The Causes and Consequences of High Turnover in the Hospitality Industry - Research Paper Example

Introduction The hospitality industry is people focused, labor intensive service industry (Chapman & Lovell, 2006). Employee turnover in the hospitality industry has been a major cause of concern. Employees tend to stay with an organization when the human resource practices are sound and offer a comfortable work environment to the employees. The human resource practices start from the selection stage to recruitment, training and development and finally retention. It also includes performance appraisal, rewards and recognition. Today employees are considered human capital and lay emphasis on retaining talent. Retaining the employees benefits the organization as they receive service quality from dedicated and loyal staff. The cost of turnover too is high and results in huge losses both in terms of time and profits. Most organizations in the hospitality industry expect high turnover and dissatisfaction because of the nature of the business and the demographics of the typical employee (DiPietro, Thozhur & Milman, 2007). The demand for qualified employees is high while the labor market is experiencing shortage of staff. Besides, societal norms are changing and loyalty is no more an important criterion (Gustafson, 2002). Hence it is challenging for the industry to retain talent as the staff is unskilled and untrained. Causes of high turnover The hospitality industry has its own characteristics; it is seasonal in nature and numerous small organizations can be found in the industry (DiPietro, Thozhur & Milman, 2007). Working hours are inconvenient and there is lack of career oppurtunities. The restaurant industry is low-skilled and voluntary turnover is very common. Involuntary turnover occurs when the employer terminates the services of the employee due to poor performance or unacceptable behavior. Eight frequently cited reasons have been found by Gustafson - quality of supervision, ineffective communication, working conditions, quality of co-workers, inability to ‘fit’ with the organizational culture, low pay and few benefits, lack of clear definition of responsibilities, no direction at work. Lee (2000) found that job redesigning can lead to job satisfaction by making the job interesting. An individual’s identification with and involvement with the organization is an important factor that explains the employee’s commitment to the organization. In the lodging industry apart from pay, communications problems, lack of advancement in career, recognition and conflict with management are other reasons that lead to high turnover. The fast food industry is based on the Taylorist principles of mass production where the work is routinised, dull, standardized, low skilled, low paid and offers few career opportunities (Allan, Bamber, Timo, 2006). The food service industry has a more unstable work force than most other retailers in the hospitality industry (Dermody, Young & Taylor, 2004). Study by Dermody et al suggests that most hourly restaurant workers will have from 5 to 12 different jobs during their tenure in the restaurant industry. In the fast food industry the average check amount is low and the job is usually repetitive and narrowly defined which leads to high turnover rate than other segments of the restaurant industry. The quick service restaurants that have opened outlets overseas are employing the American pattern of employee relations and working conditions. Badly trained managers and poor human resource practices cost the hospitality industry over $1700 million (DiPietro, Thozhur & Milman, 2007). In this food service industry the retention problem is not merely with the hourly employees but also with the management pool. The average turnover rate for the hourly employees in the restaurant industry was 104% against 25% for the managers. Thus people have a negative image of the service work in the fast food industry. Apart from bad reputation of long hours, low pay, hard work and lack of benefits, the work is physically exhausting and underappreciated (Wildes & Parks, 2005). The turnover problem in the hospitality industry is further stressed because of labor demand, elevated expectations from the customer as well as the employees and increased education. Turnover results from dissatisfaction with the present job rather than attraction to other job oppurtunities (Hinkin & Tracey, 2000). Even though pay has been found to be an important cause for leaving, other more important reasons include poor working conditions and poor quality of supervision. Maslow’s Hierarchy of Needs suggests that the basic physiological needs have to be met first before a person can look ahead. Only when the basic needs are satisfied he looks for safety needs, need for love, self-esteem or self-actualization. As one need is somewhat fulfilled, the other needs become important and this motivates or influences his behavior (Gallagher & Einhorn, 1976). These same reasons were found in three studies conducted between 1983 and 1998. The employees have no responsibility entrusted to them and no authority at work. Jobs are mundane and repetitive and there is no motivation to work. Over the years there have been changes in employee demographics resulting in labor shortages and demand for qualified employees. Companies like Starbucks and Southwest Airlines attribute their profitability to sound human resources practices. Organizational stability is directly related to turnover. In a predictable work environment the employees are more likely to stay and high level of turnover can be found in organizations with inefficiency in operations. Increased training can promote job satisfaction and thereby retention. When employees are involved in the decision making process they are more likely to stay. Employees also want to be knowledgeable about the issues that affect their work environment. A study of 500 managers out of 3000 clubs that were part of Club Managers’ Association of America (CMAA) was conducted to study the turnover (Gustafson, 2002). Random selection was used to avoid any bias in club size, location or type and a self-administered survey was conducted. The turnover rate was determined by dividing the number of people who had left the clubs’ employment in 1998 by the average number of employees. The study revealed that turnover was low in clubs where managers frequently filled in for the employees. This means a sense of teamwork, shared vision and common goals can help reduce the turnover. If the employees are made to feel needed and valued, they are less likely to leave. When an employees feels that he contributes to the organization he derives job satisfaction and becomes committed to the organization. Another significant finding was that sponsoring social functions for the employees can result in low turnover. This implies work place community and managerial support are essential to motivate the employees. It fulfills the need for recognition. Internal promotions result in low turnover. When employees do not find any growth or career opportunities, high turnover is likely. Flexible timing is another reason that could lead to reduced turnover. Even though the hospitality industry is rife with shift duties and prolonged hours of work, and the employee is aware of these facts at the time of joining but over time the quality of work deteriorates (Gustafson, 2002). If the employees are allowed to make their own schedules, the turnover could reduce. The environment should be predictable, communicative, and participatory where the organizational culture meets their personal needs. For the low skilled work force good relation with the supervisor is critical to keeping the staff motivated. Prolonged job stress is higher in the service industries where the job involves high degree of interaction with clients (Buick & Thomas, 2001). High-burnouts also result in absenteeism and high turnover of staff. In the hotel industry the middle managers are the most stressed as they have multi-functions to attend to. They have to attend to paper work, supervise, reprimand and reward the employees. Switching from one role to another creates stress. Single managers are more stressed due to lack of support at home. Shorter working hours, more flexible working options and more support and assistance in the hotel industry may cost the industry much less than the cost of high turnover of staff. Within the Scottish tourism industry unfavorable working conditions, the negative image of the tourism industry, lack of development as well as lack of promotional oppurtunities is significant impediment to attracting and retaining talented supervisory and managerial human resources (Willie, Jayawardena & Laver, 2008). People will be motivated to apply for jobs at those hotels where they are likely to pursue a career within the tourism and the hospitality industry. The physical work environment has an impact on the organizational culture, cooperative learning, team work, creativity and in recruiting and retaining high quality employees. The work environment needs to be safe and provide occupational support. The employees must have the necessary equipments and tools to perform the assigned job tasks and a fair and equitable compensation package is also necessary. In the ship cruising industry high turnover results due to lack of proper information at the time of recruitment. It is necessary to share all information with the job candidate so that it has less shock value to the prospective candidates. It also prepares them for the stressful working conditions, little privacy, long working hours and contact interaction with cruise guests (Willie, Jayawardena & Laver, 2008). Dermody, Young and Taylor (2004) found a link between the weak economy and a drop in the turnover rate. Additionally, they found that almost 50 percent of the employee turnover occurs in the first 30 days of recruitment which implies that the selection process was not sound. Those that leave after 60 days do so because of lack of adequate training and failure on the part of the management to motivate and provide growth oppurtunities. High levels of turnover foster even high levels of turnover because the management engages in crisis recruitment and selection techniques which compound the problem. Work-life conflict also increase staff turnover in the hospitality industry. This is especially true in the case of women but a stronger equal oppurtunities approach is difficult because it draws attention to the difference between men and women’s working preferences and needs (Deery, 2008). Hence weak internal marketing is critical to reduce the turnover. Strong relationships within the organization reduces turnover and this serves to attract others to the industry. Consequences of high turnover Controlling the costs of labor is central to the long-term profitability of a restaurant and usually the labor cost budget includes the cost of turnover. The cost of high turnover in the industry can be exorbitant with implications on direct and indirect expenses. The direct costs linked to turnover include advertising for the job opening, recruiting a replacement worker, overtime costs incurred to cover shifts during the recruitment process, and costs of new supplies such as new uniforms for the new worker (Dermody, Young & Taylor, 2004). Hogan (1992) found that the cost of turnover in the hospitality industry in 1988 was $1400 nationwide which increased to $1700 - $2500 in direct cost by 1990 with an additional indirect cost of about $1200-$1600. The indirect costs include loss of goodwill, low morale low productivity and loss of reputation (Hogan, 1992; Dermody, Young & Taylor, 2004). The cost of turnover at the managerial level in the industry was between $17,000 and $20,000. There is direct relationship between human resource practices and financial performance. Three HR practices namely, result-oriented performance appraisals, employment security, and profit sharing have been found to be strongly related to equity. Organizations are unable to work out the trade offs – they must analyze the costs of turnover against the expenses required to alleviate the resource. Managers usually are unable to determine the impact of turnover. Turnover costs have been separated into different categories by Hinkin and Tracey (2000). These include the separation cost, the advertising, recruiting and selection costs, and the low productivity costs. A turnover cost of $6000 equals to $3.0 per hour in annual wages for an hourly position. Considering the total number of front desk personnel are thirty in number and the turnover rate is 50 percent, then the overall cost of the turnover would be $95,000. The managers need to understand the consequences and decide to pay now or pay later. A study by the U.S. National Restaurant Association of 50 companies in the hospitality industry estimated the median cost of turnover of an hourly employee at USD$2,494 per person which includes the cost of recruiting, training and hiring a person to replace an employee (DiPietro, Thozhur & Milman, 2007). High staff turnover increase the training and recruitment costs over and over again. Employees who are clear about what is expected of them are more satisfied with their jobs than those who are not clear as to how and what they should perform (Mukherjee & Malhotra, 2006). The indirect cost of turnover also includes loss of customers because Dermody, Young and Taylor (2004) found that 70 percent of the customers who do not want to come back to the restaurant cite negative experience with the employees as the reason. Conclusion and Recommendations Hence it can be seen that in every segment of the hospitality industry – the hotels, tourism, fast food restaurants, or cruising companies – the problem is the same, the causes and consequences of high turnover remains the same. The hospitality industry is seasonal in nature and because of its typical characteristics of long working hours and lack of career enhancement, it carries a negative image. This in the first place is not very attractive and hence those that join the organizations do so knowingly that it is to fill in the gap between studies or till they find a better opportunity. This shows that the recruitment and selection process needs improvement and such employees leave within the first thirty days of joining. Those that leave after 60 days signify other reasons like – lack of supervision, training and development or instability within the organization. The fast food restaurant industry is particularly repetitive and monotonous work which dissuades people from joining in the first place. The consequences of high turnover are also the same in every segment of the hospitality industry. This has both direct and indirect costs. While the direct costs are calculable the indirect costs at times remain unnoticed by the organization. For instance, customer retention becomes affected due to low employee morale and which in turn impacts the interaction with the customers. Low productivity, low morale loss of goodwill and reputation and monetary loss due to repetitive recruitment and training are some of the other costs of high turnover. Hogan studied five units and their HR strategies. He concluded that there is no magic formula and the best way is to care for the people, invest in people. The needs of the staff have to be met and this is not expensive considering the cost of turnover. Role clarity and job orientation are important. Effective communication and flow of information, recognition and rewards, empowerment and effective training are other pre-requisites to retain talent in the industry. Improved managerial practices are essential. The hospitality manager must have complete understanding of the job specifications and must be able to effectively communicate the demands of the job to the candidate. While a decent compensation package has been found to be important, most researchers have pointed out that working environment and stability of the organization have significant impact in keeping the turnover low in the hospitality industry. References Allan, C Bamber, GJ & Timo, N 2006, Fast-food work: are McJobs satisfying? Employee Relations, vol. 28, no. 5, pp. 402-420 Buick, I & Thomas, M 2001, Why do middle managers in hotels burn-out? International Journal of Contemporary Hospitality Management, vol. 13, no. 6, pp. 304-309 Chapman, JA & Lovell, G 2006, The competency model of hospitality service: why it doesn’t deliver, International Journal of Contemporary Hospitality Management, vol. 18, no. 1, pp. 78-88 Deerey, M 2008, Talent management, work-life balance and retention strategies, International Journal of Contemporary Hospitality Management, vol. 20, no. 7, pp. 792-806 Dermody, MB Young, M & Taylor, SL 2004, Identifying Job Motivation Factors of Restaurant Servers:Insight for the Development of Effective Recruitment and Retention Strategies, International Journal of Hospitality & Tourism Administration, vol. 5, no. 3, pp. 1-15. DiPietro, RB Thozhur, SM & Milman, A 2007Hourly Employee Retention Factors in the United Kingdom Quick Service Restaurant Industry, Journal of Foodservice Business Research, vol. 10, no. 4, pp. 49-61. Gallagher, WE.& Einhorn, HJ 1976, Motivation Theory and Job Design, The Journal of Business, vol. 49, no. 3, pp. 358-373. Gustafson, CM 2002, Employee turnover: a study of private clubs in the USA, International Journal of Contemporary Hospitality, vol. 14, no. 3, pp. 106-113 Hinkin, TR & Tracey, JB 2000, The Cost of Turnover: Putting a Price on the Learning Curve, Cornell Hotel and Restaurant Administration Quarterly, vol. 41, no. 14, pp. 14-22. Hogan JJ 1992, Turnover and What to Do About It, Cornell Hotel and Restaurant Administration Quarterly, vol. 33, no. 40, pp. 40-46 Lee, H 2000, An Empirical Study of Organizational Justice as a Mediator of the Relationships among Leader-Member Exchange and Job Satisfaction, Organizational Commitment, and Turnover Intentions in the Lodging Industry, retrieved online March 7, 2009 from http://scholar.lib.vt.edu/theses/available/etd-05012000-14210002/unrestricted/dissertation.pdf Mukherjee, A & Malhotra, N 2006, Does role clarity explain employee-perceived service quality? International Journal of Service Industry Management, vol. 17, no. 5, pp. 444-473 Wildes, VJ & Parks, SC 2005, Internal Service Quality: Marketing Strategies Can Help to Reduce Employee Turnover for Food Servers, International Journal of Hospitality & Tourism Administration, vol. 6, no. 2, pp. 1-28. Willie, PA Jayawardena, C & Laver, B 2008, Attracting and retaining quality human resources for Niagara’s hospitality industry, International Journal of Contemporary Hospitality Management, vol. 20, no. 3, pp. 293-301 Read More