Effect of Organizational Policies on Attrition Rates

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The Information Technology (IT) sector in India holds the distinction of advancing the country into the new-age economy. The growth momentum attained by the overall economy since the late 1990s to a great extent can be owed to the IT sector, well supported by a liberalized policy regime with reduction in telecommunication cost and import duties on hardware and software. Perceptible is the transformation since liberalization - India today is the world leader in information technology and business outsourcing. Correspondingly, the industry's contribution to India's GDP has grown significantly from 1.2% in 1999-2000 to around 4.8% in FY06, and has been estimated to cross 5% in FY07. The sector has been growing at an annual rate of 28% per annum since FY01.

Indian IT companies have globally established their superiority in terms of cost advantage, availability of skilled manpower and the quality of services. They have been enhancing their global service delivery capabilities through a combination of organic and inorganic growth initiatives. Global giants like Microsoft, SAP, Oracle, and Lenovo have already established their captive centers in India. These companies recognize the advantage India offers and the fact that it is among the fastest growing IT markets in the Asia-Pacific region.

The size of the Indian IT industry, according to NASSCOM, has been estimated to be around US$ 47.8 bn. The Indian IT industry can be broadly divided into two markets: domestic market and exports market. The exports market constitutes the largest segment accounting for 75% of the total revenue generated by the Indian software industry.

Source: D&B Research

Some of the Top IT Companies are Accenture, TCS, Infosys, Mahindra Satyam, Wipro, HCL Technologies, IBM and Cognizant.

What are Organizational Policies?

Organizational Policies can be defined as:

"A course or method of action selected, usually by an organization, institution, university, society, etc., from among alternatives to guide and determine present and future decisions and positions on matters of public interest or social concern. It does not include internal policy relating to organization and administration within the corporate body, for which organization and administration is available."

Organizational policies are used to achieve uniformity, economics, public relations, benefits and other objectives that many be unrelated to recruiting. There are various types of policies like Compensation policies, Employment status policies etc.

What is Attrition?

The growth of attrition rate has been a major concern for the last couple of decades. Attrition is the separation of employees from an organization, due to resignation, retirement etc. It may be defined as the loss of workforce due to unavoidable circumstances.

Source: http://retention.naukrihub.com/attrition-rates-in-different-sectors.html

With the global financial meltdown it appears employees prefer to stick to their current jobs as much as possible. In November 2008 BPO attrition fell to 30%. The attrition rate in few leading companies is,

Infosys BPO 28%

Wipro BPO 18%

TCS BPO 21-22%

Tesco HSC has seen a 6% drop in attrition

In 2007 the attrition rate was about 50-55%.

Rationale for choosing this study

The reasons why the attrition is very big concern in different industries was studied by B. Lynn Ware, Ph.D., and Bruce Fern which gave these factors as to why this is important:

The Costs of Attrition Can Be Staggering, But Often Unseen

The Reasons Employees Stay are Not the Same as Why They Leave

The Manager's Role in Attrition is Paramount but Underplayed

Prevention is the Best Medicine

Retention Has an Often Unrecognized Impact on the Customer

Misguided Thinking: "Attrition is Inevitable"

World Class Retention Reflects A Multi-Factored Solution

Source: http://www.itsinc.net/retention-research.htm

Different research along with above suggests that cost of attrition can be very high if not managed properly. Therefore finding out the causes of attrition along with ways to retain employees may result is great amount of cost saving for an organization.

Some of the common problems as identified by Dr. Deepali Monga and Dr. Ruchi Srivastava are:

Different Rule For Different Employees

Discrimination On The Basis Of Gender 

Ineffective Role Of Leader

Poor Work Relationship

Higher Education 

Poor Career  Planning And Development 

Organizational/Work Stress

Work Overload

Lack Of Interest

Lack Of Opportunity To Utilize And Display Talent

Incompatibility With Job Requirement

Family Reasons

We can see that some of these factors are related to the Organizational Polices that a particular organization has. We in this study would try to establish a relationship between Organization Polices and the rate of attrition.

Research Objective

To find if there is any relation between the Organizations Policies on the attrition rate in an organization in IT Industry.

Research Questions:

Does organization polices a factor of attrition?

Do changes in organization affect the attrition rate?

How much importance is given to the organization policies as a factor of attrition?

We have formulated below two hypotheses to try and achieve our objective:

H0: There is no co relation between organization polices and changes in them with respect to the attrition rates

H1: There is a co relation between organization polices and changes in them with respect to the attrition rates

Scope

We are linking the Attrition Rates in an organization with various factors which are listed below. These factors are a combination of factors related to Job Satisfaction and Organizational Commitment. Therefore, we are assuming there is a co relation between Job satisfaction and Organizational Commitment and Attrition rate, i.e. lack of Job satisfaction and Organizational Commitment leads to higher Attrition rate. There may be various other factors that we can attribute to attrition but for the purpose of this study we are taking only these factors.

To measure the effect of Organizational Policies we will be developing a Questionnaire as a part of this research. This is created by performing an explorative research with a focus group to determine various important variables which are then clubbed into various factors using the SPSS tool.

To measure the Job Satisfaction and Commitment we are using a Standard Questionnaire which divides it into various factors such as:

Peers and Supervisors

Pay Scale

Work/ Job

Career and Future Prospects

Organizational Commitment

Intent to Quit

The Organizational Policies is considered as Independent variables whose effect is calculated on The Job Satisfaction factors.

Methodology

Data collection is done using the survey technique. There 2 questionnaires:

Questionnaire A: This is a combination of standardized questionnaires which is used to measure the Job Satisfaction and Organizational Commitment. It is a combination of Job Diagnostic Survey by Hackman/Oldham and Organization Commitment Questionnaire by LW Porter. It contains a total of 30 Questions

Questionnaire B:

To formulate the Questionnaire for Organizational Polices we conducted a focus group explorative research. We asked the following question to determine the different variables on which the Organizational Polices can be measure:

What do you expect from the organization's policies?

The following table summarizes the result from the explorative research:

Variable

Count

Variable

Count

Recognition for work

28

Financial Stability

22

Relationship with supervisor

19

Appropriate compensation

25

Team atmosphere

15

Medical benefits

14

Employee benefit initiatives

3

Tax Benefits

8

Proper feedback system

19

Opportunity for growth

31

Opportunity to get choice of work

22

Work Life Balance

25

Transfer opportunities

10

Fair appraisal system

18

Variety of work

20

Promotion Opportunities

16

These variables as found above were used as a basis of measuring Organizational Policies.

The characteristics of the sample population were:

Currently working in any if the IT Companies

Total Number of respondents: 103

Ages between 22-39 years

Experience in IT Industry between 0-8 years.

Results of Data Collection

Job Satisfaction and Organizational Commitment

As this is a standardized questionnaire we do not need to do a factor analysis. However to check whether the data is valid and reliable we did the following tests.

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy

0.910

As the above value is more than 0.50 we can say that we have adequate sample size.

For reliability, we did a reliability test on each of the factors

Factor's Name

Alpha

Organizational Commitment

0.8767

Peers and Supervisors

0.5966

Pay Scale

0.7539

Work/ Job

0.8320

Career and Future Prospects

0.8720

Intent to Quit

0.9198

As all values are either close to or more than 0.6 we can say that the data is reliable.

Organizational Policies

A Survey was conducted to get the values from different people currently working in IT Industry. These steps were followed further:

The reliability test of the data gave this result:

Cornbach's Alpha

0.9124

The above value ensures that the data being used is reliable.

Factor Analysis:

Factor Analysis was done to group the different variable to factors. For the factor analysis the below values were chosen:

Eigen value: 1

Factor Load: 0.6

Rotation: Varimax

The result of the factor analysis is summarized below:

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy

0.847

As the above value is more than 0.50 we can say that we have adequate sample size. By the factor analysis we find below 3 factors. These 3 factors are chosen as they are individually able to explain more than 5 % variance and cumulatively more than 60% variance. Also the individual reliability of each factor is more than 0.6.

Factor's Name

Variables Included

% of variances explained

Alpha

Compensation

Financial Stability, Appropriate Compensation, Medical Benefits, Tax Benefits, Transfer Opportunities

43.9

0.8651

Working Atmosphere

Relationship with Supervisor, Team Atmosphere

9.9

0.7786

Feedback &Appraisal

Proper Feedback System, Fair Appraisal System, Employee Benefit Initiatives

8.088

0.743

Correlation

To find if the Job Satisfaction and Commitment factors are significant to the Organizational Policies, we find the bivariatre correlation between them.

Organizational Commitment

Peers and Supervisors

Pay Scale

Work/ Job

Career and Future Prospects

Intent to Quit

Organizational Policies

0.741

0.692

0.661

0.709

0.739

-0.690

The above values denote that there is good correlation between the Organizational Polices and different factors of Organizational Commitment and Job Satisfaction.

Regression Analysis

The below shows the result of the regression analysis performed on each of the factors of Job Satisfaction and Commitment, which are dependent variables, and with factors of Organizational Policies, which are independent variables.

ANOVA table: From this table, the Significance level is of importance and signifies the strength of relationship between independent variables and dependent variable. For relationship to be significant, significance level should be less than .05.

Adjusted R-square: This signifies the proportion of variance in the dependent variable that can be explained by the variation in independent variables, adjusted for addition of extraneous predictors.

Coefficients Table: From this table, the beta values tell us about the relationship between the dependent variable and each predictor. From the significance values, we get to know the significant Independent factors explaining a particular Dependent factor.

Dependent Variable

Independent Variable

Adjusted R2

Anova Sig.

Beta Coefficient's Sig.

Organizational Commitment

Compensation

0.421

0.000

0.000

Working Atmosphere

0.004

Feedback &Appraisal

0.063

Therefore from the Anova table we can infer that Organizational Commitment has significant relationship with Organizational Polices factors. Therefore Organizational Commitment can significantly predict these factors.

As Adjusted R square has a value near 0.5, it says that Organizational Policies are able to significantly predict the variances in Organizational Commitment.

For the Beta Coefficient's table we can say that all the three Independent Factors are significant in explaining Organizational Commitment.

Dependent Variable

Independent Variable

Adjusted R2

Anova Sig.

Beta Coefficient's Sig.

Peers and Supervisors

Compensation

0.405

0.000

0.162

Working Atmosphere

0.000

Feedback &Appraisal

0.036

Therefore from the Anova table we can infer that Peers and Supervisors have significant relationship with Organizational Polices factors. Therefore Organizational Commitment can significantly predict these factors.

As Adjusted R square has a value near 0.5, it says that Organizational Policies are able to significantly predict the variances in Peers and Supervisors.

For the Beta Coefficient's table we can say that only Working Atmosphere and Feedback and Appraisal Independent Factors are significant in explaining Peers and Supervisors.

Dependent Variable

Independent Variable

Adjusted R2

Anova Sig.

Beta Coefficient's Sig.

Pay Scale

Compensation

0.411

0.000

0.000

Working Atmosphere

0.221

Feedback &Appraisal

0.169

Therefore from the Anova table we can infer that Pay Scale have significant relationship with Organizational Polices factors. Therefore Organizational Commitment can significantly predict these factors.

As Adjusted R square has a value near 0.5, it says that Organizational Policies are able to significantly predict the variances in Pay Scale.

For the Beta Coefficient's table we can say that only Compensation is significant in explaining Pay Scale.

Dependent Variable

Independent Variable

Adjusted R2

Anova Sig.

Beta Coefficient's Sig.

Work/ Job

Compensation

0.400

0.000

0.002

Working Atmosphere

0.000

Feedback &Appraisal

0.345

Therefore from the Anova table we can infer that Work/Job have significant relationship with Organizational Polices factors. Therefore Organizational Commitment can significantly predict these factors.

As Adjusted R square has a value near 0.5, it says that Organizational Policies are able to significantly predict the variances in Work/Job.

For the Beta Coefficient's table we can say that only Compensation and Working Atmosphere are significant in explaining Work/Job.

Dependent Variable

Independent Variable

Adjusted R2

Anova Sig.

Beta Coefficient's Sig.

Career and Future Prospects

Compensation

0.394

0.000

0.005

Working Atmosphere

0.000

Feedback &Appraisal

0.026

Therefore from the Anova table we can infer that Career and Future Prospects have significant relationship with Organizational Polices factors. Therefore Organizational Commitment can significantly predict these factors.

As Adjusted R square has a value near 0.5, it says that Organizational Policies are able to significantly predict the variances in Career and Future Prospects.

For the Beta Coefficient's table we can say that all independent factors are significant in explaining Career and Future Prospects.

Dependent Variable

Independent Variable

Adjusted R2

Anova Sig.

Beta Coefficient's Sig.

Intent to Quit

Compensation

0.356

0.000

0.001

Working Atmosphere

0.013

Feedback &Appraisal

0.033

Therefore from the Anova table we can infer that Intent to Quit have significant relationship with Organizational Polices factors. Therefore Organizational Commitment can significantly predict these factors.

As Adjusted R square has a value near 0.5, it says that Organizational Policies are able to significantly predict the variances in Intent to Quit.

For the Beta Coefficient's table we can say that all independent factors are significant in explaining Intent to Quit.

Conclusion

From the above results we can reject the null hypothesis that there is no correlation between Organizational Polices and Job Satisfaction and Organizational Commitment which leads to attrition.

Explanations, Implications and Suggestions

From the primary research above we can say that there is a relationship between the different policies that the companies adopts and what is the level of employee's Satisfaction in the company.

We can see that employees consider the Compensation, which includes financial benefits, pay package and stability as one of the most important factors. The other important factors include the working environment, feedback and appraisal system, Future prospects and work life balance.

Therefore by understanding the reasons behind the attrition, an organization can employ various techniques by which they can ensure that it is kept to their desired level which leads to a tremendous cost saving for the organization in:

Training Costs

Recruiting Costs

Sign On Bonuses

Administrative & Temporary Costs

Employee costs

Source: http://www.johncelloconsulting.com/attcalc.html

Different studies have also provided various retention techniques which may help in retention of employees.

People First Solutions

Source: http://www.peoplefirstsolutions.com/resources/reports/pfs_cost_of_attrition.pdf

Employee Surveys Can Help Reverse Attrition

Effective employee surveys yield objective, quantitative data and insights that empower companies to manage by fact, as opposed to by gut feeling, which isn't always correct. Good surveys usually prove to be valuable investments, especially in light of the huge costs associated with attrition.

Fostering a Culture of Management Concern- Companies

Providing Relevant Training, And Early On

Walking the Talk - Having a strong strategic vision and communicating it to employees is not enough to guarantee high retention. Behavior must be consistent with strategy.

Rewarding Managers Also On People Skills

Strengthening the Management Team

Study by B. Lynn Ware, Ph.D., and Bruce Fern

Source: http://humanresources.about.com/lr/employee_retention

This study founds these Retention Strategies:

The quality of the supervision

The ability of the employee to speak his or her mind freely within the organization

Talent and skill utilization

Measurement and accountability

Suggestions for future research

This research can further be explained by introducing more factors in addition to Job Satisfaction and Organizational Commitment which may lead to more accurate results. Also a larger variety of sample could be covered for better understanding of various factors.

Also currently this study only uses a objective questionnaire. A Subjective Questionnaire may lead to more other factors that may not have been considered here.

Limitation of the Study

Some of the limitations of the studies are:

This study only considers Job Satisfaction and Organizational Commitment as factors which may result in attrition. But there are several other factors which may lead to attrition such as:

Organizational Culture

Family Issues

Higher Education

The sample size could be increased further for more accurate results

Most of the respondents are in 1-3 years of experience. This study may give different results if more experienced are considered.

As the recent downturn has shown, only dissatisfaction from work does not lead to attrition. The job market should also have opportunities for a person to leave his/her job.

Appendix 1

Questionnaire A

Name:_______________________________________ Age:_______ Gender:__________

Name of the company: _______________________________________

Total number of years in this organization: _________

Present/Last position: _______ Duration of the position: ________

Previous positions held with the company: _________

Kindly use the following rating scale and respond to the statements given:

5 4 3 2 1

Strongly Agree Agree Not sure Disagree Strongly Disagree

I am willing to put in a great deal of effort beyond that normally expected in order to help this organization be successful.

My ideas and thoughts are valued by the company and my bosses.

I feel my skill and the work I do match with each other.

I talk up this organization to my friends as a great organization to work for.

I feel very little loyalty to this organization.

I feel that people get ahead primarily on the merits of their work.

I enjoy the work I do.

I would accept almost any type of job assignment in order to keep working for this organization.

I find that my values and the organization's values are very similar.

I am satisfied with my understanding of how my goals are linked to company goals.

I feel more committed to a career with the company this year than I did a year ago.

Company listens to the problems that I face.

I am satisfied with the compensation that I get.

My peers are always helpful.

I could just as well be working for a different organization as long as the type of work was similar.

This organization really inspires the very best in me in the way of job performance.

I am not satisfied with the work schedule.

I am not getting adequately paid for what I contribute to this organization.

I am extremely glad that I chose this organization to work for, over others I was considering at the time I joined.

I am optimistic about my future success with the company.

Often, I find it difficult to agree with this organization's policies on important matters relating to its employees.

I really care about the fate of this organization.

I get good quality and challenging work.

For me this is the best of all possible organizations for which to work.

Deciding to work for this organization was a definite mistake on my part.

The quality of supervision in not good in the organization.

I feel that working for the company will lead to the kind of future I want.

I frequently think of quitting my job.

I am planning to search for a new job during the next 12 months.

If I have my own way, I will be working for this organization one year from now .

Questionnaire B

Rate your Organization on the below factors relating to Organizational Policies. Rate on a scale of 1-5 with 1 being Completely Unsatisfactory and 5 being Completely Satisfactory

Recognition for work

Relationship with supervisor

Team atmosphere

Employee benefit initiatives

Opportunity to get choice of work

Transfer opportunities

Variety of work

Work Life Balance

Proper feedback system

Financial Stability

Appropriate compensation

Medical benefits

Tax Benefits

Opportunity for growth

Promotion Opportunities

Fair appraisal system

Appendix 2

This table denotes which variables (Questions) are measuring which factor for Questionnaire A

Factors

Variables

Reverse Coded

Organizational Commitment

1,4,5,8,9,15,16,19,21,22,24,25

5,15, 21, 25

Peers/Supervisory

2,6, 12, 14, 26

26

Pay

13, 18

18

Work

3, 7, 17, 23

17

Career/ Future Prospects

10, 11, 20, 27

Intent to quit

28,29,30

30

Appendix 3:

The below shows the factor analysis for the Organizational Policies variables.

The below shows the output from SPSS for the regression Analysis.

3.1: Organizational Commitment & Organizational Policies

3.2: Peers and Supervisors & Organizational Policies

3.3 Pay Scale & Organizational Policies

3.4 Work/Job & Organizational Policies

3.5 Career and Future Prospects & Organizational Policies

3.6 Intent to Quit & Organizational Policies

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