Determinants of Acquisition, Development, and Retention of Employees in the Service Sector

Abstract

The modern economy has been supported by the global service industry, which contributes around 65 percent of world GDP, and it hires over 3.6 billion people by 2024 (International Labour Organization [ILO], 2024). Healthcare, hospitality, financial services, or information technology, service based organizations rely almost entirely on human capital as their competitive differentiator. The service industry, unlike the manufacturing industry where partial automation of the process can partially replace workforce capacity, is a people business and hence management of human resources is of highest priority of the highest order.

The perceived importance notwithstanding, service sector organizations still have to grapple with the critical challenges throughout the employee lifecycle. The competition around the skilled labor force is becoming increasingly tougher, generational demands are changing, and employment positions are rapidly changing due to the processes of digitalization (Bhattacharya et al., 2022). The lack of training investment, a vague career path, and a lack of correspondence between organizational learning goals and the aspirations of individuals have contributed to poor employee development (Rawashdeh, 2021). Employee retention, more than any other issue, has become a crisis-level problem: in 2022, global voluntary turnover in the service sector hit a post-pandemic peak of 23.4% and replacement costs in this sector amounted to half or even two times the annual wage of an employee (Gallup, 2023; Society for Human Resource Management [SHRM], 2022).

These problems are not homogeneous when it comes to organizations and geographies. The research also indicates that organizational size, dimensions of culture, and macro-economic environment instigate the condition under which HR practices achieve ADR outcomes (Kultalahti and Viitala, 2023). The COVID-19 pandemic has also re-apprenticed workforce demands, increased the pace of demand to remote and hybrid work, increased mental health consciousness and redefined the psychological contract between employers and workers (Amankwah-Amoah et al., 2021).

Though there are plenty of theoretical and qualitative literature on the micro aspects of talent management, there are relatively scarce empirical studies that take an integrative approach and focus on the pertaining determinants of all three dimensions of acquisition, development and retention in the service industry. It is specially salient in the framework of mixed-economy developing countries, where the institutional systems, labor market dynamics, and organizational abilities vary significantly as compared to developed economies (Okpara & Pamela, 2022).

This research fills this gap by undertaking an empirical study, on the determinants of employee ADR in the service industry, using a large-scale primary survey. We will conduct a fourfold study aim, to (a) find and prove the main determinants affecting the acquisition, development, and retention of employees; (b) to determine the relative strength and statistical significance of each of the determinants towards the three outcomes; (c) to determine whether the determinants vary in their impact on service sub-sectors; and (d) to establish the practical implication of the study finding on HR practitioners and policymakers The combination of human capital theory, the resource-based view, and the self-determination theory employed in the present study helps enhance the theoretical and practical comprehension of the management of talent in service organizations.