Put more attention on retention: A smarter way to bridge the talent gap?

Many companies currently struggle with increasing attrition, and we see it across a wide variety of geographies, branches, and job groups. For not a small share of organisations, this has the potential to disrupt the stability of their business model or even endanger it completely. In this article we discuss its relevance for the DACH region, identify common root causes and highlight important levers for effective talent retention.

What is employee retention?

Employee retention is an organisation's ability to keep its employees within the organisation and guarantee sustainability of its workforce and thus its operations. The consequence of unsuccessful retention is increased attrition, visible in a high turnover rate. We differentiate wanted attrition on the one hand from unwanted attrition on the other hand: Wanted attrition is intentional. It affects employees where behaviour and/or results do not meet the expectations of the company, whatever the reason might be. As opposed to this, unwanted attrition is against the organisation's intention. It is caused when qualified, well-performing employees quit their jobs. Their loss comes with the loss of knowledge, experience, and social networks. In this article, we put this phenomenon of increased attrition, also called "great resignation" or "the big quit", in the context of general workforce transformation.

Unwanted attrition is caused when qualified, well-performing employees quit their position against the organisation's intention.

The reasons why skill shortage is growing are various and interdependent. According to 44% of the employers worldwide, the root cause is to be found early in the education system. School and university are not able to provide future workers with the skills they need to meet tomorrow's working challenges and are furthermore not able to adapt quickly to the rapidly changing requirements of companies in a VUCA environment. In addition, global demographic trends influence the employee market as society is ageing. In Germany, the amount of people aged 65+ will triple from 2020 to 2030. At the same time, Gen Z is entering the employee market and with them a shift in values and priorities.

In the end, it's all about people - what motivates people to stay is the culture in their teams and if they see a sense in what they do.

Source: undconsorten survey of 50+ C-level managers on Workforce Transformation

Why Does Employee Retention matter (and to whom)?

The great resignation started in 2021 involving safety concerns caused by the COVID-19 pandemic, and the desire for more flexible working opportunities. This leads to the beginning of an increased employee fluctuation and globalisation of talents. At the same time, many people came to value their personal situation including place of living, leisure time, flexibility of working hours, and personal purpose higher than they did before the pandemic. This especially applies to Gen Z employees who will constitute a larger and larger part of the overall workforce. Thus, employers see themselves confronted with an increasing set of requirements that they need to meet to attract and - more importantly - retain talent.

40% of employees want to quit their positions within the next six months.

Source: McKinsey, refers to employees in the US

What are implications for employers?

The consequences of unwanted attrition for employers across all branches are enormous: First, unwanted attrition is very expensive. The resulting costs are influenced by the duration of job vacancy and thus reduced productivity, recruitment costs of a new employee for the vacant position, as well as their onboarding and training. As currently recruiting budgets soar, the question regarding the sustainability of these spendings will become even more relevant.

Along with these rather easy -to-calculate costs, there is another important downside of unwanted attrition: Its impact on co-workers. Remaining employees must cover the job vacancy, potentially leading to overtime and mistakes, which impacts their morale, the overall culture and working climate. Also, seeing a colleague leave might motivate them to question their own role and position, potentially leading to even more attrition. What follows from this is that effective retention of employees is a smart way to close the talent gap and avoid attrition costs.

Replacing a highly qualified employee costs up to 400% of their yearly salary.

Source: Deloitte

What does it mean for Germany and the DACH region?

In Germany and the DACH region, the situation is less severe than in the US, however, the trend shows in a similar direction and might soon be as alarming. One root cause for this effect might be different mindsets, cultural and societal rules, and accepted behaviours: An elevated need for security, high value of long-term engagements and employee loyalty shape the way we (used to) think. Is this mentality changing? We cannot tell just yet. However, reduced recruitment activities during the pandemic combined with natural employee turnover and demographic change will increase the skill shortage. We should take this as a warning signal and put more attention on retention - now.

How to understand and address attrition?

We observe an increasing discrepancy between the demand and present state regarding the number and skills of employees. Some branches, such as tourism and transportation, are more affected than others - especially because COVID has proven the fragility of these industries and, thus, their employment contracts. But the underlying issue remains relevant for all industries.

To address these challenges, organisations must understand the motivational drivers of their employees better and come up with a convincing strategy for people retention. We define an effective retention as the result of an employee's continuous comparison between personal preferences with the current working reality. Available job alternatives are also taken into consideration. But keep in mind that the perception of one's own possibilities and opportunities might not be identical with reality - be it regarding the current position or the quality and number of available alternatives.

The responsibility for retention management is unclear or diffusely spread in many organisations.

Many employers lack a clear, data-based understanding of the influencing factors on effective retention and the reasons for elevated attrition. Simply measuring the employee satisfaction cannot replace a structured analysis of the attrition risk. Another difficulty is the fact that there is no clear responsibility for retention management. While talent acquisition and re- & upskilling are clearly located in the HR function, retention responsibility is diffusely spread onto the shoulders of leaders - often without them knowing or communicating its importance.

What are influencing factors for effective retention?

A structured analysis of influencing factors is necessary for effective people retention. We typically see three categories of retention levers: First, there are individual factors comprising personal preferences, values, and expectations. One's own perceived impact, success, and appreciation, as well as changes in living situation are further levers to classify as individual - even though some of them might be hardly influenced by the employer. Second, there are organisational factors, which range from company purpose and branding to the actual tasks of the job and further to compensation and benefits. Daily working reality, which is shaped by teams and colleagues, as well as opportunities for learning and development are also important. Third, there is the component of alternative offers. Its importance gets clear when thinking about the power of an attractive offer which is on the table of a highly qualified worker. Isn't the grass always greener on the other side? In response to this very human instinct, organisations must individually decide which levers to pull.

When it comes to retention, it's up to the manager: People join companies and leave bosses.

Source: undconsorten survey of 50+ C-level managers on Workforce Transformation

How to Develop a winning retention strategy?

The target of an organisations' retention strategy should be to identify tailored and targeted measures to meet the needs of employees and motivate them to stay. In an ideal case, such strategies will also address so-called quiet quitters. These are employees who do not actively quit their positions but only fulfil the minimum amount of their tasks, due to personal resignation or lack of motivation.

undconsorten three-step logic for a winning retention strategy:

Step 1: Awareness

Create an understanding of the importance of retention in your organisation. Involve key stakeholders, such as CEO, CHRO, and selected leaders.

The basis for an individual retention strategy is the right data. It is, thus, important to collect data within your organisation, such as the fluctuation rate and reasons. While doing so, you might already gain important insights: Does your organisation collect the required data at all? And if so, is data collection consistent across different divisions and functions? Is there a discrepancy between processes (e.g., mandatory exit interviews) and reality (e.g., most exit interviews don't take place) - and if so: why? In addition, external benchmarks might help you to understand the reasons for attrition better.

In this first phase, the retention team clarifies their perception of the current situation and develops a view of the need for action and a shared vision of the targeted end product.

Step 2: Transparency

Collect data for analysing and identifying attrition drivers. Involve employees across functions, hierarchies, and regions.

In this phase, the required data is collected and (if needed) obtained from different sources. It is important to differentiate between qualitative and quantitative levers: Qualitatively, do your employees feel valued, are their efforts appreciated? How strong is the connection to the respective team and leader? Quantitatively, how much are you paying compared to your competitors? How many alternative options do your employees (think they) have? Comparing this data with your targeted end product from phase 1, you will be able to identify the largest gaps, causing employees to leave.

In this second phase, a data-based gap analysis between the current and the targeted state is conducted resulting in a clear picture on the cause-effect relationship across different parts of your organisation.

Step 3: Action

Evaluate and prioritise drivers and design a tailored action plan. An external view can help you to identify the most common drivers. Feel free to contact us - we are happy to help!

You should now contextualise your view of the retention problem and define next steps to address it. It is important to involve as many people as possible across all hierarchies. Where will the responsibility for retention be located? Who else needs to contribute and how do they do? How is the retention strategy communicated and to whom? The result of your efforts will be an organisation-specific catalogue of practical measures and a clear roadmap how to implement them.

This third phase is meant to create long-lasting effects in your organisation. Tackling the right problems will help you to become an attractive employer and provide you with tools to retain your top talents.

Lucas Brosi
Lucas Brosi
Associate Principal
Dr. Florian Dressler
Dr. Florian Dressler
Partner

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