If people were considered a capital investment rather than an expense, the CEO and CFO would have demanded better systems long ago.
It seems the only companies that are successful at attracting great people on a consistent basis are those with the big brass employer brands. For everyone else, it's hard to hire stronger people when the focus is on the cost of hiring rather than the impact those being hired can make. Justifying the ROI of every hiring decision is the catalyst needed to begin the redesign of the hiring process at your company. Following are some ideas on how to get started.
I just found this post by Rob Kelley, the CEO of Ongig.com. Rob suggests using the 80/20 Pareto rule to determine the impact of hiring the top 20% using sales revenue per employee as the metric. A Pareto distribution is unrealistic since the best are 10-20X better than average, but the concept of relating better hiring decisions to a company's financial performance is an important one.
Last year I introduced this ROI of Hiring the A-Team Calculator using the same revenue per employee data, but with a few key differences. For example, I suggested that if the employee base is more a normal vs. Pareto distribution the impact of hiring the A-Team (the Top 25%) would be a more realistic 30-40% better than average. This results in a whopping ROI of more than 750%, each year. Plug your own company's numbers into the calculator to determine your company's ROI. This will be enough to justify taking action.
Here are my 10 reasons why companies focus too much on the cost and efficiency of hiring rather than making the ROI-justified changes needed to improve quality of hire.
Why Companies Refuse to Overhaul Their Hiring Processes
- The strategy is wrong. This is the root cause of the problem. You can't use a surplus of talent strategy in a scarcity of talent world. Hiring processes designed to weed out the weak rather than attract the best are based on an incorrect surplus of talent assumption.
- Talent is considered an expense not an investment. Consider that 100 hires at $100 thousand each in terms of compensation is $10 million in salary costs, $50 million in average revenue and $20 million in pre-tax profit (all S&P 500 averages). At 30% better, the top 25% brings in an additional $6 million in pre-tax profit (every year!) for an ROI of 750% the first year and higher every year after that. If people were considered a capital investment rather than an expense, the CEO and CFO would have demanded better systems long ago.
- Hiring managers aren't capable of hiring the A-Team. I'm not sure if only A-level managers can hire A-level people but I am sure that if a hiring manager isn't a developer of people, isn't fully engaged in the process, can't clarify job expectations up front and can't attract great people, he/she won't hire too many top people.
- Recruiters aren't trained properly. Recruiting the best people is a complex consultative sales process. No company would ever allow its sales reps to sell any important product without significant training. Recruiters should be trained the same way.
- The talent market is too narrowly defined. The performance-qualified talent market is 10-20 times larger than the skills-qualified talent market. Reaping its full potential requires addressing all of the obstacles listed here.
- The interview and selection process is flawed. Imagine a business process that's wrong 33-45% of the time. It would have been discarded long ago. Why is HR afraid of discarding behavioral interviewing and shifting to performance-based interviewing instead?
- The ATS is the problem, not the solution. Those that are effective, like Greenhouse.io, are few in number. The problem: Most are too transactional and cumbersome, designed to weed out the weak, not attract the best.
- The process is controlled by legal and compensation. When compensation tells you what to pay the best people and legal tells you how to advertise your jobs, your company is bound to lose out on hiring the best talent. Listen to this top labor attorney from Littler for more appropriate advice.
- Being a cultural fit prevents diversity. Thinking alike, looking alike, talking alike, acting alike and being alike is a recipe for hiring clones. Worse, it allows subjectivity, bias and emotion to dominate the selection process.
- Job descriptions are barriers to entry. Being skills-qualified is not the same thing as being performance-qualified. Big commonsense idea: Since we promote people based on their past performance it makes sense to hire people the same way.
Strategy drive tactics, but for most companies the tactics came first and continue to infect every process redesign effort. Until the strategy changes nothing else will change. Perhaps, by requiring each hiring decision to be justified on an ROI basis--like every other important business decision--companies might finally be able to break the bonds of their bureaucratic thinking.