Designing a team that would produce software of good quality: turnover effect
Published: 2022-10-18 14:49:26

[Turnover](https://en.wikipedia.org/wiki/Turnover_(employment)):

> turnover is the act of replacing an employee with a new employee

Since 1983 detrimental effects that companies suffer from high turnover have been studied quite a lot.

First and foremost, high turnover cost companies a fortune.

Popular sources like Gallup publish alarming articles like [this one](https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx):

> A trillion dollars.
> 
> That's what U.S. businesses are losing every year due to voluntary turnover. And the most astounding part is that most of this damage is self-inflicted.

The American think tank [‘The Center for American Progress’](https://en.wikipedia.org/wiki/Center_for_American_Progress) published a more thorough [meta-study](https://www.scribd.com/document/112707536/There-Are-Significant-Business-Costs-to-Replacing-Employees) where they reviewed 11 relevant research papers on the cost of employee turnover. Here’s the quote:

> Very highly paid jobs ... tend to have disproportionately high turnover costs as a percentage of salary (up to 213 percent)

**NB**: ‘very highly paid’ they consider jobs yielding up to $200 000 per annum

So for every employee who’s gone, the overall price the company pays might be as high as twice his yearly salary.

It’s pretty easy to calculate the direct turnover costs, I suggest you do this too. Just factor in the following expenditures (taken from [the study mentioned above](https://www.scribd.com/document/112707536/There-Are-Significant-Business-Costs-to-Replacing-Employees)):

- ‘separation’ costs: exit interviews, severance pay
- temporary cover costs
- replacement costs: advertising, agency fees, hiring (screening / interview / selection / bg-checks / signup bonus / relocation costs)
- training costs
- costs incurred as the new employee learns their job, including reduced quality, errors, and waste

You will find the last cost (associated with the quality loss) quite hard to measure. Maybe you can count the number of defects increased as folks did in [this study](https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2022.4311):

> Despite the manufacturer’s extensive quality control efforts, including stringent testing, each percentage point increase in the weekly rate of workers quitting from an assembly line (its weekly worker turnover) is found to increase field failures by 0.74%–0.79%.

But stats like this can be collected only for cases when there’s a clear separability between the production and consumption of manufactured goods. This separability allows insulating the productive operations from many environmental disturbances.

So I would say that the detrimental effect that high turnover causes on quality should be considered an _indirect turnover cost_.

Moreover, software development is an industry with a high proportion of intellectual labour, and software product quality highly depends on employees’ cognitive skills and emotions.

High turnover detrimental effects on knowledge, motivation and emotions are _indirect turnover costs_. [This study](https://www.scribd.com/document/112707536/There-Are-Significant-Business-Costs-to-Replacing-Employees) categorises these indirect turnover costs like so:

- Lost productivity for the departing employee
- Lost productivity due to the need to hire temporary employees
- Coping with a vacancy or giving additional work to other employees
- Costs incurred as the new employee learns their job, including reduced quality, errors, and waste
- Damaged employer brand
- Reduced morale
- Lost clients and lost institutional knowledge

I’ve written articles on how [information flow efficiency](https://qase.io/blog/quality-and-information-loss-in-conversion/), [emotions](https://qase.io/blog/quality-and-team-design/), [knowledge](https://qase.io/blog/quality-knowledge-overlap/), [feedback style](https://qase.io/blog/quality-and-management-complexity/) and [interest](https://qase.io/blog/quality-and-interest/) influence quality. To me, it’s quite evident that with every person leaving the team, _all_ these areas suffer, rendering the quality worse.

What makes things worse — there’s no way to measure precisely how much worse the quality gets, all we know: it gets worse.

So what exactly happens to a team when its member leaves?

- team communication graph is shattered, new connections are to be established and normalised
- team morale is shattered, and social dynamics of fear/uncertainty emerge

When an employee leaves the team, the team is destroyed and the new one is to be assembled.

In some cases, the cost of reassembling the team is low (say, when the team knew and welcomed the employee’s departure); sometimes, it’s ridiculously high (say, the informal leader of the team got sacked) and can even cause others to leave or consider leaving.

In any case, as the quality depends much on information flow efficiency, it seems obvious that the quality-focused strategy should imply serious efforts invested into retaining the team.

And as Dr. Deming said:

> the most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.

References:

- [There Are Significant Business Costs To Replacing Employees](https://www.scribd.com/document/112707536/There-Are-Significant-Business-Costs-to-Replacing-Employees)
- [The cost of turnover: Putting a price on the learning curve](https://www.sciencedirect.com/science/article/abs/pii/S0010880400800130)
- [Strategies for Managing Employee Turnover](https://journals.sagepub.com/doi/abs/10.1177/001088048302400216)
- [The Hidden Cost of Worker Turnover: Attributing Product Reliability to the Turnover of Factory Workers](https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2022.4311)
- [Employee Retention and Turnover in Global Software Development: Comparing In-house Offshoring and Offshore Outsourcing](https://www.researchgate.net/publication/323835309_Employee_Retention_and_Turnover_in_Global_Software_Development_Comparing_In-house_Offshoring_and_Offshore_Outsourcing)
- [Psychological climate and individual performance in India: test of a mediated model](https://www.emerald.com/insight/content/doi/10.1108/01425450710826131/full/html)
- [Effect of employees' turnover rate on industrial firms' production efficiency: A conceptual model](https://ieeexplore.ieee.org/document/5691528)
- [The Impact of Employees’ Turnover at the Productivity of a Software](https://www.researchgate.net/profile/Dost-Khan-5/publication/290883788_The_Impact_of_Employees%27_Turnover_at_the_Productivity_of_a_Software/links/586b5fa008ae6eb871bb449d/The-Impact-of-Employees-Turnover-at-the-Productivity-of-a-Software.pdf)
- [A review of the literature on employee turnover](https://www.researchgate.net/publication/209835787_A_review_of_the_literature_on_employee_turnover)
- [How to understand the ROI of investing in People](https://www.linkedin.com/pulse/how-understand-roi-investing-people-maia-josebachvili/)
- [How Much Does Employee Turnover Really Cost?](https://www.huffpost.com/entry/how-much-does-employee-turnover-really-cost_b_587fbaf9e4b0474ad4874fb7)
- [Turnover and Knowledge Loss: An Examination of the Differential Impact of Production Manager and Worker Turnover in Service and Manufacturing Firms](https://www.researchgate.net/publication/264806385_Turnover_and_Knowledge_Loss_An_Examination_of_the_Differential_Impact_of_Production_Manager_and_Worker_Turnover_in_Service_and_Manufacturing_Firms)
- [VOLUNTARY TURNOVER AND ORGANIZATIONAL PERFORMANCE](https://www.researchgate.net/publication/274693943_VOLUNTARY_TURNOVER_AND_ORGANIZATIONAL_PERFORMANCE)
- [Developmental sequence in small groups.](https://psycnet.apa.org/doiLanding?doi=10.1037%2Fh0022100)
- [From I to we: Social identity and the collective self.](https://psycnet.apa.org/doiLanding?doi=10.1037%2F1089-2699.4.1.81)
- [Acquisition Community Team Dynamics: The Tuckman Model vs. the DAU Model](https://apps.dtic.mil/dtic/tr/fulltext/u2/a493549.pdf)
- [Manage what you can't measure](https://curiouscat.com/management/deming/managewhatyoucantmeasure)