Outsourcing Myths: Turnover Ratio

The impact of turnover on the total cost of outsourcing is difficult to overstate. Of course you know that and put a turnover question as one of the most important ones in the beginning of your RFP. You look at the proposal that just came back from your vendor and see 18% as the response, “whew, I think we found our guys!”… Welcome to the murky world of turnover ratios. The sad part is that this answer may mean very little; being the most infamous curse of offshore engagements the turnover ratio comes with a few extra traps.

The most frequently overlooked issue strangely enough is the meaning of the “turnover ratio”. When your prospect vendor tells you that their turnover ratio is lower than the country’s average (high changes that’s exactly what you are going to hear) what does the vendor mean?

On one of my recent engagements with a reputable company in Noida, India the staff on the project changed at an amazing rate – while working with 10 member team for about 1 year we saw over 20 people, and only one person stayed on the project from the beginning to the end. No matter what formula I tried apply to that situation it did not seem to align with 18% stated in vendors proposal. And yet every account review my vendor pushed the idea that the turnover ratio was not out of bounds. Ah? ‘Well, Nick:

  • We moved Rajiv and Venkat off the project because they were not performing job well enough;
  • Ramki’s mother got sick and he had to quit to do the right thing;
  • Shushma got married and moved to Hyderabad…

And so on and on and on…

As it turned out my valued partner had a completely different view of the turnover ratio. My guess is that they  calculated the ratio based only on the number people who’d left the company for competitors.

Another trap worth mentioning is an internal transfers.  What difference the company’s average turnover rate makes if your project turnover exceeds it by two or three times?  I’ve seen that numerous times and in a large degree it’s unavoidable. The vendor will move people around to increase their utilization, to appease the loudest customer, and to keep employees motivated.

And one more trap to mention is key resource turnover.   If your team has an average turnover of 20% (you lose and have to retrain 2 people a year on a 10 member team) it might not be so bad if these two are junior QA engineers. What if these two spots both belong to the tech lead on the project?  You find a great TL, he comes to your site for knowledge transfer and after two months go back to India just to resign the next week, two months and countless meetings later another one comes to your office, goes through K-transfer and goes back, and then gets hit by a typhoid fever?

Recognizing that there is much more to turnover than just a percentage sign is a huge step forward.  Dealing with turnover is a much more complex issue and a rather large topic, so I’ll cover it in the next post.

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