THE CAUSES AND CONSEQUENCES OF TURNOVER IN THE HOSPITALITY INDUSTRY - Hotel Management and Operations

Turnover is and has been a pervasive problem for the hospitality industry. Substantial anecdotal evidence suggests that turnover rates can reach as high as 200 or 300 percent in rank-and-file positions, and management turnover, at least at the operations level, can approach 100 percent in some organizations. While the importance of turnover as a problem for our industry was somewhat obscured by the recession of the early and mid-1990s, it has moved to the forefront with the advent of unprecedented full employment.

A low unemployment rate presents a three-pronged challenge for the industry. First, the number of workers in traditional target markets for hospitality is decreasing. This is likely to remain this way for some years to come. Second, unless the industry can present opportunities for meaningful advancement in pay and responsibility, it will continue to attract, in large measure, a transient workforce—that is, employees will view working in the industry as something to do while they prepare to do something else or while they wait for “something better” to come along. Unfortunately, at the time of this writing, “something better” can easily be found by talented people who are not happy working in the industry. Finally, despite unprecedented efforts to change its image, the industry is frequently perceived as the employer of last resort rather than the much touted employer of choice. Although this perception is probably not deserved, it acts to make the current labor shortage much worse for the hospitality industry than for many other fields of employment.

For service industries like hospitality, turnover is a serious problem. It makes an existing workforce shortage worse, and in some cases it can be argued that turnover is a symptom of an insidious organizational disease. More important, however, is that recent research has established a strong link between employee satisfaction and overall profitability. In this article we examine the concept of turnover in detail—what it is and why we should care. Next, we examine what many believe to be the causes of turnover, and we then turn our attention to emerging areas of concern about the real costs of employee turnover. Finally, we examine what some researchers believe will help stem excessive turnover.

WHAT IS TURNOVER, AND WHY SHOULD WE BE CONCERNED?

In general, turnover refers to either voluntary or involuntary separation from organizations (Bluedorn, 1982). Involuntary separations (firings) can be a problem if they occur frequently, but the focus of this article is primarily on voluntary separation from organizations— that is, the process by which people quit their jobs. Historically, hospitality organizations have perceived turnover in two ways. First, many companies are concerned that turnover costs the organization money and, because of that, unacceptable levels should be avoided.

Turnover costs money for a variety of reasons, including:

  1. The actual costs related to separation
  2. The cost of replacing employees, such as advertising, interviewing, and moving expenses
  3. Learning curve inefficiencies by new employees
  4. Costs associated with the temporary disruption of the work force
  5. Non quantifiable costs due to diminished image, customer loyalties to previous employees, and so forth

Some hospitality firms take the view that turnover is not necessarily undesirable because performance and longevity have an inverse U-shaped relationship. As Figure below suggests, performance increases over the short to the intermediate term but decreases or stagnates over the long term—that is, the longer employees stay, the less likely they are to demonstrate increases in performance. More importantly, the longer they stay, the more they cost in raises and increased benefits. Firms adopting this tenure/performance position are concerned primarily with the distribution of tenure throughout the organization and more likely to concentrate on appropriate rates of turnover rather than reduced rates of turnover. For many firms holding this philosophy, turnover control strategies may be viewed as not worth the effort when pay raises are combined with anticipated future performance. The problem with both of these philosophies, as we show later in this article, is that they are limited. They view turnover as an event or phenomenon rather than a process. Thus, it is the event that managers must control rather than the process. A more expansive and probably a more effective approach does not focus on the turnover event per se; rather, it comes from a process perspective that views turnover as but one outcome of a sequential chain of events. Before we discuss this notion of phenomenon versus process, let us turn our attention to the causes of turnover.

Tenure / Performance Philosophy

Tenure / Performance Philosophy

Causes of Employee turnover in Hospitality Industry

THE CAUSES OF TURNOVER

Many researchers (March and Simon, 1958; Porter and Steers, 1973; Price, 1977; McFillin, Riegel, and Enz, 1986) believe that turnover occurs as a result of a complex series of factors that influence employee attitudes and eventually affect employee behavior. Models sometimes oversimplify the processes they represent; however, a model is useful to provide a reasonable approximation of reality and is, therefore, useful in assisting our understanding and predicting outcomes.

The model shown in figure below uses “intent to leave” as a measure for actual departure. Intent to leave is a surrogate or stand-in measure; however, it has been well substantiated in previous research as a proxy for actual departure. As the model suggests, intent to remain in or leave an organization is a function of two related factors: the level of job satisfaction and the degree of an employee’s commitment to the organization. Job satisfaction is also influenced by individual personality traits and specific job events. If the level of job satisfaction is high, then the employee’s commitment to the organization tends to be strong and he or she will hold positive job attitudes and can be expected to stay on the job. On the other hand, if the level of job satisfaction is low, commitment decreases, job attitudes decline, and the employee, if given the opportunity, leaves the organization. This gives rise to new areas of concern.

Model of turn over

Model of turn over

NEW AREAS OF CONCERN

We previously explored two of the traditional philosophies that describe how hospitality organizations view turnover. While these philosophies point out reasons for organizations to control or reduce turnover, they offer a limited perspective of the potential damage excessive turnover can have. As we discussed earlier, a more comprehensive model views turnover not as an isolated event but as a process. This process views turnover as a series of related events, and each of these events can have negative consequences for employees as well as for organizations. A closer look at Figure above demonstrates this. According to the diagram, turnover results from negative attitudes toward the organization and occurs only if an employee has the ability to leave. This means that he or she must have other job options, not need to work, or not care to work. If employees have limited or unacceptable options and do not have the ability to leave the organization, they may adopt other withdrawal behaviors such as complaining, absenteeism, poor performance, or unacceptable customer service behavior. This implies that turnover is only one choice of a variety of withdrawal behaviors available to disaffected employees, and disaffected employees can act out these behaviors either as isolated occurrences or as a set of behaviors. Furthermore, the individual choice of withdrawal behavior depends on a variety of other factors such as degree of unhappiness, perception of self-worth, and, most importantly, the ability to find acceptable alternative employment.

Given this view of turnover, companies with high rates of turnover are likely to experience a variety of negative outcomes. One way to categorize these outcomes is to look at how they affect individual employees as well as how they affect the organization in both the short and the long term. Figure below indicates that both organizations and individual employees suffer from the effects of high rates of turnover including attendance problems, decreased cooperation, decreased work performance, and even sabotage. In the longer term, however, the effects are more systemic and potentially more devastating. For example, high rates of turnover can worsen existing turnover rates, contribute to system problems such as poor customer relations, and even eventually limit a firm’s ability to develop and implement strategy. The potential dollar cost of this is incalculable but potentially enormous. A question of major importance for firms with high turnover rates is not only who leaves but also who stays. In some cases, it may be that employees who stay with an organization are not necessarily the ones the organization wants to keep and those who do leave are not necessarily the ones the organization wants to see go. In some cases, outstanding employees find the organizational environment so dissatisfying they opt to separate from the company, and those who remain are those who can adapt to a dysfunctional environment or those who have no choice but to stay.

Effects of Turnover on Hospitality Organizations

Effects of Turnover on Hospitality Organizations

In addition, there is evidence that excessive turnover rates can have a substantial and negative impact on profitability. Recently, a great deal of discussion has centered on customer loyalty and the importance of avoiding customer defections. Simply put, the argument goes something like this. It costs a great deal to create new customers. The costs associated with advertising, promotion, and other marketing efforts are staggering. Thus it is wiser to try to retain existing guests than to create new ones. Furthermore, the longer customers stay with a company, the more they are worth. Generally, they buy more, buy more frequently, and are less price-sensitive. In fact, one management writer (Reichheld, 1996) suggested that decreasing customer defections by as little as 5 points can double profits. With espect to the monetary value of customer or guest loyalty, several researchers (Heskett et al., 1984) suggested a strong relationship between employee satisfaction, customer loyalty, and profitability. They call this concept the service-profit chain. As Figure below illustrates, employee retention is a key driver in creating customer retention and is therefore a critical factor in determining profitability. The new concerns about turnover discussed in this section strongly indicate that the conventional thinking about turnover may capture just a small portion of its devastating effects. Now let’s look at ways of reducing turnover.

The Service-Profit Chain

Service-Profit Chain

WHAT CAN BE DONE?

A study of turnover in the hospitality industry (McFillen, Riegel, and Enz, 1986) found that hospitality employees in one organization ranked these reasons as the most likely causes for high turnover rates:

  1. Treatment by superiors
  2. Amount of work hours
  3. Job pressure
  4. Scheduling
  5. Training
  6. Fringe benefit packages
  7. Better opportunities elsewhere
  8. Physical demands of the job

A short-term strategy would be for managers to focus on these reasons—in other words, working on fair treatment of employees, creating fair and reasonable schedules, and so forth. However, these strategies do not necessarily address the causes of excessive turnover and are likely to have limited effectiveness and to be short-lived. A longer-term solution would take into account the causes of worker dissatisfaction and attempt to deal with these in a comprehensive and continuous manner.

Frederick Herzberg (1976) suggests that dissatisfaction occurs as a result of a lack of what he calls “hygiene factors” and that satisfaction occurs as a result of what he calls “motivators.” While there is not necessarily any linkage in the organizational behavior literature between job satisfaction and job performance, a substantial body of theory does suggest that satisfied employees adopt prosocial and, therefore, committed behaviors toward the organization. Herzberg says hygiene factors that can cause dissatisfaction among employees include salary, working conditions, fringe benefits, and job security. While paying a fair salary or providing job security decreases dissatisfaction, it does not necessarily create satisfaction in employees. Motivators or satisfiers recognized by Herzberg include achievement, recognition, challenging work, responsibility, and advancement. These factors, if provided for by the organization, create satisfaction and therefore commitment. Thus, hospitality managers who are concerned about turnover as an insidious disease process should not only take care of the extrinsic job factors, such as job security and salary, they also must pay a great deal of attention to providing opportunities for advancement, challenging work, and so forth.

In addition to attending to environmental factors in the organization, paying attention to the selection of employees in the first place goes a long way toward quelling dissatisfaction and, therefore, diminishing turnover. An axiom in the human resource field is that the goal of selection is not to hire the best-qualified employee but rather to hire the best employee for the particular job, the point being that it is important to match prospective employees to the organization and the position. Similarly, efforts to select employees who will be successful in a particular job as well as successful in the organizational culture enhance the likelihood of their retention. Selection is an important human resource function that is worthy of substantial effort and care.


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