About the Client Organization
Talent Retention & Attrition Risk Management garners most eyeballs, attention share (& wallet share), across all corporate levels, from being a north star metric in executive council meetings to a definite reference point, in the board room briefings, especially, in the technical domain. For people intensive organizations, the overall turnover costs are in range upwards of 15% of over overall revenues – Now that is huge, & hence all the focus on retention management is certainly justified. (Estimate your turnover costs & see how much can The Brew help you save. Also see all of works & applications of HR Analytics here)
Engineering firms are perennially facing a market with a shrinking supply of talent. Coupled with an aging workforce, the problem of having a sufficient inventory of capable engineers and project managers available and/or working on projects is of significant concern (Most Indian techies quit their job within 2 years – QZ) and hence, talent retention is one of the key talent management priorities at these firms. This case study identifies the talent retention insights, actionable recommendations and outcomes that emerged from the role HR Analytics played in a mid-size engineering firm experiencing critical talent turnover.
The firm has over 1,000 employees and is headquartered out of capital with offices in several countries around the world. It has operations in business areas including industrial products, processing, and government. Over the last two years the firm has been experiencing unwarranted voluntary turnover, increased retirement rates, and mediocre business performance. The CHRO recently approved a pilot analytics project to identify the deeper causes of attrition management pain points, & devising talent retention strategies, arising out of the insights.
The Pain Point – Talent Retention for Critical Roles & High Performance Talent
Turnover rates of the high-risk critical roles of Engineers and Project Managers are higher than average (20% and 18% respectively). This leads to high turnover costs – over $3 million in the past year for Engineers and over $1.8 million for Project Managers.
Furthermore, over the last two years talent retention has been going south, especially for employees with fewer years of service. Even if the cost assumptions are overestimated, the costs are significant enough to take action. Additionally, demand for Project Managers is expected to grow, and Engineers are the primary feeder role for Project Managers, driving home the ultimate objective: Implementing talent retention strategies to improve retention, profitability & growth.
Further compounding the costly turnover risks, the demand forecast based on projected revenues is greater than the demand forecast based on current trends in headcount, meaning that there are likely to be larger critical role talent gaps in the future; as a result, the firm may not be able to meet its revenue goals.
The Brew’s approach was to assemble Talent, financial, and related data were from a number of computer-based businesses and HR systems, interviews were held with leaders from the global offices, and models were built representing the workforce behavior at the individual employee level by implementing its The Brew’s Predictive Analytics Solution.
The predictive modeling capabilities allow employee behavior to be modeled so that interventions may be compared and their ROI evaluated. Our predictions showed that under the status quo, about 100 Engineers are expected to leave the organization over the next 12 months, at a cost of approximately INR 10 Crores (~USD 1.6 Mil, at 1 USD = 70 INR).
Currently, there are roughly 200 Engineers with 1-3 years of service; if the company can improve talent retention rate among these employees over the next year, then any program which achieves this reduction and yields a positive ROI should be implemented. For example, let’s analyze the value of a modified compensation plan that could yield such improvements in turnover.
Let us consider Engineers with 1-3 Years of Service (YOS).
The impact of their most recent salary raise on their turnover is shown in the chart here: The average annual salary of Engineers with 1-3 YOS is approximately INR 700K; a 12% raise is therefore INR 84k, while a 5% raise is INR 35k – a difference of approx. INR 50k. Based on the data shown in the chart, Engineers who got a 12% raise are retained at a rate that is at least 15% higher than those who got a 5% raise. With an average turnover cost of INR 1000k per Engineer, an annual 15% increase in talent retention rate would save the Company 1.5 Cr, a net savings of INR 25k per Engineer per year.
Of all Engineers with 1-3 years of service, those who have taken at least one leadership training course have a 10% higher annual retention rate (89% vs. 79%). Since the average turnover cost of 1-3 YOS Engineers is INR 1000k, if training costs less than INR 100k per employee it yields a positive ROI (assuming a 10% gain in retention). Also see, The Brew’s Costs of disengagement calculator.
Building the workforce model for the firm has resulted in laying foundation to analytics capability that is highly representative of the behavior of talent, especially for the critical roles identified. This digital model enables rapid, customized, as well as structured report generation with a high visualization value through the software portal provided. This capability will save significant preparation time and will permit that time to be used for other responsibilities.
The results are indicative of a relationship between compensation and talent retention; therefore the firm should consider reviewing their career plans with an eye on increasing raises in compensation in critical roles.
Consider investing in more leadership training and other development programs and integrate with career planning. Emphasis should be placed on those engineers with career plans leading to project management. Identifying high-potential engineers and communicating clear career path opportunities to them is also recommended. Deploying Talent Management & Employee Engagement practices will be the key for this firm to enable, a robust pipeline of its critical roles, along with mapping their embeddedness within the organization.
Acquire the analytics capability and its integrated training program to orient users on how to pull data from the model as needed; each user can have a customized dashboard and visualization graphics built to their requirements.
As this project moves beyond the pilot phase, the savings generated from critical talent retention, will definitely be significantly greater than their cost. It will also build a case for HR Analytics, & making data driven decision, giving a platform for HR to more deeply engage its finance and operations partners, enhancing strategic planning and business performance.