Headache When a Key Personnel leaves a Company in the Financial Sector

The financial sector in Ethiopia has undergone considerable changes in recent decades. The dramatic rise of new market players into the sector has vividly altered the competitive environment and the need for skilled manpower in the industry. According to National Bank of Ethiopia, by July, 2013, there existed 19 banks ,16 insurance companies and 33 micro-finance institutions operating in the financial sector. Conversely, figures indicate that still large parts of the population belong to the so-called “unbanked” or “under banked” class, with limited access to formal financial services including insurance and the lowest financial inclusion ratios of Sub-Saharan Africa.

Recently, with the unprecedented growth in the financial sector, the demand for skilled personnel in the industry is escalating and this in turn has created opportunities for employees—especially key employees—to jump ship to another company. Although the financial institutions have better benefit packages for their workers than do other sectors, evidences suggest that the rise of new entrants in the industry has a substantial impact on the labor market and key personnel turnover in the sector.

A certain company’s future success depends primarily on the performance of executive officers and key employees. At a company level, the loss of the services of any executive officer or other key employees means loss of asset that could negatively affect business continuity, resulting in a loss of significant customer relationships and institutional knowledge. Similarly, at industry level, fighting over acquiring key personnel and planning to snatch the technology as well as business strategies through them could adversely affect the industry’s code of conduct and business code of ethics.

Competitiveness in the financial sector is principally based on the ability to utilize technology in the services provided to customers. In response to this, companies have ongoing commitment to reform programs supported by research and development. In this regard, loss of key personnel who might have key role in the process could mean forfeiting the entire work for competitors. If the firm is unable to manage such crisis in a timely manner, a portion of market share could be lost, planned innovative products could be easily pirated, new distribution and branch network strategies, marketing core competencies even organizational structures and management philosophies could be copied. Additionally, competitors may independently develop technologies that are substantially the same or superior to the one at hand and that could infringe on the original company’s rights. This has become a common practice in the Ethiopian financial sector and companies are having difficulty preventing competitors from utilizing these similar or superior technologies, research out puts or strategic orientations that could determine the firm’s future direction.

Ask any human resources official or recruiting professional working in the financial sector and they would definitely mention the forfeiture of talented employees to competitors as one of the recent human resource challenges that developed following the entrance of more and more companies to the industry. However, at the outset, one can easily realize that it’s hard to find a more misunderstood and mismanaged human resource area than key employee turnover.

Even suffering with high employee migration rate, companies in the financial sector are grousing that they can’t find skilled workers, and filling a job can take months of hunting. Financial institutions of the country are quick to lay blame. Graduates are not coming with the required skill, there is hardly any academic institution specializing in banking and insurance and the list goes on and on. But partly, the real culprits are the firms themselves since most do not set clear strategies to manage the issue either independently or severally. Instead of developing their own, the financial institutions are merely focusing on embezzling experienced workers of other firms as a competitive advantage.

Nowadays, most argue that competitiveness in the Ethiopian financial sector is tacitly characterized by “copy pasting” and sometimes “cut pasting” subject to movement of some employees, working in more than one strategic areas, in two or more financial institutions, serving the same target group. This scenario paves the way for these relatively qualified and experienced individuals to easily adopt business strategies and breed services across industry players. However, when one looks deep in to the matter, this in turn hampers innovation and enables competitors to unzip business secrecy, if any. To take the issue from the frying pan to the fire, since prospecting as well as client retention in the financial sector is predominantly based on referrals and personal relationships, when an employee leaves a certain organization, the client also follows his/her footsteps. Players in the industry are suffering from client exodus should a “well versed” practitioner departs.

Habitually, companies operating in the financial sector choose the “Buy Strategy” to fill key posts. However, this can also prove to be very disruptive to them since it creates frustration on the in-house talent, which in turn erodes loyalty and forces them to look for outside sources for promotion. Still another drawback associated is that, when compared with the “Make Strategy”, it typically requires organizations to accept a higher level of risk for their leadership staffing decisions. The reason for this is that rather than promoting leaders who have been repeatedly tested against tough business challenges, under this strategy companies are hiring managers who are relatively unknown to the organization. At issue here is the question of whether these outsiders will be able to successfully “graft on” to the strategic intent of the organization or stay until they spot another vacancy. Surprisingly, in some cases, the industry is competing over and offering unparalleled benefit package for the unmerited and the issue becomes more problematic when the position to be filled is managerial requiring strategic orientation.

On the flip side, although executives in the financial sector are constantly sounding off about how “bad” employee turnover is, stating “Titles don’t matter. Turnover is turnover” but in some cases, employee turnover is actually a positive thing. Imagine, for example, that you had a poor-performing worker. If he walked in late one day as usual and announced that he was leaving, would you consider that a bad thing, or would you secretly celebrate his departure? The purpose of seeing the other side is to open your mind about the silliness of measuring only aggregate turnover. The idea of keeping everyone is just plain silly. The fact is that there are many factors to consider. As a result, firms need to classify their turnover as either “regrettable” or desirable turnover.

As a way out, through succession planning, proactive recruitment and retention strategies, the negative effects of loss of key personnel can be mitigated. Hiring the right people from the start, most experts agree, is the best way to reduce key employee turnover. Interview and vet candidates carefully, not just to ensure they have the right skills but also that they fit well with the company culture, managers and co-workers. “Hire for attitude” is the new HR mantra. Their enthusiasm can be infectious.

In addition, Companies should also revise their benefit packages regularly and let key employees know how much they are valued, the opportunities available and make sure the link between their performance and rewards is clear. In doing so, companies can slice turnover rates markedly and emerge as the “most preferred employer”. Otherwise, hunting the “ready made” can no longer serve as a sustainable competitive advantage single handedly.

At industry level there has to be a strong financial academy specializing on financial sector and capable of developing manpower targeting the current and above all the future needs. Moreover, there should be ethical code of practice and or regulation that could protect proprietary rights of financial institutions and prevent trouble-free adoption of strategies and technologies by others. Professional societies would also play a key role in shaping the ethical code of practice of members. It’s an important instance where company, self-interest and industry interest just happen to coincide.

Fikru Tsegaye

Fikru Tsegaye holds MBA in Marketing and MA in Human Resource and Organizational Dev’t. He is currently working at Ethiopian Insurance Corporation as Marketing and Strategic Management Team Leader. He can be reached at fikru.tsegaye@yahoo.com

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