Applying the Job Embeddedness Theory in a Business

By applying the job embeddedness theory businesses can help improve and increase their human and social capital. This article looks at the factors to be taken into consideration to do this effectively.

BROOKS C. HOLTOM TERENCE R. MITCHELL THOMAS W. LEE

Seasoned leaders know there is no single silver bullet, golden handcuff, or platinum program that will keep their best and brightest employees productively engaged for the long-term. Yet, it is imperative that they find a way to do so. Recent studies indicate that the attraction and retention of valued employees are among the most critical issues faced by organizations. Replacement costs for employees can be higher than the salary of the person departing. In addition, the social relationships formed by employees inside and outside the organization are believed to create social capital, a resource that is being increasingly recognized as crucial for success in today's organizations. When a valued person leaves a firm, the social network is disrupted and presumably some of the social capital leaves as well.

Mounting empirical evidence also points to the importance of developing human capital as a strategic means for increasing firm value. While unpacking this relationship can be complex when attempting to cut across multiple industries, understanding the logic in the context of a single firm is not. Please consider the following example. Wegmans Food Markets Inc., a Rochester, New York-based grocer, was 2005's Fortune Best Company to Work For. As a private firm, Wegmans does not provide extensive financial data for analysis. Suffice it to say that the firm's operating margins are about 7.5 percent - double what the big four grocers earn - and its sales per square foot are 50 percent higher than the industry average.

While its stores are larger than average and they stock more products than most other grocers, top consultants point to Wegmans employees as the key to the company's success. Darrell Rigby, head of consultancy at Bain & Co.'s global retail practice, notes that the reason Wegmans is a shopping experience like no other is that it is an employer like no other. You cannot separate its strategy as a retailer from its strategy as an employer. While Wegmans' salaries and benefits are at the high end of the market, employees say this isn't the whole story. The firm makes strategic investments in its people.

Before opening its Dulles, Virginia store, Wegmans spent more than $5 million to train new employees there. Moreover, initial training is supplemented in many ways, including sending employees on company-sponsored trips; staffers merchandising wine and cheese might travel to France and Italy to see the vineyards and observe the cheese makers. While much of the investment is directly related to Wegmans core business - people who know how to pair wine, crackers and cheese tend to sell more product than those who don't - Wegmans has also contributed $54 million for college scholarships to more than 17,500 full-time and part-time employees over the past 20 years.

While it may be difficult to calculate the near-term return on this investment, it appears to pay generously, as employees see a future with Wegmans - over half of the store managers started working for Wegmans as teenagers. About 6000 (20 percent) Wegmans employees have 10 or more years of service and over 800 have 25 or more years. Not surprisingly, its annual turnover is just 6 percent, a fraction of the 19 percent figure for grocery chains with a similar number of stores. This has a substantial impact when you consider that the supermarket industry's annual turnover costs can exceed its entire profits by more than 40 percent according to the Coca-Cola Retailing Research Council.

The key point to take away from the Wegmans example is not that companies should sponsor wine and cheese excursions if they want to keep their best and brightest. The key point is that Wegmans invests strategically in its people, and that investment communicates to its employees important messages that influence their desire to stay with the firm. For more than a decade, we have carefully researched the reasons why people stay with or leave their employers. We have not found one universal key to success. However, after interviewing hundreds of people, surveying thousands more and then analyzing tens of thousands responses, we have developed a framework for understanding how a company can increase the probability its employees will continue to contribute to the firm's success for the long-term.

Not all firms will use the same methods to attract and retain top talent - even firms in the same industry. What firms can do to keep their people will depend in part on business strategy, organizational culture and systems, and the people themselves. As demonstrated by a number of leading human resources (HR) scholars over the past decade, it is imperative that a firm's HR strategy be aligned with its business strategy. Firms that follow an operational excellence strategy (e.g., Federal Express Corp., Nucor Corp., Wal-Mart Stores, McDonald's Corp.) need a workforce that identifies with business processes, is trainable, can learn rapidly, willingly follows the battle plan, is short-term focused, seeks to minimize waste and is driven by incremental improvement.

In contrast, firms that concentrate on product (or service) leadership - such as Merck & Co. Inc., 3M Company, Intel Corp., Apple Computer Inc., Nike Inc. - create competitive advantage through innovation. Consequently, their workforces must value discovery and excel at the creative process. The best employees will challenge the status quo, have a longer term focus, love learning and possess a willingness to take risks. Still different, firms that compete successfully through valuing customer intimacy (e.g., Four Seasons Hotels, Inc., The Home Depot Inc., and Dell Computer Corp.) offer unique solutions customized for their clients. This workforce identifies readily with customers, shares ideas easily, is adaptable and flexible, and seeks out customer intelligence.

As should be clear from the foregoing discussion, employee competencies vary across business strategies, and it is likely that their needs, desires and values also vary. Thus, practices that promote retention for one firm may not be as effective for another. The key issue is alignment between business strategy, workforce, culture and systems (e.g., selection, performance appraisal, compensation). The purpose of this paper is to draw on research findings and extensive real world examples to demonstrate the practical benefits of implementing our ideas in an organization. We will first discuss traditional approaches to employee retention. Then we will discuss our framework - job embeddedness. Finally, we will provide many examples of how firms apply job embeddedness theory.

EMPLOYEE RETENTION

Though an employee may feel some immediate relief when severing employment, the choice to leave a job is often a stressful and difficult one. The personal cost can be high in terms of uncertainty, transition adjustments and disrupted social networks. Further, the cost to the organization can be enormous. The company may lose knowledge or expertise, experience a decrease in customer service, and suffer poor communication and coordination. Replacements need to be recruited, selected, trained, gain experience, and become socially integrated before they make substantial contributions. Consequently, failure to systematically address retention issues is likely to have a negative long-term impact on corporate performance. Retaining highly skilled workers who transmit and combine complex information is important to organizations; however, it is important to retain lower skill workers as well.

Given that 82 percent of the jobs in our economy are in the service sector and that the majority of those jobs require relatively low-skill workers, we believe that seeking a comprehensive understanding of the value of social capital and job embeddedness in organizations employing large numbers of service workers is important. Over the past half century, psychologists and management researchers have focused on two major factors as causes of employee retention: job satisfaction and job alternatives. People who are satisfied with their jobs (e.g., evaluate positively their pay, supervision, chances for promotion, work environment and tasks) will stay, and those who aren–t will leave. Also, given the same level of dissatisfaction, people with more alternatives will be more likely to leave than those with fewer alternatives.

Considerable research has explored these relationships in detail. There are many causes of job satisfaction – such as job enrichment, good supervision, clear roles and met expectations. Dissatisfaction is associated with job stress, repetitive work, role ambiguity and role overload. Economic factors, such as pay, benefits, and other financial rewards influence job satisfaction, as do structural and procedural factors reflecting autonomy or fairness. In terms of what initiates the turnover process, job dissatisfaction has been described as the most important and frequent cause. Thus, it is good, solid advice to design jobs and manage work environments to maintain a high level of job satisfaction. Once dissatisfaction sets in, an employee presumably looks around for other work alternatives. The employee may conduct a job search and uncover some interesting options.

Both perceived and actual alternatives can influence this process. At this point, it appears that the underlying thought is "I intend to leave."  If alternatives are judged to be favorable in comparison to the present job, the person is predicted to leave. If not, the person stays. Thus, attitudes about one's current job and the availability of alternatives are seen as the antecedents for voluntary turnover. Satisfied employees will be less attracted by alternative jobs. Even though the research results have been relatively weak, this prevailing wisdom has remained relatively unchanged for 50 years. In sum, a person's perceptions about alternative job prospects combined with his or her job satisfaction and organizational commitment has represented the dominant approach to understanding voluntary employee turnover. One final comment on the academic literature is necessary. In most cases, staying is seen as the simple obverse of leaving. That is, people who are satisfied with their jobs and/ or have few alternatives will remain on the job.

A relatively recent and influential review article concluded that "relatively less turnover research has focused specifically on how an employee decides to remain with an organization and what determines this attachment." This point is critical for our work because we believe that staying and leaving involve different psychological and emotional processes. Put differently, we believe that accumulated social capital and job embeddedness are critical reasons why people stay in firms, and they may be as important – or more important – than staying due to job satisfaction.

JOB EMBEDDEDNESS

On the basis of findings from prior research – coupled with extensive individual interviews, focus groups, and surveys of thousands of individuals – we have developed a theory of employee retention that we call job embeddedness. Job embeddedness represents a broad set of influences on an employee–s decision to stay on the job. These influences include on-the-job factors, such as bonds with co-workers, the fit between one's skills and the demands of the job, and organization-sponsored community service activities (e.g., your plant sponsors quarterly neighborhood clean-up days). It also includes off-the-job factors, such as personal, family and community commitments.

Research in a variety of settings (ranging from a community hospital to a Fortune 100 bank to a state department of corrections) has demonstrated the value of the job embeddedness concept. In brief, job embeddedness is a stronger predictor of important organizational outcomes, such as employee attendance, retention and performance than the best well-known and accepted psychological explanations (e.g., job satisfaction and organizational commitment). Job embeddedness captures a broad range of ideas that influence employee retention. One way to think about a person's life is to visualize a net or a web created by strands connecting the different parts of one's life.

A person who has more roles, responsibilities, and relationships would have a more complex web than someone who had fewer. We would say that the person with the more complex web is more embedded in a situation; a person with more strands connected to her job would be more job embedded. The person with the more complex web would experience more disruption in the web if she severed ties at a central intersection in the web. For example, when a person quits a job where she has many close friends, has children enrolled in on-site, employer-provided day care, and is the lead manager on a critical project, she is likely to encounter considerable disruption in her web. Leaving that job will likely entail making multiple adjustments to her life and routine; these switching costs are real and more than simply economic.

Consequently, the decision to leave will likely require extensive deliberation and the act of leaving immense effort. In contrast, a person who has a job that is relatively isolated, with few friends or connections to other projects or people will experience considerably less disruption in his web if he chooses to leave. Deliberation about leaving as well as the actual act of leaving will be relatively easy. We believe a person can become embedded in a job in a variety of ways related to both on-and off-the-job factors. The critical aspects of job embeddedness are the extent to which the job is similar to, or fits with the other aspects in his or her life, the extent to which the person has links to other people or activities, and what he or she would give up by leaving – the perks, benefits and other aspects of the job they value, such as a safe or pleasant work environment. These dimensions are called fit, links and sacrifice ( Table 1 ).

Fit is defined as an employee's perceived compatibility or comfort with an organization and with his or her environment. According to the theory, an employee's personal values, career goals, and plans for the future must 'fit' with the larger corporate culture and the demands of his or her immediate job (e.g., job knowledge, skills and abilities). In addition, a person will consider how well he or she fits the community and surrounding environment. Job embeddedness assumes that the better the fit, the higher the likelihood that an employee will feel professionally and personally tied to the organization.

Links are formal or informal connections between an employee and institutions or people. Job embeddedness suggests that a number of threads connect an employee and his or her family in a social, psychological, and financial web that includes work and nonwork friends, groups, the community, and the physical environment where they are located. The higher the number of links between the person and the web, the more an employee is bound to the organization.

Sacrifice represents the perceived cost of material or psychological benefits that are forfeited by organizational departure. For example, leaving an organization may induce personal losses (e.g., losing contact with friends, personally relevant projects, or perks). The more an employee will have to give up when leaving, the more difficult it will be to sever employment with the organization. Examples include nonportable benefits, like stock options or defined benefit pensions, as well as potential sacrifices incurred through leaving an organization like job stability and opportunities for advancement. Similarly, leaving a community that is attractive and safe can be difficult for employees. 

Construct

TABLE 1 JOB EMBEDDEDNESS DEFINITIONS

Description

Job embeddedness

Job embeddedness represents a broad array of influences on employee retention. The critical aspects of job embeddedness are (a) the extent to which the job and community are similar to or fit with the other aspects in a person–s life space, (b) the extent to which this person has links to other people or activities and, (c) what the person would sacrifice if he or she left. These aspects are important both on (organization) and off (community) the job.

Fit-organization

Fit-organization reflects an employee–s perceived compatibility or comfort with an organization. The person's values, career goals and plans for the future must 'fit' with the larger corporate culture as well as the demands of the immediate job (e.g., job knowledge, skills and abilities).

Fit-community

Fit-community captures how well a person perceives he or she fits the community and surrounding environment. The weather, amenities and general culture of the location in which one resides are relevant to perceptions of community fit.

Links-organization

Links-organization considers the formal and informal connections that exist between an employee, other people, or groups within the organization.

Links-community

Links-community addresses the connections that exist between an employee and other people, or groups within the community. Links-community recognizes the significant influence family and other social institutions exert on individuals and their decision making.

Sacrifice-organization

Sacrifice-organization captures the perceived cost of material or psychological benefits that may be forfeited by leaving one's job. For example, leaving an organization likely promises personal losses (e.g., giving up colleagues, projects or perks). The more an employee gives up when leaving, the more difficult it is to sever employment with the organization.

Sacrifice-community

Sacrifice-community is mostly an issue if one has to relocate. Leaving a community that is attractive, safe and where one is liked or respected can be difficult. Of course, one can change jobs but stay in the same home. But even then, various conveniences like an easy commute or flextime may be lost by changing jobs.