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Thought Leadership Perspectives
Retention: The Key Outsourcing Metric Not Measured
||By Kaushal Amin|
CTO, KMS Technology
If you have a tight deadline that you can’t meet with your existing workforce, or you lack the budget to pay your U.S. based staff to complete a new project, then there’s a good chance you’ll consider outsourcing as the solution. Most companies focus on metrics that assess the cost and productivity of outsourced projects. All too often staff retention is overlooked but it can have a devastating impact.
Growing Demand Leads to Competition for Skills
The outsourcing market has exploded in recent years as more and more companies look to cut costs and take on more work by employing teams abroad. Sales presentations from outsourcing firms build convincing arguments about ROI and highlight the skill set your investment will secure. What they fail to mention, and what many buyers fail to ask about, is their staff retention rate.
As demand has grown, many outsourcing firms have experienced serious problems with staff retention and turnover ratios in excess of 30 percent are not unusual. As workers chase higher wages and compete for limited promotion opportunities it is inevitable that many of them will leave. Contracts rarely tie workers down for more than a couple of years and once employees have gained marketable skills they’ll naturally want to sell them to the highest bidder. So what happens if a team member jumps ship in the middle of your project? It could well be that the expertise you thought you had secured is in fact fleeting because employee turnover is high.
Impact of High Staff Turnover
There are some serious potential knock-on effects when an experienced member of the outsourced staff leaves a project before completion. The costs can be much higher than expected and they aren’t always obvious. If you’re outsourcing a project and your vendor loses key members of their staff, then consider these factors:
The bottom line is that there is no substitute for experience and if your outsourcing vendor is losing skilled employees then you may no longer be getting the service you paid for when the contract was initially drawn up.
- They have to find and train a replacement. They may offer you a new employee for free for a month as they swallow the cost of training, but how long will it really be before that new employee is as productive as the person they are replacing?
- Loss of undocumented knowledge. Even if your vendor has the most organized documentation in the world, important knowledge is lost when an employee leaves. The incoming replacement will not understand the history of the current project or past projects, they won’t know the key players within your company, and they’ll be prone to repeating mistakes that have already been made.
- Schedule must be extended. The necessity of training a new staff member inevitably leads to missed deadlines and schedule extensions. You also have to consider the impact on existing staff because they will be the ones doing the training.
- Knock-on negative effects. The loss of a staff member can spiral out of control and create a negative work environment. Employees have to get used to a new person, social relationships have to be built anew, and a close-knit team can be very intimidating for a newcomer. There is also the risk that the person leaving persuades others to join him or her. Many recruiters target specific people as anchor employees and then ask them to recommend staff members worth poaching
Best Practices for Retaining Employees
There is plenty that outsource vendors can do to retain employees. It’s always worth looking out for these three key factors in potential outsourcing vendors:
- How well does the outsource vendor engage with their employees? Do they have a genuine interest in employee development?
- How good is communication? Do employees have input? Do you as a client have the opportunity to communicate directly with your outsourced staff? Direct communication is an essential requirement for any project.
- Is their work environment pleasant? Cutting costs is great up to a point but having people work in poor conditions is always counterproductive.
When shopping for an outsourcing vendor you simply cannot afford to assume that they will retain their staff. Don’t let them skip over this issue. Ask for details of their retention rate. Discuss how they ensure that employees are happy and productive. Ensure that penalties are applied and a workable strategy is in place just in case the vendor does lose staff. Make sure your vendor is clear about what you are investing in: Skills and people.
By focusing only on the bottom line in terms of completion rates and fixed costs you can miss important peripheral issues that will actually have an impact on both.
Kaushal Amin is Chief Technology Officer for KMS Technology, a software development and IT services firm based in Atlanta, GA.