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“People join firms but leave managers”, a proverbial saying goes. Indeed, middle managers can affect their employee turnover, a long-term field experiment in a leading retail chain based in the eastern European Union suggests. This research was carried out by a team of economists comprising Matthias Heinz from the University of Cologne, Guido Friebel from Goethe University Frankfurt and Nick Zubanov from the University of Konstanz. The results, which have been published by the Cluster of Excellence “ECONtribute: Markets & Public Policy” based at the Universities of Cologne and Bonn, are due for publication in the journal Management Science.

“High personnel turnover is costly”, says Nick Zubanov, who is Professor of Organisational Economy at the University of Konstanz and principal investigator at its Cluster of Excellence “The Politics of Inequality”. “It comes with a lot of administrative effort, which can harm sales and profit. This is also what our calculations suggest, underscoring previous findings on the negative link between employee turnover and workplace performance”. The long-term experiment conducted in eastern Europe now demonstrates that the way middle managers interact with staff members plays a key role in this.

Manager-staff interactions are important
Prior to the experiment, quit rates among the 5,500 staff members working for the retail company were at around 80 percent annually. “We wanted to find out if and how such high turnover could be reduced at little to no cost”, Zubanov explains. “Since middle managers typically interact with staff members on a daily basis we also wanted to know whether there was anything that could be done at middle management level specifically to reduce quit rates”.

For a period of 16 months, the researchers compared quit rates in stores that did and did not receive a communication from top management asking “to do what they can” to reduce quit rates and to take better care of their staff. As a result, quit rates in the stores that did receive the communication went down by up to a quarter, and managers in those stores started spending more time with staff members, approximately 20 minutes a day, as compared to the remaining stores. The effect of the communication on employee turnover lasted nine months before petering out, but came back up briefly after a reminder letter. It did not last long because store managers were not rewarded for achieving low turnover.

No effect on sales
The study shows that personnel turnover can be reduced significantly by way of simple interventions from top to middle management and from middle management (i.e. store managers) to employees. “We were really surprised about the effect this relatively simply intervention had”, comments Matthias Heinz, professor at the Cluster of Excellence “ECONtribute” based at the Universities of Cologne and Bonn.

However, while administrative effort and expenditure were reduced in a cost-effective manner, low quit rates did not boost company sales, which remained the same. The researchers surmise that more intense interaction between store managers and employees comes at a price: Since the managers did not work overtime less time remained each day for attending to customers. In this respect, the paper by Heinz, Friebel and Zubanov contradicts earlier studies, which tend to assume that lower personnel turnover must by default result in improved business performance.

The research project does however underscore the importance of selecting the right type of middle manager: To keep quit rates low, management staff should communicate and interact well with others. At the same time, the study also shows that a simple intervention on the part of top management may suffice to nudge managers towards better outcomes, if only temporarily.

Facts:

• Study involving organisational economist Nick Zubanov from the University of Konstanz on personnel turnover at a large retail company.
• Joint long-term experiment conducted with scientists from the University of Cologne and Goethe University Frankfurt in collaboration with an eastern European retail chain shows that improved interaction and communication between middle managers and employees can help reduce quit rates by up to 25 percent.
• Low quit rates among staff members help bring down administrative costs but do not impact overall sales.
• The results of the study have been published by the Cluster of Excellence “ECONtribute: Markets & Public Policy” based at the Universities of Cologne and Bonn and are due for publication in the journal Management Science.
• Original publication: Guido Friebel, Matthias Heinz, Nikolay Zubanov: Middle Managers, Personnel Turnover and Performance: A Long-Term Field Experiment in a Retail Chain, ECONtribute Discussion Paper No. 039, November 2020. URL: https://selten.institute/RePEc/ajk/ajkdps/ECONtribute_039_2020.pdf