In a perfect world it would be best for any organization to have employees who love their jobs, enjoy working with their co-workers, are happy with the salary, willing to work hard for their managers and never leave the organization. However, in the real world employees do leave either because they want more money, hate the work environment, hate their co-workers, want a change or because their spouse gets a dream job in another state (Sharma, 2008). Many organizations nowadays face ‘high attrition rate’ or turnover mainly due to a highly competitive market. Staff attrition or turnover has been cited as one of the primary concerns facing organizations and businesses in any industry. Staff attrition or turnover relates to those who leave an organization due to resignation, termination and retirement. According to the latest CIPD survey (CIPD, 2007), the annual employee turnover rate in the UK was at 18.1 percent. The report also found that the annual turnover levels differed considerably from one industry to the other industry, with the highest average rates being 22.6 percent and these were found in private sector organizations and, within this sector, the hotels, catering and leisure industry reports rates of turnover at 10 percent higher than the average for the sector of 32.6 percent. High turnover rates creates particular pressures for the HR department, which is primarily responsible for replacing those who leave, but also for line managers who face disruption to production and service standards. This is the necessary result of having to induct new employees, who are usually less experienced and productive compared to those whom they replace. It takes some time for the new recruits to perform at their optimum levels. This results in the organization failing to meet its objectives, reduction in productivity and higher costs. It is therefore important for HR managers to measure staff attrition, monitor its impact and take appropriate action to minimize its effects(Banfield&Kay,2008).
Globalization has led to the rapid expansion of multinational fast food companies e.g. McDonalds and KFC. Even at this present time of global economic recession, these fast food companies are growing and generating profits. The customers, who were eating out at a high profile restaurant, are now looking for something reasonable and affordable. McDonalds is offering good hygienic food at a reasonable price to these customers and are benefitting from this global economic downturn. This has lead to a fierce competition between these fast food companies and each of them is trying to give the best quality product and service to its customers. In a company like McDonalds, giving a quick and high quality customer service is essential for its success. However many of the McDonalds restaurants are experiencing high employee turnover which could affect the overall productivity and profitability of the respective McDonalds restaurants. One of the senior executives at McDonalds put the chain’s annual employee turnover at nearly 44 percent. According to the chief human resource officer of McDonald’s Mr. Floersch the managerial turnover was at 20% globally while that of the crew members averaged between 80 percent and 90 percent. This however, varied from country to country (The Wall Street Journal, 2008). In this research, the researcher would like to investigate the main reasons for experienced employees leaving the organization i.e. McDonald’s and what sort of challenges the managers face due to the high turnover. The researcher would also like to find out any retention strategies adopted by the HR department to curb the high turnover rate. For this, the researcher decided to choose few selected restaurants in London.
1.2 The Overall Aim
The researcher’s main aim in this study is to find out the main reasons for high employee turnover at McDonalds, the way it affects the managers and the organization, and steps taken to retain employees.
1.3 Research Objectives
The researcher in this research would like to find out the main reasons for having high turnover rate in McDonalds and the challenges that the managers face and also how they can curb the rate of staff turnover.The researcher also intends to study the following:
- To find out the main causes of high employee turnover
- To find out the various retention strategies adopted by McDonalds in order to retain employees.
- To find out the various challenges faced by managers due to employee turnover.
2.0 Background-Company Overview
McDonalds has 31,000 restaurants in 116 countries and is one of the biggest family restaurants in the world. The first restaurant in UK was opened during 1974 in Woolwich High Street and the first franchised restaurant opened in 1986. In UK there are now 1,190 restaurants employing more than 70,000 people, of which 51% is operated by franchisees. McDonald’s main vision is to give the family the best experience, something that they will never forget and would want to come back to. They achieve this through its people they employ. McDonalds realizes that its employees can only perform well when they are given the right working environment and for this, they strive to provide various rewards and benefits which would suit each and every individual working in the organization. McDonalds is one of the largest global brands and it offers a culture of flexibility, opportunity, equality and diversity. It has one of the most diverse cultures within the UK (McDonald’s, 2009).
2.1 Recruitment at McDonald’s
McDonalds policy is to hire those ‘Crew Members’ who can bring a smile to the workplace. This brings in positive energy and creates a good friendly atmosphere. The recruitment procedure for a ‘Crew Member’ is a two-step process. First the applicant needs to apply online and if successful, the second step will be to invite the candidate to a restaurant for On job evaluation (OJE) and interview. The on job evaluation helps evaluate the candidate’s customer service skills and his ability to keep up with the high energy environment. This will last for 15 minutes after which the candidate will be interviewed by the Business Manager for another 15 minutes. Once the crew members are hired, they will attend a welcome meeting which will be conducted at their chosen restaurant or the recruitment centre. The welcome meeting involves viewing a DVD which gives important information about the company and also gives the manager an opportunity to interact with the new recruits. They also attend a compulsory online Health & safety and Food safety test when they start working (McDonald’s,2009).
McDonalds also recruit ‘Trainee Business Managers’ who need to display some strong leadership skills. In this, McDonalds makes sure that the candidate is right for the job. A candidate applying for this position has to go through four-step selection process. The first stage is the initial screening process, this helps in ensuring that the candidate meets the basic criteria for selection. If successful, the next step is an online personality questionnaire that the candidate will have to complete. This ensures if the candidate has the desired attributes to be working in McDonald’s environment. The next step is a restaurant based ‘On Job Evaluation’ or OJE. In this the candidate works for the entire day in order to find out what it’s really like to work in a McDonald’s restaurant. The final step of the process is an interview with the Senior Manager of the restaurant (McDonald’s,2009).
2.2 Training in McDonald’s
McDonalds success depends on its well trained crew and managers who maintain company standards of providing high quality, good service and cleanliness at each of its restaurants. McDonald’s has a company policy to provide career opportunities that will allow employees to grow and meet their full potential. They have included career development programmes for crew and operations management which will allow them to progress to a senior management position. The company believes in promoting people on their merit. The crew members are trained by the Crew Trainers and they learn the skills necessary to run each of the workstations in the restaurant, from the front counter to the grill area. They are also trained on how to take deliveries and store the frozen food into the chiller, this is then further used in cooking and making the necessary burgers. Major part of this training is floor based and this helps the crew members learn faster and are also able to retain the information provided. After the initial training period the crew members are monitored by the use of ‘observation check lists’ (OCRs) on an ongoing basis. The observation checklist is a score sheet that marks all aspects of work in the restaurant. The ratings derived from these checklists goes towards their performance appraisal. The restaurants do promote the good performers to management positions where they will have the responsibility to runs shifts within the restaurant. For this, training is given to crew members in areas such as Customer Care, First Aid, Taste of Quality and Food & Restaurant Safety. On successful completion of the management entrance exam, the employees will attend a training course provided by the Training Department before they start working in management position (McDonald’s, 2009).
2.3 Retention Strategies of McDonald’s
McDonalds provides high levels of training to its employees working in various positions at the restaurants. This helps in reducing staff turnover and lowers the turnover costs. Employees that perform well are given recognition by awarding them with ‘Employee of the month’. It provides medical insurance and offers health care. McDonalds now gives quarterly bonus to its crew and manager’s instead of yearly bonus, this was a step taken towards motivating it’s employees. The organization gives five weeks holiday per annum and they are going to increase that to six weeks from April 2009. Computerized English language classes are conducted; this can be enjoyed by the crew members between shifts (The Wall Street Journal, 2008). In 2009, McDonald’s aims to provide Apprenticeships to up to 6000 of its 72,000 UK workforce and later will be increased to 10,000 from 2010. This will give the staff an opportunity to gain valuable and nationally recognized qualification that is equivalent to five GCSE grade A*-C. McDonald’s senses the importance of investing in their staff says the Senior Vice President David Fairhurst of McDonald’s UK. This has been done purely to retain the existing staff and also to attract new ones towards working for McDonald’s, which, is a global brand name (McDonald’s Latest News, 2009).
This section of the study points out the various theories that are relevant to the topic chosen. It starts with the HR and then focuses on employee turnover and the impact it has on the organization. It also speaks about the various ways an organization can adopt to reduce the employee turnover.
3.1Human Resource Management
Human resource management (HRM) is a strategic and coherent approach to the management of an organization’s most valued assets. The people working in HRM put individual efforts and also work together collectively in order to achieve its objectives. Their main goal is to help the organization achieve their goals and targets through people. HRM is concerned with choosing human capital that meets the organizations requirements and to develop their capabilities so that the work is done effectively (Armstrong, 2006). Recently there has been a growing importance of HRM; this is due to the fierce competition from overseas economies. In the twenty-first century if an organization wants to have a competitive advantage, it would have to effectively manage the organization’s human resource. This would also enable the organization to maintain high performance consistently over a long term. In today’s market the managers recognize the growing importance of recruiting, selecting, training and developing, rewarding and compensation the employees. However, individuals that work with human resource matters face a multitude of challenges such as the ever constant changing workforce, the government regulations and technological revolution. Furthermore, globalization has made organizations of all sizes to think about cutting costs and improving productivity (Mondy, 2008). It is therefore, important that the HRM and the other departments within the organization work closely together in order to achieve the organizational goals and objectives and to compete locally and internationally (Sims,2002).
3.2 Human Resource Development (HRD)
Human Resource Development is a title which represents the latest evolutionary stage in the long tradition of training, educating, and developing people for the purpose of contributing towards the achievement of individual, organizational and societal objectives (Wilson,2005).The fundamental aim of strategic HRD is to enhance resource capability in accordance with the belief that the human capital of an organization is a major source of competitive advantage. It is therefore about ensuring that the right quality people are available to meet present and future needs. HRD policies are closely associated with that aspect of HRM that is concerned with investing in people and developing the organization’s human capital. Human Resource Development is important for organizations because it is the people whose innovative ideas, their quality at work and their hunger for continuous improvement that is needed in order to compete in today’s modern and high competitive business world and these won’t come from machines (Swart et al, 2005). The development of human resource will always be an ongoing process and a vital ingredient for the success of an organization.
3.3 Employee Turnover
Employee attrition or turnover can be explained as the number of people who leave employment over a specified period due to retirement, death, redundancy, dismissal, transfer or resignation (Secord, 2003). According to Muller-Camen et al (2008) turnover is the number of people who leave the organization at a given time period. Most organizations would like to reduce their turnover rates, especially when it comes to the good performers who have benefitted from the companies training programs. Some organizations measure their turnover rates on a monthly basis, whereas some do it on a yearly basis. A limited amount turnover is positive for organizations as a poor performer could be replaced by a more productive one. Also, it creates an opportunity for promotion or career development when an experienced staff leaves an organization. However, high turnover could affect the quality of product and service that is offered to the customers (Baum, 2006) e.g. in case of McDonalds if an experienced staff leaves and a new staff is recruited in the kitchen section, the quality of making the burgers will be affected. It is important for any organization to stem the staff attrition rate as finding a replacement could incur heavy costs for the organization. Some of these costs include recruitment, administration and selection costs. The managers will have to recruit new employees which will incur cost to the organization and also to cover up for the loss, the other employees working in the department would be under pressure to meet the company targets. In a highly competitive market this needs to be avoided by the managers. In order to avoid high attrition rate, it is essential for HR managers to try and retain its existing employees.
3.4 Cause of Employee Turnover
There are various employee turnover causes. For example, one of the biggest employee turnover causes is an ill tempered manager. Employees don’t like to work with those managers who are always being negative to them, shouting at them and blaming them for something which wasn’t their fault. The employees don’t want to work for a manager who is not well organized in his work. Employees find it extremely difficult to work with managers who have attitude and are not easily approachable when they face problems, such managers often find it difficult to retain their staff. Sometimes managers in order to maximize profits for the organization try to cut costs by making an employee work more so that they don’t have to recruit another staff. Another main cause of employee turnover is less pay to the employees. Many employees leave an organization due to not being paid enough by the management. Employees want that they are respected for their efforts in form of good pay and good benefits. It is therefore important for organizations to treat their employees as human beings and respect their feelings and opinions. When an employee feels that they are not being looked after by their employer, they get affected mentally as frustration creeps in and this forces them to leave the organization. Also, less pay and no benefits results in lack of motivation and job satisfaction. Another reason that causes employee turnover is an employee interaction with other employees. If an employee is not comfortable with their co-workers they often tend to leave the organization. They don’t really get along with the workplace and this affects their performance and productivity. Employee turnover also occurs when they are not rewarded for their hard work. If an employee performs really well at work, he/she expects that the employer would recognize the efforts put in. However, this does not happen often to the employee (Employee Turnover Calculator Blog, 2008).
3.5 Types of Employee Turnover
There are two types of turnover: Voluntary and Involuntary. Voluntary turnover is sub-divided into avoidable and unavoidable turnover. Avoidable turnover is that which an organization can prevent from occurring such as increasing the employee pay or by giving him new job assignment. Unavoidable turnover is when an employee quits and the organization could not have prevented, such as people withdrawing through retirement or returning back to school or university. Other examples of unavoidable turnover is when an employee quits in pursuit of a new career, health problems which forces an employee to take up a different type of job or perhapswhenanemployeeleavesthecountry. Involuntary turnover can be split into discharge and downsizing types. Discharge turnover occurs when an individual has been asked to leave the organization. This could be due to job performance problems wherein an employee does not perform well over a period of time even after adequate training is given to the employee or could be for not being discipline at work e.g. coming late at work or misbehaving with colleagues. Downsizing turnover is targeted at a group of employees by an organization, it occurs as a part of organizational restructuring or cost-reduction program to improve organizational effectiveness and increase shareholder value. This reduction could be permanent or temporary due to a plant or site closing or relocation. The reduction in workforce also occurs at the time or mergers and acquisitions (Heneman & Judge, 2006).
3.6 Cost as aresult of Employee Turnover
The most important factor of high employee turnover that affects any organization is the cost. These costs can further be divided into the recruitment costs, training costs, lost productivity costs, new hire costs and lost sales costs (Pilbeam & Corbridge, 2006). Recruitment costs are usually in the form of advertisements. The organization also incurs cost as they have to pay the recruitment agency, and also for posting advertisements on the internet. The training costs include cost of departmental training, cost of the person(s) who conduct the training and cost of various training materials. There are lost productivity costs as the new trained employee would only contribute at 25% productivity level for the first 2-4 weeks and cost of mistakes the new employee makes during his induction period. The new hire costs include putting the person on the payroll, establish computer and security passwords and identification cards, telephone hookups and cost of establishing email accounts. The lost sales costs or lost revenue which is calculated by multiplying the number of weeks the position is vacant by the averageweeklyrevenueperemployee.Despite the costs of high employee turnover being so significant it is overlooked and rarely calculated. Few organizations, 7 per cent of those surveyed, calculate the more extensive costs of turnover (CIPD, 2004a). When these organizations were asked why they don’t calculate these costs, over half of them gave the reason that the organization did not require the information, while a third stated that calculating the various costs was just too time consumingforthem.
According to Risher & Stopper (2002) for an organization cost of replacement can sometimes account to around 2.5 times the annual salary of an existing employee. Such costs are rarely identified by the accounting department of an organization. Therefore, in order to avoid such turnover costs, organizations must form a successful retention strategy overtime.
3.7 Customer Satisfaction and Customer Retention
According to Hill (2006) recently many organizations whether it be a small one or a large one, they have increasingly come to understand that it is important for them to maintain customer satisfaction. Nowadays the organizations have realized the fact that retaining existing customers is easier and less costly than finding some new ones. Today’s businesses are so competitive that in order to gain or win new customers, organizations have to invest a lot of money. Organizations have started to realize that there is a strong link between customer satisfaction, customer retention and profitability. For many organizations in the hospitality and service industry customer satisfaction will be the topmost priority in order to be successful. Meeting the various needs of the customers and satisfying them has become the key operational goal for many organizations. Customers would only be satisfied when the organizations product or service is good enough to meet their requirements and therefore this needs to be measured by the organization. In the words of Argenti (2002) in order to measure the overall success of any given product or service one needs to find out how often do the customers buy that same product or service. A customer buying the same product repeatedly would mean that he/she is satisfied with that product. If one can put it in simple terms, a company can make regular profits if customers show a long term commitment to their product or service. The reason why organizations can make profits from long-term and loyal customers is because they don’t have to invest huge sums in attracting the new customers through the means of advertisements and promotions. Therefore, if a company after acquiring a new customer manages to keep them in the long-run, it’s investment on acquiring will pay off. E.g. If McDonald’s want to stay competitive in the fast food industry it needs to make sure that their customers are always satisfied with the food and also the customer service. This is essential for retaining customers and would also add value to the company,thereby increasing the company profits.
3.8 Employee Retention
Retention includes all those activities that an employer does to encourage qualified and highly-skilled and productive employees to continue working for the organization (Jackson et al, 2009). Staff retention is about attracting and keeping good-quality employees, while accepting that some of them will leave the organization. However, the managers should ensure that when these employees leave, it won’t affect the organization’s productivity to a large extent (Bloisi, 2007). Retaining a productive employee is of considerable importance to the company’s HR professional. The CIPD (2004) report intro HR trends and indicators reported that 31.7 percent of employers face difficulty with retaining its employees. Large organizations find it even moredifficulttoretaintheirworkers.According to Browell (2003) an organization can benefit a lot from retaining the existing staff, some of them include: reduction in recruitment costs and selection and training of new staff, it keeps skills and knowledge within the organization, helps improve performance, productivity and profitability, it helps in building customer loyalty and satisfaction, and lastly, it could help increase the sales volume of the organization thereby making them competitive in the market.
Organizations should consider the following elements which would help in retaining employees: Job previews – employees should be given a more realistic job preview when they are being recruited. Care should be taken not to give them high expectations that cannot be met. Improve management style – one of the main reasons employees leave the organization is due to dissatisfaction with their managers. Organizations that would like to improve retention should take measures to improve their managers’ people management skills. Career development and Progression – organizations should give their employees ample of opportunities to develop their skills. This can be done by introducing mentoring scheme, encouraging multi-skilling, improving career development opportunities and investing in succession planning (CIPD, 2008). Flexibility – organizations should be flexible towards employees working hours and times. If employees are forced to work hours which is not convenient for them, they will look for jobs elsewhere. Treat people equally and fairly – to improve retention organizations should make sure not to discriminate against employees. If they are unfair towards them it will result in voluntary resignations. Every employee that belongs to a team should be treated equally by the managers. Improve pay and benefits – Many employees leave due to less pay and no benefits. A simple pay rise could be a useful strategy for organizations to retain their employees. Organizations should make sure that they match the market rates or better it when it comes to good performingemployees (Muller-Camenetal, 2008).
In today’s global competitive market organizations are under constant pressure to perform well and stay competitive and in order to achieve that, they need to recruit the right people for the right job. Recruitment is a very costly process as a lot of resources go into it. If the organization recruits wrong people it could cost to the organization huge sums and also loss of valuable time. Therefore it is important for the recruitment process to be fair, reliable and valid (Armstrong, 2001). According to Bratton and Gold (2003) an organization should setup such a recruitment process, which will help in generating a pool of talented and skilled workers who are capable for employment in an organization. Recruitment involves searching and hiring qualified people for the organization and consider them when filling job openings. The recruitment process should be consistent, taking into consideration the organization’s strategy, vision and values.
There are different sources an organization can use for recruiting: the first being the internal labor market and this could be the company’s current employees. A good way for recruiting employees from within is through posting announcements in a company newsletter. According to the CIPD recruitment survey (2004a) 84 percent of UK organizations surveyed looked for applicants from within the organization. They did so by using internal email or intranet (69 percent), notice and bulletin boards (68 percent), team meetings (18 percent), staff newsletter or magazines (14 percent), and by memos, circulars and approaching directly. The second source would be the external labor market and this could be reached via electronic media and also referrals from current employees (Jackson et al, 2009). However, the success rate of these sources is not equal and may vary e.g. employee referrals may yield better quality applicants than through newspaperadvertisements.
It is important for any organization to monitor its recruitment process as this will help reduce the talented and knowledgeable employees from leaving the organization. For any organization the recruitment process is the very first stage of retention. It is therefore important for an organization to monitor the recruitment practice as it will help in finding the right candidate for the job. In the long term this will also help the organization to reduce the turnover levels.
The primary reason that organizations train their new employees is to increase the level of the knowledge, skills and abilities that they possess. It can be used as one of the ways to retain its existing employees, as training will give them an opportunity to develop new skills and gain knowledge. The amount of training given to the employees has a positive influence on the organizations revenue and overall profitability. Managers should therefore keep a watchful eye on the organizations goals and strategies while conducting training programmes (Snell & Bohlander, 2007). Training is also described as a planned process which enables to change the attitudes of people; it helps a person to gain some knowledge and develop the skills through various activities which helps the person to achieve effective performance. Training an employee at work is important as the employee will be able to meet the requirements of the organization in the present and in the future (Beardwell et al 2004). Training is the systematic process of altering the behavior of employees in a direction that will achieve organizational goals. Training is related to present job skills and abilities. It has a current orientation and helps employee’s master specific skills and abilities needed to be successful (Ivancevich,2007). There are two generally accepted methods of training: one of them is called on-the-job training and the other is called off-the-job training. On-the-job training is probably the most widely used method of training and it usually takes place at the workplace. Off-the-job training usually takes place in a location which is outside of the workplace and is normally more expensive than the on-the-job training (Mullins,2005). In on-the-job training an experience worker trains the newly recruited employee. E.g. in McDonald’s trainees acquire skills such as running a machine, making of a burger by observing the experienced worker. OJT is also used for top level management, there are ‘assistants’ who train and develop the future managers. Some other forms of OJT include apprenticeships and self-directed learning. The advantage of OJT is that it can be customized according to the experiences and abilities of the trainees. Off-the-job training provides group based learning opportunities which is conducted at a site which is away from the workplace. Off-the-job training is conducted in an off-site training classroom close to the workplace or in a corporate or private facility. Off-the-job training is usually expensive as it requires a lot of travelling and maybe used by large organizations. Training classrooms, vestibule training setups and specially constructed training laboratories are some of the sites used for off-the-jobtraining(Jacobs,2003).
In an organization training could also be used to change the culture within the organization. It can be used as an important tool by the organization to improve the overall effectiveness, especially in today’s world where the marketis highly competitive. An organization can take up two approaches on training: a systematic training and just-in-time training. In a systematic approach, training must be designed, planned and then implemented appropriately in order to meet the needs of the organization. The training is given by those people who know exactly how to train the employees. Once the training has been provided, it is carefully monitored in order to
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