Attrition - Early warning signs for a startup

Back in 2006, I was responsible for US Operations for IT Services startup out of India. I was responsible for all major accounts and I noticed that quality was becoming a problem. The root cause seemed to point to excessive attrition rates. This was really surprising for the company was doing well and the projects were seen as interesting and challenging. As attrition spiraled out of control in India, the CEO and I, who were located in the US, decided it was time to take a closer look at the problem.

To give you an idea of the the problem, in 2006, the average turn over rate for an IT Services firm in India was about 20%. The Indian market was hopping and attracting new talent was a real challenge so it was a high priority to retain our staff. We had doubled our revenue over 2005, and given the normal stress associated with rapid growth we expected a modest increase in our average attrition rate, but our monthly rates doubled and warning bells started going off; if we didn't resolve the problem, our rates would greatly impact our ability to deliver quality service.

The office was run by three executives who were conspicuously quite about the turnover ratio. The CEO and I began running our own exit interviews out of the US for some of the staff that we knew personally. What we heard was vastly different from what we read in their exit interview reports. Something was really wrong. We wanted to react but until we had a better handle on the problem we did not want to alienate the executive team in India. After some discussion, the CEO and I decided it would be best if I flew to Hyderabad so that it didn't look like he had lost confidence in the management team.

When I arrived, I called an all-hands meeting and told the staff that I would be interviewing everyone to try to understand what was causing our quality issues and our attrition problems. Given that we had a lot of employees, I blocked off 4 days for the interviews and asked everyone to sign up for a time slot. To make it easier on everyone, I also asked the executive team in India to take the week off. I didn't want any pressure on the staff as they entered or exited my office. I wanted everyone to feel that they could talk to me with anonymity.

At first the staff was very guarded but as word spread that I was there to listen people really opened up. I performed the interviews alone, so that nothing could be repeated. I took notes and after each interview I showed each employee what I had written down. I wanted to reinforce my commitment of transparency. I compiled a list of over 400 complaints and comments. I spent the next day organizing and categorizing the problems, then looked for root causes. It was clear that we had a few fundamental problems that had to be addressed immediately and that we had to change the environment if we were fix the problem. I then created a list of remedies for the most egregious problems and called another all-hands meeting where I announced my overall findings.

Without going into all the details, let me just say that we immediately accepted the resignation of two executives and announced their departure to the staff. With the remaining executive by my side, we immediately enacted changes to address the major concerns. We tried to go a step further and announced a few new policies that would show our conviction to improving the working conditions. For example, we announced a safe-ride-home policy which would pay for cabs for anyone who had to work late and who didn't feel safe driving home as a result. This was intended to improve the conditions and concerns of the female staff but it helped offset commuting expenses for most of the team. We also eliminated a number of policies that could only be categorized as crazy; the worst of which stipulated that if anyone had to work the weekend to get their weeks work done, they would have to do so without air conditioning as punishment for not completing on time. I still can't believe that ever seemed like a good idea. Outside the obvious, summer days in Hyderabad are well over a 100 degrees!

Over the next 3 months we revamped all of the HR policies. We hired a new delivery head who worked hard to change the culture and we maintained oversight out of the US to make sure we followed up on all our promises. In the end we nearly eliminated attrition, reducing turnover rates to 4% for the next 12 months.

When I reflect back on what caused these problems, I can only say that some of these were directly related to stress; the stress that rapid growth can bring. The team's reaction to the stress created so much tension that it escalated to verbal abuse. The remaining issues are harder to categorize. My Western ideals warp my judgment on them. In India things are different. Authority and power create privilege and this sense of privilege led to the inconsistent application of policies (favoritism) which created a lot of resentment. With proper oversight and coaching most of the problems could have been avoided. It just highlights the challenges of trying to run a startup with 95% of the resources on one continent and the majority of the senior executive team on another.