What is successful recruitment?
This simple question generates way more controversy than one would think. The problem is not answering it theoretically, but rather putting it into practice! Let's see why…
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We can probably agree on a basic definition:
If recruitment is the process of bringing new people into an organisation, then it’s successful when the new people fulfil the objectives that the organisation has for them.
However, evaluating how well new hires perform against their objectives is so tricky that most sources seem to give up, focusing first on other metrics, like speed of hiring and cost-efficiency, to assess whether they are successful at recruiting or not.
We believe that’s the wrong approach: think of an extremely well-oiled talent acquisition system, optimised to recruit within a few days on an extremely low budget, but then hires don’t perform… no good! In contrast, if you need more time than your peer companies to fill roles, or you spend more, but your new team members fulfil their objectives, we all know that’s success.
“When we turn to hiring itself, we find that employers are missing the forest for the trees: Obsessed with new technologies and driving down costs, they largely ignore the ultimate goal: making the best possible hires.” Peter Cappelli, Your Approach to Hiring Is All Wrong
Should we then forget about speed and cost? Obviously not. If the selection process takes too long, the best candidates are likely to fly away. If you spend without control, talent acquisition may become an uncomfortable burden on your finances. We simply need to ensure that we are recruiting good people, first and foremost, and then lower timelines and cost if needed. Otherwise, we might be getting it completely wrong.
The value of hiring successfully: a simple business case.
“Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com’s success.” Jeff Bezos, Amazon's original 1997 letter to shareholders.
Jeff is one example among many relevant people who share a similar opinion, but you may want to form your own one (so do we). One of the best ways to assess how important it is to prioritise hiring the right people is to compare different scenarios. Starting with the basics, let’s measure the impact of a bad hire:
Part 1 of the business case for successful recruitment - Definition and impact of a bad hire
Bad hire: a new member of an organisation that does not fit with the role or the context. They may lead to the following struggles:
Poor performance: they may simply fail to return their salary in terms of productivity. A bad hire may be far from achieving their targets, upset key stakeholders, let errors slip into products, processes or financial reports, etc.
Team-wide trouble: performing or not, a bad hire may worsen the team’s success by making their colleagues unhappy or demotivated, showcasing negative behaviours, or even doing something unethical or directly illegal.
Need for replacement: poor performers and trouble-makers are likely to be dismissed. Even great performers with a positive attitude may also become bad hires if they leave too early, e.g. because of a better offer or because they feel a strong mismatch with the team.
ℹ️ Being a bad hire is fully dependent on the role and the context. For example, a person may be fired from a first company and then join a second one where they get promoted - in that case, the person that was a bad hire in the first role and context becomes a great hire in the second role and context.
Apart from the lack of results and the potential to worsen the team performance, a bad hire implies many extra costs: their layoff, the hiring of a replacement, the delay in the delivery of the role objectives, and the extra burden on the rest of the team. Many authors have crunched the numbers:
On the lower end, an article on CareerBuilder mentions $17k on average, without calculation details - we understand this only includes the direct costs of hiring a new person, with no further impact or cost of opportunity considered.
Also without detail, but more generously, the US Office of Personnel Management reports an estimate of “2-3 times their salary” - this must also consider indirect impact and cost of opportunity.
Searchlight demonstrates transparency by showing a breakdown of their $200k, calculated for a bad hire with an annual salary of $100k that leaves in 6 months - it includes cost of opportunity and some indirect costs.
The record is set in a Business Insider article: “One bad hire can lead to a domino effect of more bad hires and decisions costing a company millions, says Zappos CEO Tony Hsieh” - of course, Tony was referring to an extremely negative case, not the average or a normal case, like the examples above.
Finally, many authors quote the US Department of Labor’s “30 percent of the employee’s first-year earnings” and Jörgen Sundberg’s “as high as $240k”, but, funnily enough, we haven’t been able to find the original source for either.
What is our take? That it heavily depends on the role and on your organisation! That’s why we have prepared this simple spreadsheet to estimate the impact of a bad hire for your specific case (alternative download as a zip file here).
In our next article, we will complete the business case, comparing these costs with the impact of a good hire and with cases in between, providing the full spreadsheet for you to do the numbers for your own organisation. We will also provide an extended spreadsheet for you to do the numbers of the complete business case for your organisation. Please subscribe and stay tuned! Feedback, ideas or requests? Please get it touch!
I wonder how many bugs and errors will be found in the calculator of the costs associated with a bad hire ;) But I truly hope this spreadsheet gives people an additional argument to get their organisations to stop playing recruitment by ear!