Why do traditional companies have lower attrition rates?

Controlling high rates of attrition has always been one of the more daunting tasks for HR professionals working in the services industry. With attrition rates in the 15-20 per cent range for most of the major IT companies, bringing these rates down has been one of the bigger challenges. However, the same is not the case for the older and more traditional manufacturing companies. Pankaj Lochan, CHRO, Jindal Steel and Power, tells HRKatha that the attrition rate for his company averages about 5 per cent, and goes as low as 1.5 per cent for certain departments.

In many traditional companies, it is not unusual to find employees spending their entire careers with the same company. “Many core companies have become somewhat quasi-government organisations. People take pride in admitting that they belong to the second or third generation of their family working for a core company,” says Emmanuel David, former director, Tata Management Training Centre (TMTC).

“Many core companies have become somewhat quasi-government organisations. People take pride in admitting that they belong to the second or third generation of their family working for a core company”

Emmanuel David, former director, TMTC

Manufacturing vs services

An analysis of the difference in attrition levels between the manufacturing and the services sectors, reveals many differing factors in the operation of both industries. These lead to the difference in the rates at which employees switch jobs there. David believes that in services, people hold more power as they contribute to a greater extent to the company’s turnover. “The value-add in manufacturing primarily comes from the machinery. Most of the value-add came from the precision equipment or machinery we had. In the knowledge economy, however, the human resource is more valuable to the company. The employee cost as a percentage of turnover is around 30-40 per cent for new-age companies in the knowledge economy. When I worked in the oil and gas sector, the employee cost to turnover was about two per cent. In good manufacturing companies, it is around 7-8 per cent.

Now, where it is 30-40 per cent, the power lies with the employees, and hence, attrition would be more commonplace,” he says.

Nature of job

Lochan says that the very nature of the jobs is responsible for the difference in attrition levels. “Manufacturing offers a more steady job. In contrast, in IT/services, the nature of the job is more transient. Hence, there are uncertainties regarding the job and the consequences thereof, in the form of dissatisfied employees or employers,” he explains. Further, he adds that the Key Performance Indicators (KPI) in traditional companies are better defined, which enhance job stability for the employees. “The nature of job in the manufacturing space results in low attrition. Manufacturing involves a process, a machine. I call it ‘the causative element’. One has greater control over the cause. In case of services, the overall control over causative elements is lower,” he points out.

“Manufacturing offers a more steady job. In contrast, in IT/services, the nature of the job is more transient. Hence, there are uncertainties regarding the job and the consequences thereof, in the form of dissatisfied employees or employers”

Pankaj Lochan, group CHRO, Jindal Steel & Power

Lochan says that career stability in traditional companies also entails a steady rise in the career path. The career trajectory for IT personnel may be dependent on the nature of their projects. “In services one’s stars work more than one. Promotions and appraisals are totally dependent on the performance of the project,” he says, pointing out that luck matters.

Defined career paths

Praveer Priyadarshi, former chief people officer, Jindal Stainless, also believes that steady, better-established career paths offered by traditional companies play a big factor in their attrition rates. “Attrition is a choice of an employee. This choice is based on various factors in an organisation. In a traditional organisation, things are well oiled. Therefore, many things are predictable, and hence, uncertainties are taken care of to a great extent. On eliminating these uncertainties, employees are able to see a stable, steadily-growing career path, and, hence, are less likely to shift,” he says.

“In traditional firms, things are well oiled hence, are predictable and managed to a greater extent. Employees see a stable growing career path, and are less likely to shift”

Praveer Priyadarshi Ex CPO, Jindal Stainless

Priyadarshi points out, “Change is a constant in a new-age company. However, in an established organisation, the systems are well defined and so are the career paths. Therefore, the element of uncertainty is practically non-existent.”

Emmanuel David also believes that work culture plays a huge role in lowering the attrition rate. He feels that traditional companies have evolved over time in a way that they prioritise employee welfare and provide a much more comfortable work environment.