October 9, 2024
October 9, 2024
Retaining employees is a crucial goal for all organizations, but in outsourcing firms, where the workforce represents both the key resource and the largest cost, retention becomes a critical success factor.
Outsourcing firms face unique challenges due to their typically young, often remote workforce, their dispersed team setups, and the involvement of multiple stakeholders for each employee. In this environment, traditional methods of employee engagement and career development—those that are synchronous, standardized, and reliant on line managers—often fail to be effective.
To succeed, outsourcing firms must adopt approaches that empower employees to take charge of their own development, at times and in ways that work for them.
The average cost to replace an employee is estimated to be around one-third of their annual salary. For outsourcing firms, which often rely on cost arbitrage and operate on profit margins of 10% to 30%, this cost can have a significant impact. Beyond the immediate financial burden, high attrition also disrupts client services, which can put business relationships at risk.
The primary drivers of attrition for outsourcing firms are similar to those faced by other organizations:
- Lack of Career Development Opportunities: According to a 2022 McKinsey study, the top reason employees leave their jobs is a lack of career development and advancement opportunities. Employees who don’t see a clear path for growth are significantly more likely to disengage and eventually leave the organization.
- Engagement and Workplace Culture: Gallup’s research shows that 79% of employees who leave do so because they feel unappreciated.
However, outsourcing firms also face industry-specific challenges. Their workforce tends to be younger and more remote, and employees often spend more time interacting with the client’s team than with their own colleagues. This leads to a disconnection from the firm and a lack of visibility into internal teams, contributing to disengagement.
Current methods for addressing employee engagement and career development in outsourcing firms suffer from three major shortcomings:
1. Push-Based Initiatives: Many initiatives rely on pushing information to employees, who may be too busy to engage with it when it arrives. For example, internal mobility opportunities are often shared via email. If an employee is focused on a client project, they may miss the message, and by the time they seek it out, it’s buried in their inbox.
2. Standardized Programs: Engagement and development programs are often designed as one-size-fits-all, based on broad employee characteristics. However, each employee has unique interests, preferences, and career goals. In the flood of daily information, generic initiatives are often ignored.
3. Over-Reliance on Line Managers: Career development opportunities often hinge on line managers facilitating growth. In outsourcing firms, this is problematic because some teams report directly to a client-side manager, leaving the firm’s employees without direct internal leadership support. As a result, development opportunities can be overlooked or neglected.
To improve retention, outsourcing firms should adopt a new strategy for employee engagement and career development, characterized by three key features:
1. Pull-Based Access: Employees should be able to access information on engagement initiatives and career development opportunities when it suits them. By providing a centralized, easily navigable platform, firms can ensure that employees can seek out relevant information at their convenience.
2. Personalized Recommendations: Rather than relying on generic programs, firms should leverage technology to offer personalized opportunities aligned with each employee’s interests and career aspirations. This could include tailored learning modules, relevant internal gigs, or specific career paths.
3. Autonomous Development: Empower employees to take control of their own development. Instead of depending on line managers or HR, employees should have direct access to mentorship programs, stretch assignments, hands-on skills development, and other opportunities that support their growth.
By adopting these pull-based, personalized, and autonomous approaches, outsourcing firms can help employees forge stronger connections with their colleagues and gain better access to career development opportunities. The result? Improved employee engagement, higher performance, and longer tenures—leading to a more profitable and resilient business.
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