The Staff Retention Ship is in Danger of Sinking – Can HRO be its Life Raft?

Last week I wrote that there is cause for optimism in the BPO space as, per interviews we conducted in September with 480 BPO buyers in North America, Europe and Asia-Pacific, RFP and BPO contract activity is expected to significantly increase in 2010. And that’s obviously good news for providers and buyers alike…increased revenue for providers, and the benefits of BPO for buyers.

But I found one key data point which emerged from those interviews particularly troubling. The buyers rank-ordered the importance of business metrics for 2010, and customer retention and cost reduction took the top two spots, 4.5 and 4.3, respectively, on a 1 – 5 scale. However, staff retention only ranked 3 on the same 1 – 5 scale.

There are so many things wrong with staff retention being viewed as only mid-scale important. First, it signals that little investment will be made in training, development and other staff retention methods. Given the points we made in our September 3 blog – e.g., “A recent study concluded that 54 percent of employed Americans plan to look for new opportunities once the economy begins to turn around”, and “More than eight in 10 employers feel that their workers are just happy to have a job, but just 53 percent of employees feel this way” – businesses which don’t invest in their staff will be on a slippery slope, especially since it will be the top quartile employees who first move to different jobs.

Second, a recent study by Australia-based RPO provider Hudson found that over half of managers admit they lack the skills to properly manage employees during the downturn, and a whopping 60 percent of employers said they have no strategy in place to recruit leaders with the competencies required to lead though adverse and challenging economic times.

Third, businesses can’t meet their number two business objective of cost reduction if they need to spend already scarce dollars on hiring new staff to replace those lost.

Fourth, if employees don’t feel their employers care enough to invest in retaining them, will they continue to be motivated, committed and enthusiastic, or will their morale and productivity wane?

Finally, how can businesses achieve their top business imperative of customer retention when their employee base becomes stripped to the bone with low quartile staff?

Can HRO be a life raft to save the sinking staff retention ship? In a word, no. But a couple of HRO components can help.

Talent management software and services can help monitor and manage workforce issues, e.g., where is performance dipping, is compensation aligned with performance, is top talent being retained, is training under-utilized in critical areas?

Further, I’m seeing an increase in outsourced learning services in which training is being conducted on how to measure the impact and benefit of training and development. I believe the results will demonstrate to businesses their direct importance to retaining staff.

On the flip side, if businesses don’t step up to the plate and make investments in staff retention, RPO providers can source the best talent to replace their client’s lost staff. However, hiring new staff – whether through in-house recruiters or RPO firms – costs significantly more than retaining existing staff.

The bottom line is that to achieve their top-ranked 2010 business objectives, organizations must strategically invest in methods by which to retain at least their top quartile staff. An investment now will help them retain customers and reduce costs. Talk about mapping actions to business objectives!

Gary Bragar, Lead HRO Analyst, NelsonHall

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