Companies invest significantly in retaining talented employees whose jobs are critical to their competitive advantage and with good reason, reports a new study from the ILR School's Center for Advanced Human Resource Studies.

When employees quit, operations, productivity, employee morale and service falter. For services companies -- which dominate the U.S. economy -- losing employees means that customer service standards decline.

In one of the first data-based investigations of its kind, the researchers studied more than 5,000 employees in 75 workplaces at a large U.S. hotel and casino chain. They chose this industry because of its high annual quit rates, which average about 50 percent.

For service firms to succeed, human resources practitioners must better understand why workers quit and find ways to minimize the disruption of customer service, the study reports, noting that it is possible to manage turnover in ways that keep good service flowing to customers.

Cornell ILR School assistant professor John Hausknecht and two colleagues examined whether service quality is impaired by employee turnover, and if so, how managers can make the situation better.

"Previous research has documented the detrimental effects of turnover on different outcomes (productivity) and in different industries (banking, food service)," said Hausknecht. "But our study extends these findings to customer outcomes in the leisure/hospitality industry, an industry plagued by high turnover yet one where companies rely heavily on service quality as a source of competitive advantage."

The study, published in the Journal of Applied Psychology (94:4), finds that:

"We also moved beyond the general question of 'does turnover hurt customer service?' -- it does -- to show the conditions under which it is most damaging," Hausknecht said. "Large units and those with a high percentage of newcomers had the most trouble dealing with turnover-induced disruption. Conversely, smaller units and those with more experienced employees were able to buffer turnover's potential negative effects on customers."

The more new workers in a workplace, the more problematic the worker turnover, Hausknecht said, and the more unhappy customers were. In larger workplaces, high turnover caused service to deteriorate more than in smaller work units.

To provide high-quality customer service during a period of high turnover, the study recommends structuring organizations into small work units; quickly introducing new workers to the organization's culture and training them for the job; examining reasons why large work groups are less efficient and trying to improve on them; and hiring, promoting and transferring workers mindfully to avoid large pockets of newcomers in certain areas.

Workers in this study were motivated to provide good service because they receive bonuses based on their work group's service scores. In addition to turnover rates, group size and newcomer concentration levels, the researchers also looked at workers' ranking of statements that reflect on work group cohesiveness.

The study also examined customer service ratings from surveys completed by nearly 60,000 customers.