EFFECT OF EMPLOYEE ENGAGEMENT ON ATTRITION WITH RESPECT TO

SERVICE INDUSTRY

Dr. Rabiya T. S. Sange, Assistant Professor, Human Resources,

Allana Institute of Management Studies, Mumbai
rabiya.jidda@gmail.com

Abstract
Background: As economies develop and there is more choice of employment, organizations will find it increasingly
challenging to attract and retain talent and potential. This change in economic conditions would mean being less
dependent on manufacturing markets and more focused on service industries. This increases the importance of employees
becoming brand ambassadors. In a race to survive in a highly competitive service industry, most organizations realize that
a ‘satisfied’ employee does not necessarily mean a loyal employee and a high performer. Moreover, in times of diminishing
loyalty, employee engagement is a powerful retention strategy. The fact that it has a strong impact on the bottom line adds to
its significance, thus making employee engagement an essential tool in managing human capital (Sarah Cook, 2008).
Objective: The research paper aims at investigating the effect of employee engagement on attrition in organizations with
special reference to service industry.
Methodology: Secondary data sources were used to understand the existing literature on the topic. Survey, personal and
telephonic interviews were used to gather data from primary sources. HR professionals of 64 organizations from the
service industry were surveyed.
Results: Correlation and Regression analysis was applied to the dataset using SPSS 15. The Hypothesis “Employee
engagement practices significantly affect employee attrition” was accepted at 0.01 level of significance.
Conclusion: It was found that employee engagement strategies do have a significant effect on reducing the attrition rate in
organizations. However, a more serious consideration in exploring the relationship between the two variables needs to be
made by the organization to have an impact on bottom line results.
Key Words: Attrition, Retention, Employee Engagement, Service Industry, Business Environment

1. INTRODUCTION titles. Countries such as China and India are experiencing

The business environment around is full of trials and skill shortages in many fields. The workforces in these
many executives are facing an acute challenge of making countries frequently show the desire and ambition to get
the people changes that they feel are necessary to rapidly ahead that contrasts with their U.S. counterparts.
improve performance whilst maintaining employee Research by consultancy DDI shows that employees in
engagement. The success of organizations in a changing China are more satisfied than their U.S. counterparts
economy is tied in large measure to the creative and with their work – life balance. They are more willing to
innovative energy from the most significant asset: make personal sacrifices; they have stronger desire for
employees. When employees are effectively and promotion and find work more fulfilling than their
positively engaged with their organization, they form an personal life. Conversely, workers in China were twice
emotional connection with the company. This impacts less likely to agree with the statement “I have too much to
their attitude towards the company’s clients, and thereby do” than their U.S counterparts. So while U.S.
improves customer satisfaction and service levels. employees are striving for balance and are fairly cautious
Successful employee engagement helps create a about making personal sacrifices to advance their
community at the workplace and not just a workforce. careers, their Chinese counterparts have a thirst for
India and Brazil have young and plentiful growing advancement, new knowledge and skills.
workforces; China has one of the world’s largest but According to Sarah Cook (2008), as economies develop
oldest populations. Retention issues are already and there is more choice of employment, organizations
beginning to emerge in these countries with workers will find it increasingly challenging to attract and retain
quick to leave for better remuneration and higher job talent and potential. In order to harness the ambition of

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Effect Of Employee Engagement On Attrition With Respect To Service Industry

employees, businesses will need to put in place profitability, employee retention, safety, and
programmes for robust recruitment and selection, customer satisfaction (Buckingham & Coffman,
ongoing development and succession planning. For 1999; Coffman & Gonzalez-Molina, 2002).
example, Proctor & Gamble has been successful in Similar relationships have not been shown for
attracting and retaining high – quality managers although most traditional organizational constructs such as
the compensation package is not as attractive as job satisfaction (Fisher & Locke, 1992) (Sources
elsewhere because they offer continuous learning and quoted by Little, 2006).
development to their managers. Businesses that b) The items used in employee engagement surveys
thoroughly embrace the concept of employee measure aspects of the workplace that are under
engagement will carve a clear competitive advantage for the control of the local manager. (Little, 2006)
themselves in the future. Employee Engagement became a topic of concern in
early 2000 when the dotcom bubble burst, 9/11 occurred,
2. LITERATURE REVIEW the economy dipped, and unemployment rose. At that
2.1 Employee Engagement – Evolution & Concept time, the common response from managers to employees
Engagement at work was conceptualized by Kahn, was, “You should be happy you have a job.” Work
(1990) as the ‘harnessing of organizational members’ expectations rose, while companies froze employees’
selves to their work roles’. In engagement, people pay. The result was a disengaged workforce. Employees
employ and express themselves physically, cognitively, had been put through so much that when the economic
and emotionally during role performances. conditions improved they realized that they have choices
elsewhere. This caused immense pain to employers who
The term employee engagement, in its present usage,
were afraid of losing them. Employers then started doing
was coined by the Gallup Organization, as a result of 25
engagement surveys, engagement studies, and
years of interviewing and surveying employees and
engagement workshops to develop engagement
managers. Their intent was to create a measure of
strategies. (Ketter, 2008)
workplaces that could be used for comparisons.
According to Buckingham & Coffman (1999), Gallup Although the term ‘employee engagement’ has become a
spent years refining a set of employee opinion questions buzzword, it is used quite inconsistently by research
that are related to organizational outcomes. The institutes, corporate houses and consulting firms. It is
statistically derived items, called the Gallup Workplace also used to refer to a number of employee attitudes like
Audit (GWA) that measure employee engagement are satisfaction, motivation, commitment etc. Most of the
related to productivity, profitability, employee retention literature employs a multidimensional approach to
and customer service at the business unit level (hospital, defining employee engagement, where the definition
hotel, factory, etc.). They report that employees who encapsulates several elements required in order to
score high on the questions are "emotionally engaged" in achieve ‘true engagement’. As a result there has been
the work and the organization (Sources quoted by Little, extreme confusion with regards to the construct.
2006). A variety of definitions have been put forth leading to
Melcrum Publishing (2005) found that from a global lack of clarity and understanding about what engagement
survey of over 1,000 communication and HR is all about. For the purpose of the research paper,
practitioners 74% began to formally focus on the issue employee engagement is defined as ‘A positive attitude
between 2000 and 2004. held by the employee towards the organisation and its
values. An engaged employee is aware of business
The term has shown up in Workforce Magazine (2005),
context and works with colleagues to improve
Harvard Business Review (2005) and the Washington
performance within the job for the benefit of the
Post (2005), not to mention the websites of many Human
organisation. The organisation must work to develop and
Resources consulting firms such as DDI (2005) and
nurture engagement which requires a two-way
Towers Perrin (2003) (Sources quoted by Little, 2006).
relationship between employer and employee’.
The term seems to be attractive for at least two reasons:
(Robinson et al., 2004)
a) Employee engagement has been shown to have a
statistical relationship with productivity,

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 Effect Of Employee Engagement On Attrition With Respect To Service Industry

2.2 Employee Attrition worldwide, attrition is predicted at 21.2% in 2013 as

Hiring and employee retention have been identified as compared to 20.3% in 2010. The number of workers
the “key challenges” in managing and measuring expected to take flight in 2014 will increase by 12.9% as
employee productivity, according to a survey conducted compared with 2012. This is mainly due to increase in
among more than 200 HR managers across industries. industry growth and employment opportunities.
The Workforce Productivity India 2012 report revealed Comparatively, turnover was minimal between 2010 and
that HR managers are “too caught up in fire fighting” 2012. In the next five years, 49 million employees will
attrition that they are less able to focus on more strategic leave their employers globally.
objectives of their business operations. (The Hindu, (Hay Group, 2013)
2012) In India, employee turnover is predicted to rise to 26.9%
Attrition rate has always been a sensitive issue for all in 2013 compared with 26% in 2010. This makes attrition
organizations. Calculating employee turnover rate is not rate in India the highest in the world making it a dire
that simple as it seems to be. No common formula can be necessity for oorganizations in India must give serious
used by all the organizations. A formula has to be devised thought to what drives employee commitment. Firms
keeping in view the nature of the business and different need to focus on employees with mission-critical skills,
job functions. Moreover, calculating attrition rate is not as well as high-potentials and those holding crucial roles.
only about devising a mathematical formula. It also has (Hay Group, 2013)
to take into account the root of the problem by going back The India Attrition Study 2008, done between October
to the hiring stage. 2008 and March 2009, was a partnership between BT and
There is no standard formula to calculate the attrition rate People Strong to figure out why employees quit
of a company. This is because of certain factors as: (Dev, (published by BT in April 2009). In the good times before
2005) September-October 2008, attrition in India was as high
• The employee base changes each month. So if a as 20 per cent (and up to 40 per cent in the booming
company has 1,000 employees in April 2004 and services sector). Research by BT People Strong found
2,000 in March 2005, then they may take their that India is not only losing fair bit of top performers but
base as 2,000 or as 1,500 (average for the year). plenty of the ‘Universal Leavers’, who form any
If the number of employees who left is 300, then company’s backbone. The survey found that opportunity
the attrition figure could be 15 per cent or 20 per for career growth tops the list of reasons for employees
cent depending on what base you take. leaving their organization (Fig 2.1).
• Many firms may not include attrition of freshers
who leave because of higher studies or within
three months of joining.
• In some cases, attrition of poor performers may
also not be treated as attrition.
A simple formula that can be used includes:
Attrition = (No. of employees who left in the year /
average employees in the year) x 100.
Thus, if the company had 1,000 employees in April 2004,
2,000 in March 2005, and 300 quit in the year, then the
average employee strength is 1,500 and attrition is 100 x
(300/1500) = 20 percent. Fig 2.1: Reasons for Employees Leaving the
2.3 Reasons for Attrition Organizations (Source: Business Today, 2009)
Hay Group (2013) in association with the Centre for The study also found that during downturn organisations
Economics and Business Research conducted the study that have shed chunks of the workforce are left with
“Preparing for Take-Off”. It covered 700 million insecure employees who tend to jump ship if they can to
employees in 19 countries. According to the study, avoid a pink slip. Companies that ignore attrition in a

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Effect Of Employee Engagement On Attrition With Respect To Service Industry

downturn do so at their own peril as it means letting go of Some aspects that affect turnover intentions of
top performers. It has been noted by experts that talented employees and can be taken care of by employers and are
employees are always high on aspirations and their under the control of the HR managers of the organization
worry is how fast they climb the corporate ladder much are: High Stress, Working conditions, Supervision,
more than survival. Organizations who do not address Communication, Inability to use core skills, Proper
the concerns of their top performers will tend to lose organization's goals / mission, Inadequate training,
them at all times. Losing employees to the competitors is Employee – employer relationship, Balance between
also a concern for HR professionals. Recession was work and life, Flexible work options and Proper reward
found to be a good time for organizations to pick up talent systems.
from the market. Unfortunately it worked both ways for However, it is important to note that employee attrition
organizations. (Business Today, 2009) rate can be never be entirely eradicated. It can only be
Given the importance of personal fulfilment to Gen Y influenced to keep it in control. The business model on
employees (Glass, 2007), work life balance has emerged which a subsidiary operation runs is significant in
as a factor in employee attrition. Long working hours, achieving this. Outsourcing higher end responsibilities
work overloads, limited leave and requirements for that offers challenging tasks to the employees goes a long
relocation all have the potential to interfere with way in helping to deal with the issue (Nair, 2008).
employees’ home and lifestyle priorities. The 2.4 Effect of Employee Engagement on Attrition
consequence of this interference could either be work- One in four employees in the organised sector in India is
family conflict (Armstrong, 2007) or a work-lifestyle set to switch jobs, the highest attrition rate globally,
imbalance that eventually contributes to voluntary turn- according to a Hay Group study. The series of fresh
over (Dunne, 2007). investments planned across sectors could raise demand
Conflicting demands and organizational constraints, role for talent even as economic conditions remain tepid,
ambiguity, and conflict with service managers, teams raising concerns on employee engagement and retention.
and customers, lead to job stress among client interfacing (Economic Times, Jun 2013)
employees (Wetzels et al., 1999). Unmanageable Senior executives, human resource professionals as well
workloads and inadequate resources, as well as other as line managers realize that employees who feel
job-related factors increase the amount of stress at work uncertain about their careers or who find “better
(Price, 2001). Immediate superiors and co-workers form opportunities” elsewhere would leave the company
the social support pillars for employees of an causing a talent gap. All this has led organizations to use
organization. Having an unsatisfactory relationship with different strategies to retain their talent pool. As cited by
supervisors or with peers negatively impacts individuals’ Nancherla (2009), report by Right Management has cited
performance and satisfaction and can push them to resign very high attrition rates for some sectors in India. In
from their workplace (Price, 2001). addition to management skills, lack of investment in
It has also been found that different groups of employees employee engagement, career progress and meaningful
cite different reasons for leaving their job. Managerial work was cited as important reasons for high attrition
staff cites "career growth" and "leadership" as the major rates in certain sectors.
factors that influence attrition and retention, together Report published by Lloyd Morgan along with the
with "opportunities for management", "ability of top Corporate Leadership Council (2004) states that by
management" "use of skills and abilities" and "work / increasing employees’ engagement levels, organizations
family balance". Professional employees cite concerns can expect an increase in performance of up to 20
about "supervisory coaching and counseling," "company percentile points and an 87% reduction in employees’
direction" and "interesting work"; Clerical employees probability of departure. The highly engaged outperform
voice concerns such as "type of work," "use of skills and the average by two deciles and are dramatically less
abilities" and "opportunity to learn"; Hourly employees likely to leave the organization.
notice whether they are treated with respect, their
"management ability" and "interesting work" (Nair,
2008).

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 Effect Of Employee Engagement On Attrition With Respect To Service Industry

4. HYPOTHESIS
H1: There will be a significant negative correlation
between employee engagement and attrition rate in
organizations.

5. RESEARCH METHODOLOGY
5.1 Sources of Data
a) Secondary Data: The research paper has used
secondary data sources like books, magazines
and journals to explore the existing literature on
the topic. Various e-journals and websites were
also reviewed to arrive at an understanding of
the variables under consideration.
b) Primary Data: A questionnaire was developed to
investigate employee engagement strategies and
to find the attrition rate of organizations. HR
professionals of 64 organizations from service
industry were approached to collect data with
regards to the variables under study.
Fig2.2: Relationship between employee engagement, 5.2 Questionnaire Description
retention and performance (Source: Corporate Questionnaire developed was based on Robinson’s
Leadership Council, 2004 Employee Engagement model of the drivers of employee engagement. Sample
Survey) questionnaires from the internet included Gallup’s 12
Additional support for the positive relationship between point questionnaire and a questionnaire developed by
engagement and organizational and personal outcomes Scarlett Surveys also helped in framing the statements
has been shown in a meta-analysis by Harter, Schmidt, used in the questionnaire.
and Hayes (2002). In this study, which encompassed The questionnaire was designed to understand employee
7,939 business units in 36 companies, employee engagement strategies implemented by organizations
engagement, measured by the Gallup Workplace Audit and its effect on attrition. It included items to measure
(GWA), demonstrated true score correlations with employee engagement strategies from an organizational
employee turnover of -.30, customer satisfaction .33, and perspective as well as some other items which aimed at
profitability .17. gathering information regarding attrition rate in
Data from CIPD (2010) survey revealed that engaged organizations. The questionnaire consisted of 37 items
employees are significantly more likely to want to stay out of which five point rating scale was used for 33
with their organisation compared with those who are less statements (where 1 – strongly disagree and 5 – strongly
engaged. Consolidated data from their surveys suggested agree), two items involved direct response in terms of
that it cannot be taken for granted that people who are not attrition rate and reduction in attrition rate respectively,
engaged and quit would be no loss to the organization. four items involved nominal scale and ordinal scale was
used for one item.
Cronbach Alpha reliability for the 33 items in the
3. OBJECTIVES OF THE STUDY questionnaire was found to be 0.949 which is considered
3.1 To review existing literature on the effect of to be in the range of excellent reliability score (George &
employee engagement on attrition. Mallery, 2003).
3.2 To study the effect of employee engagement on 5.3 Operational Definitions of Variables
attrition among organizations in service 1. Employee Engagement: ‘A positive attitude
industry. held by the employee towards the organisation and its
values. An engaged employee is aware of business
context and works with colleagues to improve

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Effect Of Employee Engagement On Attrition With Respect To Service Industry

performance within the job for the benefit of the organizations which invest in engaging their employees
organisation. The organisation must work to develop and have lower attrition rates. Table 3 shows descriptive
nurture engagement which requires a two-way statistics for the variables employee engagement and
relationship between employer and employee’. attrition rate. The range of scores for attrition rate was
(Robinson et al., 2004, p. 4) found to be very wide with the minimum score being 1%
2. Attrition: Unpredictable and uncontrollable, but and maximum score being 60%. This could also be due to
normal, reduction of workforce during a definite time the fact that in service industry in general faces a
duration. (as cited in www.citehr.com, 2010) turbulent and unpredictable business environment which
also gets reflected through the attrition rate faced by the
5.5 Sample
company. Mean and Standard deviation for employee
The unit of analysis for studying the effect of employee engagement was found to be 76.45 and 13.882
engagement on attrition was organizations. Data was respectively (Table 5.1). High standard deviation
collected from 64 HR professionals using the indicates that there is great variation among the
questionnaire developed. Data collection methods employee engagement scores of organizations.
included interviews (face to face & / or telephonic) as
To test the hypothesis, respondents (HR professionals)
well as questionnaire received via email.
were asked about the attrition rate calculated for the
5.6 Descriptive Statistics previous year. This was correlated with total employee
Descriptive statistics was found for the variables under engagement score obtained. SPSS 15 was used to test the
study. They have been used further in the paper to discuss hypothesis under consideration. Pearson product
findings from the study.(Table 5.1) moment correlation was applied on the data set of 64
Table 5.2: Frequency distribution for reduction in organizations.(Table 6.2)
attrition rate among organizations Results showed that employee engagement has a
Reduction Frequency Percent moderately strong negative correlation with attrition rate
in organizations (r = -0.638). The correlation coefficient
missing 18 28.1
was found to be significant at .01 levels. Thus, indicating
1-3% 18 28.1 that organizations that score high on employee
4-6% 18 28.1 engagement tend to have a lower attrition rate.
7-10% 6 9.4 Regression analysis was further applied to the data set to
>10% 4 6.3 find whether any predictive relationship can be
Total 64 100.0 established. The coefficient of determination (r2) was
found to be 0.407 (See Table 6.3). Thus, it can be said that
40% of the variation in attrition rate can be explained by
6. DISCUSSION OF RESULTS employee engagement initiatives of the
High profits and fast paced growth, don’t tell the full organizations.(table 6.3)
story about many companies in India’s economy One of the key reasons for companies to invest in
(Nancherla, 2009). Enhanced technology and booming employee engagement initiatives is employee retention.
economy have given rise to numerous employment Melcrum Publishing (2008) found that 73% of
opportunities. This is creating a pressure on senior companies have seen positive results in employee
executives, human resource professionals as well as line retention due to their efforts in engaging employees.
managers who realize that employees who feel uncertain Findings from the study further affirm existing literature.
about their careers or who find “better opportunities” Thus the Hypothesis, “Employee engagement practices
elsewhere would leave the company causing a talent gap. significantly affect employee attrition” is accepted at
All this has led organizations to use different strategies to 0.01 level of significance.
retain their talent pool. Further, a number of researchers
have found that lack of investment in employee
engagement strategies invariably force an organization 7. KEY FINDINGS
to bear a high cost in terms of lost customers and increase • Findings from literature indicate that reasons
in employee attrition. for employee attrition vary across industries as
The researcher wanted to investigate whether well as individual differences do creep into the
whole process. Some of the reasons for

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 Effect Of Employee Engagement On Attrition With Respect To Service Industry

attrition as cited by researchers have been pay these investments in reducing the employee attrition rates
& benefits, career growth, role ambiguity, work needs to be demonstrated to the top management who
– life balance and inadequate training. then will feel more confident in further investing in such
• Majority of the HR professionals surveyed initiatives. Thus, helping in creating a cyclical process
identified compensation and benefits as the
primary reason for employees leaving their job. 10. REFERENCES
Contrary to what HR executives believe, much
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of the research evidence indicates that pay
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• However, when HR executives were asked as to BT People Strong Study (2009); Are You Losing The
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1-4

Table 5.1: Descriptive Statistics for Attrition Rate and Employee Engagement Total Score
N Minimum Maximum Mean Std. Deviation
Attrition rate for last year 64 1 60 15.25 8.808
employee engagement total score 64 38 102 76.45 13.882
Table 6.2: Pearson product moment correlation coefficient for employee engagement total
score with attrition rate calculated for last year
employee Attrition
engagement rate for
total score last year
employee engagement Pearson Correlation 1 -.638(**)
total score Sig. (1-tailed) .000
N 64 64
** Correlation is significant at the 0.01 level (1-tailed).
Table 6.3: Summary of Regression Analysis between Employee Engagement & Attrition rate in organizations

Independent variable r2 F Β Sig

Employee Engagement 0.407 42.520 46.192 .01
total score

qqq
BVIMSR’s Journal of Management Research 67 Vol. 7 Issue - 1 : April : 2015