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How to Retain Employees: A Customer-Oriented Approach

Employee turnover is a very costly thing. When taking into consideration the costs of the entire recruiting and training processes—recruiting, interviewing, hiring, training, reduced productivity, etc.—it can sum up to an inconceivable number. HR experts suggest it can cost you 30–50% of the annual salary of entry-level employees, 150% of mid-level employees, and up to 400% for specialized high-level employees!

Many techniques are being used by businesses to reduce the employee turnover rate to a minimum. Many companies implement leadership programs to empower employees, offer big rewards and good benefits, provide life-work flexibility, and more. While all of these are good methods, they are just that. In this post I would like to discuss how organizations can re-conceptualize the way they view the employees in order to retain them.

Robert L. Cardy and Mark L. Lengnick-Hall are two researchers from the University of Texas who researched the way a customer-oriented approach by management can affect employee retention. This approach considers employees to be internal customers; therefore, marketing methodologies—such as segmentation and customer lifetime value (CLV) assessment—should be used to better understand them, please them, retain them and, of course, make money off of them.

Let’s start with employee segmentation. Many businesses segment customers based upon their lifetime value to the company. Long-term customers usually receive better treatment (which means greater investment on the company’s side) because they will usually reward the service provider with loyalty, repeat business, and higher per-customer revenue. The same goes for employees; not all employees create the same value for the company. Employees who consistently maintain a high level of job performance and provide greater flexibility and productivity for their organization should be compensated more than employees whose job performance is inconsistent and who do not acquire new knowledge and skills as readily. In order to utilize the resources available to them correctly and effectively, organizations need to segment their employees according to the value they bring to the company. Companies who want to retain “high-value” employees should coordinate the level of investment and reward each employee receives with the degree of value the employee yields to the company.

Now let’s discuss employee CLV. In order to implement employee segmentation, you first need to asses each employee’s added value. Cardy and Lengnick-Hall suggest using the Employee Equity model. The EE model suggests that organizations should view their employees as customers and maximize the value that long-term relationships with the employees can provide. The EE model includes three dimensions:

Value Equity: Just like customers, employees constantly evaluate whether their investment in their work is equivalent to what is given to them. Therefore, it is important for employers to create value for employees by increasing the presence, level, and ongoing commitment to things employees want while reducing what they must give up to achieve these things. Organizations need to be alert and responsive to the changing needs of their employees to make sure the employees are not feeling like they are being “ripped off.”

Brand Equity: Branding provides incremental preferences for a specific product beyond the attributes of the product itself. Borrowing from the marketing context again, branding can be relevant to organizations as well; working for a “branded” organization will be more desirable than working for a “non-branded” organization that offers the same benefits. Hence, employers should focus on developing emotional ties to the organization by conveying high ethical standards; enhancing positive identity orientation through special events, celebrations, and employee recognition; or developing a record of corporate citizenship that generates pride in association.

Retention Equity: Retention equity revolves around relationships between an employee and a firm, and originates in the actions firms and employees take to establish, build, and maintain those relationships. In order to build fulfilling relationships with their employees, companies should invest in organizational employment policies and practices that focus on building value for both sides rather than simply fulfilling task objectives and day-to-day operations.

Cardy and Lengnick-Hall think employees should be viewed as customers; others believe employees should be considered partners (like in the case of John Lewis). What do you think?

Based on: Cardy, Robert L. and Mark L. Lengnick-Hall. “Will They Stay or Will They Go? Exploring a Customer-Oriented Approach to Employee Retention.” Journal of Business and Psychology 26.2 (2011): 213-217. Print.

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