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Topic Title: Is Employee Turnover a Defect?
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Created On: 04/21/2009 04:45 AM
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04/21/2009 08:11 AM
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Tom Morgan

My perception has always been that employees leaving a company is a defect and is an indicator of management performance. Our Human Resources dept. have challenged my view and say it is a good thing.

* What is the employee turnover at Toyota Japan?
* Is Employee turnover a defect?
* Is employee turnover a good thing?

Your thoughts please.


04/21/2009 10:30 PM
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Brent Wahba


I'll give you a business school answer...it depends.

It depends on why and how often they are leaving. If they don't fit the culture or just can't perform to (reasonable, clear) expectations, then it is probably a good thing. If a lot of people are finding better opportunities, hate the working conditions, can't get along with their management, see no future for the company, etc., then it is a bad thing. Like all "defects" you need to understand the whys and then problem solve to prevent. There will always be some amount of turnover as spouses need to move, people go back to school, and retire, and hopefully the work practices and training methods are strong enough to minimize the impact.

Depending on the culture, bringing in a fresh perspective or new skills may also be a benefit. Toyota is very strong at developing people, so they have less of a need to constantly churn. Their own culture (both Toyota & Japanese) also drives stable, long-term employment. GE used to feel that they needed to turn over the bottom 10% of their workforce every year. Both are successful companies that have refined their own best solution.

04/21/2009 10:30 PM
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Ken Hunt

Hi Tom

It is my understanding that employee turnover at Toyota is very low for a couple of reasons. One is that they don't do layoffs (even in the present economic climate) and secondly the employees are empowered to improve processes, thus having a sense of ownership.

Employee turnover is unaviodable. You will always have retirements, dismissals, etc. The key is cross training so the knowledge does not go out the door when the employee leaves. If this is practiced, then I would not consider turnover a defect.

Employee turnover can be a good thing, as fresh ideas are brought into the mix. It is always good to have a fresh set of eyes to see things from a different perspective.

Just a few thoughts.
04/21/2009 10:31 PM
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Randy Dobbs

I can tell you from a Shingo Audit perspective that Turnover is not a good thing. The first questions that you are going to get hit with will be pointed towards your recruiting practices and training. The philosophy is that if you are being stringent with your hiring searchs and have a strong training/Standard Work program then Turnover should be low.

In reality turnover is a necessary evil. People are going to retire, leave for various reasons and some people are just not going to fit into your organization. Minimizing this is the target.

The Toyota view is that if an employee fails to fit into the system then this reflects poorly on the Supervisor. In many Japanese companies it is the Supervisor's job to not only ensure proper training and Standard Work is in place but to be there to help in the instruction as well. I can not count the number of times that Eastern Consultants have pointed out that many of the Japanese company's do not allow Supervision to have 'walled offices' but rather push them to have 'open air offices' at the shop level. Go to Gemba.

The more management you have on the floor level the more realistic view they will have and the more the problems will be addressed. This will lead to better morale and less turnover.

There should be information regarding your industry standard for turnover although this is not always the easiest information to find. This is the target that you are trying to beat. Each industry is different and many of them have built in cycles of demand that cause the hiring practices to be different. Take construction for example - when things are being built you need a larger workforce; when things are down many organizations have to cut back. This is not intrinsic to the recession only; in two of the three arenas that I have been in manpower demand fluctuates and we had to accomodate.

Hope this helps,
04/23/2009 09:59 AM
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Mark Rosenthal

Don't worry about what others are doing, especially in other cultures with completely different expectations about work.

What is the intended outcome of YOUR system?
Is turnover a desirable outcome of your management process?
Is it something you want to happen?

At a deeper level, is there a path for advancement, or job satisfaction at the same level of the long haul?

or does the company look at employment as a nominal stepping stone to another career elsewhere - like McDonalds, or the military (which recruits heavily based on this). In both of those cases, SOME people stay for careers, but most don't.

At a more basic level, is your system geared for turnover? Or is turnover disruptive? How is your standard work, your job instruction? If there is a long process of learning the work, then turnover is a bad thing (though there are things you can do about it).

But in the end, your statement "an indicator of management performance" answers your own question. If you are finding that people are leaving when you don't want or expect them to, then it is time to look in the mirror and figure out why.
04/23/2009 10:00 AM
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Ann Fiedor

While some turnover is good, there is a high cost to losing valuable employees. A quick search of the cost of turnover on a site such as google will produce much literature to substiante this claim. I am also including a link for you to use at your orgranization to help with calculating the cost of turnover there. http://www.uwex.edu/ces/cced/economies/turn.cfm - cost of employee turnover
04/23/2009 10:00 AM
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Kris Hallan

I am curious how any HR department could argue that turnover is a "good thing"? There is nothing "good" about any investment that leaves your company. Every person that walks in the door gets training to some degree and it costs way too much money to get people up to speed in manufacturing environments. How could you possibly argue for turnover?

I understand the idea that GE wants to turnover their bottom 10% but I'm a little confused how you control your turnover rate to ensure that its the bottom ten that goes?

I have always had a pretty cynical view of the unemployment rate. When people get caught up in the fact that it is approaching 10%: I will usually jokingly say that of all of the thousands of people I have met in my life, well over 10% weren't people that I would ever want working for me. The unemployment RATE is not the problem, its unemployment selection that is troubling. Its not like the best workers always stay employed and the worst are in the unemployment lines.

The same problem arises with a turnover rate. I think that HR departments are kidding themselves if they think they are actually turning over the lowest 10%. If GE allows themselves to keep a stable 10% turnover rate, then they are giving in to the fact that 10% of the people they hire will be a waste of training money. HR might as well forego the entire interview process and save some money because they are perfectly all right with failing to match the person with the need in the company 10% of the time.

Yes. It's a defect (or something like a defect). You should be continuously driving the turnover rate down until the only reason people are leaving is for retirement and special circumstances.
04/23/2009 10:00 AM
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Ronald Turkett

I agree with Brent. The reasons for the turnover is the key. Some leave because they are changing careers, some because family situations change, some to retirement, etc. If the cause of turnover is due to bad supervisors and managers then this needs to be corrected. Low rates of turnover will always take place. This is not necessarily bad because continuous improvement tends to create "extra" people and the natural attrition takes care of this.

People who do not contirubute to the organization should not be part of it.

Ron Turkett
04/24/2009 10:07 AM
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David Apple

Yes, turnover is a defect. It is a result of two out of control processes.1. hiring the right people, 2. keeping the right people. Certainly there are will be turnover, but the goal should be no unplanned turnover. Sickness and death would be the exceptions I suppose. Retirement is planned and foreseeable. Even moving because of spouses or leaving for better opportunity shouldn't be unexpected. You should know your people, and create a secure climate that employees wont be afraid to discuss sensitive issues. Turnover is too costly not consider it anything besides a defect resulting from a defective hiring process.
Regarding GE's 10% policy --- stupid. If you have 1 in 10 that you want to shed, you didn't hire and develop the right people in the first place. No where else in an organization is a 10% defect rate a good goal. I suppose the pressure to perform so you don't become one of the 10% can be a motivator. It would motivate me to find a new employer.
Need to bring in new ideas, that's fine. A former employer used to bring in fresh ideas by hiring temporary (several years) experts as well as new employees and consultants.
Good for you for recognizing this is a problem to be solved.
04/24/2009 01:22 PM
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Robert Simonis

Brent and Ron are both hitting the mark.

I would just add that in addition to WHY people leave (which must be analyized)but also WHEN they leave.

The book "Good to Great" by Tom Collins had some intersesting studies about the fact that the people in "great" companies leave in about the rate as "good" companies but the difference is when. "Great" companies had most of their turnover in the first 6 months to a year of hiring (if I remember this right) and less than great companies the turnover was around the 4 year mark.

Study the WHY and the WHEN and benchmark to see if this is a problem or not.
04/27/2009 11:03 AM
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David McGan

I would venture to guess that the HR Department in question uses turnover as one of their metrics. I would also venture to guess that the metric is higher than some would believe it should be. Therefore, the HR Department wants to rationalize the trend in a way that makes them look good. That's a reason we have to be sure we're using the correct metrics -- and those metrics used correctly. If a metric results in negative behavior, then it's the wrong metric.

I agree with most -- turnover in general is negative.
05/01/2009 09:21 AM
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Michael Schoepel

We break down our turnover rate into two categories. Voluntary and Involuntary. Employees who leave the company voluntarily are doing it for different reasons than the employees who do it involuntarily. Breaking it down this way will lead you down to the issues on both sides of the coin. We use this metric to measure the two different types that leads us to the issues for both and the allows us to focus on improving what we can do better in both areas.
05/01/2009 09:59 AM
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Burdette Hansen

As I inderstaned the 10% at GE - it is the lowest 10% of the managers and is based on an objective rating - a manager must rate in the lowest 10% for two consectutive eyars The theory is you build organization on your strongest people and so by replacing the lowest 10% you improving your managment.
05/01/2009 12:44 PM
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Lonnie Wilson

Hello Tom,

If I can take literally what you said about your HR department, "that turnover is good" well then 20% would be better than 10%. I hope they mean some level of turnover is good, if they really mean the former, and this is management supported, I would update my resume and make them look good......

The second statement is at least defensible, although wrong in principle as well. I can not think of one asset in a company which I would say should shrink so we can be a more secure work environment and a better money making machine....almost always we maintain and preserve our assets, not decry that a arbitrary loss is OK, or even good. (For example change the noun in your questions to product, buildings, machine, raw material, asset, or any other resource, and then have this discussion with HR ...... see what they think about the human resource)

I am not sure I would call employees prematurely leaving (ie not going to retirement) a defect, but almost always a loss. Once you have that loss, what do you do about it?

The key ot any of these losses, asset losses, raw materials losses and people losses as well, should be rapid response pdca, ie, we have now found a loss; so what are we going to do about it? So I do not think the thoughts on employee turnover should focus on the types of the losses alone, rather it needs to continue on to; "what are you going to do about the process which created those losses?"

As an extension of this there should be a goal and we should use continuous performance improvement tools to drive it to what we consider to be our appropriate levels. Of course this involves assessing the type of turnover we are willing to tolerate, some businesses are structured for higher losses than others, and then work to drive the turnover to an optimal minimum.

So in the end, I believe turnover is a loss somewhere, we should understand those losses but understanding is not good enough, we should have a goal for the losses and then we should use our continuous performance process to drive the losses to a minimum.... to simply know the losses and rationalize them is not adequate.

My bet is that your HR department needs a good spanking ..... and if your managers support this "turnover is a good thing", they deserve one too.....

Good luck,

Stay in touch,

Lonnie Wilson
05/04/2009 09:06 AM
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Bill Austin

Well to manage things you need to count them but not all that can be measured count.

There is a belief that you should remove the underperformers from a business, surely the objective is to stop there being underperformers in the business.(not the same thing)

How are your HR measuring this
05/04/2009 09:08 AM
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Lonnie Wilson

Hello Tom,

I reread your thread and sort of imagined the conversation you had with your HR friends. I am sure it was a bit uncomfortable with a smattering of tension that is typical of those conversations we have that end up with unresolved conflict. On your part there was a resolve to gain a better understanding and what you have done beyond bring this idea to this sounding board, I do not know, but I would bet there are other things you did to further your understanding. It made me think....

I often think of those people who say that Lean just doesn't work or that 95% of all Lean initiatives fail, I am not sure where they get their data, but the naysayers are legion. To me Lean is just a tool, maybe a way of thinking, maybe a philosophy, call it what you like, but it is a thing....and as a thing, it is not an answer.... At best it is a method, but it is not a stand alone thing .... it it is not like a tornado that independent of your activities, can do its own thing.....it requires leadership by management to make it work.

To blame lean for the failure to implement lean is like blaming your fork that your food has fallen onto your tie. Either the fork is not the correct tool or it is being used improperly. Same with lean initiatives, if they succeed or fail, either way, lean is neither the hero nor the villian, it is just "some thing" that is used along the way.... a way created and orchestrated by management, If these initiatives succeed management succeeded, if they fail management failed.... Oh I am sure there are exceptions but the common denominator is management, not the tools they use or do not use....they get to choose. So if the initiative failed, management failed but is there more???

The management can fail for a variety of reasons, including understanding, but lean at its core is very simple. If this is what someone is telling you, I will tell you they are full of crap. It in not for lack of intellectual understanding except for the lack of understanding borne of intellectual laziness. No, it is something deeper and more basic.

In my book, (How To Implement Lean Manufacturing by McGraw Hill, coming out in Sept...sorry to shamelessly advertise but I am also a first time author), I discuss leadership, particularly management leadership and decry that there are two quantities needed that are appearing in increasingly shorter supply in the management ranks...courage and character.

In my personal experiecne I can cite dozens, maybe hundred of examples of partial and total managment failures and most are due to lack of management courage....... Oh you might describe the behavior as a showing a lack of commitment or some other behavioral trait, but at the individual level, it was the inability to act in the face of fear....fear of being wrong, fear of going against the social grain, fear to try something new, fear of not getting a raise, fear of upsetting the boss... the list goes on, but the common failure is the inability to act in the face of fear.

We are all afraid, some summon up the ability to act....they are courageous

Some may disagree but in the face of oppositon, particularly those who are supposed to be the guardians of the human resource, it takes courage to challenge them. The easy way out it to nod your head, tell them to hire one more so you can go back to your job. However the "easy way out"is very often the wrong way and it takes some introspection, intelligence and humility along with a good dose of courage to push against this "easy way out".

So I laud your efforts to push this topic in your company and my prayer is that you can change some thougths and maybe cause others to think a bit deeper as well. It may be uncomfortable at times, but it is always worthwhile.

Stay in touch,

Lonnie Wilson
05/05/2009 08:54 AM
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Alan Crean

Harvard said that for a company over 1000 employees, the following were norms
Retail - 18%
Manufacturing - 7%

I had a business which was
2000 - 15%
2001 - 0%
2002 - 0%
2003 - 0%
2004 - 5%
2005 - 18%

The business grew 891% between 2000 and 2005. I sold and left in 2005, the flow happened after the announcement.

People will stay if the culture is great, and that they feel valued, well positioned and involved - which predicates that they need to be able to look at your entire business as one fully integrated process. Without this view, there is no structured way to interrogate & understand the organisations complexity.

The ones to worry most about are your process owners and management layer.

My 4 minute video HEREbelow shows you a sample of how a normal business user might keep himself and his team delivering value for the standard "corporate rewards".

I have other stuff to show how to SEARCH on every kind of process content, perform process comparisons, implement global process changes, and merge or automate processes if interesting to you.

Additionally, here is a "real life" example that I did of a process owner doing the work.
Click HERE

Cheers, Alan
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