Reviewed by Aug 27, 2020| Updated on
What is Attrition?
Attrition, in business, explains a gradual but intentional decrease in the number of personnel that occurs when employees retire or resign and are not replaced. The concept is also sometimes used to describe consumer or customer decline when they reach maturity beyond the target market of a product or company without being substituted by a younger generation.
How Does Attrition Work for Employees?
This form of personnel reduction is called a freeze for hiring. It's one of the ways through which a firm can reduce labour costs without disrupting layoffs. Naturally, reducing employees by attrition is less devastating to business morale.
However, if this leads to an increase in their workload, it can have a negative impact on the remaining employees. It can also restrict promotional incentives and movement within the organisation, resulting in an unhappy workforce or more turnover than expected.
How Does Attrition Work for Customers?
Attrition may also refer to a declining consumer base. Naturally, this is not deliberate. The word is most important when used to describe a product that has a shrinking customer base because its loyal customers are getting older, and younger consumers are not taking their place.
The attrition of customers is usually found when a company has not adapted its products to changing trends. Examples of firms that have failed to capture the younger generation of customers could be the Sears, a department store chain and the Oldsmobile car brand.
Difference Between Attrition and Layoffs
Changes in management, organisational structure, or other aspects of the business operations can cause workers to leave voluntarily, resulting in a high attrition rate. The laying off of employees results in attrition as long as the company does not hire as many new employees as it has laid off immediately. For example, a company could cut its administrative staff by six to create a new six-strong internet team.
For many reasons, turnover occurs in an organisation. Only when the company chooses not to fill the vacant position, it can be considered attrition. When a business faces a financial crisis, it has to make tough decisions and slash its jobs in order to stay afloat. In such situations, the company may enforce a layoff without any plans to fill those positions again.
Unlike layoffs, there is a voluntary decrease in staff due to recruitment. The employee has decided to take up a new job, retire, or move to a new town. The unavoidable changeover takes advantage of an attrition policy to reduce total staff members.