The Relationship of Employee Retention and Organizational Performance
When a business loses employees, it loses skills, experience and “corporate
memory”. The magnitude and nature of these losses is a critical management
issue affecting productivity, profitability, and product and service quality. For
employees, high turnover can negatively affect employment relationships,
morale and workplace safety Bratton & Gold, (2003). Employee retention is
vital in all organizations and therefore having in place employee retention
strategies increases the chances of long term employees. By having employee
retention strategies put in place in the companies policies and practices will
enhance the company‟s profitability as the productivity level will increase due
to having satisfied employees who are happy to work in such an organization.
An increment in employee retention bring about a reduction in recruitment thus
saving the organization time and costs in recruitment and training. Company
investors have a high regard for human capital and therefore organizations
should ensure that their talented people are retained in the organization as they
are a competitive advantage to the competitors Philips and Edwards, (2008).
According to Galbreath, (2010), the ability of a firm to be able to retain their
employees is a signal of success and shows that the organization is not only a
valued place of work but also that there is positive consequences for the firm‟s
performance and productivity.
The world is an integrated marketplace where comparative advantage lies on
the skills, education and technical competence of a company‟s workforce.
Therefore, highly skilled and educated labour force increases labour
productivity and creates an access to global opportunities thus attracting foreign
capital. Organizations that have been successful in retaining staff ends up
saving costs of training new recruits thus ending up with employees who have
greater skills and knowledge of the organization‟s products/service and internal
processes as they have been working there for a long period as a result enabling
the company to be more productive and attract foreign capital and competition
(Scullion & Collings, 2011).
Retention of key employees is important in that it fosters customer satisfaction,
increases sales, promotes working relationships, improves employee-manager
relationships and enables valuable succession planning. In such a system,
organizational knowledge and learning is successfully preserved and advanced.
Failing to retain key employees is costly for any business. Gordon & Meredith,
(2001) further emphasizes that a company needs to invest in employee
retention in order to be successful. In addition, creation and preservation of
knowledge has become a key tool in accelerating competitiveness and
enhancing organizational capabilities to respond to market changes. Engaging
talented people in an organization facilitates achievement of the vision of their
organizations that meet the organizational objectives who are innovative and
can ensure global competitiveness. Retaining these experts should be
marked by motivating them, and allowing them to apply their knowledge.
Utilizing them has become critical for firms as they seek to adapt to the volatile
commercial atmosphere (Mutsuddi & Mutsuddi, 2007).
Coetzee, (2004) explains that managers should then realize that recruiting and
developing talented staff is of paramount importance to the success of their
business objectives. Consequently, it is important for managers to seek out
employees with competencies and abilities that will contribute significantly to
their teams. A collection of these gifted workers will build teams that can
achieve great results since it is a well appreciated fact that talent is what
ultimately drives business success and creates value. The resource- based
theory, (Barney,1991), stresses the importance of the intangible resources and
capabilities of the firm in the context of the competitive environment. In this
way, the firms that devote their internal forces to exploit the opportunities of
the environment and to neutralize threats while avoiding weak points are most
likely to improve its performance than those that do not do the same and they
are able to build a good reputation.
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