Talent Management

Talent management strategy ofemployee engagement in IndianITES employees: key to retention

Jyotsna BhatnagarHuman Resource Management Area, Management Development Institute,

Sukhrali, Gurgaon, India

Abstract

Purpose – With talent management becoming an area of growing concern in the literature, thepurpose of this paper is to investigate talent management and its relationship to levels of employeeengagement using a mixed method research design.

Design/methodology/approach – The first phase was a survey on a sample of 272 BPO/ITESemployees, using Gallup q12 or Gallup Workplace Audit. Focus group interview discussion wasbased on reasons for attrition and the unique problems of employee engagement. In the secondphase, one of the BPO organizations from the phase I sample was chosen at random and exitinterview data was analyzed using factor analysis and content analysis.

Findings – The results were in the expected direction and fulfilled the research aims of the currentstudy. In the first phase low factor loadings indicated low engagement scores at the beginning of thecareer and at completion of 16 months with the organization. High factor loadings at intermediatestages of employment were indicative of high engagement levels, but the interview data reflected thatthis may mean high loyalty, but only for a limited time. In the second phase factor loadings indicatedthree distinct factors of organizational culture, career planning along with incentives andorganizational support. The first two were indicative of high attrition.

Research limitations/implications – A limitation of the research design was a sample size of 272respondents. Some of the Cronbach’s alpha scores of the subscales of Gallup q12 were low. Thestrength of the study lies in data triangulation, which was obtained through a mixed method approach,a survey and unstructured focus group interviews. There are theoretical implications for the constructof employee engagement. There seems to be a construct contamination from the fields of employeesatisfaction, employee commitment and employee involvement, which is beyond the scope of thispaper. Future studies in India may look into this area and construct an independent scale of employeeengagement, focusing on the antecedent variables and testing them for theoretical underpinnings.

Originality/value – The present study indicated that a good level of engagement may lead to highretention, but only for a limited time in the ITES sector. The need for a more rigorous employeeengagement construct is indicated by the study. Practical implications for retention in the BPO/ITESsector are referred to.

Keywords Human resources management, Retention, India, Employees

Paper type Research paper

IntroductionTalent management is fast gaining a top priority for organizations across the world.Trends for talent management, talent wars, talent raids and talent shortage, talentmetrics retention and concerns for talent strategy are expressed in the literature, acrossvarious countries like the USA, the UK, Australia, Japan, China, India, and across Asia(see Yeung, 2006; Ruppe, 2006; Dunn, 2006; Chugh and Bhatnagar, 2006; Lewis andHeckman, 2006; Lewis, 2005; Branham, 2005; Bennett and Bell, 2004). Talent

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Employee RelationsVol. 29 No. 6, 2007pp. 640-663q Emerald Group Publishing Limited0142-5455DOI 10.1108/01425450710826122

management was initially designed to improve the process for recruiting anddeveloping people with the required skills and aptitude to meet current organizationalneeds. The various aspects of talent management are recruitment, selection,on-boarding, mentoring, performance management, career development, leadershipdevelopment, replacement planning, career planning, recognition and reward (Romansand Lardner, 2006; Heinen and O’Neill, 2004; Scheweyer, 2004). Competition and thelack of availability of highly talented and skilled employees make finding andretaining talented employees major priorities for organizations (Fegley, 2006). In orderto attract and retain the best talent anywhere in the world, an organization must have astrong and positive employer brand (Brewster et al., 2005). Employer brandinterventions in recent research indicates talent management as a key driver for thisstrategy, and is on the agenda for HR executives in 2007 and beyond (HR Focus, 2006,Focus, 2007). Talent has become the key differentiator for human capital managementand for leveraging competitive advantage. Grounded within strategic HRM (Gratton,2000; Becker et al., 2001), the management of talent seems to be one of the key functionsthat HRM is playing strategically in organizations (Bhatnagar, 2004). Recent researchindicates that the war for talent is intense due to labour market shortages (Branham,2005; Brewster et al., 2005; Lawler, 2005; Boudreau and Ramstad, 2005; Cappelli, 2000;Nybo, 2004; Sparrow, 2004), yet very little research attention has been aimed atcompetitive talent management strategies. Further, Pfeffer and Sutton (2006) reflectthat the typical HRM/talent mindset, which looks at performance results as anopportunity for an “assessment” of ability, leads to lower performance and unhappystaff who do not fulfill their potential and thus would reflect low talent engagement.

In fact, talent engagement (Fombrum, 2006) is an area which needs a specialresearch focus. It raises questions such as:

. What is the engagement score?

. At what level are various talent segments and departments engaged?

. Are engagement levels increasing over time?

These questions need to be addressed through research.

Companies with highly engaged employees articulate their values and attributes through“signature experiences” – visible, distinctive elements of the work environment that sendpowerful messages about the organization’s aspirations and about the skills, stamina, andcommitment employees will need in order to succeed in these organizations (Erickson andGratton, 2007, p. 1).

Employee engagement as a key to the retention of talent (one-of-a-kind hire in 100employees; Glen, 2006) is an area in which the lead has been taken by practitioners(Parsley, 2006; Baumruk et al., 2006; Woodruffe, 2005; Gallup Management Journal,2006; Bennett and Bell, 2004; Hay Group, 2002). It is an area where rigorous academicresearch is required (Cartwright and Holmes, 2006; Joo and Mclean, 2006; Luthans andPeterson, 2002). Employee engagement (Rothbard, 2001; Cartwright and Holmes, 2006;Joo and Mclean, 2006), is an important outcome variable which research studies inIndia have not investigated. In fact, Fegley (2006) indicated trends in the Westernworld that the Indian HR community needs to look into. Given the relevance of thedynamic work environment post-liberalization, this study becomes important.

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After liberalization of the Indian economy, the impact of restructuring, economictransition to an open market, and increased competition from internal and externalsources has put pressure on all functions of organizations (Bhatnagar, 2007; Budhwaret al., 2006). There has been evidence of a general need among the managerial cadre tobuild capabilities, resources, competencies, strategies, and macro as well as micro HRMactivities (Budhwar et al., 2006; Bhatnagar and Sharma, 2005). Some leading Indianorganizations have brought out newer issues in the strategic management of their HRfunction. An attempt has been made in this paper to fill this gap, and to investigate theemerging talent management, attrition and employee engagement issues in theBPO/ITES sector.

The BPO/ITES SECTOR is a heterogeneous and rapidly growing offshore market witha projected annual growth rate of 60 per cent (Tapper, 2004). Brown and Stone (2004)reported that BPO accounted for 34 per cent of the global outsourcing contract value in2004 and projected that BPO services would grow from $1.3 billion in 2002 to $4.3 billion in2007 (Mehta et al., 2006; Budhwar et al., 2006). According to a recent survey carried out byA.T. Kerney (2007), an unbeatable mix of low costs, deep technical and language skills,mature vendors and supportive government policies have taken India to the top amongglobal destinations for offshoring services. This is despite all the concerns indicated aboutoverheating, wage inflation and service levels, as reported in a recent survey (IndiaBusiness, 2007).

Further, the Indian IT-ITES industry is on a high momentum path. Rampantgrowth, however, has come with its own set of challenges. Chief among them relates toskilled manpower resources. Not only does India need to sustain its vast pool ofspecialised IT-ITES talent, but it also has to ensure that it remains “industry-relevant”and “rightly skilled” (Simhan, 2006).

It is apparent from the research to date that call centres (or BPOs) are not allmanaged in the same way and that employers make specific choices about the typesof employment practices that they wish to utilise within these operations (Hallidenand Monks, 2005). In fact, Budhwar et al. (2006) reported HRM systems and theircurrent state in the Indian BPO/ITES sector. Yet the study did not look at talentmanagement and talent engagement strategies. More recently, the NationalAssociation of Software and Services Companies (NASSCOM) HR Summit 2006looked closely at the evolving profile of HR and the transformational role it can playwithin the IT-ITES industries, to make employees and their organizations moreglobally competitive (Simhan, 2006).

In the background of the above, the first objective of the study is to focus at theBPO/ITES sector and discuss the literature in the area of employee engagement. Thesecond objective investigates the quality of employee engagement in the ITES sector. Thisis based on primary data and probes for linkages between employee engagement andtalent retention.

The paper is organized as follows: the first section sets the context of the need tostudy employee engagement in the BPO/ITES sector in India. The next sectionexamines the literature on employee engagement and its linkage to talent managementand retention; the third section encapsulates the lacunae in research and the conceptualframework. This is followed by the research methodology, results and implications forfurther research.

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The ITES sector in IndiaThe Indian BPO/ITES sector has been the focus of some research studies in the Westrecently (for a detailed analysis of this sector, see McMillan (2006); Budhwar et al.,2006; Mehta et al., 2006; Singh and Pandey, 2005; Venkatraman, 2004).

India’s competitive advantage as compared to other countries has made it a targetdestination of multinationals for their back-end operations. To begin with, theabundant skilled manpower gives the country an edge in BPO. About 100,000engineers graduate from India every year. Many of these engineers are employed withcall centres (BPO/ITES SECTOR) for trouble shooting and providing technical support(A.T. Kerney, 2007). India has the largest English-speaking talent pool in the worldwith 4.40 lakh (1 lakh ¼ 100; 000) engineering diploma holders, about 23 lakhgraduates in other disciplines and 3 lakh post graduates. Three-fifths of the Indiantechnical workforce has more than four years of experience (Pandeya and Bali, 2006,p. 20). Global Services Location Index (2007) cited in an A.T. Kerney Report (2007)claims that in the overall ranking of BPOs, dominated by developing countries fromAsia, India is followed by China, Malaysia, Thailand and Brazil. To arrive at the finalranking, A.T. Kearney surveyed over 50 countries for different aspects related tooffshoring services, like people skills, financial attractiveness and businessenvironment. India maintains a wide, albeit slightly shrinking, lead over China,confirming what industry surveys and visiting executives have found. Whilecompensation costs in India have increased because of recent high economic growth,“these cost escalations have been matched by corresponding increases in skill supplyand quality indicators”, the global consultancy said. Although India ranks highoverall, mainly because of its skilled and technically superior pool of manpower, itsuffers on the other two parameters – financial attractiveness and businessenvironment rankings. In terms of people skills India ranks second, behind the US (tierII cities) but ahead of China and Germany. As for business environment rankings,India is placed a distant 34th. When it comes to the question of cost effectiveness,Vietnam, with one of the lowest telecom costs in the world, comes out on top whileIndia is ranked sixth. Meanwhile McMillan (2006, p. 240) reported that the US accountsfor 59 per cent of total global investment in the Indian ITES-BPO industry, targetinglegal, logistics and customer care segments. Europe is the second largest market at 22per cent, targeting HR, purchasing, finance, and accounting. Finally, the Asia/Pacificregion follows at 15 per cent, with the fastest growing areas including HR, engineering,finance, accounting, and purchasing. While the NASSCOM (National Association ofSoftware and Services Companies, 2006) Report states that the IT-ITES sectorcontributed 4.8 per cent of GDP in 2006 and is to achieve the targeted $60 billion inexports by 2010. On the other hand, it was reported by ICRA, an associate of Moody’sInvestors Service, reported that the Indian BPO/ITES industry is benefiting from thecontinued trend of outsourcing by global corporations of their business processesservice to developing countries, and the domestic ITES sector is set to reach the $10billion mark by 2006-2007 from $7.2 billion in 2005-2006, a growth of almost 39 per cent(PTI, 2006). The report also pointed out that in line with the growth of the sector,manpower demand is also expected to surge to around 1.4 million by 2010. Sustainingthis high growth in the ITES sector would require the industry to attract an additional0.5 million employees over the estimated figures, it said. Dispelling the fears ofoutsourcing backlash from developed countries, the study stated that over the long

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term, outsourcing by developed nations may lead to the creation of new jobs inoccupations that require higher levels of skill, increase real wages, and yield significanteconomic gain. According to the NASSCOM strategic review (National Association ofSoftware and Services Companies, 2006), for India to fully capitalise on the opportunityand sustain a disproportionate lead in the global IT-ITES space, it needs to focus onenhancing the talent pool advantage – focus on skill development to better leveragethe world’s largest working population, among others. According to Budhwar et al.(2006), with India expected to achieve revenues of $148 billion by 2012, the industryrequires direct recruitment of over 3.7 million personnel. With recruitment becoming asource of concern, attrition within the sector is creating problems of employeeengagement within this sector. While India does have a large talent pool, not all are“industry-ready” or equipped with the necessary skill sets to become useful tocompanies. This means that while there is plenty of supply at the entry level (voiceprocesses), there are huge gaps in the middle management and senior managementlevels. This has resulted in increased levels of poaching and attrition cases. Presently,the average attrition rate faced by this industry is somewhere around 30-35 per cent(Phukan, 2007). Attrition has actually stabilised in the IT and ITES sector, if one takesthe three-to-four year time frame. For BPOs/ITES centred around Bangalore (SouthernIndia), it could be around 35-40 per cent (Sen, 2007).

Over the last few years, a number of studies related to the management of humanresources in outsourcing centres have been conducted. The existing literaturehighlights that most of these studies have been conducted in the developed countries(see for example, special issues of HRMJ, 2002, European Journal of Work andOrganizational Psychology, 2003; Holtgreve et al., 2002; Butler, 2004; Deery and Kinnie,2004). They provide the theoretical basis for analysing employee engagement studiesin the HR practices context. A framework for employee engagement in the BPO sectorcan provide interesting leading points for practitioners and academicians to plantraining interventions to arrest disengagement and hence quitting behaviour in theworkforce and leverage the quality of the engagement index as a competitiveadvantage. Hence there is an immense need to study employee engagement in thissector. The next section focuses on the conceptual framework of employee engagementand the literature review in this area. This fulfils the first aim of the current study.

Employee engagementThe literature on employee engagement has a practitioner influence, and researchstudies (barring a few like Rothbard, 2001; May et al., 2004; Schaufeli and Bakker, 2004)are sparse in this area. This paper examines both the aspects in the literature. We firstdeal with practitioner-oriented definitions and then move to academic research.According to CEO Speak in the Hewitt Best Employers Survey (2004), among the manykey people challenges one is to build a fierce employer brand equity (Fitz-enz, 2003),and one way to do that is to retain employees. This would be possible if organizationsprovide them with a passion to work, and an engrossing environment whichmaximizes their performance and gives a continuous work experience that is difficultfor competitors to replicate. Managers are an important key in this equation (Baumruket al., 2006; Lockwood, 2006). Further, an employer of choice recruits and engagestalent through practices that address both tangibles and intangibles, with a focus onthe long-term as well as the short term, and are tailored to the organization (Branham,

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2005). A recent survey of HR professionals in Western countries reflects that the mostimportant issue anticipated in 2006 involved retaining and developing key employees(75 percent of responses); the next issue was of employee engagement and enhancedproductivity (60.7 percent of responses cited this issue), followed by leadership trainingand development (59.8 percent respondents cited this issue; HR Focus, 2006). Effectivetalent management policies and practices demonstrate commitment to human capital,resulting in more engaged employees and lower turnover. Consequently, employeeengagement has a substantial impact on employee productivity and talent retention.Employee engagement, in fact, can make or break the bottom line (Lockwood, 2006).Martel (2003, pp. 30, 42) is of the opinion that, “in order to obtain high performance inpostindustrial, intangible work that demands innovation, flexibility, and speed,employers need to engage their employees [. . .] Engaging employees – especially bygiving them participation, freedom, and trust – is the most comprehensive response tothe ascendant postindustrial values of self-realization and self-actualization”. Theperformance data of the best companies in the USA show that in all the practice areasdiscussed previously, objectives are more easily met when employees are engaged andmore likely to fall short when they are not. In order to maintain an employer brand, wesee an emergence of a series of studies on employer of choice, which also measureengagement index and financial performance (Coleman, 2005). A recent SHRMConference (2006) reported the result of a new global employee engagement studyshowing a dramatic difference in bottom-line results in organizations with highlyengaged employees when compared to organizations whose employees had lowengagement scores. The study, gathered from surveys of over 664,000 employees fromaround the world, analyzed three traditional financial performance measures over a12-month period, including operating income, net income and earnings per share (EPS).Most dramatic among its findings was the almost 52 percent gap in the one-yearperformance improvement in operating income between organizations with highlyengaged employees versus organizations whose employees have low engagementscores. Employee engagement surveys are designed to gauge the employeeengagement based on employees’ perceptions of the work environment, which ispart of the above surveys. Furthermore, when done well, practices that support talentmanagement also support employee engagement (e.g. work-life balance programs –flexitime, telecommuting, compressed workweeks, reward programs, performancemanagement systems) according to the Corporate Leadership Council (2004) andMartel (2003). Employee engagement begins with an on-boarding program and isessentially a part of the human capital pipeline or talent pipeline, as some researchershave determined (e.g. Romans and Lardner, 2005). In India, although manymultinational organizations have carried out the engagement index survey, yet noattempt has been made to study the same and link it to talent management strategy.The current study attempts to map the engagement index across the ITES sector dueto the high attrition rates mentioned previously.

Conceptual framework of employee engagementEngaged employees within an organization provide a competitive advantage toorganizations, as explained by the resource-based view (RBV) of the firm (Joo andMclean, 2006), and hence there is a need to continuously engage employees. Theresource-based view posits that human and organizational resources, more than

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physical, technical or financial resources, can provide a firm with sustainedcompetitive advantage because they are particularly difficult to emulate (Lado andWilson, 1994; Wright and McMahan, 1992). The RBV points out that firms can developsustained competitive advantage only by creating value in a way that is rare anddifficult for competitors to imitate (e.g. Barney, 1991, 1995; Grant, 1991; Peteraf, 1993;Paauwe, 1994; Teece et al., 1997; Foss, 1997). This approach requires that a firm be seennot through its activities in the product market, but as a unique bundle of resourcesthat are complex, intangible and dynamic (De Saa-Perez and Garcıa-Falcon, 2002). Jooand Mclean (2006) state that engaged employees are strong organizational assets forsustained competitive advantage and a strategic asset. Amit and Shoemaker (1993)define a strategic asset as “the set of difficult-to-trade-and-imitate, scarce, appropriableand specialized resources and capabilities that bestow a firm’s competitive advantage”.These engaged employees are difficult to imitate and are unique to an organization,thus lending credence to the resource-based perspective of the firm. This then leads usto the definition of employee engagement, where we analyze the types of employeeengagement and the nesting of the concept in the theoretical framework. Donahue(2001) emphasized in a talent management strategy the credo of “heads, hands andhearts”. It is hearts (passion – a person’s intrinsic motivation) that are the essence ofemployee engagement. Further, there is confusion in the literature about employeeengagement. We see overlapping constructs of organizational commitment, intrinsicmotivation, and employee involvement, passion and dedication to work. According toKahn (1990) employee engagement is different from other role constructs such as jobinvolvement (Lawler and Hall, 1970; Lodahl and Kejner, 1965), commitment toorganizations (Mowday et al., 1982) or intrinsic motivation (Deci, 1975). Employeeengagement is a multidimensional construct. Employees can be emotionally,cognitively or physically engaged. Luthans and Peterson (2002) proposed Kahn’s(1990, 1992) work on personal engagement, which provides a convergent theory forGallup’s empirically derived employee engagement. To be emotionally engaged is toform meaningful connections to others (peers, co-workers) and to experience empathyand concern for others’ feelings. In contrast, being cognitively engaged refers to thosewho are acutely aware of their mission and role in their work environment. Accordingto Kahn (1990) employees can be engaged on one dimension and not the other.However, the more engaged the employee is on each dimension, the higher his or heroverall personal engagement. On the other hand, Rothbard (2001, p. 655) states thatengagement may look at depletion or enrichment in multiple roles. The theory behindrole conflict is visited to prove the point. This study also draws on the basic study ofKahn (1990, 1992), as does the research study by May et al. (2004, p. 13), which bases itswork on meaningfulness in Kahn’s (1990, 1992) basic work. The study quotes theresearch study of Britt et al. (2001), which found that engagement in meaningful workcan lead to perceived benefits from the work.

On the other hand, Schaufeli et al. (2002, p. 74) define engagement “as a positive,fulfilling, work-related state of mind that is characterized by vigor, dedication, andabsorption”. They further state that engagement is not a momentary and specific state,but rather it is “a more persistent and pervasive affective-cognitive state that is notfocused on any particular object, event, individual, or behavior” (Schaufeli et al. (2002, p.74)).Yet engagement is different from satisfaction as Gubman (2004, p. 43) states thatengagement means “a heightened emotional connection to a job and organization that

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goes beyond satisfaction” that enables people to perform well, and makes want to staywith their employers and say good things about them. In short, there is a psychic incomeat work that makes people feel socially accepted and respected:

Engagement is the state of emotional and intellectual commitment to an organization orgroup. An engaged employee is a person who is fully involved in, and enthusiastic about, hisor her work (Falcone, 2006).

In fact, Luthans and Peterson (2002, p. 377) state that Gallup has empiricallydetermined employee engagement to be a significant predictor of desirableorganizational outcomes such as customer satisfaction, retention, productivity andprofitability (see Buckingham and Coffman, 1999). This employee engagement ismeasured by the Gallup Workplace Audit, consisting of 12 questions such as:

. Do I know what is expected of me at work?

. At work do I have opportunity to do what I do best every day? (see Buckinghamand Coffman, 1999).

These questions were derived through thousands of focus groups conducted over 2,500business, healthcare and education units. The questions were factor-analyzed and weresubjected to confirmatory factor analyses. However linking the empirical evidence toan established theory in the management research seems desirable as such. Atheoretical framework can aid in further validation, understanding and testing ofGallup’s conceptualization of engagement (Luthans and Peterson, 2002, p. 377).Luthans and Peterson (2002, p. 378) state that by conceptually comparing the GallupWorkplace Audit (Buckingham and Coffman, 1999) with Kahn’s (1990) theoreticallyderived dimensions of engagement, there seems to be a conceptual fit, and thusestablishes theoretical grounding for better understanding of employee engagementand a way to operationalize and measure it through the Gallup Workplace Audit.

Further, involvement is important, as Baumruk (2006), states:

This is the feeling employees have about being ‘in the loop.’ Employees who feel ‘out of theloop’ suffer in terms of engagement. This is about a manager’s ability to involve employees indecision making, execution and day-to-day change initiatives.

Kahn (1990) suggests that employees experience dimensions of personal engagement ordisengagement during daily task performance. Yet Kahn (1990) notes that disengagementis dependant on social and cognitive withdrawal and reflects incomplete roleperformance. More recently, Seijts and Crim (2006) reported the findings of the 2005Towers Perrin (Seijts and Crim, 2006) engagement study, which demonstrates alarmingfindings of the disengagement rate in the US workforce, and does the Gallup ManagementJournal (2006), which quotes alarming engagement indices for the US workforce. A recentmeta-analysis of over 7,939 business units in 38 companies explored the relationship atthe business-unit level between employee satisfaction-engagement and the business-unitoutcomes of customer satisfaction, productivity, profit, employee turnover, and accidents(Nowack, 2006). This was conducted in a Western context. However, no such studies havebeen replicated in India.

Looking at the above lacunae it also becomes vital to measure employeeengagement in India, especially in the ITES sector. It becomes important to determinethe disengagement areas, so as to plug the gaps and strengthen the engagement areas

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by supportive OD interventions in the BPO/ITES sector. This sector has high levels ofattrition, as indicated by an Indian BPO, Infosys, where attrition is treated as abusiness problem and not just an HR problem, and receives attention at a combinedleadership level (Sen, 2007; Saxena and Bharadwaj, 2007; Budhwar et al., 2006).

MethodologyGiven the exploratory nature of the research, a mixed method approach was followed forinvestigation, which included self-completed questionnaires, focus group interviews, andpossible secondary sources (exit interview data in this research study). The research wasconducted in 2005 and 2006, in the four BPO/ITES organizations falling in the NationalCapital Region of India (NCR). In the first phase of the research there were 350 employeeswho were approached to fill the questionnaires. The respondents were approachedpersonally for their responses and interviews. The researcher received 272 sets ofcompleted questionnaires making a response rate of 78 percent. The sample comprised 42percent females and 58 percent males. The average age was 24 years and the minimumqualification was an undergraduate degree. Focus group interviews were carried out forabout one and a half hours in one of the BPO/ITES organizations. The interview schedulewas unstructured and was based on the Gallup q12 questions (see Table I) and reasons forattrition (open-ended question) about all levels of employees, with special reference to theentry level. The group comprised of 30 male team managers/project heads/technicalheads at a management institute, where these members participated in a managementdevelopment program. Their level is middle management in the BPO/ITES sector. In thesecond phase of research in 2006, one of the BPO/ITES organizations was selectedrandomly. In this organization 72 completed exit interview forms were analyzed forreasons of attrition at the team member/technical member and team developer levels.These are the first two entry-level positions at this BPO. Employees at these levels aretypically fresh graduates (from varied streams) with a few engineers as well.

MeasuresIn the first phase of the research, Gallup q12, known as the Gallup Work Place Audit (seeBuckingham and Coffman, 1999) was taken up as a measure of employee engagement, asit is established as a suitable instrument to measure employee engagement (Luthans andPeterson, 2002). These 12 questions can be pictured as a psychological mountain climbthat employees make from the moment they assume a new role to the moment they getfully engaged in that role. The stages on the climb can be described as follows:

(1) Base camp: “What do I get?” – When an employee starts a new role, he wants toknow what is expected out of him and what does he get from this role. This thenleads to Camp 1.

(2) Camp 1: “What do I give?” – At this stage the employee is focused on theindividual contributions and other people’s perception of it (i.e. whether othersvalue employees’ performance or not).

(3) Camp 2: “Do I belong here?” – At this stage of the mountain climb the employeewants to know whether he fits here or not.

(4) Camp 3: “How can we all grow?” – This is the most advanced stage of the climb.Here the employee wants to make things better, to learn, to grow, to innovate.

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Table I.Cronbach’s a, factor

loadings, mean, SD andvariance of the scale

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The sample items and results regarding reliability statistics (Cronbach’s a) areprovided in Table I. Reliability statistics indicate that the reliability values obtained forthe scale were satisfactory (.0.70). However, the subscales of the GWA show lowscores, which is a limitation in this study. The items along with their factor loadingsand Cronbach’s a values are reported in Table I.

In the second phase the exit interview questionnaire was divided into two parts. Thefirst part consisted of 13 objective questions on a five-point Likert scale with anadditional sixth point factored in for the response as “Not applicable”. The second partwas a set of 14 open-ended subjective questions. Based on this data, analysis wasperformed in two ways. The first was a quantitative analysis of the objective questionsbased on the factor analysis approach. The second was a qualitative analysis of thesubjective questions, using content analysis. Both the phases fulfilled the second aim ofthe current study.

ResultsWhen we refer to Table II, we find that the mean for Base camp: “What do I get?” isfurther towards the lower end than the other variables (M ¼ 8:14, SD ¼ 1:47), and thisis further supported by lowest factor loading reported in Table III.

The factor loadings are lowest for Base camp (0.601), indicating that employees ofthe BPO/ITES organization find this juncture disengaging and are more likely to leavein the first three months. The findings of the study find credence, as one of the teammanagers reported in a focus group interview to the researcher:

IBPO/ITES employee’s highest attrition rate is recorded as soon as they join in. Completingthe training is a strenuous process and they usually leave as soon as the process is over.Retaining them for the first six months is a challenge to the Team manager and the HRdepartment. Reward and recognition work only for the first three months and after that itbecomes a hygiene factor.

Variables Mean SD Age Gender Education

Base camp 8.14 * 1.47 * 20.012 0.004 20.048Camp 1 14.05 3.0719 0.012 20.032 20.087Camp 2 14.77 2.4576 0.020 20.015 20.035Camp 3 6.97 * 1.71 * 20.026 0.015 20.004

Notes: *Correlation is significant at the 0.01 level (two-tailed); (n ¼ 272)

Table II.Descriptive statistics forthe four engagementlevels with thedemographic variables ofage, gender andeducational qualificationsin call centre employees

Variables Component 1

Base camp 0.601Camp 1 0.845Camp 2 0.822Camp 3 0.670

Notes: Extraction method: principal component analysis; A: 1 component extracted; (n ¼ 272)

Table III.Component matrix andfactor loadings

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This finding is supported by the fact that 60 percent of the people joining the industryleave within six months. This stage usually is about the expectation level of theemployees, and this is found to be weak in BPO/ITES employees, implying that theon-boarding (Reese, 2005) of the employees itself is a weak stage for the BPO/ITES sector.On-boarding is different from orientation, in that it is more that induction training, andmore like actual handholding by mentors within organizations. The peer buddy concept(Bhatnagar, 2004) can be institutionalized here. In fact, this idea is linked to the “jobembededness” construct (Mitchell et al., 2001, p. 1). It includes, among other measures, anindividual’s links to other people, teams, and groups, which have a direct impact onemployee turnover. For example, many companies use teams to induce attachments(Cohen and Bailey, 1997). Reichers (1985) labeled these attachments “constituentcommitments” and they reflect attachment to unions, teams, and other work-relatedgroups. Intel has institutionalized this system (Bhatnagar, 2004) and uses work teams,virtual teams and peer teams to manage talent. This finding further supports the recentresearch study of Ross (2005), which states that the retention war starts at the hiringstage, with companies recruiting employees whose talents and interests fit with both theshort- and long-term needs of the organization. And once the employees are in the door,the battle to keep them should commence immediately. This should begin with anintensive focus on getting employees off to a fast and meaningful start: “Keep directreports engaged by working with them to expand their skill sets and empowering them todo more” (Ross, 2005, p. 3).

Similarly, an alarming trend is found in Camp 3, where the reported mean is lowest(M ¼ 6:97, SD ¼ 1:71). The corresponding factor loading is found to be 0.670, asindicated in Table III.

Camp 3 is typical of the growth camp, and indicates issues of the actual involvementof an employee in terms of putting career roots down in the organization. The studyfound this stage to be weak, and it is at this juncture where the engagement levelamong the BPO/ITES employees is lowest and attrition seems to rise. This finding issupported by an interview with one of the team managers:

Attrition in the teams is highest after an employee is 12 to 16 months old. We do indicatefuture growth areas for the employees, but somehow we are not able to hold them at this pointin time.

This result supports the retention literature, as studies (Ross, 2005) point out the needto provide room to grow to new employees and continuously enrich their (employment)experience. This further supports the study of Lockwood (2006), which states thatemployees who are most committed perform 20 percent better and are 87 percent lesslikely to resign. In addition, the foundation for an engaged workforce is established bythe quality, depth and authenticity of communication by HR and senior management toemployees, as well as the quality of supervision.

Further, employee engagement at the two intermediary levels was stronger than theoutliers (factor loadings of 0.845 and 0.822, respectively). When interviewed aboutthese two levels, the focus group was of the following opinion:

Only a critical few make it to these levels, and once here we know we can leverage on astronger relationship. Yet when the employees grow older and cross the year barrier the sameproblem of retention recurs.

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This does not support the remarks made in the Western world by Baumruk (CEO ofHewitt Associates, which is involved in global outsourcing and consulting). Baumruk(2006, pp. 24-7) states that:

. . . organizations with higher engagement levels have lower employee turnover, higherproductivity and better results. Managers are in a critical position to increase or decreaseengagement because they touch key drivers such as accountability, work processes,compensation, recognition and career opportunities. Employees are more engaged whentheir managers are clear about expectations, get agreement about those expectations andprovide consequences for meeting or not meeting expectations. Managers need tounderstand what they are expected to do more of, less of, and what they need to dodifferently. Managers need to be assessed and rewarded for the development andperformance levels of their employees.

The findings for the first phase are further strengthened by the results for phase 2,where 72 targeted exit interviews were factor-analyzed. To conduct the factor analysis,the 13 questions (objective type), were labelled as per the attribute being checked bythem. For example, the question “I was provided adequate and timely infrastructure toperform my role effectively” was named “Infrastructure support”. Once thisnomenclature was done, the KMO and Bartlett’s tests were administered to establishreliability. The standard cut-off for KMO was between 0.5 and 1.0. This value for thedata is within acceptable limits. The KMO reading was 0.794, which is a very goodscore, establishing reliability as being on the higher side (see Table IV).

Next, a principal component analysis was conducted. This revealed three maincomponents/factors that could explain a majority of variance in the responses (up to69.11 percent). This can be seen in Table V, where only the first three factors haveeigenvalues greater than 1. The variance explained by each of them is 43.15 percent,17.05 percent and 8.91 percent, respectively. In order to find the various variableswithin each of the three factors, Varimax rotation with Kaiser normalization wasperformed (see Tables V and VI).

The variables were classified into a particular factor based on their loading on thatfactor being greater than 0.6. The variable “policy clarity” was dropped as it did notload significantly on any one factor (0.549 only). This yielded the following groupings:

. Factor 1: internal communication, customer centricity; work culture – This wasnamed “Organizational culture”. It explained 43.15 percent of the variation inresponses and was therefore the most important cause of attrition.

. Factor 2: recognition, growth opportunities, career development, compensationand promotion – This factor was named “Career planning and incentives”. Itexplained 17.05 percent of the variation in responses and was therefore thesecond most important cause of attrition.

Kaiser-Meyer Olkin measure of sampling adequacy 0.794Bartlett’s test of sphericity approximate x 2 426.603df 78Significance 0.000

Table IV.Reliability analysis ofexit interviews: KMO andBartlett’s test

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. Factor 3: role clarity, infrastructure support, adequate training and visionalignment – We named this factor “Organizational support”. It explained 8.917percent of the variation in responses and was therefore only a minor issue.

The disengagement trend in Base camp and Camp 3 (refer to Tables I and II for lowfactor loadings) and exit interview analysis point to two major reasons for employeeattrition:

(1) The present work environment and organizational culture is a problem area.This has emerged as the single largest concern from the exit interview data, aswell as from focus group interviews and survey of engagement scores.Although this factor was explored only in the quantitative analysis, it emergedas the strongest reason for turnover in BPO/ITES employees. The primaryissues raised were related to the extent and clarity of communication within theorganization, and the overall work culture. The kind of problems that areassociated with the internal job posting process are also symptomatic of a lessthan healthy climate as there is widespread mistrust and suspicion.

(2) Dissatisfaction with the kind of career path available for the employees is aproblem. Further, the company’s motivational/incentive schemes seem to havelittle positive effect on employees. This finding is further supported by theinterview statements of team managers, etc., who stated that reward andrecognition served as a hygiene factor after the first three years.

In the next step, qualitative analysis of the exit interview was conducted utilizingcontent analysis. This section contains an identification of the factors causingemployee attrition at this BPO/ITES organization. It is based on the responses to thesubjective, open-ended questions in the exit interview questionnaire.

. Internal job posting (IJP) – Dissatisfaction with the current IJP system is veryevident. While some employees have explicitly mentioned IJP as a source ofdissatisfaction, many others have referred to it indirectly as “the system of

Component 1 Component 2 Component 3

Role clarity 1.198 0.109 0.892Infrastructure 0.482 0.307 0.605Adequate training 0.357 0.248 0.793Recognition 21.12 0.724 0.413Growth opportunities 0.411 0.707 26.78Career development 0.130 0.738 0.448Policy clarity 0.549 0.326 0.208Compensation 4.706 0.596 0.354Promotion 21.72 0.773 2.331Vision alignment 0.457 0.306 0.617Internal communication 0.851 7.887 0.159Customer centricity 0.904 21.36 0.158Work culture 0.850 23.59 8.011

Notes: Extraction method: rotated component analysis; rotation method: Varimax with Kaisernormalization; rotation converged in five iterations

Table VI.Rotated componentmatrixa

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promotions” or “opportunities for growth”. There is a perception that the IJPsystem is not transparent. We may draw an inference that employees are notclear about the process, or do not trust the system. This finding supports thestudy of Budhwar et al. (2006).

. Work profile – This is the area that is causing maximum dissatisfaction amongthe employees. The issue is either directly referred to or is expressed as a need towork in a challenging domain, a shift to “technical work”. This seems to be aparticular problem with employees from a science or an engineering background.Peer/societal pressures are evident in the references to “family” and “status” inthe interviews. Working as a BPO/ITES employee is considered to be lowerdown the social order in the Indian context.

. Personal causes – These factors are not controllable. However, taking note ofthese factors at the time of recruitment might help reduce the rate of attrition.The leading cause seems to be marriage or relocation. An interesting fact here isthat employees are actually seeking relocation within this BPO/ITES. There area few who have mentioned that they would like to relocate to other Indian officesof this BPO/ITES organization. This might be a possible means of retaining keytalent within the organization.

. Better career opportunities/compensation – A large number of employees haveshifted to other BPO firms in the NCR region due to these reasons. Typically,these firms have offered a pay hike of at least Rs50,000 per month over thecurrent compensation offered by this BPO/ITES organization.

The findings support a recent study conducted in 2005, which reported global trends inemployee engagement, job satisfaction, retention and stress. The top five retentionfactors included:

(1) exciting work/challenge (48.4 percent);

(2) career growth/learning (42.6 percent);

(3) relationships/working with great people (41.8 percent);

(4) fair pay (31.8 percent); and

(5) supportive management/great boss (25.1 percent).

These findings suggest that engagement (Nowack, 2006) can be enhanced inorganizations that emphasize development, leadership effectiveness and relationalcreativity (Butler and Waldrop, 2004) as a context.

The implications for these findings may lie in the kind of BPO/ITES organizations thatwe have in India. Batt (2001), in a study of 354 service and sales centers in thetelecommunications industry in the USA, differentiated between BPO/ITES organizationscompeting primarily on cost and those competing on quality. She found that thosecompeting on cost were likely to “create work systems that maximize call volume andminimize costs” (Bath, 2001, p. 430). In contrast, those BPO/ITES organizationscompeting on quality and customization were likely to use HR systems “similar to thosedefined as high involvement work systems” (Bath, 2001, p. 431; cited in Halliden andMonks, 2005). If the Indian BPO/ITES sector transforms itself to quality andcustomization centres, then there is the likelihood of witnessing more high involvement

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work systems (HIWS) based on rich OD interventions, which make employee engagementtheir base. As rightly pointed out by Ramchandran and Voleti (2004), Indian BPO firmshave to consistently prove their capabilities to deliver and create a near indispensablesituation for the parent to survive without them. This will not only involve increasing thetechnical and domain expertise, but also refinement in systems and practices, whilekeeping costs under control. The answers may lie in higher engagement and to achievethis at the third camp may result in job sculpting or job co-creation, which may be worthconsidering in the effort to optimize recruitment, retention and productivity (Hirsch, 2006).The Towers Perrin survey (Seijts and Crim, 2006) found that 84 percent of highly engagedemployees believe they can positively impact the quality of their organization’s products,compared with only 31 percent of disengaged employees. Overall, 72 percent of highlyengaged employees believe they can positively affect customer service, versus 27 percentof disengaged employees. A total of 68 percent of highly engaged employees believe theycan positively impact costs in their job or unit, compared with just 19 percent ofdisengaged employees. Given this result it becomes imperative for the Indian ITES sectorto determine the disengagement levels and address them immediately. This wouldprovide a decrease in the attrition rate, if not remove it altogether. Further, the results ofthe study may vary between types of BPO, as one size does not fit all. Thus, one couldhave organization-specific questions that could be answered through targeted surveys(Thornham and Chamorro-Premuzic, 2006).

While attrition rates in the Indian BPO/ITES industry are between a staggering 30per cent and 45 per cent according to recent estimates (Sen, 2007) and BPOs/ITESorganizations and their top management need to look at this trend carefully in order toarrest it. Though all BPOs/ITES organizations conduct exit interviews, it would behelpful if empirical linkages could be drawn between phase 1 (engagement scoresstudy) and phase 2 (exit interview analysis) of the research. The current study,however, attempts to draw conceptual linkages between the two variables, as theemployees of the BPO/ITES organizations under study were not ready to share currentdata of engagement and attrition, and hence ex post facto data was analysed. This is alimitation of the paper, as was also using only 72 exit interviews for factor analysis (thenumber made available by the organization).

Theoretical implicationsThere are theoretical implications for the construct of employee engagement. This is aconstruct that has been the focus of many practitioner-related studies but very fewacademic studies. The action research perspective of organizations tends to look atemployee engagement and very few academics (Joo and Mclean, 2006) have looked intothe theoretical and operational schemata of employee engagement. At thenomonological level, there seems to be construct contamination from the fields ofemployee satisfaction, employee commitment, organizational citizenship behaviourand employee involvement that is beyond the scope of this paper. Yet future studies inIndia may look into this area and construct an independent scale of employeeengagement, focusing on and testing the antecedent variables , more rigorously fortheoretical underpinnings. It seems obvious that engaged employees are moreproductive than their disengaged counterparts. For example, a recent meta-analysispublished in the Journal of Applied Psychology concluded that “employee satisfactionand engagement are related to meaningful business outcomes at a magnitude that is

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important to many organizations”. A compelling question is this: how much moreproductive is an engaged workforce compared to a non-engaged workforce? (as cited inSeijts and Crim, 2006).

Practical implicationsEmployee engagement and a better talent management and retention strategy mayimply the following HR interventions for the BPO/ITES sector in India:

. identification of an engaged workforce at all levels which is passionate aboutcontinuous learning and challenges, triggered through a continuous positiveemployee relationship;

. further designing HR interventions to keep them engaged;

. a need to establish a stronger psychological contract (Rousseau, 2004) based onrelational need (which takes care of Camps 1 and 2) rather than a transactional one;

. create peer partners and mentors who care and nurture relationships in terms ofquality rather than quantity of time together and who take care of the emotionalneeds and need for involvement of employees;

. treat employees as wealth co-creators, and see employees as partners in thebusiness and help them achieve the satisfaction of creating and fulfilling newareas of business acumen.

This would take care of the growth aspects of employees. An important implication ispresent for HR, which should market the company and its brand to current employeesas vigorously as to the outside talent pool (Dell and Hickey, 2002). Further highcommitment based systems with built in control systems are needed so that both funand surveillance are balanced (Halliden and Monks, 2005). Also, on their internalwebsites organizations may blacklist employees who leave the organization withinthree months. An industry collaboration along with NASSCOM to backlist and stop therecruitment of such employees for a particular period of time, in order to moderateattrition rates, could also help. The internal job posting (IJP) process has to be clearlyoutlined and a specific system of selecting candidates has to be communicated. Thecriteria for selection should be clearly arrived at and stated explicitly to employees. Amore concerted effort should be made to ensure internal job postings take place toascertain that employees have a growth path in the organization. Processes should beput in place to check that the career aspirations of employees are clearly understoodand job roles are defined with as close an alignment to career aspirations as possible.There is an evident mismatch between the expectations of employees and the roles andprofiles offered by the organization. Steps need to be taken to correct this mismatch,probably by better communication during the selection process and by taking anotherlook at the potential pool of candidates that the organization has identified. This wouldmoderate attrition at the Base camp level. Exit questionnaires should be backed withactual interviews of candidates before they leave to ensure that softer issues that maynot have been brought up through the questionnaire are also drawn out. The dataobtained from the questionnaire should be studied on a monthly basis to make trendprojections about the possibility of employees who might leave. This would give theorganization an early warning system that could predict attrition rates for the future,as has been done by Cisco (as reported by Saxena and Bharadwaj, 2007).

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Limitations of the studyThe reliability of certain variables was lower than the accepted threshold of 0.70, which isa limitation of the study. This also lends credence to the need for an independent and morerobust engagement scale adapted to pan-Asian conditions. Testing this scale acrossnations would be another area for future research. Also, the sample was small, andgeneralizations regarding employees in the entire BPO/ITES sector are not possible.Future studies may look into the various types of BPO/ITES organizations, BPOs, KPOS,keeping the cost and quality of HRM systems in mind and conducting more robustresearch. Future studies may also look into correlation studies of employee engagementand exit interviews to establish empirically the association that those employees with lowengagement scores are the ones who are leaving organizations. This study could notestablish this. Further, as technology grows more complex and with the projected estimateof BPO/ITES work in India expected to achieve revenues of $148 billion by 2012 (NationalAssociation of Software and Services Companies, 2005), these results are of significantimportance to the Indian ITES sector’s employees, top management and HR managers.

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Corresponding authorJyotsna Bhatnagar can be contacted at: [email protected]

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