How Much Does Labour Turnover Cost? A Case Study of Kenyan Small and Medium Tour Operators
1Dr. Angeline Wambui Wambugu
1Management University of Africa
Email: angiekinuthia@yahoo.com
Abstract
The hospitality industry is a service-based industry, which is highly dependent on a customer-focused approach, and a motivated and knowledgeable workforce. Any shift in human capital therefore is viewed as detrimental as its long term success. Research postulates that employee mobility is a major cost and leakage of human capital. In addition, studies have shown that labor turnover affects organizational performance, customer quality and employee productivity. Despite the adverse effect of labor turnover on growth, survival and sustainability of organizations in the hospitality industry, there is limited research on turnover costs. This paper provides an understanding of the turnover rates and direct financial costs of labor turnover in small and medium tour operators. A descriptive research design was used. Primary data was collected using a self- administered questionnaire. Stratified sampling and simple random sampling technique were used to select 30 respondents. The target populations comprised of human resource managers and owner/managers of small and medium tour operators, which are registered with the Kenya Association of Tour Operators and operating in Nairobi and its environs. The study findings indicated that tour operators experienced acute turnover rates, which are much higher than the average turnover rate in service industries. The study findings also revealed substantial replacement costs are attributed to labor turnover in small and medium tour operators. The implications of these findings for managerial practice and suggestions for further research are discussed.
Keywords:-Labor turnover, turnover costs, tour operators, SMEs, Kenya
Introduction
The hospitality industry is a service-based industry, which is highly dependent on a customer-focused approach, and a motivated and knowledgeable workforce (Choi & Dickson, 2009). The industry relies heavily on employees in order to achieve its competitive advantage, and any shift in human capital can be detrimental as its long term success (Ton & Huckman, 2008; Chand & Katou, 2007; Harris, Tang & Tseng, 2002). Thus, labour turnover is considered a hindrance to competitiveness and efficiency in business operations (Long, Perumal & Ajagbe, 2012).
Research suggests that found that labor turnover increases economic losses and reduces job efficiency due to loss of valuable skills, experience, knowledge and “corporate memory” (Sut & Chad, 2011; Deery & Iverson, 1996). Furthermore, studies show that labor turnover compromises the quality and high standards of customer service, which negatively impacts on an organization’s profitability and long term sustainability (Tracey & Hinkin, 2008). High labor turnover in the hospitality industry, if not addressed can be detrimental to an organization (). The study seeks to focus on labor turnover on small and medium tour operators. According to the stakeholders and HR managers, filling vacant positions in the hospitality industry is quite difficult due to insufficient supply of staff and high rate of their turnover costs (Birdir, 2002). The findings of this study will provide for determining the financial resources of labor turnover which is critical in shaping HRM practices and the management of labor retention in the hospitality industry. The research findings will also contribute to the development of a policy agenda of the tour and travel operators and the overall Kenyan hospitality industry.
The Kenyan hospitality industry is a bustling industry comprised of private and public players in various sub-sectors which ensure that tourists’ needs are catered to in a holistic manner. These sub-sectors include: food and beverage services, transportation, accommodation (hotels), tourist attractions and luxury services. All these sectors are connected by the tour operators and travel agents (Bennett & Schoeman, 2005). Thus, tour operators influence tourist flows to Kenya from different destinations (Saffery, Morgan, Tulga & Warren, 2007). The main tasks of tour operators include: negotiation of rates with suppliers, booking accommodation for tourist, assisting in itinerary planning and providing local tour services (Bennett & Schoeman, 2005). Tour operators in Kenya are classified according to their owners, that is, foreign owned, locally owned by Kenyans of foreign origins and locally owned by indigenous entrepreneurs. Majority of tour operators are SMEs, earning less than $140,000 per annum (UNCTAD, 2008).
The hospitality industry has experienced significant growth since independence. In 2009, the industry recorded the highest growth rate of 18.6% (ROK, 2009).The continued growth of the hospitality industry is attributed to strong participation and encouragement in commercial ventures, pursuit of policy objectives and attention to non-economic ramifications of tourism and the innovations in major source markets by individual tour operators (Dieke, 1992). Various policy initiatives have been formulated in an effort to actualize flagship projects under Vision 2030. Vision 2030 identifies the hospitality industry as one of the top priority sectors with the tasks of making Kenya one of the top ten long-haul tourist destinations globally (ROK, 2008). Apart from developing the Sessional Paper No. 1 of 2010 on Enhancing Sustainable Tourism in Kenya, the Kenyan government has also developed the Tourism Act 2011 which provides for development, management, marketing and regulation of sustainable tourism and tourism related services.
Statement of the Problem
The National Tourism Strategy 2013 -2018 posits that the hospitality industry which is dominated by SMEs experiences acute labor turnover (ROK, 2013). If high labor turnover is allowed to continue, it will negatively impact SMEs through loss of highly skilled workforce, and ultimately widespread skill gaps among existing staff (Kuria, Wanderi & Ondigi, 2011). This not only results in additional direct and intangible costs for the employer, but also negatively affects the service quality, reputation and the long term survival of SMEs in the hospitality industry (Wafula, Ondari & Lumumba, 2017). The critical shortage of high qualified staff resulting from high labor turnover has prompted considerable research on the causes of high labor turnover and possible solutions for retaining skilled workers (Kuria & Ondigi, 2012; Cheruiyot, Kimutai & Kemboi , 2017; Korir, 2018; Kuria & Ondigi, 2012) Studies on labor turnover costs are limited, and most of these studies in the hospitality industry have been conducted in the accommodation sector, specifically, hotels, resorts and restaurants (Hinkin & Tracey, 2006; Derry and Iverson, 1996; Wasmuth & Davis, 1983; Kuria, Ondigi & Wanderi, 2012). The purpose of this study was therefore to establish the direct costs of labor turnover amongst small and medium tour operators in Kenya.
Specific Objectives of the Study
The specific objectives of this study were to:
Assess the extent of labor turnover rate in small and medium tour operators in Kenya.
Establish the direct costs of labor turnover in small and medium tour operators in Kenya.
Research Methodology
For purposes of this study, tour operators are defined as intermediaries who organize and put together holiday packages which include: arranging travel services, transport and accommodation booking (Bennett & Schoeman, 2005). The study considered both voluntary turnover and involuntary turnover of employees who left during the period of one year. The study adopted the definition of turnover by Mobley (1982) as a phenomenon where the employee terminated its membership in the organization from which he/she earns monetary compensation.
The study adopted a descriptive research design. The target population included owner/managers and HR managers of small and medium tour operators registered with Kenya Association of Tour Operators (KATO) operating within Nairobi and its environs. Stratified sampling and simple random sampling were used in the study. Stratified sampling and simple random sampling was used to select a representative sample of 30 respondents.
Primary data was collected by means of a self – administered, semi structured questionnaire. The respondents were assured of utmost confidentiality of their responses and anonymity of the source of the information (Kothari, 2004). The questionnaires were pre-tested on 10 enterprises through convenience sampling technique. After the pre-test, any items in the questionnaire that could cause bias were modified or omitted (Mugenda & Mugenda, 2003). The study employed descriptive statistics to analyze the data. Primary data was coded, edited and then analyzed using the Statistical Package for Social Sciences (SPSS) version 20. The findings were presented in form of frequency tables and percentages.
Research Findings and Discussions
The study sought to find out the labor turnover rate in small and medium tour operators in Kenya for a period covering 12 months. The study findings revealed that the majority (63%) of the respondents had experienced high levels of labor turnover, while 27% had experienced medium levels of turnover, another 10% had low levels of labor turnover. The study findings also indicated the average labor turnover rate of 60.8 % for employees at operational level and a rate of 32.3% for employees at managerial level. The study findings demonstrated that most of the small and medium tour operators in Kenya experienced high labor turnover. In addition, that the turnover rate of employees at operational level was higher than the turnover rate of employees at managerial level. The result is in agreement with the findings in a study by Davidson, Timo and Wang (2009) which found that labor turnover rate of 50.74% in Australian accommodation industry was higher than expected, and that the turnover rate was lower among executives, supervisors and departmental managers than in other employment categories.
The study also sought to establish the direct costs (replacement costs, separation costs, training costs) of the small and medium tour operators within a period of one year. The study findings as shown in Table 1 revealed that replacement costs constituted 57.8% of the total turnover cost compared to separation costs which constituted 22.4% of the total turnover costs. Training costs comprised only 19.8% of the total turnover costs. The study findings showed that the average total cost of turnover was Kshs 57,710,000/=. Finally, the study findings indicate significant difference in two costs: screening and entrance interviewing (17.4%) and formal training (5.2%).
The findings revealed that the average direct cost of labor turnover was substantial which may lead to an increase in administrative costs of small and medium tour operators in Kenya. In addition, the results revealed that small and medium tour operators were spending more money in testing the knowledge, skills and abilities of employees to ensure that a qualified candidate was hired and less money is being invested in formal training of newly hired employees. The study results are inconsistent with the findings of a study by McKinney, Bartlett and Mulvaney (2007) which found that separation costs were higher than replacement costs of employees in Illinois Public Park and recreation offices.
Table 1: Average cost of replacing employees per annum
|
Type |
Expense |
Costs per annum in Ksh |
Percentage |
|
Replacement costs |
Advertisement |
6,000,000 |
10.4 |
|
Screening and entrance interviewing |
10, 050,000 |
17.4 |
|
|
|
Interview expenses |
4,700,000 |
8.1 |
|
Reference/background checks |
3,450,000 |
6.0 |
|
|
Pre-employment testing |
5,575,000 |
9.7 |
|
|
Appointment procedures for new hires |
3,585,000 |
6.2 |
|
|
Separation costs |
Severance pay |
5,300,000 |
9.2 |
|
Exit interview costs |
3,400,000 |
5.9 |
|
|
Administrative costs |
4,200,000 |
7.3 |
|
|
Training costs |
Informative literature |
3,600,000 |
6.2 |
|
Formal training |
3,000,000 |
5.2 |
|
|
Informal training |
4,850,000 |
8.4 |
|
|
|
Total |
57,710,000 |
100 |
Conclusion
From the study findings, it can be concluded that the direct costs of labor turnover small and medium tour operators are substantially high. It can also be concluded that employees in the operational level are more likely to quit their organizations than employees in the managerial level. Finally, it can be concluded that high replacement costs are attributed to labor turnover in small and medium tour operators in Kenya. It is recommended that small and medium tour operators need to seriously address wastage levels through reforming internal HR practices.
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