1120132

8/12/2019 1120132

1/9

International Journal of Economics, Business and Social Sciences Volume: 1 Issue: 1 Pages:19-27

19 | www.ijebss.com

EMPLOYEE RETENTION CHALLENGES IN

AEROSPACE INDUSTRY

CASE STUDY

Khor Wei Min

Othman Yeop Abdullah Graduate School of Business

Universiti Utara Malaysia.

Prof. Dr. Dileep Kumar M.

Professor: Management

Othman Yeop Abdullah Graduate School of Business

Universiti Utara Malaysia.

[email protected]

Abstract

This study researched how the employee attrition impacts the aerospace industry in Malaysia

and the importance of employee retention for continuous operations in Malaysia. Currently

aerospace industry is amassed and a growing percentage of the manufacturing sector in

Malaysia and especially this sector have been identified as the biggest earnings for Malaysias

government which make up of at least 80% of overall countrys export. Malaysia is the 17th

largest exporting nation in the world. However, there is major concern by industry on

maintaining the competitiveness in the market. Delays in completion and late deliveries may

eventually lead to losing competitive advantages are the shared concern by Malaysian

manufacturing industry and *South Pacific Aerospace Manufacturing Sdn. Bhd (SPAM). The

availability of skilled and knowledgeable employee that to support this new and yet challenging

industry in Malaysia is critical. Thus, research is crucial to examine the challenges of human
mailto:[email protected]:[email protected]:[email protected]

8/12/2019 1120132

2/9

8/12/2019 1120132

3/9


21 | www.ijebss.com

CHALLENGES

In this case study, we will focus on the People resources where Second (2) Tier and below

suppliers from the Aerospace industry originally from either United States or Europe is now fast

moving across the continent to Asia. We seek to discuss on retention of employees by

understandings on the attrition rate. Resources ranging from materials to people posed achallenge to the industry in Malaysia in general, and the neighboring countries as in the pass,

Tier 2 and below suppliers are originally based out of the United States and Europe. Having

most of the existing support is still out of the USA, this has increased the ordering and delivery

lead time drastically. People skill and knowledge is definitely a challenge to the newly set-up

companies in Asia including Malaysia. Many of the works are very manual compare to the other

industries and therefore, skill metric becomes an important tool as a measurement of the

workforce. Staff pinching although strongly discourage between companies but this is

unavoidable as some skill-sets are very limited but necessary for the day-to-day running and

operation of the business. The sudden boom in the aerospace industry is not only in Malaysia

but the rest of the Asian countries including China, Vietnam and Thailand. Therefore, created

many career opportunities which is very positive for country GDP and advancement in the

career for the skill and semi-skill employees. However, this posed a big challenge for the

Corporation in their recruitment and more, to retain their existing employees. Similar to other

industries, aerospace has a set of requirements to follow but with Nadcap, we find the

requirements are extremely strict and hence, compliance cannot be compromised or negotiated.

Nadcap is the leading, worldwide cooperative program of major companies designed to manage

a cost effective consensus approach to special processes and products and provide continual

improvement within the aerospace industry and is the PRI's brand name in the industry-

managed program for special processes in the aerospace industry. Not having the right people

which are required by the various processes can shutdown or stop the operation and ceases the

shipments immediately. Universities and colleges have started to include education and trainingin the aerospace field example University Kuala Lumpur but currently already short and not able

to support the demand for engineers with the level of experience and exposures. To meet the

needs and demand, most companies recruited the young engineers and put them on-job

training (OJT) but these young engineers are looking at opportunity and have little loyalty to the

companies. Every company knows they need to attract people and retain them as the cost of

recruitment is also getting very high. This is where the study or research into employee retention

is timely and critical as this can be the life-line for these companies and eventually not only able

to stabilize the workforce and reduce cost of recruitments but risking to stop operation and

delivery. The aerospace news can be obtained widely on the web and the example will be

AeroSpaceNews.org

ISSUE OF RETENTION

Employee retention is defined as the organization's ability to retain its employees and can be

represented by a simple statistic where at retention rate of 90% usually indicates that an

organization kept 90% of its employees in a given period. Companies normally consider

employee retention as relating to the efforts by which employers attempt to retain employees in

8/12/2019 1120132

4/9


22 | www.ijebss.com

their workforce and in this sense; retention becomes the strategies rather than the outcome.

Attrition simply means a reduction in employees in an organization through normal means

including resignation or retirements. In one of the study, seems that men are more concerned

about their job security than women (Neil and Snizek, 1988; Miller and Wheeler, 1992; Tolbert

and Moel, 1998; Rowe and Snizek, 1995)

In majority organizations, the goal is to decreaseemployee turnover as this has a direct impact

on costs such as reducing training costs, recruitment costs and most of all, loss of skills, talent

and knowledge. Companies have carried out many initiatives to improve the employee turnover

and hence, the staff retention but question now is how effective. In order to retain employees

and reduce turnover managers must meet the goals of employees without losing sight of the

organization's goals, thereby creating a "win-win" situation. There are theories involving the

employee turnover and retention and provided some of the earlier guidance for retaining

employees. However, while many of these theories may be valid but they provide little practical

assistant for an organization or human resource practitioners. The modern studies relating to

employee engagement demonstrate that by developing a range of strategies that address

various drivers of engagement, many positive outcomes can be achieved. These outcomes

include higher profitability, improved customer satisfaction, lower absenteeism and lower

accident rates as well as higher employee retention. After successful engagement, retention is

the next challenge and has also a direct and causal relationship with employee needs and

motivation.

Attrition in SPAM

Enclosed are the data provided by the Human Resources Department on the attrition for the last

five years.

DL% IDL% YTD%

2008 28.99 14.94 25.59

2009 23.30 12.60 20.80

2010 21.61 17.60 20.43

2011 24.63 13.60 21.87

Sep 2012 14.80 18.67 15.24

Keys:

DL = Direct Labor

IDL = Indirect Labor

YTD = Year To Date
http://en.wikipedia.org/wiki/Turnover_(employment)http://en.wikipedia.org/wiki/Employee_engagementhttp://en.wikipedia.org/wiki/Employee_engagementhttp://en.wikipedia.org/wiki/Turnover_(employment)

8/12/2019 1120132

5/9


23 | www.ijebss.com

Although we see a decrease in the percentage from 2011 to 2012, and the year has not ended.

This rate is still considered high if compare with the attrition rate in Penang Branch which stood

at 12.5% as published by the state government. The number of employees has also increased

from 2011 and therefore, the number of resignations is still a concern.

PROBLEM

Attrition contributes to significant costs to recruit new employees which drastically decrease in

profitability as per Robin et al. (2012). Hence, this topic is selected as the case study is due to

the below related issues and thus, affecting the company performance including the output,

quality, on-time-delivery and most of all the financial impacts. Below are the discussions on

some of the problems faced in the industry.

Shortages of experienced and skilled employees will impact the production as well as the quality

of the products resulting in not meeting the On-Time-Delivery (OTD). Losses in term of

replacements are totally unavoidable. As per Perry-Jenkins et al., 2000, shortages of workers in

the labor force will force organizations to focus on retaining their employees.

Above is true as in the Aerospace industry, some unique positions are mandatory to have and

any prolong vacancies in those positions can threaten the continuation of the operations. As the

number of qualified employees is relatively less in this part of the world, not having the right

employee also mean problems and issues cannot be resolved quickly.

When staff retention becomes a challenge, employee recruitment cost can grow to a level of

serious concern and affecting the Profit and Lost of the organization.

Closely related to recruitments will be the investment in the training. As the organization movedforward, more and more investment in this field, Training not only deals with knowledge but also

the skills which are much required. Such activities attract cost to the organization too. While

training is a positive activity but repeated training in the same area is not to be treated as

complimentary to the skills set required but rather an expense to be avoided.

EFFORTS TAKEN

With the impact this issue is having on the organization, of course the management will not just

sit and not doing anything. The decision is derived after several meetings between the

managers and also the top management. Equally critical to know and understand of employee

support provided by the organization. Many efforts are taken thought out the years to addressthese repeated problems. Some of which are more attractive while others may not necessarily

so. Employees develop impressions of the extent to which their supervisor values their

contributions and cares about their well-being through perceived supervisor support

(Eisenberger et al., 2002; Kottke and Sharafinski, 1988). In other words, there are both, positive

outcome as well as negatively too.

8/12/2019 1120132

6/9


24 | www.ijebss.com

Below are some the effort taken and are categories into Pro and Cons.

a. Pros

Staff development. This is definitely a key to the staff retention initiatives especially meant for

those super performers. This action also supports the succession planning in the organization.

Collaboration with the Institute of higher learning.This is a positive move to attract the

talent among the best in the location of the organization after their graduation.

Review of the Perks and benefits.Such action is to make the package more interesting and

competitive with the rest of the other industry within the vicinity. The benefits can be tangible or

intangibles. One of the examples is insurance or medical coverage for the employees spouse

and children.

Engaging Consultant to study the Compensation packages.This is to ensure the

remuneration is of similar or close to what is being paid in Penang and Kuala Lumpur.

b. Cons

Salary Adjustment.This action can create happy employees but it does impact the Profit &

Loss of the organization. In majority of the cases, salary adjustment does not bring positive

outcomes to staff retention.

Expectation of employees.The organization is not able to predict or know the expectation of

employees. Unable to clearly differentiate between employees wants and needs. Hence, the

objective to instill loyalty among employees can be a big challenge for the human resource

department.

Motivation factors.There is definitely a lifestyle different between the elder and the younger

employees. Therefore, the motivation factors also differ greatly between the two groups. It's

equally important to access the stress of the tasks involved and frequent measure of stress

among the employees.

Cultural Difference.The location and family background affects the employees thinking and

decisions. Such factors is viewed as a great challenge to the Human Resources department.

Work Load.This is mostly to ignore by most organizations even though this is an importantfactor to determine the success and effectiveness of the employee. Heavily loaded employee

not only not able to cope but not able or have room to work on improvements.

8/12/2019 1120132

7/9


25 | www.ijebss.com

IMPLIMENTATION

As this relates to human resource, there is no single solution to the problem. The management

keeps or continues discussing and brainstorm frequently to further improve the decisions and

actions in this matter. The ability to balance between what is provided and from what is afforded

by the organization is another challenge to most organizations. Although faced with manychallenges and factors, the organization must move forward to take the necessary actions so

that the attrition rate is managed and meeting the Customers objective are not impacted. Some

of the actions taken are listed below.

Recruitment from neighboring countries

The organization faced with high attrition from the direct employees, started looking into foreign

workers from neighboring countries. With the contract of two years minimum, production will be

able to stabilize the movement of the blue-collar employees.

Benchmarking Compensation

To ensure SPAM is able to attract as well as to retain employees, SPAM has engaged the

services of the consultant to assist to benchmark between what have been the current to those

states like Penang and even, Kuala Lumpur. Apart from the salary, the consultant also assists to

review the employee ranking so that employees have better perception of their career growth

opportunity and development in the organization.

Revision of Compensation package

The salary and total remuneration and compensation package are being reviewed. Staff

development is another key initiative in retention. Organization need to improve the

communication flow in order for the employee to have the right perception of the top

management as well as the middle management which is their supervisor in most cases.

An internal promotion

The organization is encouraging promotion from internal whenever a position fall vacant and this

has given the employee the confident that career advancement is possible.

Refining learning and development

Instead of providing the training and losing 5070 % of the new recruits, the decision to

recruits foreign workers is to help stabilize and improve this important factor. Many of the work

required experiences and hence, duration in the employment matters and greatly assists. The

organization also started to collaborate with educational institutions surrounding or nearby like

8/12/2019 1120132

8/9


26 | www.ijebss.com

technical colleges and even universities to train their student who can potentially serve SPAM

after their graduation. Lately, we can see universities and even institutions of higher learning

coming to us to have better understandings of our requirements as well as the scope of the

expectations.

Career development

For employees growth and also to sustain the operation of the SPAM, we have also embarked

on the succession planning for the key positions. A potential candidate is selected and

necessary training identifies to ensure they are ready for the next level of promotion when the

need arises. With the improvement in the position rankings, the employee also be able to

recognize their career growth opportunity and such position perception is important for the

employee as well as for the organization.

CONCLUSION/SCENARIO

Cost of replacing employees who voluntarily leave an organization is such that even a small

interaction effect size should have important implications for organizational policy. According to

Tziner & Birati (1996) cost of turnover was an employees annual salary times a multiplier of 1.6.

The success of convincing employees to remain in an organization requires an understanding of

the reasons why employees choose to leave the organizations.

Although the company can do whatever and everything necessary to reduce the attrition but

they have no control on the employees choice to leave or stay with the company. As the

employee skills and knowledge are viewed as critical for employee performance as well as their

contribution, companies such as SPAM will continue to provide training and making the

employees multi-tasks orientated. They also came out with many initiatives as part of theirmitigation plans. Although some may not be favorable but there are those which are very

beneficial to the organization. Hence, attrition has been managed and employee retention

continues to be the focus and changes of the human resources department.

FUTURE RESEARCH

Future research can be undertaken to research what can be done to the employee or even

potential employees so that SPAM is not only view as a good employer but a magnet to the

workforce and hence, improve the staff retention which has been a challenge to the human

resources all this while.

REFERENCES

Cross, B. & Travaglione, A. (2004). The times they are a-changing: who will stay and who will

go in a downsizing organization? Personnel Review, 33(3), 275-90.

8/12/2019 1120132

9/9


27 | www.ijebss.com

Eisenberger, R., Stinglhamber, F., Vandenberghe, C., Sucharski, I.L. & Rhoades, L. (2002).

Perceived supervisor support: contributions to perceived organizational support and employee

retention, Journal of Applied Psychology, 87(3), 565-73.

Hom, P.W., Katerberg, R. & Hulin, C.L. (1979). Comparative examination of three approaches

to the prediction of turnover. Journal of Applied Psychology, 64(3), 280-90.

Kottke, J.L. & Sharafinski, C.E. (1988). Measuring perceived supervisory and organizational

support. Educational and Psychological Measurement, 48(4), 1075-9.

Miller, J.G. & Wheeler, K.G. (1992). Unraveling the mysteries of gender difference in intentions

to leave the organization, Journal of Organizational Behavior, 13(5) 465-78.

Neil, C.C. & Snizek, W.E. (1988). Gender as a moderator of job satisfaction. Work and

Occupations. 15(2), 201-19.

Perry-Jenkins, M., Repetti, R.L., & Crouter, A.C. (2000). Work and family in the 1990s, Journalof Marriage and the Family, 62(4), 981-98.

Peters, L.H., Bhagat, R.S. & OConnor, E.J. (1981).An examination of the independent and joint

contributions of organizational commitment and job satisfaction on employee intentions to quit,

Group & Organization Studies, 6(1), 73-82.

Rowe, R. & Snizek, W.E. (1995). Gender differences in work values: perpetuating the myth,

Work and Occupations, 22(2), 215-29.

Somers, M.J. (1995). Organizational commitment, turnover and absenteeism: an examination of

direct and interaction effects, Journal of Organizational Behavior, 15(1), 49-58.

Spreitzer, G.M. & Mishra, A.K. (2002). To stay or to go: voluntary survivor turnover following an

organizational downsizing. Journal of Organizational Behavior, 23(6),707-29.

Tolbert, P.S. & Moen, P. (1998). Mens and womens definitions of good jobs: similarities and

differences by age and across time. Work and Occupations, 25(2),168-94.

Tziner, A. & Birati, A. (1996). Assessing employee turnover costs: a revised approach. Human

Resource Management Review, 6(2), 113-22.

*South Pacific Aerospace Manufacturing Sdn. Bhd. (SPAM)* The name of the company haschanged for assuaring confidentiality

Documents

1120132