The Reasons for the High Turnover in the Hospitality Industry and Ways to Retain Employees - Term Paper Example

Staff Turnover, Its Cost and Effects on the Hospitality Business and Strategies to Improve Retention Introduction The average staff turnover for the Australian hospitality industry has jumped from 30% to more than 50% according to a new survey looking at salary and staffing trends in the industry. The 2005/2006 Salary Survey from Pinnacle Hospitality and Travel People revealed average national turnover for the industry was 53% in 2005/2006 compared to just 30.1% the year before (Ryan, 2006). The case is not much different in America or in European countries. Employee retention is one of the major problems facing by the HRM managers in hospitality industry all over the world. It should be noted that hospitality industry is struggling to find enough skilled personnel to cater to its employee needs. Under such circumstances, excessive amount of employee dropouts or turnover rate may not be desirable to the growth prospects of an organization. Many organizations in hospitality industry are spending too much money for the training, development and empowerment of its employees since the success and failures of an organization in hospitality industry rest in the hands of its employees. On the other hand, after getting enough training, employees usually look for better options outside their organization. All the organizations in the hospitality industry are looking for trained professionals to meet their employee needs. Thus, employees working in the hospitality industry are always getting better chances outside their organization. The words of Pinnacle’s managing director Wendy Mead are relevant here: “We are training up all these fantastic people to be so customer-centric and other industries are just coming and plucking them away from us” (Ryan, 2006). Organizations which lose employees may struggle to fill the vacancies because of the absence of enough skilled manpower in the hospitality industry. In America and European region manpower shortage is creating immense problems in all sectors. Shortage of manpower increases demand for employee in these countries and hence, the bargaining power of the employees in these countries is extremely high. This paper analyses the staff turnover, its cost and effects on the hospitality business and strategies to improve retention, taking Accor Hotels, Subway franchise organization, and Ritz Carlton as the examples. Staff Turnover, Its Cost and Effects on the Hospitality Business Accor Hotels is one of the leading companies in Australian hospitality industry. It is operating in all the major cities in Australia. Accor Hotels is looking for opportunities in overseas countries at present and they have already signed a contract with Dubai based EMAAR Properties to construct 50 hotels in different parts of the world within next five years. However, its revenues have fallen sharply in 2006, mainly because of the deteriorated quality of service provided by its staff. In 2006, the company tried to increase the revenue and efficiency through making changes such as eliminating some job positions and delegating more responsibilities to others, transferring personnel to other areas, firing unnecessary workers and recruiting some new employees etc (Chapter 2 The Problem, n.d., p. 4). The company declared that it believes more in employability rather than employment security. Thus, employees in Accor Hotels started to work under extreme pressure. Nobody can blame those employees if they look for other options. They did exactly that and hence, Accor Hotels started to experience huge dropouts. ‘Back in 2007, 76% of staff in Accor Hotels was leaving within 12 months. 33% of new staff was quitting within 3 months of signing on’ (Accor Hotels, n.d., p. 1). These statistics are not so good for any organizations, especially for an organization in the service industry. Today’s customers are more conscious about the quality of service they received in the past while taking decisions to stay in a hotel. Customer service is the all-important business function for an organization in hospitality industry. Constantly having to replace staff and inconsistency in providing service to the guests are the major problems of employee turnover (Accor Hotels, n.d., p. 2). Customers who were satisfied with the service received from Accor Hotels may revisit the hotel again, expecting the same level of customer service. However, a high level of employee dropouts may not help Accor Hotels to ensure consistent levels of customer service all the time. In other words, a customer who visits Accor Hotels at different times may sometimes receive good customer service and sometimes they may not. Such irregularities in customer service may damage the reputation of the company and customers may not consider such an organization in future. Subway is an American restaurant franchise organization which sells mainly submarine sandwiches and salads. Subway’s employees are usually referred as ‘sandwich artists.’ Employee turnover rates in Subway are more than the accepted standards. One of the major outcomes of higher employee turnover rates in Subway is inconsistent service delivery from store to store as in the case of Accor Hotels. According to Harold Jackson (2011), ‘When all factors are added together, each departing employee that walks out your door has likely cost you between $700 and $1,000’ (Jackson, 2011). It is difficult for hotels to bear such big burdens, especially during the recession such economic climates. It should be noted that recession has caused huge problems to the hotel or hospitality industry. Organizations in this sector are trying to reduce their overhead expenses as much as possible to escape from recession. Under such circumstances, it is difficult for them to bear the cost incurred by high employee turnover rates. On the other hand, Ritz Carlton Hotels is facing one of the lowest employee turnover rates in the hospitality industry. The Ritz-Carlton does not ‘hire’ employees as other organizations do. According to Gerard van Grinsven, Vice President and Area General Manager, and Laura Gutierrez, Director of Human Resources for the Ritz-Carlton Dearborn in Michigan, the hotel ‘selects’ new members for the Ritz-Carlton team. ‘When I helped open the Seoul, Korea Ritz-Carlton,’ van Grinsven recalled, ‘we had 580 positions available – and 15,000 applications.’ Even with an existing hotel, Gutierrez stated, typically there are 5–10 applicants for each spot (Lampton, 2003). These statistics are clear indications of the company’s good reputation in the hospitality business. While most of the other organizations in the hospitality industry struggle to get enough applications for their advertised vacancies, Ritz-Carlton seems to have no such problems. It should be noted that the company has seven international offices, 24 hotels in North America, 2 in Europe, 2 in Australia, 8 in Asia, as of 1999. For the time being, more than 30 hotels are under development in different parts of the world. Moreover, the company has over 800,000 strong customer base and more than 17,000 employees worldwide as of 1999 (The Ritz Carlton Hotel Company at a Glance, 1999). All these figures speak themselves about the reputation of the company in hospitality industry. It should not be forgotten that Ritz Carlton became one of the most rapidly developing organizations in the hospitality industry, mainly because of its satisfied employees. Only the satisfied employees will serve as the brand ambassadors of an organization. They will give enough good publicity to the company. On the other hand, dissatisfied employees always speak against the company, which is not so good for the organization. The majority of the Ritz Carlton employees are getting competitive salary and excellent treatment inside the company. So, they are ready to speak only positive things about the company to the external world. Strategies to Improve Employee Retention in Hospitality Business ‘Wage negotiations, putting more part timers in the payroll, 30 hour fixed working hours per week, etc were some of the employee retention strategies used by Accor Hotels’ (Accor Hospitality, n.d., p. 3). According to a survey, ‘The main reasons employees cited for wanting to change employer was pay (39%), their employer’s culture and ethics (28%) and lack of training (26%), the latter being most important to people aged under 30’ (Paskin, 2008). These statistics clearly suggest that better wages may definitely encourage employees to stick with an organization. Along with better wages, good working conditions and work culture are also essential force for the employees to avoid thinking about joining another organization. Modern employees are particular about reaching a work-life balancing. When they fail to do so, they will think about resigning. So, it is better to avoid giving overtime works to employees in hotel industry. Better communication between the employees and the management will ensure reduction in employee dropout rates. ‘Speak to your staff about who they are, what they can do, what they want and about where they see themselves in the future. Better communication between the staff and management would enable everybody working in the enterprise to work to a common goal’ (Paskin, 2008). Employees should generate a feeling that the top management is always caring about them and their views and opinions are accepted with respect. Johnson (2012) mentioned that verification of previous employment status, salary history and the reason for the job separation prior to the recruitment of an employee can help reduce employee turnover rates (Johnson, 2012). Better training and empowerment are another essential strategy required to reduce employee dropouts. ‘The Subway chain’s training program is administered via a company intranet site. Custom-developed content trains employees at varying levels on customer-service techniques, opening and closing procedures, and the art and science of making a Subway sandwich’ (Field, 2008, p. 2). In a rapidly changing business world, it is necessary for the employees to fine tune their skills. Training will help them to do so. The needs of today’s customers are entirely different from the needs of yesterday’s customers. It should be noted that advancements in science and technology are affecting the life styles and requirements of people in one way or another. It is necessary for the customer service employees in hospitality industries to know about such changes in customer requirements. Training is the only way to educate employees about the changing needs of modern customers. All the employees joining Ritz Carlton should undergo a mandatory training session in which they will get proper awareness about how to process requests and complaints, build customer loyalty and establish relationships with restaurants, taxi services, golf courses and other services frequently requested by the customers (The Ritz Carlton Hotel Company at a Glance, 1999, p. 1) Ritz Carlton employs 28,000 ‘ladies and gentlemen’ worldwide, and each individual property is empowered to recruit its own staff. It uses predictors such as ethics, self-esteem, teamwork and empathy to help select successful future ‘ladies and gentlemen.’ Its vigorous 21-day training session begins the retention process, and 100 hours of training every year afterwards maintains it. Empowerment implies that frontline employees can exercise a degree of discretion during service delivery. Progressive hotelier Ritz Carlton allows employees to spend up to $2,000 to correct a customers problem or handle a complaint (The Six Characteristics of Highly Effective Internal Marketing Programs, n.d.) Conclusions High employee turnover rate is one of the major problems in all service industries and hospitality industry is also not an exception. The bargaining power of the employees in hospitality industry is extremely high because of the shortage of skilled employees in this sector. As per economic principles when supply decreases, demand will be increased and hence the prices of the commodities will also increase. In the same way, shortage of skilled manpower increases the demand for skilled manpower in hospitality industry and hence employees in this sector have better bargaining power. So, when the employees in this sector face any problem, they will think about the probabilities of a resignation. Another reason for a high employee turnover rate is the demanding working climate in organizations in hospitality industry. Modern employees would like to reach a balance between work and life. When the employers ask the employees to work overtime, this balancing will be spoiled. A higher employee turnover rate is not at all good for an organization in hospitality industry. It damages the reputation of the company. Moreover, it results in inconsistent customer servicing at various times. Each employee going out of an organization may cause big financial damage to the organization since the organization might have spent big money for the training of that employee. Providing competitive wages, improving the working conditions, enhancing the communication between the employers and the employees, etc are some of the retention strategies employed in the service sector or hospitality industry. References Accor hospitality, n.d. [Online] Available at: http://www.docstoc.com/docs/101951698/accor-hospitality [Accessed 21 August 2012] Chapter 2 The problem, n.d. [Online] Available at: http://catarina.udlap.mx/u_dl_a/tales/documentos/lni/rodriguez_t_h/capitulo2.pdf [Accessed 21 August 2012]. Field, K., 2008. Subway goes back to school. [Online] Available at: http://www.skillsoft.com/infocenter/documents/2008_0701_ChainStoreAge.pdf [Accessed 21 August 2012]. Johnson, R., 2012. How to reduce employee turnover by effective recruitment in the hotel industry. [Online] Available at: http://smallbusiness.chron.com/reduce-employee-turnover-effective-recruitment-hotel-industry-33538.html [Accessed 21 August 2012]. Jackson, H., 2011. Strategies to combat employee turnover. [Online] Available at: http://www.franchise.org/Franchise-News-Detail.aspx?id=53871 [Accessed 21 August 2012]. Lampton, B., 2003. "My pleasure" - The Ritz-Carlton Hotel PART II. [Online] Available at: http://www.expertmagazine.com/EMOnline/RC/part2.htm [Accessed 21 August 2012]. Paskin, B., 2008. Reduce staff turnover through motivation and training. [Online] Available at: http://www.bighospitality.co.uk/People/Reduce-staff-turnover-through-motivation-and-training [Accessed 21 August 2012]. Ryan, R., 2006. Action needed to reduce high turnover. Hospitality Magazine. [Online] Available at: http://www.hospitalitymagazine.com.au/food/news/action-needed-to-reduce-high-turnover [Accessed 21 August 2012]. The Ritz Carlton Hotel Company at a glance, 1999. [Online] Available at: http://corporate.ritzcarlton.com/NR/rdonlyres/22E2CEC9-62A4-4EA2-9C3C-51628265E10E/0/rcappsum.pdf [Accessed 21 August 2012]. The six characteristics of highly effective internal marketing programs, n.d. [Online] Available at: http://www.performanceforum.org/The_Six_Characteristics_of_Highly_Effective_Internal_Marketing_Programs.62.0.html [Accessed 21 August 2012]. Read More