Академический Документы
Профессиональный Документы
Культура Документы
In a competitive arena, the advantage is taken by the first-mover – and for an environment
where Seth and Sisodia’s The Rule-Of-Three predominates, it is not just the first mover, but
the fast -mover who has it all.
Every organisation, no matter how stable its quality and people processes, are bound to fall
prey to the silent warfare of the fast-movers – which I would prefer to call Corporate SitzKrieg1 ;
and Hertzberg’s “Satisfiers” are today’s HR nightmare – because nothing seems to work!
Thus today, HR as a strategic partner in any organisation has lots to do in terms of metrics,
HR analytics, prediction of trends and quantifying Human Capital measures.
Since attrition is one of the main problems for any organisation struggling to retain its
expertise and knowledge base, an analytical approach to the same would also help in
prediction and necessary remedies.
This paper aims to draw on the recent HR trend of referring to the employee as an “internal
customer” and therefore assumes that manpower attrition is similar to customer switching
problems in case of products, thus has used Markov Analysis as an Operations Research
technique to predict attrition, and therefore form a basis for manpower planning.
This white paper is aimed at a greater scope of having more thought provoking ideas in the
HR Analytics arena and within its limited scope here, suggests an OR model as part of
manpower inventory planning in general.
Wipro Technologies
Innovative Solutions, Quality Leadership
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
Table of Contents
INTRODUCTION .................................................................................................... 3
CONCLUSION ..................................................................................................... 13
REFERENCES ..................................................................................................... 14
Table
Pageof: Contents
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
Introduction
The Attrition Warfare
One of the greatest strategies of War had been the strategy of attrition warfare, defined in
military terms as “a strategy of warfare that pursues victory through the cumulative destruction
of the enemy’s material assets by superior firepower.”
Metrics like body counts and terrain captured measure the progress of battle. On the opposite
end of the spectrum is maneuver warfare. All warfare involves both maneuver and attrition in
some mix. The predominant style depends on a variety of factors such as the overall situation,
the nature of the enemy and most importantly, on attackers’ capabilities.
Though this paper deals with attrition with respect to the War for Talent in Corporate arena,
the strategy involved is the same – and even the terminologies quite similar – if “body count”
can be a parameter to measure effectiveness of attrition warfare, then in corporate recruitment
strategies the similar parameter would perhaps be “acceptance to offer ratio” (from the
attacker’s perspective).
The main point here is, that today, Human Resource professionals are under increased
pressure from a different kind of a Corporate Sitzkrieg – the silent firepower of attrition which
causes no less harm to Human capital assets, as compared to “the enemy’s material
assets” as in the definition above.
The concept of applying warfare terminologies has been an age-old concept amongst
marketers – and human resource professionals are coming to terms with such terminology
like strategic human resource management, and the employee as the “internal customer”
as per the marketing concepts – this has something to do with the changing scenario of a
competitive environment, where strategies no longer are framed at the top, but evolves out of
the environment, cascading through the entire organization and demanding concrete action
plans. The concept of what has been stated above can be put into a simple model as shown
below. (fig1.)
Environment
Strategy
Organization
fig1
Culture
The pressure of competition from the environment and the evolution of strategy are self-
explanatory in the above figure. The point to note here is the extent of the impact, which
involves hitherto soft issues like culture and people, and this is the origin of strategic human
resource focus, the war for talent and the need to garrison the human resource capital as
one of the strategic parameters.
The Knowledge-Harvest
APQC (American Productivity and Quality Centre) has made several recommendations
to raise awareness of the problem of knowledge attrition, which include
AQPC has categorized three knowledge types that are under attack through attrition.
This includes
A more careful look at figure 1 indicates that there seems to be some good amount of
convergence with respect to AQPC’s definition of the three types of knowledge and the
model given in figure 1 – particularly the fact that corporate attrition warfare is all about
gaining (through head-hunting, strategic recruiting, internal job offers, etc) human assets,
who bring along with them the three kinds of knowledge, and thereby attack the very
strategic base of the organization.
Thus from the attacker’s point of view, depending on which type of knowledge it needs
form the competitor, the recruitment strategies are also sorted out accordingly. It is evident
therefore, that attrition rate among junior employees (2-4 yrs) would be higher for the
functional knowledge part – associated with technical and operational processes.
At higher levels, the attrition warfare would be more for gaining historical knowledge
(business portfolio changes down the years, etc) and cultural knowledge from the
competitors.
From the organization’s point of view, the counter strategy is to predict attrition “zones”
which depend on the criticality or type of knowledge that is at important to the organization,
and thereby evolve plans to counter loss of human assets from those positions.
Once we realize this, the next step is to come out with concrete plans to prevent attrition,
which can only be forecast using data and trends available. Some of the world’s best
practice organizations have tried capturing data to predict attrition on the long run, and
done that in different ways.
Page : 04 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
From the attackers’ perspective, one of the parameters to measure effectiveness of corporate
attrition warfare might be “acceptance to offer” ratios. But from the perspective of the
organization that has to cope up with this ever-growing problem, the problems associated
are larger.
Attrition is a pain area in any organization that intends to have a knowledge management
system in place. In a famous article 1 , attrition (through normal retirement or through
resignations) has been discussed as one of the pain areas in the field of KM, because
vacancy of a position might be easier to fill in through the proper people-sourcing approaches,
but filling in the knowledge gap is not. This is particularly in context of a tough economy
where the concept of all-size-fits-all is no longer working, and vacancy of a position by
attrition is basically vacancy of a knowledge-base, and this vacancy in knowledge base
cannot be filled in by any person.
This is precisely what is referred to as tacit knowledge, which most organisations today are
grappling to capture and retain. This closely pertains to what AQPC referred to as the Cultural
and Historical knowledge, in addition to the Individual or Proprietary knowledge that goes off
without being codified and migratory, and therefore is never assimilated in the organisation
as invisible knowledge. This can be exemplified better through the typical knowledge-cycle
of an organisation as shown below, originally by Takeuchi and Nonaka.
Codified Migratory
EXPLICIT
knowledge knowledge
Attrition event
Discovered Invisible
TACIT knowledge knowledge
PROPRIETARY SHARED
The problem can be aptly stated through examples from the corporate world itself –
Corning, which had been experiencing knowledge loss through the large scale retirements
through 1990’s estimated that it lost around 2000 years of cumulative years of experience as
a result of a retirement package offered in 1998 – and this exemplifies loss of knowledge
due to planned retirements alone – here we are talking of corporate SitzKrieg, where an
employee may walk into the office any morning to place his resignation letter and walk off
with the competitor – not just creating a vacancy, but taking some of the most vital knowledge
quantum from the company to it’s competitor.
Page : 05 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
However, organisations even with established knowledge management practices have not
been able to come up with any substantial measure to check this knowledge loss, and
therefore an indicator of failure in capturing tacit knowledge bases.
The problem is more acute depending on the industry and the demographics of the
employees too, as in call centres. Here the knowledge drain is at a different level, and it
corresponds more to AQPC’s definition of functional knowledge.
Though it is a known fact that high turnover rates drain the cost effectiveness of call centres,
unfortunately little is being done about it.
In the article “Reducing Call Centre Turnover”1 , managers in call-centres normally tend to
look only at advertising costs, interviewing and training costs etc, but overlook the vital costs
associated with attrition.
Merrill Lynch attempted to find out costs associated with call-centre attrition – which came
out to be around $9m per annum for a company with 1000 employees, and annual revenue
of $100m.
This shows that retention alone can significantly bring up the bottom-line for a call-centre.
Organizations tend to spend huge sums of money on recruitment, for web-postings, job
fairs, ads, employee referral bonuses, etc, and end up with 50% employees leaving before
reaching any level of proficiency.
Proper testing and screening, training, introduction of the apprenticeship scheme, aptitude
testing (10%), realistic job previews (8%), structured behavioral interviews (3%) can help
prevent attrition by percentages shown in parenthesis.
According to the Forum Group, 65% of the external customers leave due to internal reasons
alone (45% for poor service quality, 20% due to lack of attention) – thus internal attrition can
devastate call-centre effectiveness if not tackled properly.
Shown in the table below are the typical turnover rates of call centres.2
Page : 06 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
Schlumberger, for example, understands how important it is to link its knowledge sharing
techniques with its HR processes: the oil industry faces an attrition rate of 44% by 2010.1
Pfizer also takes preventive measures to combat knowledge-drain and promote better
knowledge transfer through its six-step knowledge retention process.
Best practice companies, according to AQPC, should conduct a thorough audit to determine
what knowledge is worth capturing. Stated in another way, this would also indicate the
“critical positions” in the organization, which can create a substantial problem to the company
incase it is vacated under competitor attack.
The table below shows the practices that are followed by these organizations to collect data
related to attrition:2
Internal networks Y Y Y Y Y
Interviews Y Y
Videotaping Y Y Y
SME directory Y Y Y Y
Repositories Y Y Y Y Y
milestone reviews
Mentoring programme Y Y
Knowledge maps Y Y Y Y Y
Recruiting strategy Y Y Y Y
Retention strategy Y Y Y
TABLE2
The importance for including the various ways companies worldwide are collecting data on
attrition would be clearer in the subsequent sections.
A Hay Group survey1 reveals that what people want most is to feel that their careers are
moving forward.
In their survey, “The retention dilemma: Why productive workers leave and seven suggestions
for keeping them”, reveals that employees leave because of disillusionment of the company
management’s direction, and because of under-utilization.
Two of the seven things Hay Group identified as “attrition-preventing” are clearly related to
training –
1. Measurement of soft skills – because gaps exist when the companies say they
value their people, and do something else
2. Fight attrition with smart training – taking a longer term perspective in training and
development as a retention tool.
Page : 07 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
The relationship between job satisfaction and attrition as surveyed by Hay Group is shown
as follows:
Satisfaction with Total percent satisfied Gap
Employees planning Employees planning
to stay for >2Yrs (%) to leave in <2Yrs (%)
However, few organisations have been able to tackle attrition in spite of using various types
of data-gathering instruments as shown in table 2.
We have seen above, that inspite of a great number of efforts, and the availability of a number
of instruments for collecting reasons as to why people are leaving, an organization is really
not being able to do much about attrition – the primary reason of this could be the validity of
the data.
As to why employees would not/might not give the correct response to an attrition survey
stems from the social exchange theory (Dillman, 1978). According to this, there is a social
exchange between the survey interviewer, who desires information possessed by the
respondent, and the respondent, who decides how much information to convey. Dillman
posits that the respondent participates because the act of participation is expected to bring
rewards that exceed the cost of participation. These rewards might include monetary payment,
but more importantly would include intangible rewards that, to some extent, can be influenced
by the design and implementation of the survey.
Page : 08 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
The social exchange model described above can be translated into an economic model
and, in its translated form, can be used to help generate some empirically testable hypotheses
about the determinants of survey participation, validity of the response and the data.
This paper only outlines the theory, leaving it for future scope of research on the subject.
where
UR (Lit, Yit) is the utility the individual receives from leisure, Lit, and income, Yit.
Eit is the psychic value the respondent expects to experience by participating in the interview,
Eit = 0 if the individual does not participate.
where
Vit is nonlabor income,
wit is the market wage rate,
Hit are hours of work
Pit is a respondent payment for participation in the tth wave of the survey.
is the sum of hours of work, hours of leisure, and time spent on the interview.
The individual obviously chooses his labor supply independently of the survey interview by
maximizing Equation (1) subject to Equations (2), (3) and Eit = lit = Pit = 02. This choice is
described by the labor supply function Hit = H(wit, Vit). Substituting the labor supply function
and the time and money budgets into Equation (1), the individual’s utility function is given by
Treating lit as a marginal loss of leisure and pit as a marginal gain in income, the net utility
gain, or loss from participation in the survey is given by
Page : 09 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
The individual will participate in wave t of the survey if the rewards from doing so outweigh
the costs according to the decision rule
Where Eit/UY is the monetary value of the psychic costs and rewards of the survey experience
– the problem here being, that a person who is leaving an organization wants neither psychic
utility nor rewards, and thereby his perceived-utility is low, therefore he is under no obligation
to respond correctly/accurately to attrition surveys.
If we can consider employees as internal customers, then the next step is to consider
attrition as a customer-switching problem – and once we can do that, attrition rate prediction
may be dealt with similarly as in customer switching problem in case of marketing.
The solution proposed here is the application of Markov analysis to customer switching
problems – clearly stated, a Markov analysis to find out the attrition rate and prediction of its
stability within time period t, which would give HR people a relevant input in terms of their
manpower planning and recruitments.
A Markov chain is a random process for which the future depends only on the present state;
it has no memory of how the present state was reached. This simplifying assumption leads
to a family of systems having a mathematical theory, as well as many applications to modeling
in more applied science. A central property of ‘nice’ Markov chains is that they settle down
into a (stochastic) equilibrium.
The basic method for solving this is to construct the transition probability matrix, which takes
in attrition probability data by using instruments as mentioned in the TABLE2. The validity of
the output would depend on the validity of this probability, which is a problem area, because
of the inaccuracy of responses as mentioned in the previous section.
In analyzing switching between companies, the reason for attrition, the organization needs
to have data that is needed to form the transition probability matrix.
As an example laid down below, say the probability that the employee stays in the organization
is 0.95. The corresponding probabilities of his/her switching to competitor companies 2, 3,
and 4 are say 0.02, 0.02 and 0.01 respectively. The other figures put in the example are self-
explanatory.
Page : 10 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
To company
1 2 3 4
From comp 1 | 0.95 0.02 0.02 0.01
2 | 0.05 0.90 0.02 0.03
3 | 0.10 0.05 0.83 0.02
4 | 0.13 0.13 0.02 0.72
Say for the present time, say this month, the probability of switching to companies 2, 3, 4 are
23%, 20% and 12%, and for staying in the company itself is 45%.
[The probability is calculated on various parameters that evoke switching, for example,
competitors’ pay, work environment, perks, etc]
The Solution
Assumptions
1. While exemplifying through the matrix, it has been assumed that the strategic sourcing
group of the organization aims to have a 75% target of the probability of employees
wanting to remain, that is, around 25% attrition rate.
2. The basic assumption of Markov analysis is also applied here, that the process is a
stochastic one, whereby any event would only depend on the preceding event, and nothing
else.
We have the initial system state s1 given by s1 = [0.45, 0.23, 0.20, 0.12] and the transition
matrix P given by
Hence after one month has elapsed the state of the system s2 = s1P = [0.4746, 0.2416,
0.1820, 0.1018] and so after two months have elapsed the state of the system = s3 = s2P =
[0.494384, 0.249266, 0.16742, 0.08893] and of course the elements of s2 and s3 add to one
(as required).
[Please note that any since we are utilizing the Markov analysis process, which is a stochastic
chain, any event therein would follow only from the event preceding it – thus s2 = s1 x P,
and so on.]
Hence the employee demand elapsed after two months are 49.44%, 24.93%, 16.74% and
8.89% for companies 1, 2, 3 and 4 respectively.
Assuming that in the long-run the system reaches equilibrium [x1, x2, x3, x4] where
Page : 11 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
we have that
Rearranging we get
x1 + x2 + x4 = 1 - x3
Hence
0.17x3 = 0.02(1-x3)
i.e. 0.19x3 = 0.02
i.e. x3 = (0.2/0.19) = 0.10526
Multiplying equation (6) by 0.31 and equation (7) by 0.15 and adding we get
Hence from equation (6) we find that x2 = 0.24330 and from equation (5) that x4 = 0.05489
As a check we have that these values for x1, x2, x3 and x4 satisfy equations (1) - (5) (to within
rounding errors). Hence the long-run employee demands for the companies are 59.66%,
24.33%, 10.53% and 5.49% for companies 1, 2, 3 and 4 respectively.
We need a long-run system state of [0.75, x2, x3, x4] where x2, x3 and x4 are unknown (but sum
to 0.25) and we have a transition matrix given by
Page : 12 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
P=
| p1 p2 p3 p4 |
| 0.05 0.90 0.02 0.03 |
| 0.10 0.05 0.83 0.02 |
| 0.13 0.13 0.02 0.72 |
Here we have six equations in seven unknowns and so to solve we need an appropriate
objective. In order to avoid having to change the transition probabilities too much a suitable
objective would be
Maximize p1
I.e. find the largest value for the transition probability from company 1 to itself such that the
recruiter achieves the long-run employee demand of 75%.
Conclusion
The above approach through a Markov analysis is a proposed model. This model may be
followed and can be mapped to a much more complex data through the construction and the
solving of the probability matrix through a mathematical tool. The objective of the paper was
to propose a quantitative way to predict attrition rate in any industry and therefore take the
necessary steps to prevent it, or plan the manpower inventory accordingly.
Companies should project retirements and attrition over the next five years. List the internal
and external forces that can contribute to the problem. Then take the worst-case scenario.
The main approach to preventing attrition should be grooming leaders, rather than just
treating employees the way it is normally done.
In fact, the companies with leading-edge retention programs address all the areas mentioned
below. According to International Data Corp.’s1 guru on resourcing strategies, Michael Boyd,
program elements can include the following:
Page : 13 of 15
WHITE PAPER Attrition Analytics - A Markov Analysis Attempt for Attrition-rate Prediction and Stabilization
Relevant Link
www.wipro.com/b2e/i-desk
References
1 The German Word for “Propaganda” or “Silent Warfare”.
2 “Why attrition is a chance to prove the value of KM”, KM Review Briefings, Vol6, Issue1,
March/April 2003
5 “Proactive strategies to combat attrition”, Rowan Wilson and Jennifer Wilson, KM Review,
Vol 4, Issue 6, Jan/Feb2002
6 “Why attrition is a chance to prove the value of KM” KM Review Briefings, Volume 6 Issue
1 March/April 2003, P-10.
7 “Hay Group Study Identifies Training as One of Top 7 Employee Attrition Fighters” IOMA’s
report on managing training & development, April 2002 issue, P-13
8 REDUCING PANEL ATTRITION , By: Hill, Daniel H., Willis, Robert J., Journal of Human
Resources, 0022166X, Summer2001, Vol. 36, Issue 3.
9 TO KEEP YOUR BEST IT PEOPLE, KEEP THEM LEARNING , By: Gantz, John,
Computerworld, 00104841, 7/3/2000, Vol. 34, Issue 27
Page : 14 of 15
WHITE PAPER
Visit http://www.wipro.com/b2e/i-desk
© Copyright 2003. Wipro Technologies. All rights reserved. No part of this document may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without express written permission from Wipro Technologies. Specifications subject to change without notice.
All other trademarks mentioned herein are the property of their respective owners. Specifications subject to change
without notice.
Worldwide HQ
Wipro Technologies,
Sarjapur Road,
Bangalore-560 035,
India.
Tel: +91-80-844 0011.
Wipro Technologies
Innovative Solutions, Quality Leadership Page : 15 of 15