors have a considerable impact on their subordinates'
turnover. Creating a climate of respect, fairness, and trust can positively affect the morale of
employees, reduce their Lre .. , increase th ir commitment to the organization and their
supervisors, and improve Illeir performance. 83 ft can also lower a firm's employment liability:
Employees who are treated well are less liKely LO sue their companies.

GIVING EMPLOYEES WORK FLEXIBILITY Giving employees work flexibility can also improve
their retention. Alternative job arrangements can help them better balance their lives and their
job sharing work. One type of flexible arrangement is job sharing. Job sharing occurs when two or more
an arrangement whereby two people people fill one job, Ea h per on has a permanent part-time position and Lbey . pliL the hOUl", pay,
work together to fill one job ho liday . and benefits between them according to how many hour they ~lch wo('k_ The job
re pon ibi li tie can also be split int tw different jobs. For example each person might be
re pon sible for different clients or [Link] different tasks, or employees might share tasks
and re pon. ibilitie and coordinate the work done between them.
flextime Flextime provides an alternative to the typical nine-to-five work schedule. Flextime
an arrangement that allows employees employees may work four 10 hour days, work a weekend day instead of a weekday, or take a
to work hours other than a typical shorter lunch so they can leave work earlier. For a company such as a call center, flextime can
eight-hour shift
enable the firm to keep the workplace open for an extended period every day, say 6 A.M. to 7 p.M.
to better serve their customers.
telecommuting Telecommuting is an arrangement whereby el11pl,oyees work 1'1'0111 a location olller than
an arrangement whereby employees their employer's facilities, such as their homes. In 'orne cases, te lecommuting employees will
work/rom a localion other than their work at the employer's facilities for part of the week and from their homes or other locati ns Ille
employer's fa cilities, such as their
rest of the week. In other cases, the telecommuting employee never works at the employer:
homes
location. Many people need more flexible work hour so that tbcy have lime to attend to lhelt
children, aging parents, or take classes, for example. High-quality recruits who are unable to
work traditional schedules often find flexible work hour very attractive. d
In addition to reducing turnover and the c ts related to iI , tel commutin g (al 0 calle
homesourcing when an employee works entirely from home) can generate co t savings if all
employer needs less office space as a result. Companies including J_Crew Offi e Depot., Sears
Medco Health Solutions, and AAA use homesourced employe~ . JelBlue annually saves ~vtlr
$2,000 per employee in rent costs by homesourcillg its entire re ervalioll taff. 84 The firnl enJoY
a 3.5 percent turnover rate among its 1,000 re ervaLioll employees compared wilh an indu ·try
Chapter 12 • Managing Workforce Flow 333

average of 65 percent. Because turnover costs amount to about 30 percent of a reservation

agent' alary these retention rate have had a big impact on JetBlue's bottom line. 85 At one
point, the company annual turn vel' co t were just 6 percent of the costs experienced by simi-
lar firm , or ju t $327,600 compared to th industry average of $6,084,000!86
Tel commuling can also improve Ihe productivity of employees if it makes them more
contenl with their job. JetBlue ' at-home reservatioJli ts are 0 p 'rcent more productive on
average, which makes it more viable for Jeffilue to lure dome ti w rker ' for tbe po ition, ratber
than outsourcing the jobs to lower labor-GO t countries. Customer ol1lacting the I'e elvationists
also experience fewer language barriers this way.R7 In fact JelB lue I' ceives nly ne complaint
for every 300,000 reservation calls made to the company- an indu. try b L Thi ' has saved
JetBlue a considerable amount of money when you con ider th fact thai it c sts ix times more
to gain a new customer than it does to retain an old one. s To comba! the i alation that home-
sourced workers can feel, the company has devel pd . evefal mea, UI' S: All homesourced reser-
vation agents must come into JetBlue's regional offices in Sail Lake ity for a minimum of four
hours each month, which allows them to interact with their fellow employees and with manage-
ment. Workers are also kept up-to-date with the most recent events occurring at JetBlue. 89

CHOOSING A GOOD LOCATION Locating ncar companie. that employ imiJar talent can be
strategic. For example, a technology company in Silicon Valley will likely be able t m re easily
acquire the talent it needs than if the firm were I cated in, J) r example Fargo, N rlh Dakota. The
possible high turnover rate given the ease with whi h employe s can 'witch employel can help
keep a firm's ideas fresh, too. However, as we explained earlier in the b k the ame high
turnover rate could compromise a research and d velopment company lhal needs employees to
remain working n projects for n long lime. Also, there are clearly ethical and Inltegic issues
urrounding the' poaching' of employees from other rgani7..ati()Il . . Moreover, if you poach
emp'loyee. from other employer , you mu ,t be prepared in tUI'll, lo be poached from!
Establishing a eparate long-term research facility ill a location where the skills of the team
ar not in a high demand , sl1ch a a rural community, can increase employee retention rates,
although, as we indicated. initially attracting candidates can sometimes be more challenging.
How ver, the strategy worked for the . emiconductor company Intersil. When the turnover rate
for the semkonciucto(' industry for a wh Ie was al 20 percent lhe turnover at Intersil's semicon-
ductor facility in rural Penn ylvania averaged only 2 peJ'cenr. 90 Ais a we explained in Chapter
6, wben GE bad trouble tinding people willing to m ve to ' Dreary Erie Penn. ylvania," the
company b gan re ruiling junior military officer . PI' viou Iy used to sitting in foxhole, these
employee found Erie less fa limitation. 91

PROVIDING COMPETITIVE WAGES AND BENEFITS Competitive pay and benefits will help
attract and retain employ~, of curse. However even it' a company has good benefits, if employees
don't undel. land or appreciate those benefit, then the benefit are uJllikely to affect their retention.
An 8n!lly i by rhe con ulting firm Watson Wyalt found Ihal companies that offer rich benefits but
have p r communication praclice had an average turnover rate for top-pelfornling employees of
11 percent. omp,\llles that offered les 0 tly benefits but successfully communicated them had an
average top talent turnov r rate of 12 percent. The be l • ituatiol1, mbining rich benefits and
effectively explaining them to employees was ass ciated with an even lower 8 percent turnover
rate for top performcl" .92 A pay~for-perfonnance plan call a1 0 h lp reduce the turnover of top
performer and improve the compauy's return on what it pays employees. 93
Capital One believes thai executing it bLl ines trategy necessitates hiring the best talent.
To help aurac! and retain that talent, the ompany developed an extensive work-life program.
Program ranging from concierge ervi e and fitness centers to child care subsidies and
di counted ticket sales reduce suo and 'ave employees' time. The company tracks the usage of
each work-life benefit and conducts a cosl- benefit analysis of all such initiatives to identify
which are having the mo t impact on the company'. goal . Employee are also . urveyed twice a
year about how Uley feel about lheir workspaces- f r example how they fcel abotllihe lighting,
fUllctionality, privacy cleanliness, conveniences. fo d 'er ic s break facilities re reation facilj-
lie , and meeting paces tbey use. The bank believe that working on lh is ue identified by the
SLlrVcy help it retain empl yeesY4
334 Chapter 12 • Managing Workforce Flow

HOLDING MANAGERS ACCOUNTABLE Rewarding managers and holding them accountable

for retaining top performers and ensuring that their subordinates have clear, consistently
monitored professional growth plans will increase the chances that the managers will engage in
these behaviors. Designing retention training for managers can improve their ability to retain
good performers, too. Remember, however, that retaining top performers is not the same as
retaining poor performers, which can actually cost a company money.
When Deloitte wanted to reduce attrition among its high performers, it learned from its
exit survey data that lack of flexibility was the number one reason women were leaving the Com-
pany and the number two reason for men. This was despite the fact that Deloitte had 69 different
flexible work arrangements ranging from telecommuting to compressed workweeks. Deloitte
replaced the flexible work arrangements with a work customization program that allows employ-
ees to ask their managers to periodically "dial up" or "dial down" their careers based on career
pace, workload, location/schedule, and role. Although not all requests can be approved, one out
of three requests have been to dial down, and employee satisfaction with "overall career/life fit"
increased by 25 percent as turnover fel1. 95

PROVIDING EMPLOYEES WITH SUPPORT Helping employees balance their work and their
lives can improve their retention. The Marriott Corporation hotel chain has been an industry
leader in reducing employee turnover. Through its Pathways to Independence program, Marriott
trains welfare recipients for the workforce. In some locations, Pathways alumni are 50 percent
less likely to quit than the average employee. The program's unique structure combines internal
and external support for the company's welfare-to-work employees. Marriott's supervisors help
employees manage their professional lives, while Marriott "case workers" help employees
manage their personal lives.96
Sonesta Hotels, a family-run chain of 18 properties, developed a formal program to acclimate
new hires throughout their fust 100 days on the job. The main goal is to rerecruit employees on their
30-, 60-, and 90-day anniversaries. At 30 days, the human resources director sits down with new
employees to check if their expectations are being met and whether they have all the tools they need
to pelform their work. At 60 days, a second orientation called the "Booster" is given with a focus on
developing the employees' communication and service skills. Feedback is solicited about the
employees' training, and the new employees are asked what else they need to be successful. At 90
days, the new employees formally meet with their managers to set joint goals for the rest ofthe year. 97

CREATING MOBILITY BARRIERS Mobility barriers are factors that make it harder for an
mobility barriers employee to leave an organization. Mobility barriers can include stock options that vest in the future,
fa ctors that make it harderfor requiring employees to stay with the company to receive their full financial value; extensive training
employees to leave an organization
in a company's processes and procedures that are unique to that company; or desirable work
attributes that competing employers lack. Mobility baITiers other than financial incentives to stay,
which can sometimes be matched by other organizations, embed employees in the company in such
a way that their value is greater inside than outside the firm due to firm-specific knowledge. If the
perceived cost of leaving is greater than the expected gain of joining a different organization due to a
98
person's commitment to his or her work group, team, or company, he or she is less likely to resign.

CREATING A STRONG CORPORATE CULTURE If a company is able to create a strong culture

that employees find attractive, it can enhance employee c mmitment to the company.
Companies like the outdoor clothing and equipm nl c mpany Patagonia wh e goal i to
produce the highest-quality products while doing the least pos ible harm t the environment.
have developed values-based mission statements that appeal to recruits and employe s alike. The
appeal of the corporate culture helps retain employees with similar valuesY9

Mergers and Acquisitions

Retaining key employees during a merger or acquisition and int grating thos employee: intO tb~
company is critical if the new organization is to ucceed. One way to improve the retention ~
important employees is to create financial agreement. with key talent that erve a goldell ,,()III'
cuffs that create mobility barriers for them. As we just explai ned linancial incenliv pack~g:-;.
such as retention bonuses or stock options that mature over time, can help th finn retaIn I
Chapter 12 • Managing Workforce Flow 335

essential employees and increase their commitment to making a merger successful. To keep
talent from leaving prematurely, companies also sometimes increase the value of the severance
packages they offer workers who stay until a merger or acquisition is completed. These types of
agreement nre lypiclilly formalized in a written contract that specific th financial incentiv
that the empl yee will receive if he r he stays with the company for a pecified time.
Mergers and acquisitions create a lot of job uncertainty for employees-and tOp performer '
often have other job opportunitie . Consequently it i important that the employer clearly
communicate with employees about their future with the company- what their jobs will entail,
where they will be located, and '0 forth, as uming lhi information i known. Many c mpanies
create special retention strategie. for ttreir key pel'sonn J during merger and acquisition .

Managing Succession
As you learned in Chapter 10, succession management plan for the replacemenr of employees in
key positions and creates a talent pipeline in the company. There are some po ilion in almo I
every company Lhat are very costly to the organization jf left unfilled. The e position are often
at the executive level but other posili n are often critical as well. rn mailer organizalions, one
pel'. on might be key to the performance f an entire unit. Thi, i often true for researcher in
finns pur uing an innovation strategy. but can be true for companies pursuing a cu to mer
intimacy strategy a well. If the employee responsible for managing an important Cll. tomer
leaves, the company' relationship with that Cll lomer might deteriorate.
Mobility policies di.c tate how people can move between job within an organization.
A mobility policy hould clearly state both employees' and s upervisor ' re pon ibilities for mobility policies
employed velopment. On the one hand, employee mighl be re p nsible for identifying the train- policies that dictate how people can
move between jobs within an
ing program they need to enroll in to qualify for promotion Md request that their superv' or give
organization
them time away from their jobs to complete this training. On the other hand supervi or might be
r pon ible for regularly coaching and [Link] feedback to their subordinate , providing accu-
rate a se smell( of their [Link] to be trained and promoted. and helping them u e and fUlther
deve! p the . kills they acquired during their lTaining. Mobility policie al 0 learly d Cllmenl the
rule urrounding Ihe posting of job opening, the [Link] qualification for job , and the
compen arion and benefits associated with them. Mobility policie hould b well developed.
clearly communicated, and perceived as fair by mployee. Not every employe who d ire a
promotion or wislles to tran fer to a different position will b~ able to d ' 0. But if the proce. used
to determine who do~ and does not get promoted is perceived to b fair, tbo e wh aren't able to
do 0 will feel Ie. , [Link] toward the organization and be more wilting to remain with it.

Redeploying Talent
Workforce redeployment involve moving employees to other part of rhe company or to other
j bs the company needs filled . Workforce redeployment applie. the supply-chain management workforce redeployment
pr,inciples used to optimize inventory management planning, and production to optimize the moving employees to other parts of the
company or to other jobs
utili;Gation f a linn s mployees. Fol' firm trying to maximize the efficiency of th ir workforces,
which i particularly important t' r companies pursuing low-co'l trategie , optimizing their
workforce i critical.
IBM Workforce Managemenl Initiative borrow many of Ule ame concepts of supply-
chain management, uch a apacifY planning supply and demand planning, and ourcing. ~
manage 100,000 global e mployee 3Jld about a many . ubcontractors in its GI bal [Link]
division the finn built a tructure tbut outline the company internal and external skill and
prOvides a real-time view of IBM' labor-suppJy-chain activitie . The 'y tern atalogs
employee kill ', creating common d criptor around what people do what their competencies
al'e, and what exp rience. and referenc they have. 100 One global pharmaceutical company u e
a labor upply cbain to bener calalog ils wn mpJoyee' talen to help it make better deci. ion
about when to use it own employees and when to [Link] contra tor .Iot
Hewlett-Packard lise workforce r deployment to provide employees some mea life of
employment c urily. When the company had 400 slIrplu worker at its Loveland, Colorado.
facility after closing it. fabrication divi sion it redeployed many of rhem to other location ' within
the region , loaned employees to other divi ion with short-term hiring need , and permitted
336 Chapter 12 • Managing Workforce Flow

employees to be reclassified to lower pay levels and accept other jobs if they chose to. As a
result, the company retained more than 50 percent of its surplus employees. 102

INVOLUNTARY EMPLOYEE SEPARATIONS

Involuntary employee separations are inevitable. Downsizing and terminations are two of the
most common reasons for involuntary employee separations. We discuss each next.

Downsizing
Downsizing is the process of permanently reducing the number of a firm's employees so as to
downsizing improve the efficiency or effectiveness of the firm. 103 Downsizing is a popular way for organiza-
the process of permallently reducing tions to attempt to improve their flexibility by reducing their bureaucratic structures, giving
the /lumber of a firm 's employees so as
employees who have been retained by the firm the power to make decisions more quickly, and
to improve the efficiency or
effecti veness of the fi rm
improving communication within the firm. A downsizing can also be done in response to a
merger or acquisition, revenue or market-share loss, technological and industrial changes, a
restructuring, and inaccurate labor-demand forecasting. 104
Labor costs are a large part of many firms' expenses. Thus, private-sector employers often
downsize to reduce their costs, maximize the returns their shareholders earn, and to remain com-
petitive in an increasingly global economy. Public-sector downsizings often occur when techno-
logical improvements allow fewer workers to do the same amount of work or when governments
reduce their operating budgets. lOS

TYPES OF DOWNSIZING If the choice of which employees to downsize is not constrained by a

collective bargaining agreement (which usually mandates that union members with the most
seniority be retained), there are several ways to choose who to target in a downsizing. Across the
board downsizing requires all of a company's units to reduce their headcount by the same
percentage. Geographic downsizing targets specific locations for employee reductions, perhaps
due to the loss of an important customer. Business-based downsizing targets only certain segments
of a business. In addition, downsizing can target specific functions or departments that need to be
reduced, or specific positions or jobs that are overstaffed. Peiformance-based downsizing targets
poor performers. When downsizing is seniority based, the last people hired are the first people let
go. If cost cutting is a goal of the downsizing, salary-based downsizing can help a firm reach this
goal. This method involves targeting a firm's most highly paid employees. Competency-based
downsizing involves retaining employees with the competencies the company expects to need in
the future and downsizing employees who lack them. Downsizing can also be done through self-
selection, if a firm offers its employees inducements to leave, such as early retirement packages or
buyouts. Table 12-5 summarizes these downsizing targeting methods.
Firms need to fully plan their downsizing efforts if they want to reduce the related negative
consequences that can occur. A downsizing benchmarking study identified seven typical down-
sizing activities, each of which must be planned for: 106
1. Conducting a workforce demographics review including an assessment of the age, diver-
sity, and skills of the workforce as well as a projection of the number of employees
expected to resign, be terminated, or retire;
2. Assessing the firm's alternatives to downsizing, including implementing a hiring freeze
and offering employees buyouts, early retirement, retraining, and relocation packages;
3. Outlining the number of employees slated to be downsized per month, year, location, busi-
ness unit, department, and occupation;
4. Conducting the downsizing or reduction in force;
5. Providing career transition/job placement assistance to separated employees;
6. Providing assistance for the firm's remaining employees; and
7. Ensuring that an adequate retraining program is in place.

UNINTENDED OUTCOMES OF DOWNSIZING Firms often experience unintended ulcome of

downsizing including the voluntary turnover of their mo t valuable employee , efficiencY I~S~e$.
and the greater cost and difficulty of hiring new employee. and training them amid a down ·tZlflg
effort. Lower morale and a lack of motivation among a firm' employees can become pervasive, as
Chapter 12 • Managing Workforce Flow 337

TABLE 12-5 Downsizing Targeting Methods

Targeting Method Description
Across-the-board All units reduce their headcount by the same percentage.
downsizing
Geographic downsizing Specific locations are targeted for downsizing.
Business-based Only some segments of the business are targeted (e.g., employees
downsizing associated with one product line).
Position-based Specific jobs are targeted (e.g., accountants or salespeople).
downsizing
Function-based Specific functions are targeted (e.g., the firm's human resources department
downsizing might be downsized), usually during an organizational redesign .
Performance-based
downsizing Poor performers are targeted for separation.
Seniority-based
downsizing The last people hired are the first downsized.
Salary-based
downsizing The most highly paid employees are targeted.
Competency-based Employees with the competencies the company expects to need in the
downsizing future are retained, and employees without those competencies are
targeted.
Self-selection The firm encourages employees to self-seled out of the company by
downsizing offering them inducements, such as buyouts or early retirement packages.

can increa ed employee ab enteei m tre " and uncertainly. In particular, companies need [
add!' survivor syndrome, or the emotional effect the d wnsizing ha on employees wh are
bing retained. The emotional aftereffects these employee experience include fear anger,
fru tration anxiety, and mi l'rllSl, which can threaten an rg~mjzation' very urvival. Survivor
often feel guilty about retaining their jobs and are preoccupied by fear of further lay ff: ,107 This
can increa e the chanc~ that they wiJI quit be Ie ommitted to the firm and be Ie tlexible-
that i I . wiWng to go ut of th ir way [0 help the company w rk toward it long-term goals. IOS
The evidence regarding how layoff affect survjvor actual productivity i mixed. Som
tudie suggest that employee who have been retained w rk harder a a r ult of 'survivor'
guilt .. 109 Other tudi uggest Ulal urvivors feel 0 in ecure that their producti,vity fall .110 One
tudy of Boeing employee during a decade when the company laid ff tens of thou and of
employees found that the laid off employee were les depres ed and drank les than tll e wh
remained . Employee wh experienced urvivor guilt and the [Link] of not knowing jf they
would be next experienced the worst tre .111
The value f a firm ' hares can al 0 faJl during a d wnsizing, and it reputation as an
employer can uffer. A a result tirm often have to pay higher wage, to attract top talent after
they down ize. 11 2 In addition when a c mpany ' eparated employees lake advantage of
unemployment in UI'ance the firm ' future premium ri e. Also, the employer's cost for j b
placement 'ervi e career and re ume coaching and kill training de igned to as i t eparated
employee ri e. The co t of down izing includ :
o Outplacement ervice' (job training. job placement services. and career coaches for
down ized employees)
o Higher unemployment insurance premiums in future periods

• Severance pay
o Pay for accumulated but untaken employee vacation tim.

o The costs related to hiring and training futur replacement employe

o Higher staffing costs due to a less desirable postlay ff or po ' tdown izing employer image.

There is no convincing evidence that down izing lead lo long-term, uperior organiza-
tional performance or enhanced shareholder value. I 13 There are ludie that have attempted to
338 Chapter 12 • Managing Workforce Flow

measure and evaluate the medium- and long-term effects of downsizing. During the initial stages
of a downsizing, the organization doing so usually incurs extraordinarily large costs related to
the severance packages, early retirement packages, outplacement services, and so forth designed
to help separated employees. Management can evaluate downsizing by preparing a cost-benefit
analysis to identify the short-term financial implications of the downsizing and the expected
long-term savings or losses.

CONDUCTING A DOWNSIZING Workforce planning, which you learned about in Chapter 5, is

an essential part of evaluating whether or not a downsizing effort should be undertaken. J 14 Some
firms go through the pain of downsizing only to have to upsize a few years later. Downsizing
should begin only after the firm's short- and long-term strategic goals have been established and
downsizing will clearly help the firm meet both of those goals. Given that downsizing is a
traumatic event, no matter how well prepared a firm's workforce is, the process should be carried
out in the most expedient manner possible. Companies often make the mistake of spreading out
their downsizing efforts over a period of months and even years. This can cause employees a
great deal of long-tel'm stress. I IS
During a downsizing, it is important to stay focused on the organization'S strategy by
consistently reminding employees that restructuring activities are part of a plan to improve the
organization's pelformance and are key to the organization's future success. One expert believes
that "a downsizing plan should be included in the strategic management plan of all organizations,
regardless of whether they plan to downsize or not. By including such a plan, the organization
will be better prepared to begin the staff-reduction process should it be forced to do so in
response to environmental changes,,116 Sharing the firm's growth plans and renewal strategies
with employees can also ease the anxiety they are likely to feel.
For ethical reasons, companies should always have a working plan of how to conduct a down-
sizing in a way that is consistent with the company's values and talent philosophy. Without clear
policies and procedures set up in advance, it is more difficult to do the right thing when a downsiz-
ing is imminent. Given the traumatic nature of a downsizing, every communication and every action
should be consistent with the firm's values. If showing employees respect and communicating
openly are important values, these become particularly important during a downsizing. What and
how the company communicates with separated employees sends a strong message about how it will
treat the people who are being retained and outside stakeholders as well. Potential suppliers, cutTent
investors, and potential employees reading about unethical or poorly handled layoffs will be wary of
doing business with a company that does not properly treat its employees dUling a downsizing.
Perceptions of fairness are important during a layoff or any type of downsizing. When
Royal Philips Electronics had to dismiss about 30,000 employees, it tried to do so in a socially
responsible way. The company first continued to invest in training, education, and job search
counseling for people put on a dismissal list. The goal was to make the situation as acceptable as
possible to the employees staying as well as leaving. As the company's president and CEO
Gerard Kleisterlee said, "The people who stay in the organization-although they know as well
as the people who leave that you have to do that for the sake of a healthy company-want to see
that the people are treated like people want to be treated. I always say, 'Treat somebody else like
you want to be treated yourself. Then you will do a good job.' ,,117
When used as a component of an overall reengineering or restructuring strategy, a down-
sizing effort can be effective. One survey of 531 large companies that had downsized revealed
that well over half of them had achieved their goa ls of reducing co t and expenses. H wever
less than half had achieved their goals of increased profitability, productivity. Hnd customer :11-
isfaction. 118 In one case, a unionized technology services company thatlried to pursue a low-cost
strategy by downsizing ended up with significantly above- market labor c ts because il union
contract required it to retain many longer-term higher-paid employees. The higher lab r co t
interfered with the company's ability to compete ' ueee. sfully 011 price. Table 12-6 'Ullll11nrizes
some of the best ways to conduct an effective downsizing.
Measuring the effectiveness of a downsizing effort can be done in a variety of waYs,
inc I uding: 119

• Meeting the firm's authorized full-time employee headcount goals

• Increasing the firm's ratio of supervisors to employees
Chapter 12 • Managing Workforce Flow 339

I
TABLE 12-6 Best Downsizing Practices

The following is a summary of some of the best ways to conduct a downsizing:120

• The firm's senior leaders should playa vital role. They should become involved early and
continue to participate actively in the process as well as remain visible and accessible to
employees. Employees also need to believe that their managers are a source of credible information.
• Engage in frequent two-way communication. Employees want honest and open communi-
cation about what is happening to the organl2;ation during the downsizing. In other words,
the communication must flow both ways-between both managers and their employees.
When managers are communicating with employees who are facing termination, they should
do so face-to-face, not via e-mail or letters.
o Involve the right people in downsizing planning. The firm's senior leaders, human resource
executives, and labor representatives should all be involved in planning the downsizing.
o Identify work processes that will not be needed in the ftlwre organization. This will help sustain
those processes that are key to the organization's future.
o Incentives such as early retirement and buyouts work well and are popular with employees.
Because buyouts and early retirement Incentives aI/ow employees to retire with either full or
reduced pension benefits at an earlier age than normal, they can be a good best-practices
option-one that helps the firm achieve its goals as well as employees achieve their goals.
o s
Using multiple strategies and techniq(Jes to accomplish a firm downsizing goals can help
leverage the outcome. Downsizing strategies don't always work exactly as planned . Using
multiple strategies helps to ensure the effort is a success.
o Provide career transition assistance to both separated and surviving employees. This can include
career counseling, personal counseling, career/skill and career transition training, relocation
assistance, outplacement assistance, resume writing assistance, access to office equipment,
paid time off, child care, financial counseling, and access to job fairs and Internet job
placement sites.
o Monitor the process's progress. Take the time to periodically review your firm's downsizing
procedures, learn from your mistakes as well as successes, and document this information so
that future downsizings can be completed more effectively.
o Survivors are the key. The success or failure of a downsized organization depends on the
workforce that remains after the downsizing. A well-planned and managed downsizing process
that employees believe was administered fairly and humanely will help them believe in and
work toward the future success of the organization.

o Employee los due to atlriti n versUs per. onnel 10 s due to incentive program
o Demographics r bUyOUl reci pient
o [mpact on diver ity goals

o Ability to meet budgetary Umit

• Productivity change
o Reducti n in tOlal cost of wage and salaries

o Number of grievance app a\ , r lawsuits ti led

o Number of voluntary participant') in lncenlive and career transition program

Layoffs
A layoff, also known a, a red u Ii n in force i a temporary end to employment. U nlike down ' iz- layoff
ing which is a permanent epara tion of emp loyee tbe compa ny intends to rehire laid-off temporary end to employment
employee when bu ine picks back up. Employers tend 10 oi
like layoff's compared to other
dOwnsizing methods. Like down izing ometim layoff are forced by law due to budget cut
Which i the ca. e with most public-sector layoffs. At other times economic ondilions result in
layoff . If a firm i unionized union members with . eniority must usually be retained prior 10
rnore jUl1i r union memb r . Un forlllnately, this won 'I guarantee tbat the firm will end up retain -
ing th right competencie it need ' [0 compete more 'uceessfully. nioJ'ity~ba, ed layoffs lIeh
a thi an also have a negati e impact on employee diversity since they disproporlionately
affect women and min ritie • who, on average, are less likely to have seniority. Like downsiz-
ing , layoffs often have a negative impact on the reputation of firms as employers-especially
121
Young firm thal have not yet e. tablished positive employer reputations .
340 Chapter 12 • Managing Workforce Flow

In addition to EEOC compliance, the Age Discrimination in Employment Act applies to

layoffs as does the Worker Adjustment and Retraining Notification (WARN) Act. The WARN
Act is a federal law requiring employers of 100 or more full-time workers to give employees 60
days advance notice of closing or major layoffs. 122

Alternatives to Layoffs
attrition Instead of layoffs, organizations often reduce their employee headcount in other ways. Attrition
the normal reduction of a firm's is the normal reduction of a firm's workforce due to the retirement, death, or resignation of
workforce due to the retirement. death. employees. Combining natural attrition with a hiring freeze, which involves not hiring any new
or resignation of employees
employees to replace departing employees, can result in a sufficient amount of headcount
hiring freeze reduction if the attrition is high enough and the freeze can be imposed for a long enough period
a policy whereby no /lew employees of time. Attrition and hiring freezes can protect the jobs of survivors, but there needs to be a plan
are hiredfor a certain period of time
in place to redistribute the work among them to avoid their being chronically overworked.
Early retirement and buyout incentives are a good way to achieve attrition and are often
well received by employees. Companies often fund early retirement and buyout incentives with
money they save during hiring freezes. Another way to reduce the size of a company's workforce
is to encourage employees to take a leave without pay. Although an employee's benefits are
usually reduced during the leave, the company guarantees that the employee can return at the end
of a designated period. Leaves without pay can appeal to some employees who need to complete
their education, care for family, or transition to another career. When the company wants to
downsize to cut its costs rather than meet a mandated reduction in the number of employees, this
can be a good strategy.
Flexible work arrangements, such as telecommuting, part-time employment, and job shar-
ing, which we discussed earlier in the chapter, in conjunction with retention strategies can also be
used to downsize a company's workforce without resorting to layoffs. The arrangements can
decrease absenteeism and turnover, improve a firm's ability to recruit and retain talent, and can
increase employees' health, morale, and productivity as they achieve better work-life balances. 123
As we mentioned earlier in the chapter, rather than layoffs, it's sometimes possible to rede-
ploy targeted employees to other parts of the company or to other jobs the company needs filled.
Cross training employees in different competencies and jobs and retraining employees can better
enable their redeployment as well.
Firms can also avoid laying off employees by reducing their work hours or reducing their
pay. This way, all the employees share the pain of the cutback but no one loses his or her job.
When the economy pulled back, casino operator Wynn Resorts Inc. cut the wages of its salaried
Las Vegas workers and reduced full-time hourly employees' workweeks to avoid cutting jobs. 124
Firms might reduce employees' pay but give them company stock in exchange. Oftentimes
firms rely on temporary employment and contract employment arrangements to protect the jobs
of their regular, full-time employees. Temporary and contract workers are simply hired and let go
as needed.