In the world of outsourcing, employee retention is a pending issue facing both service providers and their clients. The former risk losing new opportunities due to the lack of talent and the latter don’t want to partner with teams that are constantly reshaped. Companies that outsource software development don’t want to hire just some programmers. They want to know that their product is in the right hands. So more and more often, they expect to work with dedicated development teams fully devoted to their project.

In Ukraine, IT outsourcing companies adopt different strategies for increasing employee retention rate, and some achieve impressive results. Also, employees’ willingness and readiness to change jobs depends a lot on the tendencies on the Ukrainian IT workforce market.

In this article, we’ll try to describe how Ukrainian software development vendors attract and retain engineering talent. We’ll also answer several other questions, such as “What is a healthy turnover rate in tech?”, “What should IT outsourcing companies do to improve employee retention?”, and “How can customers and their vendors collaborate to prevent a drain of talent?”. We are not going to talk about free cookies and fun corporate events, though. Instead, we will focus on what really matters for any employee, including Ukrainian software developers.

Talent retention is a global challenge

A recent Linkedin report revealed that the software industry topped the list with the highest employee turnover rate at 13.2% in 2017 and outrun retail – a sector with a historically high employee churn – which came in at 13%.

The top 5 sectors with the highest turnover rates

Source: Linkedin

This means that the IT market is intensely competitive and dozens of industry-leading tech companies compete for fresh talent. In the technology sector, a growing demand for software developers and competitive salaries fuel employee turnover.

Why do employees leave?

According to the Linkedin survey, the #1 reason why employees jump ship is a lack of career opportunities. So, this fact debunks a common misconception that people leave jobs because they are unsatisfied with their boss or want a better salary. Indeed, as data shows, people quit companies but not their direct managers because they simply don’t grow in their careers.

Why do employees leave their jobs?

Source: Linkedin

Global tech giants also suffer from staff turnover

Interestingly, a number of powerhouses such as Google, Amazon and other Fortune 500 tech companies also experience high turnover rates. For instance, the median tenure at Amazon is just one year. At Google, employees serve an average tenure of 1.1 years, according to the Payscale employee turnover report. Nonetheless, 71% of employees at Amazon claim that they are truly satisfied with their jobs, and 84% of staff at Google also report job satisfaction.

This leads to the conclusion that no matter how happy employees are at their work and how much they enjoy the company’s ecosystem, some of them will always be looking for new opportunities and consider better offers elsewhere. What, in fact, keeps people motivated in the workplace are interesting projects, recognition of their work, and great job opportunities. If a company fails to ensure these simple things, an employee will be looking to change a job.

New generations are more likely to jump ship

Millennials are not ready to accept anything less than the best. They appreciate flexibility in the workplace, freedom and challenging working environment as much as generous perks and benefits. And if their expectations are not met, they don’t hesitate to leave companies even if they like their direct managers.

According to recent research, Millennials are the most likely generation to switch jobs. About 60% of them currently don’t mind considering a new job opportunity.

What is a healthy employee turnover rate?

At this point, it is important to understand what employee turnover rates are healthy for an organization. When an employee leaves a company, it is often viewed as something disruptive. However, when staff stays with a company for too long it can be just as damaging as a high employee churn.

IT outsourcing companies need some amount of employee turnover to ensure a high level of motivation, generation of fresh ideas and best practices that will help a company to prosper. So what is a happy medium? When is it time to beat the alarm?

As Linkedin reports, 10% is a normal turnover rate each business should aim for. But there is no optimal number for a healthy employee turnover rate, it can vary from 10% to 25%, depending on the industry, key competitors, and the market dynamics.

It also matters who is leaving a company: top performers or low performers. In fact, each company should strive to achieve a zero turnover rate among top performers because they are a valuable business asset. On the other hand, if your turnover rate correlates with the percentage of employees who don’t meet your expectations, this is a good indicator of your business success. The replacement of low performers can be healthy for an organization, enabling you to focus on hiring better talent.

By doing simple math, you can easily gauge your annual employee attrition rate. The formula is as follows: Attrition Rate = Number of Attritions/Average Number of Employees * 100.

Employee retention on the Ukrainian IT workforce market

As far as Ukraine is concerned, the rate of annual staff turnover in the tech sector in 2017 was about 10%, according to IT Outsourcing Review.

In the country where the number of software developers has reached 166,000 people and is expected to grow to 250, 000 by 2020, this is considered to be a very healthy percentage. Indian companies, by contrast, typically have turnover rates of 40% to 50% or even more.The rate of annual staff turnover in Ukranian IT outsourcing companies

Source: IT Outsourcing Review

The tech market across Central & Eastern Europe is evolving at a lightning speed. It offers 1.3 developers for every 100 people in the overall workforce. If you look at software developer density, the percentage of developers in Kyiv has reached 41%, whereas in Washington DC it accounts for 7% only.

In Ukraine, young people are eager to venture into the IT industry. The country offers profound education in the IT field and invests in its budding talents. Moreover, IT outsourcing companies in Ukraine initiate opening of new programs at universities. They launch innovative labs at universities and work alongside local educational institutions and government to foster the development of tech education.

As a result, according to HackerRank, Ukraine ranks 11th with an overall score 88,7 out of 100 among the top 50 countries with the best software developers in the world. With in-depth education and high employee demand from IT outsourcing companies, Ukraine is able to retain its talent in contrast with losing its best people to jobs overseas.

The strategies Ukrainian IT outsourcing companies adopt to retain talent

Reducing turnover rates among employees in IT outsourcing companies is possible only if there is the alignment of an offshore and an on-site team. What’s more, there should be a robust strategy established in a company, including mentorship, regular performance reviews, real-time feedback, and a clear career advancement roadmap. Here are a few things that work for us at N-iX:

Hire the right people from the outset

No doubt, employee retention starts with recruitment. When interviewing an applicant, there are four main things HR specialists in IT outsourcing companies need to pay attention to: skills, experience, attitude, and culture match. They should look beyond what is written in a CV to make sure that a new hire will be a good fit for the company.

To gather a strong dedicated development team, recruiters should pay attention not only to the technical skills and previous experience of a candidate but also to a number of other aspects. For instance, customers often require specialists with the knowledge in their domain. Also, the person should be a good cultural fit not only for the IT vendor but for the client’s company as well.

The global IT workforce market is hot, and Ukraine is not an exception. Indeed it is easier to hire skilled software engineers in Ukraine than in the USA or the UK. However, your IT outsourcing provider should have effective recruitment strategies in place to hire the right people fast. Just remember that sometimes it is worth spending a little bit more time on recruitment to hire the team you want.

Ensure good management

Today efficient managers are mentors who open doors to learning opportunities and challenging tasks. In general, there are four ways how managers can make their employees happier at work: let them do the work they enjoy, underline their strengths, provide career opportunities, and ensure a work-life balance. So make sure your outsourcing vendor has good management that can provide these important things.

Outsourced teams are usually managed by both sides – the client and the provider. So it is important to have consistent delivery and management processes. Your IT outsourcing company in Ukraine needs to ensure full alignment of your extended team and the on-site one. A manager on the vendor’s side must study your coding practices, communication channels, corporate ethics, and approaches to management to build processes in the offshore location accordingly.

Only then will your outsourced development team be able to work effectively and enjoy their work. And this will lead to high employee retention rate on the project.

Provide clear paths to professional growth

This is apparently the most important step on the way to improving staff retention. Competition for tech talent is fierce, so it is quite costly to lose employees. Therefore, Ukrainian IT outsourcing companies understand how important it is to encourage the professional development of each employee in order to keep them happy and challenged in their roles.

Ukrainian IT companies use a number of practices to retain and grow employees, such as Individual Development Plans (IDP), Performance Appraisal (PA), career planning, salary review, and others.

1. Employee Learning & Development Programs are essential for businesses that want to stay competitive in today’s oversaturated market. Ukrainian IT companies have developed their unique approaches to designing employee learning and growth.

Large Ukrainian IT vendors organize internal universities to grow skills they need and provide mentorship opportunities to experienced professionals. They launch courses in different kinds of programming, UI/UX design, QA and software testing, Business Analysis, soft skills, etc. Most companies have in-house English courses or even their own language schools to help their employees improve communication skills.

Here at N-iX, our employees are trained on multiple stages of their organizational career. All the processes are organized around technical and performance competence models established by the functional office and HR. Initial qualification level is assigned during the hiring interview. For all staff, we elaborate unique career maps with requirements and processes described for each career level.

The HR Business Partner helps employees design and execute their own Individual Development Plan (IDP). Performance Appraisal, Technical Evaluation, and one-on-one sessions with employees allow getting instant feedback on the employee personal and professional growth.

The HR office takes care of planning permanent staff status reviews and retention initiatives. Later includes rotation program, career consulting, leadership, and community development. A unified career map defines two major and three additional criteria for promotion: Performance, Technical Evaluation, Industry Experience, English Language level and the manager’s endorsement.

Based on the feedback received during the performance appraisal, N-iX offers a set of development tools that supplement the IDPs:

  • GAP analysis (a technical interview to identify knowledge gaps);
  • Mentoring program;
  • Internal technical training;
  • Certifications (Microsoft, ISTQB, Linux, Oracle, Scrum Alliance etc., relevant to the engineer’s role and professional development);
  • Professional conferences and programs;
  • Language courses.

HR Business Partners focus on building trustworthy relationships with every employee to track the level of their job satisfaction and ensure a long tenure in the company. Timely identification of retention risks allows them to fix issues promptly and avoid both voluntary and involuntary dismissals.

2. Performance Appraisal (PA) is a process of providing formal feedback based on actual work results. With the help of PA, employees gain better insight into their strengths and those areas which should be continuously developed. The PA process includes self-evaluation, manager’s evaluation (along with inputs from the client), and a feedback session where an employee, a manager, and the HR specialist negotiate the further employee career path. Usually, it is conducted once or twice per year on the initiative of the HR specialist or an employee. Typical outputs of the PA process are promotion, salary review, rotation, or dismissal.

3. Career planning is facilitated by the HR specialist who consults for the best path to streamline career growth, build and execute an efficient Individual Development Plan (IDP). At N-iX, there are vertical and horizontal opportunities for promotion depending on whether employees are interested to advance in their current role or move to other career directions.

4. Compensation management presupposes regular salary reviews to align the person’s compensation in accordance with the obtained role. The main factors of salary review are good performance (including professional goals achievement), promotion, and additional work responsibilities.

Nurture the culture of entrepreneurship

If professional growth is the most important thing that motivates employees to stay, a company culture of entrepreneurship could be a perfect solution to the attrition problem. By creating the environment for creativity, new ideas, risk-taking, and ownership, employers give their people everything they need to advance in their careers.

Empower your employees, encourage them to speak up and drive new initiatives they are passionate about – and they will stay loyal to your company. Pavlo Deshchynskyy, VP Delivery, Partner at N-iX explains how this works at our company, “Ideas usually come not from the top, but from anyone in the company. Somebody may discover an opportunity that should be investigated further, be that a new type of client, new technology or industry. This person takes charge of the initiative, gathers people in a working group and runs the process as his or her own startup inside the company. As the owner, this person is fully responsible for any decisions made. We believe in an iterative approach. Therefore, the working group has 3 to 6 months to validate the opportunity. The team has the initial funding approved for at least six months, and a simple enough goal – to break even. If the project breaks even, we start to actively invest in it and try to build a sustainable business out of it”.

Build a partner relationship

Retaining employees is a joint work of both sides – an outsourcing vendor and a client. It doesn’t matter how great the manager and the company are, if there is no well-established partnership between a client and a team, an employee will look for better projects elsewhere, even within the same company. In fact, there are a number of steps clients can take to preserve their engineers and the valuable product knowledge.

One of the things that employees value most is the recognition and appreciation of their work. IT outsourcing companies in Ukraine encourage employees development and invest in their education. It is important that clients embrace this initiative and also value the professional growth of their outsourced developers. 

To keep your software developers motivated and engaged in a project, it is important to provide them with the opportunities to challenge their boundaries. So when they win your trust, don’t be afraid to give them more responsibility. Software developers in Ukraine are likely to take initiative and provide some valuable advice to their clients concerning product development. Be ready to accept it and you will win their loyalty.

In addition, for better employee involvement, clients need to ensure smooth cooperation between their on-site and offshore teams. Integrity is one of the essential factors of success. Clients should contribute to building tight connections between their remote teams. It can be easily done through frequent business visits, daily standups, regular planning sessions, team buildings, etc. The goal is that an employee feels a sense of belonging to your organization and shares your company’s mission.

Closing notes

The Ukrainian IT sector is booming, yet the competition on the labour market is not so fierce as in the USA and Western Europe. Known for strong maths, science and engineering education, Ukraine provides a great influx of tech graduates on the market every year. Young people are eager to work in the tech industry because IT outsourcing companies in Ukraine offer great work conditions and decent salaries compared to other sectors.

However, to build lasting partnerships with their customers, IT vendors need to ensure their teams are strong, well-aligned, and loyal both to them and the client. Therefore, they should work on developing effective employee retention strategies. In general, Ukrainian IT outsourcing companies manage to keep very low staff turnover rates. They do this by providing efficient recruitment, good management, career advancement opportunities, comfortable working conditions, and a motivating working atmosphere.

As for the customer’s role in this, they need to be ready and willing to build partner relationships with their vendors. This way they can ensure a long employee tenure in a company and on their project.

Employee retention in IT outsourcing companies: Ukraine and the World