Of all the strategic tasks within an organization, there is probably none more important than recruiting and hiring employees.
If you’re on a recruiting or selection committee, or if you’re the hiring manager for your department, you’re entrusted with nothing less than the future of your organization.
Every organization needs to renew itself from time to time to meet the challenges of a changing business environment. You do that through people.
Every organization has some turnover. Even with less than 10% annual turnover, any organization runs the risk of becoming ossified. So, to stay ahead of the turnover curve, constant hiring and recruiting is essential.
There is a lot at stake.
Good hires are the lifeline of an organization. They solidify the future.
Bad hires, on the other hand, can cause untold damages.
Hiring Mistakes
Can Be Very Costly
It is quite common for businesses to underestimate the true cost of a hiring mistake, which can end up being several times the employee’s annual salary.
The problem with putting a dollar figure on a hiring mistake is that the effects often reach far beyond the position itself, and may linger for a long time afterward.
Here are some of the direct costs of hiring mistakes:
- cost of recruiting ads
- commissions or fees paid to headhunters, professional recruiters or placement firms
- transportation or relocation costs paid to the recruit to come to the interview or come to work
- training costs for having sent the employee to job-specific training seminars
- severance costs when the employee is let go
These are all costs the accounting department should easily be able to generate as being directly attributable to the hiring process.
But they do not tell the whole story.
Indirect Costs May Be
Even More Staggering
Perhaps even more important are indirect costs that are much harder to quantify, such as:
- Staff time, which is part of payroll costs. How many managers and colleagues were involved in the recruiting process from the beginning, drafting or approving the ads, reviewing resumes, interviewing candidates (either by telephone or in person), checking references, negotiating contracts concerning working conditions, salary and benefits? The staff time involved surely went well beyond the people in the HR Department, and when everything is all added up in man- or woman-hours, the figure is likely to be fairly hefty.
- Productivity costs, which are hard to calculate but very real nonetheless. In business, a team of people is typically only as strong as the weakest link on the team. Even just one bad hire is likely to drag down the productivity of the whole team.
- Lost opportunity costs, which are much harder to calculate, but can be vastly more significant. What lucrative sales contracts did the company lose because the employee who didn’t work out screwed up an order? If the new employee was supposed to get a marketing campaign for a new product line off the ground, how much revenue had been budgeted from that new line that did not materialize, in whole or in part? How much time did the wrong hire set you back? How long will it take you to recover? Honest answers to these questions can reach some big numbers for most enterprises. Even smaller companies can be greatly impacted.
- Morale and resulting turnover costs. People like to work with other smart people who energize them and spur them on to greater heights. One member of a team who’s not pulling his or her weight can demoralize a whole team and sour the good people forced to put up with the hiring mistake on the whole company (“who hired this yo-yo in the first place?”). The resulting dent in morale on the good people you wanted to keep can easily result in unwanted turnover, with all its associated costs.
- Litigation costs, which are extremely difficult to predict, but can reach deeply into a company’s coffers. Of course you know you’re terminating the employee for cause because they just couldn’t do the job. But what if they decide to concoct some illegal reason why you fired them, claiming it was because of race, ethnicity, national origin, gender, age or some other protected area. The legal fees needed just to get these kinds of cases tossed out of court can be prohibitive, which is why so many companies will simply settled a case. And if the employee’s attorney is skillful enough to actually get the case before a sympathetic jury, you could be staring down a seven-digit verdict — on top of whatever your own company lawyer is costing you.
Improve your organization
by improving the hiring process
There are both offensive and defensive considerations when it comes to hiring.
On the defensive side, you obviously want to avoid mistakes and lawsuits, which can cost employers dearly.
But if you just guard against making mistakes, you’ve merely eliminated losses and at best maintained the status quo.
In business there is no status quo.
If you’re not advancing, you’re regressing. Your competitors are not standing still. If you’re not outpacing them in growth, you’re losing the battle – maybe gradually at first, but surely in the end.
One of the most important things to look for in the hiring process is opportunities to improve the staff and improve the company’s capabilities in general to take advantage of new situations that may present themselves.
You rarely want to simply replace what you may have lost. You want to see if you can do better with every opening. At least the promise of something better needs to be present at all times.
You want to get people whose careers are still on the way up – before they make a ton of money and help some other organization grow. You don’t want to get them when their careers are already on the wane and when they’re probably at their maximum earning potential.
But there is another phenomenon you have to guard against in the hiring process if you’re serious about looking upon every new hire as an opportunity to improve the business.
Hiring managers need to be on guard against the insecurity complex.
Consciously or subconsciously, many hiring managers are reluctant to get anyone on board who might at some point present a threat to them. They might not want anyone on their staffs smarter than themselves.
Such an insecurity complex can derail a company’s entire hiring and recruiting process.
Carried to its logical extension, in such cases people who are 8s on a 1-to-10 scale will only hire 6s or 7s – never 8s, 9s or 10s; they would be too much of a threat to them.
In turn, those 6s and 7s will hire 5s and 4s – until the whole organization sinks into a sea of mediocrity.
Senior management should from time to time examine the recruiting patterns of hiring managers.
Are they willing to hire people smarter than themselves? Will they always go for the best hire, regardless of what it may mean to themselves?
