Financial Accounting ORGANIZATION BEHAVIOR CASE STUDY – 1 How a UPS Manager Reduced Turnover ASSIGNMENT I Akanksha Bhalla 403 Telecom Xth Trimester MBA-Tech This document contains an analysis on the Importance of Controlling & Reducing Employee Turnover. It discusses the impact of a high turnover on the running of the organization, monetary expenditure incurred and the influence on the company’s image. Date: 10th August 2009 Page | 1 QUESTION 1: In money terms, why did Jessica want to reduce turnover? UPS’s operations in Chennai that Jessica took over heavily relied on its workforce.
It involved an enormous workforce of 2300 workers who were responsible for processing of about 45000 packages an hour, which generated a revenue worth of INR 250 million for the organization. In an activity whose productivity is largely dependent on the speed of operation, manual labor and whose efficiency is a measure of the quantitative output (no. of packages) within a stipulated time period can be regarded to be largely worker dependant. Such an organization should always strive to ‘get’ and ‘keep’ high-performing employees.
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Apart from providing them with wages and incentives it becomes imperative -to provide them pleasant working environment, to continuously enhance their knowledge and skill by offering trainings and organizing other cocreational activities. However in such cases where the magnitude of work force is large & the organization is unable to keep employee turnover in control, as in this case where the turnover went up to almost 50%; the monetary losses incurred are massive. The money losses may be categorized as follows: ? RECRUITMENT COST ? COST OF NEW HIRING ? TRAINING COST ? COST DUE TO PERSON LEAVING ? LOW PRODUCTIVITY COST Page | 2
Cost of training the person who has left Cost of Orientation & training material Cost of existing employee performing the Cost of departmental training Cost of persons conducting training Lost Supervisors productivity TRAINING COST vacant job responsibility COST DUE TO A Cost of lost Knowledge, skill and contacts PERSON LEAVING RECRUITMENT COST Cost of hiring process Scheduling & conducting phone and working interviews NEW HIRE COST Screening applicants LOST PRODUCTIVITY COST Initial (First 2-4 weeks) work contribution-25% productivity Cost of Supervisor’s time in building introducing the new staff member. evel, gradually grows to 50% and 75% by 13th -20th week hence costing the company 75%, 50% & 25% of the full salary respectively during this time period. To avoid the tangible costs incurred in all these activities Jessica had to reduce turnover on an immediate urgent basis. In the attempt to do the same she offered training programs; gave preference to applicants who were keen to take up part time jobs, trained supervisors to tackle difficult management situations etc; these endeavors proved successful as the Page | 3
Cost of hiring temporary relief COST OF EMPLOYEE TURNOVER Cost of bringing a new person in the organization attrition rate dropped from 50% to 6%, an annual saving estimated at INR 1 million was recorded due to reduced turnover & 20% reduction is lost work days was seen. These initiatives taken by Jessica also positively affected the intangible costs and social capital which play a role in organizations success, as reduced turnover enhanced companies’ reputation and performance (e. g. fall in delivery errors from 4% to 1%; a more stable workforce ).
EFFECT OF TURNOVER ON PRODUCTIVITY/COST Cost Decreases as Productivity Increases due to DECREASED TURNOVER Cost Increases as productivity reduces due to INCREASED TURNOVER Hence a relationship between the organizations turnover and its financial performance can be established & is demonstrated from the graph below (an inverted U). An increase in turnover decreases financial performance however only after a certain turnover rate (15%) has been achieved. This minimum turnover rate Page | 4 is essential to maintain a healthy flow of employees entering/leaving the organization.
TURNOVER RATE VERSUS FINANCIAL PERFORMANCE QUESTION 2: What are the implications from this case to motivating part time employees? UPS’s operations in Chennai involved an enormous workforce of 2300 workers; half of which were PART TIME employees. These workers were largely responsible for the increased turnover of almost 50% every year. Motivating part time employees is exceedingly important & at the same time a major challenge for managers as these employees do most of the Manual Labor, are Paid wages on an hourly/daily basis, have little career choices, focus on other goals outside the organization (e. . college, hobbies etc) and sometimes treated as outsiders by fulltime employees. Page | 5 Hence to establish good communication between part time employees and the management & for effectively motivating them to ensure reasonable levels of turnover, certain specific motivational tools must be deployed. From this case one can classify the following 7 motivation techniques that can successfully motivate part-time employees: MOTIVATING PARTTIME EMPLOYEES Orient Them Properly Find What Motivates Them Establish Communication Assign Mentor Mix-up Work Load Flexible Working Hours Offer Incentives ORIENT THEM PROPERLY A manager should ensure that job duties are clearly described, along with what is allowed and not allowed, e. g. , personal telephone calls, use of organization property, etc to avoid confusion later. It is also a good practice to designate one person to orient and give assignments to part-timers to eliminate chances of misunderstanding and similar situations that can lead to a demoralized part-time employee. ? FIND OUT WHAT MOTIVATES THEM A manager should frequently ask part-timers questions regarding their future goals, interests etc. o find out what motivates them and to relate their future goals to the organizations present needs. Initiatives to listen & acknowledge their skills and possibly apply their skills can give organizations a competitive advantage over others; at the same time help control turnover by having more satisfied employees. Page | 6 ? ESTABLISH COMMUNICATION Sometime part-timers are looked at as an unnecessary evil. It may be great to have the extra hands, but not so great to deal with them.
Managers must know that it is their job to develop part timers & to establish a positive communicating channel with them. Communication is essential to help part-timers overcome their inhibitions, to be aware about their apprehension and to letting the part-timers feel motivated to be there. ? ASSIGN A MENTOR Assigning a mentor who is patient, has good communication skills, is trained, is motivated to do the task, and has the time to answer questions is necessary.
This makes the part-time worker feel a part of the team, helps avoid any conflict/ambiguity at time of work and most importantly the mentor can help analyze factors that cause employee discomfort & identify signals from employees of dissatisfaction or tendency to leave the organization which impacts the turnover. ? MIX UP THE WORKLOAD Avoid overloading part-time workers with only low-level work as it can demoralize the employee. Assign them a variety of tasks and mix up assignments to build up their morale and make them feel that their abilities in all spheres are not going unnoticed. FLEXIBLE HOURS Mostly part-time employees are working part-time to meet special situations (College, family health situations, childcare issues, transportation issues, etc). By allowing flexible work hours the organization retains part-time workers longer, eliminating the need for costly retraining. ? OFFER INCENTIVES Promotions, bonuses, and long-term incentives provide positive motivation to improve performance. Provide bonuses or incentive for Perfect on time attendance, Page | 7 orking well with others, Taking initiative to solve problems etc. Recognize the part-time worker and praise publicly. These improve relationship between part timers & the management and increases job satisfaction. Factors like how the organization rewards high performers; helps poor performers (training etc) or those who fail to perform have a great impact on the employees hence to enhance their productivity & to keep turnover in control these factors must be considered by a manager.
Jessica in her endeavor to bring down turnover and motivate part-time employees follows these steps by: ? Organizing training programs for College students thus recognizing their interests ? Understood their apprehensions thus improved work place environment by improving lighting of the warehouse and introducing break rooms to make it more user friendly. ? Trained supervisors to mentor the part time employees ? Made information like Training material & HR guidelines more accessible.
These steps in turn motivated part- time employees, enhanced their productivity (20% reduction in lost work days, reduction in delivery errors from 4% to 1%) and decreased turnover (50% to 6%) as the organization began to retain employees. QUESTION 3: What are the implications from this case for managing in future years when there will be a severe labor shortage? It is estimated that 2010 onwards a decline in the available skilled labor will be seen which will eventually lead to a severe labor shortage by 2020 due to a rapidly aging population specially in western countries like USA, Europe etc.
Page | 8 With changing labor market conditions and an emerging need to retain employees it will become imperative for managers to adapt to a more flexible approach to managing employees & function in a more turbulent operating environment thereby discarding their conventional approach to corporate leadership. Managers will have to analyze and understand the Needs, Behavioral Patterns, Job Satisfaction Levels etc. of every individual and work towards improving the same to increase retention in a labor shortage environment.
In doing so some of the following strategies maybe followed: ? IDENTIFYING, ACCEPTING & FOLLOWING A PROACTIVE APPROACH Companies and managers must timely identify the changing labor market conditions; accept the change by incorporating different strategies, plans and policies to deal with the situation in a proactive fashion. ? WORK TOWARDS RETENTION OF EMPLOYEES Retention will play a crucial role in such an environment as it helps decrease the tendency to leave when replacing is very difficult and expensive.
Employee retention can be achieved by various methods like: o Deploying appropriate motivation techniques (e. g. Incentives at every level, revamping benefit programs, identifying interests and channelizing them to benefit the organization at the same time improve job satisfaction) o Provide high degree of Job satisfaction and a pleasant working environment o Give Meaningful, Challenging & Enjoyable work o Provide opportunity for growth and development o Align Organizational culture with personal values & goals.
Page | 9 ? TRAIN MANAGERS Managers must be trained to identify employee behavior, judge their intention to leave the organization and take necessary steps to figure out ways to retain them. They should be able to identify factors like withdrawal behavior of an employee that are an indication to the employee’s dissatisfaction/tendency to leave the organization & develop strategies to retain the employee by understanding his needs, interests and reason for dissatisfaction.
Managers must understand the impact of age, gender, marital status, Job Content etc on turnover and work out the best possible combination to maintain turnover at an optimal level. IDENTIFYING FACTORS LEADING TO TURNOVER Page | 10 ? MAINTAIN RELATIONSHIPS WITH CONSULTANCIES & DEVELOP AN EMPLOYMENT IMAGE As hiring new employees will get difficult due to an expected labor shortage in future it is advisable for organizations to maintain good relationships with HR agencies, Colleges & schools for talent acquisition.
At the same time companies must gradually develop an employment image/brand so that laborers, professionals & students are well informed of the organizations culture & operations. ? OTHER STRATEGIES o Advancing the retirement age- as growing older does not equate to lesser productivity o Relaxing immigration restrictions- To allow recruitment of people from different cultural backgrounds. o Increasing productivity through technology o Out-sourcing
Similar efforts were seen in the UPS case where in despite benefits like high pay, flexible working hours, and full benefits etc that the company was offering the turnover was high, to overcome which Jessica had to develop comprehensive plans & establish better communication channels to retain employees and reduce the turnover to acceptable levels. Jessica also modified her hiring technique by giving preference to candidates who personally opted for part time jobs, a strategy that proved largely successful.
For greater retention of employees Jessica enhanced job satisfaction levels by using motivation techniques like organizing training for students, making the work environment more user friendly by improving lighting and setting up break rooms. Page | 11 She also trained the supervisors who were largely part-timers themselves to assess different management situations, to be able to handle crisis and most importantly to understand the needs & interests of the employees for relating their goals to the company’s present needs & providing them a platform to excel, train & educate themselves.
From the contingency approach that Jessica had taken to increase retention and bring turnover within limits in case of UPS operations in Chennai, one can identify the similarities in strategies and the changing methodologies to handle employees at the time of labor shortage & during certain crisis as in the case of UPS. QUESTION 4: Is it unethical to teach supervisors to “demonstrate interest in their workers as individuals”? Explain Understanding the needs, interests & goals of an employee is important in the current scenario where organizations strive to ‘get’ and ‘keep’ employees in order to control turnover.
Managing employees is often mistaken to be a task that simply requires ‘Common Sense’, however it has been realized that for tasks like – checking the level of job satisfaction, analyzing & identifying withdrawal behavior, providing incentives and a pleasant workplace and catering to the needs & aspirations of an employee to increase retention in an organization can be effectively achieved by a manager who is well trained and has adequate knowledge & interpersonal skills to understand human behavior.
Hence it is definitely not unethical to teach supervisors how to demonstrate interest in workers as individuals, on the contrary training on such aspects must be Page | 12 considered necessary and a basic requisite for managers to effectively manage employee. However the limits to the extent of involvement in an individual workers life must be clearly defined and understood to avoid mistaking it for interference, hence a supervisor must maintain the relationship to the level of Professional Interest only. ADVANTAGES OF TRAINING SUPERVISORS ?
Having awareness about an employee’s future goals & interests can help relate their future goals to the organizations present needs. ? Acknowledging an employee’s interests and channelizing them thus providing a platform to excel can increase job satisfaction giving organizations a competitive advantage over others. ? Communicating with employees helps the organization to be aware about their inhibitions & apprehension thus aiding the organization to take necessary steps in overcoming these problems. ? Analyzing and understanding the Needs, Behavioral Patterns, Job Satisfaction Levels etc. f every individual and taking initiative to improve the same leads to increased retention and finally an optimal level of turnover. ? Trained managers can identify employee behavior, judge their intention to leave the organization and take necessary steps to figure out ways to retain them. ? Training employees to understand the needs & interests of employees not only helps organizations achieve greater retention to control turnover; it also indirectly enhances the organizations revenue by decreasing the expenditure on recruitment / Page | 13 eplacement of employees and at the same time builds the company’s Reputation & an Employment Image. QUESTION 5: What facts in this case support the argument that OB should be approached from a contingency perspective? Conventionally managers followed a behavioral approach to managing problems which was based on simple general principles to explain or predict behavior in an organization. These set of principles and behavioral patterns were applied to every situation in general for problem solving.
Contingency approach on the other hand acknowledges the growing complexity of organizations and recognizes that problems depend on a wide variety of personal and situational factors making each problem unique which cannot be simply resolved on the basis of general basic principles. It gives the idea that there is no one best way of managing all people in all situations i. e. a particular way cannot be equally effective or successful in all situations and that to be effective-planning, organizing, leading & controlling must be tailor made to particular situations.
Hence Contingency approach to organizational behavior provides that for successful management managers must understand and develop skills to uniquely treat & resolve complex problems keeping in mind the various internal, external, individual level & group level factors affecting the situation. Jessica followed a contingency approach in her actions to provide solution to the problem of high turnover in UPS’s operations in Chennai by developing a comprehensive plan that dealt with the needs of the employees at an individual Page | 14 evel despite the benefits like high pay, flexible working hours & full benefits that the organization was already providing. Some of these actions included: ? Jessica classified her employee base in 5 different categories based on age and stage in their career to identify their needs/interests and modified motivational techniques accordingly to suit their interests at an individual level thus establishing a more effective communication channel. E. g.
Jessica realized students retained work as long as they were building their skills to apply later in their career hence she organized career planning sessions and training to enhance their Computer Skills . ? Jessica realized that apart from salary & incentives- job satisfaction and pleasant work place environment play a crucial role in retaining employees, hence to enhance working conditions she improved ware house lighting, installed break rooms and made the environment more user friendly thus modifying based on the requirements of the employees. Following the contingency approach Jessica specially picked Supervisors who were part-timers themselves and trained them to understand the need/interests of workers to establish a better communication channel & built their ability to assess & handle difficult management situation. ? To deal with the situation of high turnover Jessica also modified the hiring process, by giving preference to people who opted for part time jobs rather than those having expectations of a full-time job thus applying the contingency approach based on situational analysis. Page | 15