Enlightenment – Reflections on a Client Conversation
One of my clients recently kicked off an internal meeting with some of its Senior Managers with the following question:
‘How much would you be willing to pay for a new hire, if we could, with certainty, advise you they were the best person in the market, and their appointment will, with a high degree of confidence, deliver you a significantly improved business performance?’
Around the room the answers went something like this:
- Manager 1: “10% of salary”
- Manager 2: “About $10k”
- Manager 3: “It depends on how much value they create”
- Manager 4: “Up to $50k”
It was an illuminating set of responses especially given the average cost per hire for this organisation is sitting below $2,500 across a significant number of hires.
A second question was also posed: ‘How long would you be willing to wait to hire this person?’
- Manager 1: “8 weeks”
- Manager 2: “4 weeks”
- Manager 3: “It depends on how much value they will create”
- Manager 4: “Up to 3 months”
Reflecting on this conversation I ask myself why our industry has agreed to be primarily measured on average cost per hire and average time to fill, amongst other basic lag indicators. It is no wonder the businesses we work for focus on achieving recruitment process efficiency and low cost service delivery. Many talent acquisition scorecards reinforce this view, incentivising leaders and teams to focus on reactive and sub-standard service delivery to the detriment of job seekers and the business itself.
I am firmly of the opinion this doesn’t make sense any more and we need to radically change the metrics we use and the language and narrative by which we discuss our performance with business leaders and executives. Otherwise we will never develop and mature as an industry in line with business and our own expectations.
Who Would You Hire?
Let’s expand this thought further using the example below – which of these candidates would you prefer to hire? Yet which hiring process best improves your current performance metrics?
Return on Investment – Recruitment Process
|Hiring Metrics||Person A||Person B||Person C|
|Notice Period||None – Available Now||1 Month||1 Month|
|Hiring Process Duration||4 Weeks||8 Weeks||12 Weeks|
|Source of Hire||Job Board||Referral|
|Time to Start Date||20 Business Days||60 Business Days||80 Business Days|
|Hiring Process Cost – TA Resource||$3,500||$7,500||$12,500|
|Hiring Process Cost – Sourcing Activity||$300||$1,000||$5,000|
|Hiring Process Cost – Behavioural Assessment||$0||$300||$1,000|
|Agency Margin of Contractor to Cover Workload||$0||$7,140||$10,200|
|Hiring Process Cost – HM Time||$750||$1,500||$2,250|
|Total Cost of Hire||$4,550||$17,440||$35,950|
First Twelve Months in Role
|Tenure in Role||12 Months||36 Months||24 Months|
|Reason for Role Change||Performance Managed||Resigned||Promoted|
|First Year Performance Rating (% Scorecard)||40%||75%||90%|
|Direct Report Engagement Levels||Down 10%||Up 5%||Up 30%|
|Business Unit Performance||Down 15%||Up 10%||Up 40%|
|Impact on EBIT||Down $75,000||Up $50,000||Up $200,000|
|Customer NPS Results||Down 20%||Down 5%||Up 30%|
|HR Cost of Performance Management||$11,000||Nil||Nil|
|Return on Hiring Investment||-$100,550||$22,560||$154,050|
Cycles Of Under Funding & Sub-Par Performance
A primary focus on process efficiency and cost per hire does not allow Talent Acquisition nor the business to optimise hiring decisions, and often the right hiring decision will take longer, cost more, involve a higher salary, require more proactivity yet in the long run yield greater organisational value.
Part of the reason we allow ourselves to be measured on time and cost is the general isolation of Talent Acquisition from other key corporate functions e.g. Finance, Marketing and in many cases even Human Resources itself. I also think the legacy agency paradigm and commercial model has overtly infiltrated the corporate Talent Acquisition and RPO world over the years and primarily focused organisations on reducing ‘fees’ or ‘cost’ per hire through process efficiency.
The other obvious reason is that time to hire, source of hire and average cost per hire are actually very easy to track and report providing you have a half decent ATS, recruiters that comply with process and a readily accessible cost base.
More meaningful (business impact) metrics tend to be harder to track and require a level of data analytics sophistication and capability that simply doesn’t currently exist in most corporate Talent Acquisition functions.
These mature metrics also rely on measurement by other corporate functions and their willingness to share data with Talent Acquisition – it is amazing how often ‘talent’ data is treated as strictly confidential and unable to be freely shared with Recruitment. Also, finance tend to keep their data strictly guarded and are not overly interested in fine tuning the coding of general ledger to allow more rigorous and accurate reporting of recruitment related spend across enterprises.
The result is Talent Acquisition functions being managed simply as cost centres with executives regarding it as a process / administration function that sits in Human Resources or in some cases Shared Services.
The result is the continual imposition of an annual budgeting cycle that is best summarised as ‘we expect you to do more with less’.
This budgeting ‘strategy’ initiates a cycle of under funding and sub-par hiring experience and outcomes, ultimately resulting in disengaged recruiters, inferior hires, terrible applicant experience and compromised business performance.
Talent Acquisition Needs to Grow Up
Yes embarking on this change journey will be difficult and yes it will involve investment and capability build but Talent Acquisition needs to mature before it is deemed an irrelevance by many corporate leaders.
There are many aspects of our industry that need to improve and one of these is clearly metrics. Talent Acquisition should work with the business and corporate colleagues to identify the business drivers that matter most to executives and see how their function can impact or influence these.
Performance metrics should be developed that can clearly demonstrate business impact in alignment to business strategy and / or the broader business People plans. Talent Acquisition dashboards need to be significantly more meaningful to business leaders so they actually stop and pay attention to them.
Some of the metrics that could be considered include the following:
- Impact on Employee / Customer / Applicant NPS
- Quality of Hire
- New Hire Failure and / or Retention Rates
- Time to Productivity
- New Hire Impact on Revenues & Business Performance
- New Hire Impact on Engagement Levels
- Cost Avoidance
- Hiring Manager Satisfaction / NPS
- Productivity Loss Cost Reduction
- Talent Brand Index
- Brand Awareness
- Peer to Peer Based Recruitment Process Ratings (e.g. Seek Ratings, Glassdoor)
- Number of Referrals from Employees / from Talent Pools / from Alumni
- Number of Hires from Talent Community Activity
- Net Increase in Pre-Qualified Talent ‘Job Ready’
- ROI of Advertising / Marketing Dollar Spend
- Redeployment / Internal Mobility Rates
- Diversity Ratios Across the Hiring Lifecycle
- Impact on Diversity Targets
- Post Hire Validity Rates of Hires vs. Success Profile Variables
There are many many more when you start thinking about it……
Just think how easy it would be to request an extra $1m in budgeted OPEX if you could base your business case on some of the metrics above. Demonstrable ROI linked to bottom line dollars is what the business expects to see.
There is only so much funding you can obtain from the business when you focus on time to hire, cost of hire and source of hire, eventually you will plateau and your model will no longer derive value gains against these metrics, funding will dry up and your function will start to under perform against business expectations. This is a recipe for disaster.
Make 2017 the Year of Meaningful Metrics and Analytics
I know its only October but I hope this rambling makes you stop and think about the metrics you are measuring in your company.
As an industry we should make a collective New Years Resolution to make 2017 the Year of Meaningful Metrics and Analytics.
By maturing as an industry, measuring business impact, we will demonstrate Talent Acquisition is a genuine strategic lever in an organisation, and in doing so will unlock the door to much needed funding and investment.