Employee Retention and Performance Improvement
in High-Tech Companies
By B. Lynn Ware, Ph.D.

Performance Improvement Magazine • FEBRUARY 2001 -- What do Microsoft, Sun, Oracle, Yahoo, and Amazon.com all have in common? Each of these high-technology, new economy companies generated great business results in a short period of time: company profitability, well-recognized brand names, high growth, wealth creation for company shareholders, and a lot of happy employees.

How did they do it? In our information-driven, networked economy, these companies built their wealth through a driving focus on the active accumulation of “soft assets” such as patents, processes, brands, customer loyalty, and employee satisfaction. Soft assets are the currency of the new economy and they are developed by one method and one method alone: through the creative minds of a group of highly talented people.

Attracting and retaining top talent is a major concern of most information technology (IT) companies. One out of ten IT jobs in the United States remains vacant because of an insufficient number of skilled workers (American Conference Institute, 1998). Furthermore, as the Internet economy speeds corporate growth, the mobility of the workforce continues to rapidly escalate. In the United States, employee tenure at companies has decreased to 3.6 years from 5.2 years only 18 months ago (U.S. Dept. of Labor, 2000). These are just two of a variety of factors affecting the talent shortage today.

For these and many other reasons, the senior managers of today’s most productive and profitable companies need to take an active role in developing strategies to retain their top talent because they cannot create sustainable value and wealth for their respective companies without these people. The role of the human performance technologist in these circumstances is to educate and support senior management in structuring and implementing the programs and processes that keep valuable people on the job. This article describes the fundamental characteristics of these programs and processes.

Attrition’s Costs

The following true story illustrates the immediate consequences of unplanned attrition as well as the longer-term cascade of its costs. A Silicon Valley high-tech company that specialized in providing “total enterprise solutions” signed a $30 million contract with its client to install and maintain a new, state-of-the-art business enterprise software solution. Not long into the project, and quite unexpectedly, the project’s lead manager resigned. He was the master engineer who had designed and installed the company’s product many times in the past and the reason why the client signed the contract. Recruitment of a new project lead with sufficient skill and savvy to complete the job on time dragged on and on so that the promised delivery date came and went. The client cancelled the contract. An enterprising reporter picked up and published the story in the local business journal, which, in turn, was read by the Wall Street analyst most interested in the company’s performance. Wall Street immediately downgraded the company’s rating, which led to a sharp plunge in its stock price. As employees’ option prices eroded, the company suffered from a flood of turnover, which further damaged customer relationships and prolonged other time-sensitive projects.

As this story illustrates, the costs of unplanned attrition can be catastrophic for a company’s well-being. Most managers are aware of the disruptive nature of the loss of a valued employee. However, there are several factors that represent additional costs of attrition that often go overlooked. These include the lost productivity of a vacant position and subsequent recruiting and training costs for a new employee, as well as the costs of lost opportunities with the company’s clients and the lag time in getting innovative new products and services to market.

Retention’s Benefits

How do companies use good employee retention practices to improve their business performance? It’s not just through the reduction of attrition costs that improved business performance is achieved. There is an intimate connection between successful employee retention and greater continuity of productivity, efficiency in executing work processes, effective use of intellectual capital, speed to market, consistent customer service, and, perhaps most important, increased customer retention and loyalty. For example, Nortel Networks® of Toronto has found a causal link between customer and employee attitudes about the company. By improving employee satisfaction through streamlining frustrating work processes, giving better training on customer needs, and focusing on management development, customer satisfaction with the company rose and, in turn, financial results improved. Inevitably, this connection leads to both short- and long-term successes in the marketplace.

Latest Trends in Retaining Top Talent

Successful employee retention requires companies to take a multifactored approach that includes effective organizational systems (for example, compensation and benefits, career movement systems), managers’ behavior with employees, and managers’ accountability for their retention (or attrition) rates. However, and unfortunately, the scenario in many organizations is the same. Someone who is invested in the business, such as a senior line manager or human resources professional, raises the red flag of attrition, recognizing its potentially devastating impact on the company’s strategic position. Then someone scrambles to pull an initiative together that fails to respect one or more of the critical factors that are required to reduce attrition. The result is that the organization experiences mediocre results, or no results at all.

With the assistance of Sun Microsystems®, one of Silicon Valley’s largest high-tech companies, our company examined the retention practices of more than 500 managers and divided the group into those with high versus low turnover rates. We interviewed subgroups of these managers, their direct reports, and their customers to identify the critical behaviors that differentiated the managers with excellent retention records. This preliminary study uncovered six quantifiable and behavioral managerial practices associated strongly and positively with a low intention to quit, high job satisfaction, and low work-related stress—behaviors that spell TALENT.

Targeted Recruiting and Hiring. This practice concerns the manager’s ability to hire talent who will stay with the company, not just recruit talent for a particular job or project task. Management practices such as hiring for cultural fit and giving realistic job previews were highly correlated with employees who stayed longer at the company.

Achievement. What is the manager doing to make sure the employee is winning and succeeding at work? Does the manager make sure the employee has the right tools and training to accomplish the desired results effectively? Does work assigned take the employee’s strengths into account?

Learning and Professional Growth. How familiar is the manager with the learning desires of the employee? Is there a proactive plan in place to make sure the employee is learning and growing in areas of interest as well as future needs of the business?

Ensuring Recognition. One of the most frequently cited reasons given by employees who voluntarily leave a company is that the employees’ perceived contribution to the enterprise failed to be recognized by management.

Nurturing Careers. To what degree does the manager help connect the employee to people in the company who can influence the employee’s career? Does the manager help the employee take a look at next steps in the employee’s career? Are job assignments given that will ultimately promote the career of this person? If yes, you get a more committed employee who stays longer.

Team Collaboration. A manager who hires competent people who work well together and get along will have a leg up in keeping top talent. Employees today report that those they work with and whether they feel the rest of the group is contributing equally goes a long way in providing the glue that makes them stick to the organization.

The data clearly indicated that employees who are managed by people who are highly effective in these management retention practices are less likely to leave the job.

Most managers interviewed as part of this research lamented the loss of talented contributors. However, when asked to diagnose the reasons for an employee’s departure, the average manager pointed to a variety of external organizational factors. The managers failed to take any responsiblity for the situation. Managers typically did not acknowledge any factors within their control that contributed to the employee’s departure.

This finding is not the fault of managers. As employee retention is a relatively new business problem (that is, businesses now can’t simply find a warm body to throw into a repetitious job), managers never had a need to learn, nor a time or place to learn, how to retain talented people. Today, however, most effective retention strategies include the education of managers as to their role in the retention equation and how their behaviors affect the reasons employees exit the company.

The ITS TALENT Model

Emerging trends in today’s fast-changing corporations are pointing urgently to the needs that business and human performance experts must address: not only survival and security needs, but also the higher-level needs for respect, recognition, achievement, and life-long learning. These workplace motivators and satisfiers are potent determinants of retention or attrition. Integral Talent Systems’ (ITS) TALENT model (derived empirically from the above referenced research) teaches managers how to arrange these motivators and satisfiers to retain their employees. By infusing the manager–direct report relationship with high-impact retention practices, attrition can be significantly decreased. For our clients, these practices are assessed with ITS’s Retention Assessment Profile and strengthened through participation in ITS’s Retaining Top Talent workshops.

When these managerial behaviors are utilized to retain top talent, the results are rewarding. For example, prior to ITS’s multilevel interventions, the retention rates at two of Silicon Valley’s largest information technology and telecommunications companies were 75% and 68%, respectively. Following a year of working with the executives and human resource directors to make employee retention a priority for every manager, retention increased to 90% and 83%, respectively. This work confirmed the importance of integrating manager-specific practices with organization-specific policies to increase retention. It also provided ITS with a jump-start to respond to the retention challenges presented by the new economy’s technology and telecommunications companies. This challenge is particularly evident in the newly emerging field of wireless Internet technology (WIT).

TALENT Retention and Wireless Internet Technology

WIT is fueling high-tech job growth by leaps and bounds and has replaced dot-coms as the latest new frontier in which to work. As an increasing number of consumers reach for their cell phones and personal data assistants to access the Internet, an increasing number of telecommunications companies seek engineers to invent new wireless gadgets. Internet service providers need the new breed of wireless technicians to install and disseminate the support structures necessary for wireless communication. IT departments require skilled workers to integrate the gadgets and their support structures into the existing, wired world.

High-tech recruiters report difficulty in finding these wireless workers because the technology is new, changing rapidly, and not yet being taught in traditional training programs. Competition to hire skilled wireless experts is fierce and exacerbated by the fact that there is yet only a small pool of such talent from which to draw. Employers of wireless experts will have to be creative in their efforts to retain this top talent. Jeff Simmons, national staffing director for Ericsson, a telecommunications company, said in regard to such retention strategies: “Money is the third thing they want. The first is a good work-life balance, and the second is exciting products and work.” These higher-level needs are enduring aspects of human nature, and employers who redesign jobs accordingly will realize considerable returns on their investment.

In this fast-paced, cutthroat, wireless world of work, performance improvement and bottom-line performance both depend on retaining the top talent. Companies can’t take on the work, collect revenue, and grow unless there are people in place to do the work. In short, retaining top talent and business performance go hand in hand in the new economy.

References

American Conference Institute (1998). High Tech Employee Retention Conference. Presentation by ComputerWorld. Chicago, IL.

U.S. Department of Labor. Bureau of Labor Statistics.