Talent Management and Employee Retention An Economic Perspective

1
Talent Management and Employee Retention An
Economic Perspective

• Peter Cappelli
• Professor and Director
• Center for Human Resources
• The Wharton School
• NASSCOM HR 2007

2
Talent Management Anticipating demand for human
capital, planning to meet it

• The trick
• Not going long with a surplus
• Not falling short

3
The Finances of Managing Talent and Internal
Development

• In the traditional model, supply meant internal
  development
• Up-front investment in candidates, recouped over
  time through improved performance
• Can make money this way
• Can also lose money if lose the investment
• Outside hiring, pay as you go
• Cant earn a return or be a source of advantage

4

Compensation and Training/Development
Value
Time
5
Retention Matters Because It costs money!

• Replacing workers whatever the cause - is
  expensive
• Losing knowledge is expensive if workers leave
• Lost opportunities because of talent shortfalls
  are expensive
• Why and when did this problem start?

6
Whats Driving Retention Issues?

• Its been driven by employers by lateral hiring
• Virtually everyone who leaves goes immediately to
  work for another employer
• Why this is not going away
• The need for speed by employers
• Better information about opportunities
• Online recruiting finding passive candidates
• In tight labor markets, poor fits leave sooner

7
Unemployment and Annual Turnover 1983 - 2003
Annual Turnover Rate
Unemployment Rate
Annual Turnover Rate
Unemployment Rate
Sources U.S. Bureau of Labor Statistics
(unemployment) BNA, Inc. (turnover rate)
8
Mgmt Practices that Drive Turnover

• Lack of attention from supervisors
• Outside hiring drives internal candidates away
• Poor hiring/mismatched expectations
• Lack of development
• Training without advancement turnover

9
Whats Changed on the Employee Side?

• How do they think about employers?

10
Does the Next Generation Really Have Different
Attitudes Toward Employers?

• What do they expect from jobs?
• How should we manage them?

11
Characteristics in First EmployersPlease rate
the importance of each of the following in
choosing a first employer

• Challenging assignments
• Company values balance between personal life and
  career
• Competitive benefits
• Competitive salary
• Financial strength
• Good reference for my future career
• High-achiever program
• High ethical standards
• Immediate responsibility
• Likeable/inspiring colleagues
• Ongoing educational opportunities
• Opportunity to influence my own work schedule
• Opportunity to specialize
• Opportunities for continuous learning
• Secure employment
• Variety of tasks or assignments
• From Pricewaterhouse survey of 1500 MBA
  students from around the world

12
Characteristics in First EmployersPlease rate
the importance of each of the following in
choosing a first employer

• Good reference for my future career
  --------------------------------------------------
  -42
• Company values balance between personal life and
  career ------------------41
• Likeable/inspiring colleagues --------------------
  ---------------------------------37
• Competitive salary -------------------------------
  ------------------------------34
• Challenging assignments --------------------------
  ------------------------33
• Competitive benefits -----------------------------
  -------------------------32
• Opportunities for continuous learning
  ----------------------------31
• Opportunity to specialize ------------------------
  --------------------30
• Secure employment --------------------------------
  -------------------30
• Financial strength -------------------------------
  ---------------------29
• High ethical standards ---------------------------
  -------------------29
• Ongoing educational opportunities
  ------------------------27
• High-achiever program ----------------------------
  -----------26
• Variety of tasks or assignments
  ---------------------------26
• Immediate responsibility -------------------------
  ---------24
• Opportunity to influence my own work schedule- 24

13
What do our students say?In your last job

• who could identify the next promotion ___
• who thought they had good chance of getting
  that promotion ___
• who thought they could become a leader if
  stayed with their company ___
• of their execs who came from within ___
• How long they would wait for opportunity ___

14
What do our students say?In your last job

• who could identify the next promotion __69
• who thought they had good chance of getting
  that promotion _66
• who thought they could become a leader if
  stayed with their company __63
• of their execs who came from within _60
• How long they would wait for opportunity?10 months

15
Retention Problem

• Hiring Directly From College into Management
  Training Program
• 50 now leaving within 5 years
• Mainly for competitors elsewhere
• Q How Do you Know if This is a Problem?
• Q If it is, What Should You Do About It?

16
Some will leave At least Shape Who and When.

• Manage the flow of the river who, when, where
• Can you pay them to stay? The limits of being
  An Employer of Choice
• Differentiating among employees
• Tailoring to their needs
• Social relations hold employees
• The power of social ties
• Reorganizing work
• Project work -- help them build their C.V.
• Using development for retention Fleet Bank
  story

17
A Call Center Example

• Turnover of call center Associates does not
  require higher education, some training and
  orientation required to become effective. Clear
  measures of individual performance, big
  performance differences.
• Q Where should you target retention efforts?
• Solve the cheapest problems first
• Exit interviews are the diagnostic tool

18
Call Center Turnover
leavers
tenure

19
Another Approach Getting Better
at Recruiting

• Youll be doing more of it anyway
• Better fits reduce early turnover
• The magic behind referral programs
• Wal-Marts targeted reminders
• The Marriott Experience Targeting Applicants
• Moving toward internships and coops
• 50 of grads may have commitments to employers
  beginning of senior year
• The GE Experience

20
Alternatives Living with Higher Turnover

• Accommodate it -- whats the real problem?
• Maybe retention isnt the only answer
• Redistribute turnover and manage flows better
• Keep the intellectual capital with turnover
• Teams, groups, and tacit knowledge
• Knowledge mgmt systems

21
Among large companiesswapping internal
churning for turnover.

• 96 have internal mobility programs
• Fill 46 percent of vacancies internally
• Only ¼ always turn to internal candidates first
• Criteria for moving 90 say satisfactory
  performance reviews
• Only ½ require current managers approval
• But only 15 require fit with succession plans
• 1/3rd post internally and externally at same time
• 36 target (or plan to) individuals with info on
  openings
• _________________
• Source Taleo research, Internal Mobility, 2005

22
Retention An Overview

• Retention
• Losing key talent
• Losing training investments
• Losing commitments

• The Problem Is Growing
• Employability doctrine
• Pull from the outside
• Less internal development

Ways to Increase Retention

• With Better Matches
• Better recruiting and selection
• Unique deals for development
• Project-based work to build resumes

With Pay With Contracts With Work Family

• With Social Relationships
• Teamwork
• Culture
• Programs outside of work

OR
OR

• Adapting to High Turnover
• Box in high turnover jobs
• Cross training job rotation
• Quicker, cheaper hiring
• Outsource

AND
Implications for HR Think about this as an
economic problem