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Financial Accounting

ORGANIZATION BEHAVIOR
CASE STUDY – 1
How a UPS Manager
Reduced Turnover

ASSIGNMENT I
This document contains an analysis on the
Akanksha Bhalla
Importance of Controlling & Reducing
403
Employee Turnover. It discusses the impact of
a high turnover on the running of the
Telecom organization, monetary expenditure incurred
and the influence on the company’s image.

Xth Trimester Date: 10th August 2009


MBA-Tech
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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. 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 co-
creational 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

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Cost of training the person who has left

Cost of Orientation & training Cost of hiring temporary relief


material
Cost of existing employee performing the
Cost of departmental training vacant job responsibility
COST
Cost of persons conducting
DUE TO A Cost of lost Knowledge, skill and contacts
training PERSON LEAVING

Lost Supervisors productivity


RECRUITMENT
TRAINING COST Cost of hiring process
COST COST OF Scheduling &
EMPLOYEE
TURNOVER conducting phone and
working interviews
Screening applicants
LOST
NEW
Cost of bringing a new PRODUCTIVITY
HIRE COST
person in the organization COST Initial (First 2-4 weeks) work
contribution-25% productivity
Cost of Supervisor’s time in level, gradually grows to 50% and
building introducing the new 75% by 13th -20th week hence
staff member. 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

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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

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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.g. college, hobbies etc) and sometimes treated as
outsiders by fulltime employees.

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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 PART-
TIME EMPLOYEES

Orient Find What Flexible


Establish Assign Mix-up Offer
Them Motivates Working
Communication Mentor Work Load Incentives
Properly Them Hours

 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. to 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.

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 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,

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working 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.
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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.

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 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

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 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.
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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
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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. of 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 /
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replacement 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

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level 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.

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