Most companies are trying to squeeze more work out of fewer people -- and are in no position to pick up the slack a bad employee can cause. The result: you can't afford to recruit and hire the old way. Here's what smart CEOs are doing instead

A few months back Tom Garrison was shopping for an anniversary present for his wife. He found himself in a jewelry store with a friendly salesclerk who showed him a beautiful, but pricey, diamond-studded bracelet. When Garrison balked at the price, the clerk asked him how long he'd been married. Twenty-one years, he said. Well, wait a minute, she gently pointed out: "This bracelet costs only $143 for every year you've been married."

It may be the oldest trick in the jewelry-retailing book, but Garrison, president of Brown, Moore and Flint, a Dallas-based food broker, thought the clerk "really had a good soft approach." In the end he walked out with the jewelry. More important, he says, he left with the name of someone who might make a good employee at his company.

Click. This little episode seems like the quintessential hiring story. Something just clicked, we say. We don't know exactly why, but the job applicant seems right. Or wrong. Or something in between. When it comes to hiring, in fact, many of us are in murky territory. Sure, we look at job experience. Education? Naturally. But a good part of our decision rests on a shadowy collection of vague impressions. We call it intuition, chemistry, a gut reaction.

Others call it a crapshoot. And Garrison, for one, doesn't believe in it. His apparently casual contact with the jewelry clerk was actually part of a painstakingly choreographed process to steer a certain kind of person into his company. He had to learn the hard way -- when lack of customer confidence in his people put his business at risk -- that hiring isn't just another operational necessity, like collecting receivables or marketing. In fact, apart from actually conceiving the idea for your business, hiring those who will bring that idea to life is the single most consequential step you take. With every person you hire, you determine how great your potential successes may be -- or how awful your failures. And if it's always been true that a company's prospects are defined by its work force, it's equally true that now its work force defines them more than ever.

Think about it: when a company lays off workers and runs more lean, each worker has a greater effect on the company's performance; each employee becomes more important. And it's not just the demand for more elbow grease that's raised the stakes in every staffing decision you make. These days you need workers to perform more than their obvious duties -- you need workers who can offer perceptions about your customers, or insights into your production process. In these resource-parched times, an order clerk who can pinch-hit as a salesperson, analyze operations like a consultant, and communicate like a leader would fit the bill nicely.

And if you were to say your business can't afford to sustain the disciplined, continuous recruiting process needed to find such people -- that it's too short on management time, energy, or money -- then we'd argue that you can't afford not to.

Consider the downside of getting it wrong -- the price of a mishire. The tangible costs are obvious: salary, fringe benefits, recruitment and training expenses. According to Michael Riordan, president of Riordan and Associates, a Kansas City management-consulting firm, a salesperson who lasts six months in an office-products dealership, for example, would cost the company about $17,000.

Not a very threatening number, true. But then tally the intangible expenses: the time you, the manager, invest in that person; lost sales opportunities; loss of morale on the sales team. Riordan says such costs can come to seven times the purely tangible losses, bringing the price tag of this particular bad hire to $136,000.

That multiplier may be hard to believe until you consider the ripple effect of the bad hire in your marketplace. "First of all the guy doesn't work out. He does not take care of the customer," says Mike Koether, president of Infincom, an office-equipment distributor in Phoenix that has 5,000 to 6,000 customer contacts each month. "He eludes the team's efforts and erodes the manager's confidence. What looks like a $1,500-a-month hiring mistake becomes a lot more expensive when you multiply that with my annual turnover and the number of customers that are let down."

The cruelest cost, however, is the most subtle: the loss of what might have been. In wrongful-death and personal-injury legal cases, lawyers sometimes argue that their client has suffered "hedonic loss." That means that not only has the client experienced the obvious costs -- forgone income, medical expenses, and pain and suffering -- but he or she has also lost the enjoyment of life. Similarly, our mishired salesperson has cost you all the positive things that would have occurred had you hired the perfect candidate: a reenergized sales team, a fresh flow of new product ideas, your next vice-president of operations -- who knows?

So what do you do to find and hire perfection? Begin by renovating the hiring strategy you carry around in your mind. If you're like most managers, it's a strategy that's antique -- we want to hire someone who's done the job before. This logical-sounding idea springs from an earlier time, when companies were hierarchical, labor was plentiful, and technology was slow moving. You needed a pair of hands that would do what you asked. Job experience equaled competence.

As mass production has given way to customized products and services, and technology has shouldered a greater portion of the work, business's needs have changed radically. A pair of hands is by no means enough. Managers rely more heavily on workers' insights and initiatives. A successful service business depends as much on the attitudes of its employees as on their technical skills.

In this context, evaluating job applicants on the basis of their education and previous work experience is myopic -- like looking at a candidate through a peephole when you could open the door for a full view. Some business owners go so far as to say you should be wary of these old standbys. "Looking at résumés and experience is a trap," claims Bruce Male, president of TravCorps, a temporary-nurse service in Malden, Mass.

The pickiest companies we found aim to do what might be called holistic hiring. They believe that a person's behavior, interests, and personality are crucial contributors to his or her success or failure in a job. So they have found a way to decipher this soft data, to decode the click. Some use personality tests -- though they avoid calling them that. Some use activity tests of their own design. Some don't use tests at all. But all strive to objectify the subjective.

There are other components to successful hiring -- hundreds of them, in fact. But to do it well, you can't pluck a few scattered techniques. What's needed is a comprehensive system that starts, above all, with the premise that hiring is an ongoing process, a constant investment of your company's time and energy whether or not you have a job to fill. The rewards are handsome -- in most cases far greater than you might expect.

The penalty for not elevating hiring to number one on your company's priority list? You systematically shortchange your company's potential, as Jim Fuchs, president of Fuchs Copy Systems Inc., in Milwaukee, knows all too well. "We were reactive. All of a sudden we would lose an employee. We'd jump right into action and say, 'We've got to hire quick.' Six candidates come in and we hire one. Chances are, they're not a good fit, but we hire the best of the worst -- we hire out of desperation."

Here's a better way.

Step One: Recruit All the Time

Constant recruiting is what makes the difference between hiring the best of the worst and hiring the best for the job. Very simply, it is forward-looking, ensuring that the pipeline of high-quality candidates is full when you have an opening. Does that mean advertising continuously? Definitely not, according to Tom Garrison, the Dallas food broker. "People who read ads are looking for a job. We are looking for people who aren't looking for a job -- they're happy and productive where they are. When we find that person, we try to sell him on why he should work here," he says.

Garrison and his retail managers call their technique "center of influence" recruiting. When Garrison runs across someone -- such as the aforementioned jewelry clerk -- that he thinks he'd love to have as an employee, or conversely, that he himself would like to work for, he engages her in a conversation about his industry. "If she's excited, if we see she's reading us, then we move into why Brown, Moore and Flint is a good place to work."

Then Garrison begins describing the characteristics he looks for in a job candidate and asks his newly minted center of influence to be on the lookout for anyone fitting the description. Now that 10 or so Brown, Moore and Flint managers have been seeding the area with centers of influence for six years, Garrison gets four or five calls a week regarding potential candidates. Good scouts may come from anywhere; some of the food broker's best recruiters are its clients. Sometimes the recruiters are so sold on the company that they decide to apply for jobs themselves.

Not only did Garrison build a pipeline to future employees, he was careful about its placement. As a result he taps a labor pool that isn't traditional for his industry. Adina Marcheschi did the same thing even before her pipeline was in place. Her recruiting problem: people were turned off by the two most visible characteristics of her company -- it's in the head-hunting business, and it pays commissions only. "A lot of times when people called in response to our ad, they'd say they weren't interested as soon as I mentioned the word commission," she recounts.

Yet she knew that visitors often fell in love with the company's young, open environment. So two years ago, when her fast-growing firm, CPS Employment Services Network Inc., in Westchester, Ill., had a handful of openings, she decided to hold an open house; it attracted people who might not have responded to a conventional ad. Sixty prospects were led through a casual but carefully structured introduction to the company. Each attendee watched a video, was screened by a manager, and filled out an abbreviated application form.

To get at an entirely different group of prospective employees -- those who did not respond to the open-house invitation -- Marcheschi asked attendees to refer her to other people who might be interested in her company. All told, an ad and the open house yielded more than 100 applicants, 5 of whom were hired. "When you need to hire a lot of people quickly, it's your best way to do it," she asserts.

Step Two: Write a Real Job Description

We think this little piece of homework is the single best thing you can do to hire well. That's right, write a good job description. It may sound like a bureaucratic nuisance you don't want anything to do with, but that's not the kind of job description we mean. We're talking about reaching an understanding of a position that goes far beyond a list of duties.

The reason that is so critical? If you have real intimacy with what's required in a particular job, you are disciplined to look for someone who matches the description. Without a blueprint, managers will usually hire the person they like the best who's done the job before. "Most often we make the mistake of hiring in our own image," says TravCorps' Bruce Male.

He recently crafted a job description that dramatically altered the kind of person he hired for a key position -- the manager of TravCorps' growing information-systems department. "Initially, I thought that I needed someone who had technical mastery," recalls Male. Then he defined the job in terms of its objective -- what would be the result of hiring the right person? What he wanted, he realized, was someone who could develop the department and discern what the rest of the company required of it. He needed a nurturer and communicator -- not an inspired computer hacker.

To continue building a profile, define the traits needed to succeed in the job. At Advanced Network Design, a third-party telecommunications handler in La Mirada, Calif., managers begin by writing down a list of actions a person will undertake in the job. Then they itemize the behavior necessary to execute those activities successfully. Finally, they concoct a script for the interview: "You write open-ended questions that will get people to discuss their previous work history in such a way as to disclose whether they have those traits," explains Dave Wiegand, the company's president.

The conventional job description, for example, focuses on activities. Here's the traditional salesperson's job description: generate and close new sales, make 15 cold calls a week, write call reports, and attend weekly sales meetings. Sound familiar? Obviously, there's nothing inaccurate about the description, but it leaves you clueless to find someone who will be a good salesperson. You're stuck, essentially, with just looking for a candidate who has done those five activities before.

In contrast, Wiegand's job description for a salesperson consists of 17 behavioral traits. One of them is healthy "self-talk," the mental dialogue we have with ourselves. To uncover that characteristic, Wiegand might ask the applicants what they would say to a fellow salesperson who was getting a lot of rejections and having difficulty making appointments. "By twisting the situation around and suggesting that they're helping others, you are discovering what they say to themselves," says Wiegand. What he wants to hear is a buck-up-and-keep-going speech to the imaginary colleague; he believes the inclination toward that response, rather than empathetic pessimism, is a key predictor of a salesperson's success.

A first step to constructing a truly useful job description: itemize the patterns of behavior of your most successful employee in each job class. Then revise that list as you get better at hiring. Over time, it will become a valuable recipe. At Millard Manufacturing, a food-processing-equipment manufacturer in Omaha, job profiles are reviewed, discussed, and tinkered with every time a position is filled. One personality trait may be replaced with another. Brown, Moore and Flint's Garrison considers his job profiles such an important template that he keeps the master copies in his desk.

Step Three: Interview According to Plan

After prescreening with minimum requirements and a five-minute interview, the serious interviewing is at hand. When preparing for interviews and while doing them, there are two things to think about. The first is what you probably already concentrate on -- the actual interchange between you and the aspiring employee. The second is your overall interview strategy. That usually neglected part of hiring involves choosing how many interviews you'll give each applicant, how long they'll last, the purpose of each, and who will conduct them.

Look first at how your approach might contrast with those of your competitors. Ari Weinzweig, co-owner of Zingerman's, a delicatessen in Ann Arbor, Mich., attributes his success in hiring to interview standards that are much higher than others in his industry. "To do three interviews is almost unheard of, and for the owner to do one of them is real different," he explains. Turnover at Zingerman's is half what its competitors suffer.

The strategy at Advanced Network is to market the position to applicants -- "We really make them fight for the job," says Wiegand. When a candidate walks through the door for the first time, he or she is handed a piece of paper that describes the multifaceted hiring process. The list of hoops that applicants will have to jump through is introduced this way: "As you may know, the selection process at Advanced Network Design is tough. If you are up to the challenge, then here are the steps to take. . . ." They include an application form, a basic math and filing test, a 10-to 15-minute meeting with the president, and an in-depth interview.

Think, too, about the variety and texture of your interviews. Tom Garrison includes a home interview in the lineup. Coming at the end of the process, this meeting with the candidate's spouse isn't so much an interview as another window into the applicant's soul. "I don't care what the house looks like," explains Garrison. "I just want to know that the husband or wife is supportive in this move."

Of course, interviews with the candidate are what are most critical. Doing a good job here is tricky because of one unalterable fact about those presumably polite interchanges: you want to get under the applicant's skin, and he doesn't want you to.

Because you're in the position of power, you can take your pick of techniques that encourage the truth to surface. Time is a key ally. Tom Garrison's main interview lasts two to five hours and contains carefully timed peaks and valleys. After reviewing with candidates the results of a personality quiz, Garrison asks them to start with high school and describe their experiences up to the present.

"When you're talking about yourself, that's an upper," says Garrison. "Then we take the candidates on a downhill portion of the roller coaster." He will express concern with certain of the quiz's findings. The applicants must defend themselves. After a bit of that, Garrison says, "Let me tell you a little more about the job." That sends the applicants' spirits soaring again, because they figure they might get an offer.

After a few ups and downs, says Garrison, "you'll see their role playing come down. They'll say, 'Let me tell you the truth about something." Advanced Network's Wiegand, who says interviews must last between 45 minutes and 90 minutes to scratch the surface, concurs. "Once they hit that point, you can ask incredible questions about their job history and they'll just tell you."

Your other key interviewing tool: listening. In order to do that well, you need to know in advance what you want to hear. This is where your carefully crafted job description comes in, becoming a blueprint for the interview. Take your script of questions or list of behaviors into the interview and pose follow-up questions until the trait is uncovered. Don't concentrate on candidates' descriptions of their actions as much as you listen for the attitude or preference you're trying to uncover. Where possible, ask for examples from the past. It's too easy to make up wonderful responses about a hypothetical case.

Millard Manufacturing's Ron Parks is one of the most disciplined listeners we found. He first devised a list of questions that uncover behavioral traits and are also hard for applicants to see through. Then he trained himself and his managers to listen for linguistic patterns, as well as content, in their answers.

For example, to discover an applicant's chief means of learning and relating to any task, Parks will ask, "How do you know if a coworker is doing a good job?" There's no right answer. Parks simply wants to find out what kind of "proof" is offered. If the applicant says she can simply see the results of a good job, she is dominantly sight-oriented, as most people in the world are. Others are hearing-oriented, and still others are reading-oriented.

To find out whether a person enjoys a lot of detail in a job or prefers a more general, big-picture orientation, Parks listens to the specificity in a response. Asked what part of a job gave him the greatest gratification, one fellow said, "Installing chicken cookers." Then he corrected himself and said, "No, installing big machines." To Parks's ears that means: "This is a very general guy. Even though installing a chicken cooker is a very broad description of a job, it was too specific for him. He's going to make lots of detail mistakes if we force too much of it on him."

Remember the purpose of interviewing: to get and give information. The process you construct should aim to collect data on what some call horizontal and vertical planes. Horizontal information, such as a candidate's schooling and background, isn't very hard to discover, but you need a sizable amount of it to begin to make your decision. Vertical information plumbs the depths of a candidate's personality, and it will determine who gets the job.

Step Four: Do Use Personality Tests

Personality testing is one tool that some of the best hirers use to probe vertical, or soft, data. Yet it's probably the most controversial issue in hiring. Understandably, too. No one likes the idea of his or her dazzlingly unique self being reduced to a test score or personality type. Tests of hard skills, such as typing, spelling, carpentry, and machine operations are fine. But our predispositions? "There's a constituency that feels it is un-American -- a breach of privacy," says Infincom's Koether, who asks candidates to fill out an "interest analysis."

Here's how to get over that hurdle: Assume there are no bad or good workers. There are, however, a lot of people in the wrong job. Consider the supervisor of a sophisticated inventory of 50,000 parts who can't stand detail or repetitive tasks, for example. Is he a happy man? No. And no sane manager would have put him there if she'd known about his preferences. The best personality tests don't produce answers; they produce a profile of leading indicators about someone. And the best use of the profile is to supplement or confirm what you have already learned.

Koether doesn't use the interest analysis until he's already sure the person has the capacity -- or "can-do," in his terminology -- to do the job. Further interviewing and the analysis provide a glimpse into an applicant's "will-do" -- his or her inclination to do the job successfully. Koether says that when he discusses the results of interest analysis with candidates, "9 times out of 10 they say, 'Yeah, that's me.' "

If you accurately assess a person's soft skills, the payoff is enormous. You've not only landed a productive employee but freed the employee's manager to do constructive, rather than remedial, coaching. "The first mistake that anybody in management makes is to assume that through training, incentives, or disciplinary action, you can change people who are not doing the job right. People can change, but in the end, we think, most people won't," Koether says.

To implement testing in your company, decide whether you want to create your own or buy an established test. Either way, be judicious; a test must be technically sound, be appropriate for the job and company involved, and comply with a slew of government regulations, including the new civil-rights act. The American Psychological Association suggests company owners contact the psychology department of a local university to find an industrial psychologist who can make recommendations.

Step Five: Keep Score with the Right Goals in Mind

Score your candidates immediately after seeing them, and make sure the same -- preferably senior -- person is seeing all the candidates for any one position. Assuming you have two or three candidates that have the characteristics to succeed in the job, the final piece of the puzzle is how well they will fit into your team or your company's culture. Look at whether the candidate has similar goals and how well his or her personality traits will mesh with existing employees'. Grade according to that as well, or compose questions to probe further.

The most important thing to remember while doing evaluations is that you are matching a person to a job profile, not comparing candidates with one another. "Comparison works OK if the worst candidates are sixes and sevens, and you select an eight," explains consultant Riordan. "But if the worst is a two and the best is a four, then you have a problem."

Another quality-control feature: make your decision based on a candidate's weakest score. Let's say you've graded a job candidate in three areas, as Riordan and Infincom's Koether do: she scores eight in her capacity to do the job, another eight for her behavioral preferences in a job, and a six on how well she fits the company team. Says Riordan: "Many selection processes would say, Well, you've got two eights -- hire her. I say, wrong. The smallest number will always bring the other two down. Your lowest number should be a seven or above."

Step Six: Finally, Check References Anyway

By this point, you won't be eager to do reference checking. After all, you've already worked so hard to get the right person that you don't really want to know if there's a problem. What's more, if you've been systematic in every other part of the hiring process, reference checking won't turn up anything you don't already know.

Still, do it. But to make it worthwhile, be sure to reach beyond the references -- acquaintances and former bosses -- that the applicant expects you to call. Ask those references for further references for the candidate, then call them.

* * *

The Payoff

Your biggest reward for creating and following a good hiring process will surprise you. It won't be the lower turnover or other concrete results you set out to secure -- though you'll likely achieve them. It will be this: if you hire the right way, you will manage your people better than ever before. You won't be able not to. You'll know precisely what motivates them, where they're likely to make mistakes, and how to package your feedback.

So while Infincom's turnover dropped dramatically when Koether altered his hiring practices a mere three years after starting the company, he doesn't rave about that. He says: "It gave us a common language among all our different disciplines. And talk about capacity to produce -- we went from zero in sales to $25 million in nine years."

Millard's Ron Parks knows which of his workers need to be assigned their machine-tooling jobs sequentially, rather than all at once at the beginning of the day. He knows which need continual external reinforcement and which would be insulted by such compliments. Understanding his new hires better begot an entirely new management style. Explains Parks: "Certain personality events used to make me angry. Now I understand that sometimes people can't help it. As long as I hire right, I don't have to put 80% of my energy into trying to change employees. I play to their strengths and subsidize their weaknesses."