Attrition is an intentional and gradual reduction in the number of employees of an organization. It happens when employees either resign or retire but are not replaced by the company. Attrition can also be seen in the case of brands and customers. When a brand loses customers, it is called customer attrition. Turnover is a term used to denote a case where employees leave their jobs and the company hires new ones to replace them.
The term attrition is related to employees and the workplace. Read on to find out more.
What is attrition?
Attrition is a form of downsizing. In most downsizing, employees are asked to leave the company. But in this case, employees leave the company voluntarily, and are not replaced in order to reduce the number of staff in the organization.
Reasons for Attrition
There are a number of reasons why employees leave an organization. Some of the most common reasons include higher salary expectations, poor workplace conditions, lack of growth opportunities, etc. Attrition also happens to brands when a set of their existing customers mature and outgrow the need for their products or services and are not replaced by an adequate number of younger customers.
In the case of companies and employees, when employees leave the company, a hiring freeze is sometimes implemented. This ensures that employees aren’t hired to replace the ones who left, effectively reducing the strength of the workforce. Putting a hiring freeze is one way to reduce labor costs without laying off employees and causing disruption within the organization.
When employees are asked to leave involuntarily, it creates a lot of unwanted tension and disruption within the organization. An organization does this by cutting positions and terminating jobs. Involuntary attrition severely impacts the reputation of a company and negatively affects the employees who continue to remain with the company.
Even voluntary attrition can negatively impact the remaining employees although the effect is a lot less serious. If the company fails to fill the vacant positions, it will result in increased work for the remaining workforce. This increases work pressure and ultimately affects the mental health and performance of the employees. This trend can result in an unhappy work environment and lead to further attrition by way of employees resigning from a toxic organization.
Here are a few common reasons why attrition occurs:
- Lack of opportunities for career growth
- Below market standard pay and benefits
- Bad work-life balance
- Poor conditions at the workplace
- Relocation
- Retirement
- Death or illness
Attrition and layoffs
Voluntary attrition can happen due to a number of other reasons as well. It is said that whether or not an employee stays or leaves a company has more to do with the managers rather than the job itself. Employees may voluntarily leave the company if there are changes to its management or company structure. They may prefer working in a familiar environment and with people they know rather than working with new people and managers. If a company is looking to reduce its labor costs, taking advantage of voluntary attrition is a good way to do it.
On the other hand, laying off employees is a decision a company takes when times are tough. For example, if the organization is going through a financial crisis, it will look at cutting costs for an indefinite period till the situation stabilizes. In such cases, the organization will look to terminate employee positions and not hire new employees for the foreseeable future.
In other instances where the organization is merging with another one to create a new company, it may be required to reduce the workforce. In such cases, opting for layoffs is a better option than waiting for employees to leave voluntarily.
Attrition and turnover
Attrition is the term used to describe a situation where employees leave the company and are not replaced with new ones. It results in a reduction of the workforce of the organization. Turnover, on the other hand, is a situation where employees leave their jobs and the company hires new ones to replace them.
Studying the turnover of an organization can give valuable insights into its functioning. It can help a company make better decisions regarding its hiring practices and to create a better work environment. For example, if a large number of employees are quitting their jobs within a short period of joining the company, it could mean that there are problems with the company’s management and workforce. The company can then decide what changes it needs to make to create a more hospitable and conducive environment for new employees so that they feel safe and welcomed into their new place of work.
Employee turnover is calculated usually over a period of one year. Just like attrition, turnover can also be either voluntary or involuntary. When people leave their jobs on their own and are replaced by new employees, it is voluntary turnover. When the company lets go of certain employees and replace them with new ones, it is called involuntary turnover.
Customer attrition
Although the term attrition is normally used in relation to employees leaving an organization, sometimes it is also used to describe a situation when customers leave a brand. This is also called the churn rate. Customer attrition is a bad signal for any brand because it means the company will start losing revenue. A high churn rate indicates that the brand must start taking drastic measures to retain its customers or acquire new ones.
Here are a few reasons why customer attrition takes place:
- Customers may move to another brand with better offerings at better prices
- Existing customers may be aging and not enough younger customers are coming in
- Product or service quality has changed
- Customer service is bad
One of the main reasons why customer attrition happens today is that older companies don’t update or upgrade their offerings to suit the needs of today’s modern consumers. For example, Nokia failed to adapt to the changing mobile phone software platforms and ended up losing customers to other brands.
FAQs
1. What Is Churn Rate?
Churn rate is the other term used in the place of customer attrition. It denotes a situation where a company or brand is losing its customers. This is usually a bad sign for the company since losing customers means a direct impact on their revenue. Customer attrition usually happens when the brand’s quality reduces, customer service is bad, or other brands offer similar products and services at lower prices.
2. How Can Customer Attrition Be Prevented?
In order to stop or reduce customer attrition, brands must ensure that they pay attention to the evolving needs of today’s customers. They must also look at their competition and adjust their business strategies accordingly. Good customer service is another key aspect that helps retain customers.
3. How Is Customer Attrition Different From Employee Attrition?
Customer attrition refers to a brand or company losing its customers. On the other hand, employee attrition refers to a reduction in the workforce of a company.
4. Is Employee Attrition Bad?
Losing employees can have an adverse effect on the operations of an organization. But it can be a good thing at times as well. It helps companies reduce their labor costs and also helps attract new talent with new ideas. It can also help the management identify problematic areas within the company and fix them.
