The Soft Cost of Turnover: Why Company Culture Matters for Retaining Knowledge Workers
The Great Resignation saw a record number of people change their jobs post-pandemic – 49 million US professionals switched jobs in 2021, and one in five workers worldwide were planning to quit their job in 2022. Surveys consistently found that job switchers were looking for better, fairer, working conditions and for more fulfilling work. Even before Covid, companies struggled to attract and retain professionals, often relying on financial incentives, often unsuccessfully. Our research suggests another, more sustainable, retention mechanism – company culture.
Assistant Professor Educational Research & Development
School of Business and Economics
The Problem with Turnover
Each professional leaving a company is costly. There are the hard costs, of course - estimates range from $43.830 for replacing a junior manager in accountancy, $60.000–$67.000 per middle management employee in IT, to more than $135.000 for an experienced employee in R&D.
But many companies neglect the soft costs of turnover. Especially in knowledge-intensive domains with low capital intensity like software development, investment management, accounting, teaching, or public relations, these soft costs matter. Each employee leaving their job takes with them a unique set of knowledge, a professional network, and established trust with clients and colleagues. The costs of rebuilding these qualities are significant, if impossible to quantify.
Two Factors for Decreasing Turnover
To avoid paying the hard and soft costs associated with turnover, companies struggle to find the right strategies for retaining their staff. Forbes recently published a list of effective retention mechanisms, based on Herzberg’s famous two-factor theory. Offering a competitive base salary and hourly wages, job security, and fair working conditions are so-called hygiene factors. If they are absent, turnover is likely, because staff gets demotivated and disengaged.
Examples of hygiene and motivating factors according to Herzberg
Putting hygiene factors in place, however, is not enough to comb at turnover, according to Herzberg. This might explain why offering even very high signing bonuses might not be enough to prevent turnover or attract enough new staff. On top of hygiene factors, companies need to invest in motivating factors, those that actually drive commitment, engagement, and satisfaction. These factors include recognition of achievements, growth opportunities, and purposeful work. Managing retention then requires a deeper investment beyond financial incentives – it becomes a question of company culture.
Retaining the Learning Professional
To explore the role of company culture for knowledge workers’ turnover behaviour, my team and I conducted a longitudinal study. Over a period of five years, we followed the careers of 96 professional auditors. At the start of the study, they had provided us with two key pieces of information:
- The degree to which they think they work in a learning culture, an organisational culture that values being curious, learning from mistakes, helping and giving feedback, asking ‘why’, rewarding learning, sharing knowledge, taking initiative, and working together with the outside community.
- The degree to which they themselves value reflection; whether they examine their thought processes, the way in which they come to judgments and conclusions, and whether they revisit experiences to learn from them.
We then monitored who left their company and who stayed, relating turnover behaviour over time to auditors’ perceptions of learning culture and their own value attached to reflection, to learning.
A Question of Fit
Let’s start with the bad news: we found that auditors who value reflection were more likely to leave their firm (and even their profession) – without intervening, audit firms were therefore more likely to retain auditors who valued learning less. Yet, auditors are highly-educated professionals who apply complex standards to make sense of large amounts of information in a continuously changing environment. Not learning is therefore not an option if individuals and firms seek to deliver the highest quality.
The good news, however, is that auditors who valued learning and who reported to work in a learning culture had the lowest turnover rate in our study. We found that turnover is, to some extent, a question of fit. Auditors who value learning but feel their environment does not, left after less than 2.5 years on average; but auditors whose own values match those of their firm left after an average of 3.3 years, a significant difference.
In fact, the fit between learning culture and valuing reflection explained between 37-50% of variance in auditor’s turnover behaviour, positioning company culture as a key mechanism for managing turnover.
Creating a Learning Culture
Companies that want to retain especially those professionals who value learning therefore should invest in creating a learning culture. But how do you create such a culture?
We found that, surprisingly, the resources that a company makes available for learning mattered the least – instead, we found high correlations between retaining professionals and the values of taking the time to build trust, valuing open and honest feedback, helping others, discussing mistakes, asking ‘why’ regardless of rank, and interacting in a respectful manner. These are specific behaviours that need to be role-modelled consistently by leaders within an organisation, behaviours that need to be consistently rewarded and encouraged to become engrained in the company’s culture.
To dive more deeply into what it takes to create a learning culture, we interviewed several top-level auditors, such as members of the board of management, partners responsible for HR, strategy, and quality. This group of people has been involved in a multi-year effort to build a learning culture within their firm, and they shared the following wisdom:
- Learning needs to be seen as part of daily work – this means creating a safe environment in which all auditors are encouraged to speak up, to challenge, and to learn from mistakes.
- Changing a culture starts with creating awareness – top-level management needs to feel the need for a culture change, they need to see the limitations of current values and structures.
- The values and beliefs of top-level leaders determine the behaviours that are seen as valued and productive within the firm, so top-level leaders need to be aligned and consistent.
- To change a culture, companies need to engage in a series of concerted initiatives, guided by a central culture change team that can create meaningful experiences for all members, such as providing coaching and training to leaders, allowing for flexible learning based on professionals’ needs, intervision for leadership development at all ranks, and engaging in root cause analysis as a fundamental learning activity.
- Mid-level leaders need to foster a learning culture through their own values, beliefs, by creating a safe environment, encouraging discussions on culture and shared values, by coaching their team members and by holding team members accountable for living up to these shared values.
- Finally, for a culture change to take hold and become sustainable, a company’s systems need to align with company culture: promotions should include value-congruent behaviours, procedures need to embed learning into daily practice, and remedying/learning from mistakes should be rewarded, rather than held against professionals at all levels.
Are You Ready to Learn?
Now that you have learned (pun intended) about the importance of developing a learning culture:
- Do you think your organisation has a learning culture?
- Which of the values and behaviours we identified do you come across in your daily work?
- And if you are in a leading role – which of these learning behaviours do you role-model for your colleagues, your team members, and your students?
Becoming aware of the answers to these questions might not only help you to decrease turnover behaviour. In fact, the firm we worked with in creating a learning culture also observed an increase in the wellbeing of their employees: they reported to be less stress and to experience more professional development and purpose in their work!
Want to learn more about learning at work? Then the colleagues at the Department of Educational Research and Development are looking forward to hearing from you!
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