Attrition in Human Resources

Attrition in human resources is when a company lets the number of workers slowly go down. They do this by not hiring new people when someone quits or retires. Attrition is a way companies can shrink their workforce without having to fire anyone.

Why Companies Use Attrition

There are a few reasons why a company might want to use attrition:

Saving Money

Paying salaries is expensive for companies. If they can get the same amount of work done with fewer people, they can save a lot of money. Attrition lets them slowly reduce headcount and costs.

Restructuring the Organization

Sometimes a company wants to change the types of jobs and skills they have. Maybe they used to make phones but now they want to focus on apps. Attrition is a way to phase out roles they don’t need anymore as people naturally leave.

Addressing Poor Performance

If there are some low performers, attrition is an easy way to let them go. The company just won’t replace them when they quit. This avoids awkward firings.

Avoiding Layoffs

Layoffs are when a bunch of people suddenly lose their jobs. This is bad for morale and the company’s reputation. Attrition is a “quieter” way to downsize that doesn’t get as much negative attention.

Problems with Relying on Attrition

Attrition might sound nice since no one is getting fired. But there are some issues with depending on it too much:

Losing the Wrong People

A company can’t fully control who leaves. High performers that the company wants to keep might take off for a better opportunity. Meanwhile, the low performers might stay put since it’s harder for them to find a new job. The company can end up with the wrong mix of talent.

Damaging Morale and Productivity

Even though no one is getting laid off, workers aren’t stupid. They notice when their company isn’t replacing people who leave and their workload keeps going up. People can start to feel overworked, underappreciated, and worried about the future. Morale and productivity tank.

Increasing Turnover

If good employees see their talented colleagues leaving without being replaced, they might start looking for the door too. No one wants to be stuck on a sinking ship. A company trying to reduce headcount through attrition can ironically see turnover speed up.

Struggling to Get Work Done

Companies usually underestimate how hard it will be to get everything done with fewer people. Critical knowledge and skills can walk out the door. Teams start missing deadlines and dropping balls. The quality of the product and customer service slips.

Attrition Best Practices

Attrition can work for companies if they’re smart about it. Some best practices include:

Workforce Planning

Companies need to carefully plan what roles and skills they’ll need in the future. They should focus attrition on areas that are less critical or are being automated. Backfilling essential positions needs to be done quickly.

Improving Retention

The flip side of attrition is retention. Companies should work hard to keep their highest performers happy and engaged. They can offer better pay, perks, development opportunities and work-life balance to entice folks to stay.

Cross-Training and Knowledge Transfer

To guard against losing critical expertise, companies should continuously cross-train employees and document key processes. Don’t let knowledge live in only one person’s head.

Recognizing and Rewarding Staff

With fewer people, it’s more important than ever to make the remaining staff feel valued. Companies need to go out of their way to recognize people’s contributions and sacrifices. Spot bonuses, extra time off, and genuine praise can help.

Communicating Openly

Companies should be transparent about their workforce plans when possible. Employees should understand the company’s direction and if their role is likely to change. Two-way communication and feedback are essential.

When Attrition Goes Wrong

There are some famous examples of attrition going off the rails. One cautionary tale is Nokia, the Finnish company that used to dominate the mobile phone industry. In the late 2000s, Nokia wanted to dramatically cut costs as they started to lose market share to the iPhone.

Nokia relied heavily on attrition to reduce headcount. But they made some key mistakes. They lost a lot of top engineering talent who didn’t want to stick around through the transition. Entire teams with critical skills disappeared.

Meanwhile, Nokia’s attempt to switch from its own Symbian operating system to Microsoft’s Windows Phone platform was floundering. They didn’t have enough software expertise in-house anymore to pull off the massive shift. Key projects fell behind schedule or were cancelled altogether.

By the time Nokia realized its attrition approach wasn’t working, it was too late. Microsoft ended up buying Nokia’s crumbling phone business for a song in 2013. And a former top Microsoft executive said the main reason for the deal was to rescue the over 20,000 workers Nokia was planning to lay off.

The moral of the Nokia story is that attrition can be a useful tool, but it needs to be wielded very carefully. Losing the wrong skills and knowledge at the wrong time can be fatal even for industry titans.

Balancing Attrition with Growth

While this article has focused on attrition as a way to reduce headcount, it’s important to remember that the best companies are usually growing their workforce over time. Bringing in fresh talent and ideas is vital for staying competitive in the long run.

So even if a company is using some attrition to manage costs, it’s still important to keep recruiting and developing the next generation of employees. This is especially true in dynamic industries like technology where the pace of change is blistering.

Companies like Google are famous for making acquiring and nurturing top talent a core part of their strategy. Sure, Google uses some attrition to prune its 100,000+ person workforce. But on the whole it’s adding thousands of new faces each year to keep stoking the innovation engine.

Finding the right balance between attrition and addition is more of an art than a science. It depends on the company’s unique situation and goals. But in general, using attrition to finetune things in the short-term while still investing in talent for the long-term is a wise approach.