Analysis of company failures in the face of “unit-level shocks” 2023

According to a study from the University of Nebraska–Lincoln, a substantial shift in the workplace might result in a considerable amount of employee turnover, but firms should be aware that this may occur gradually rather than immediately and plan appropriately.

Collective turnover — multiple employees leaving work units or an organization in quick succession — is a topic of increasing interest to industry leaders because it can be destabilizing to have a large number of employees leave simultaneously, according to Jenna Pieper, associate professor of management.

Substantial employee churn can be triggered by “unit-level shocks,” or changes that affect many, if not all, employees. These occurrences, which include mergers, bankruptcies, and leadership changes, provide distinct management issues than employee churn triggered by events that may influence specific individuals.

Pieper and her colleagues focused their research on a particular sort of shock, the departure of a manager, by evaluating 239 general manager exits from units of a U.S. retailer from 2012 to 2014. The Journal of Applied Psychology publishes its article, “Collective Turnover Response Over Time to a Unit-Level Shock.”

Among the team’s conclusions is that, while the loss of a boss for any cause might result in staff turnover, employee responses are not constant, quick, or predictable.

“Contemplating how collective turnover might evolve over time is one of this paper’s primary contributions,” she added.

The majority of studies in this area have focused on how specific shocks, such as receiving an unsolicited job offer or being passed over for advancement, affect employee turnover. Little study has been conducted on the effects of collective turnover on teams and workplace culture.

“If unit-level shocks acted like individually relevant shocks, each employee would separately reevaluate their unit attachment and pursue one of the shock-relevant routes in the unfolding model,” said Pieper. “Unit-level shocks, however, result in collective activity that transcends individuals.”

The authors noted, “As employees attempt to lessen the uncertainty, they will exchange knowledge to make sense of a shock and collaboratively evaluate its ramifications.”

Individual workers frequently understand and feel differently about their manager’s leaving. When employees share their perspectives with coworkers, the group’s assessment of the issue can take on a life of its own, generating what experts refer to as “turnover contagion.”

In summary, societal pressures and employee responses become linked, and team turnover cannot be attributed only to individual reasons for departing.

A leadership change may surprise or dismay employees, but they may not initially take action. Their reactions may be influenced by a number of variables, including the reactions of their coworkers, the closeness of their reporting relationship to the departing manager, their assessment of how the change may affect their individual career prospects within the company, and their opinions about the new manager and the job market, to name a few.

When these uncertainties become evident, though, turnover may arise later, according to Pieper.

Businesses should “understand the dynamic effect of collective turnover and recognize that it may not occur all at once and immediately,” as stated by Pieper. “The study demonstrates that there can be a delay. If this occurs, firms may develop a false feeling of security and believe that everything is well.”

Moreover, this study finds a “disruption period” following a unit-level shock. So, instead of analyzing or anticipating collective turnover at a particular moment in time, managers should see it as dynamic and unpredictable. At this period, turnover might fluctuate because “job re-evaluation becomes viral, driving decisions to depart beyond the initial unit-level shock.”

“Just because you don’t have any turnover right now doesn’t mean you won’t in a couple of weeks or a month or so,” Pieper said.

The circumstances behind a manager’s departure are crucial, including whether it is voluntary, the result of an internal promotion, or a termination. How the boss is replaced can also be relevant, especially if the firm chooses an inside candidate.

Pieper and her co-authors outlined a number of measures businesses may take to mitigate the impact of collective turnover:

Prepare for a collective turnover that occurs gradually over time as opposed to a single turnover event.

By assessing the closeness of workers to the unit-level shock, managers are able to target certain employee groups with their retention efforts.

Establish a plan for efficient communication. Giving information on the reason for the leaving and the impact it will have on the unit “may lessen ambiguity and assist staff in making sense of the shock.”

Note that promotions from within to replace a leaving manager may reduce turnover.

Future studies, according to Pieper, should investigate the effect of other forms of unit-level shocks on turnover, as well as how trends manifest in various contexts and cultures.

Mark A. Maltarich and Anthony J. Nyberg from the University of South Carolina School of Business, Greg Reilly from the University of Connecticut School of Business, and Caitlin Ray from the Cornell University School of Industrial and Labor Relations are co-authors of Pieper’s paper.

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About the Author: Sanjh Vishwakarma

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