Change sometimes brings unintended consequences. When outsourcing relationships several years ago took on the characteristic of delivering services from one or more offshore locations, an unintended consequence was “talent wars” and attrition. Not managing attrition among a provider’s ranks leads to unsatisfactory service delivery and higher costs. How can the parties manage this dilemma? Should they both bear the cost of resolving the attrition problem?
Outsourcing Center studied 74 outsourcing relationships to determine how service providers and their clients work through the issues surrounding attrition on the provider’s team. The 74 relationships were successful outsourcing deals with all or a portion of services delivered from one or more offshore locations; each participated in Outsourcing Center’s annual Outsourcing Excellence Awards program. The 74 relationships include both BPO and ITO and cover multiple industries and SMBs as well as large enterprises.
The study revealed remedial actions they took in addressing their attrition challenges. Buyers participating in the study also discussed their perspectives on which party is responsible for costs incurred in the solution.
Managing attrition: the triggers
In each case, addressing the attrition problem began when the buyer cited the problem in a governance meeting reviewing service performance and delivery issues. The next step was to conduct a root-cause analysis to determine the causes of the attrition. In some cases, the parties agreed to conduct the analysis jointly; in others, the provider was already aware of the attrition drivers.
Developing a solution usually involved a two-pronged approach in the studied relationships. First they looked at opportunities to aggressively and immediately stop the leak and put in place retention strategies aimed at keeping the current people. The other prong involved discussions with the provider’s employees to gain an understanding of what would motivate them to stay and not leave to work for a competitor.
Attrition triggers uncovered in those discussions centered around employee satisfaction in areas such as compensation, benefits programs, career path opportunities, working conditions, and perception of value. Examples of situations the studied relationships encountered include:
- The provider’s employees did not feel they were valued as an extension of the buyer’s team.
- The buyer and provider spent a lot of time and effort in training the team the provider was building to deliver services, but a competitor offered new hires more money as soon as they were trained.
- The buyer added scope to its existing arrangement; the new scope was a process in which the provider had no expertise and it was too complex for the employees to be successful in their responsibilities.
- Employees disliked their boss/manager or disliked the commute to work.
Addressing the attrition problem
For efficiently managing attrition, we need to understand its causes. The most frequently cited examples of addressing the root-cause analysis for attrition among the studied relationships include:
- Implement discussions with the buyer’s managers and other personnel who interface with the provider’s employees to bring visibility to the provider’s excellent service and encourage them to be demonstrative in recognizing the value of the provider’s team.
- Implement a system with flow charts and work instructions capturing detailed knowledge of the outsourced process, which replacement employees can use to lower the learning curve when others suddenly depart.
- Conduct the root-cause analysis of attrition triggers not only when the problem first needs attention but also on an ongoing basis. By monitoring it continually, the buyer and provider will not only uncover new causes of attrition but also will be able to measure the success of strategies they implement to lower the attrition rate.
- Determine the required skills and experience level for the work as well as a profile with the necessary behaviors to ensure the people the provider recruits to build the team are the right quality.
- Ensure the provider selects managers with good management skills for motivating, encouraging, and developing employees rather than bossing them.
- Conduct exit interviews to understand the reasons why employees leave. Review the data periodically to determine if the attrition triggers are different at different points in time and whether there are strategies to put in place that specifically address those periodic differences.
- When adding scope to an existing arrangement, make sure the provider’s ramp-up effort for the new scope doesn’t “rob” talent from the prior scope, leading to the same type of situation as attrition to competitors.
- Implement compensation and/or bonus plans that motivate employees to stay on the job for a certain period of time.
The buyers’ involvement in these actions plans varied. Most are involved in helping with the recruitment efforts to replace employees lost to attrition, and some are also involved in helping select managers over the teams delivering services to the buyer.
Many buyers collaborated with their provider partner to develop attractive career-path, compensation, and reward/bonus plans. Six of the buyers help fund the rewards/bonuses; each of them stated the benefits they reaped from the strategy were well worth the cost of partial funding. They also stated this strategy was particularly helpful in strengthening not only the individual performance levels but also the overall outsourcing relationship.
Several participants in the Outsourcing Center study commented that the level and pace of attrition generally improved during the past two years, as fewer employees left their jobs during the global economic crisis.
However, buyers and providers alike need to recognize that attrition could quickly rise again as the world economies improve. The action plans discussed in this article are best practices that will help in managing attrition levels.
