Hiring is expensive. Bad hiring is even worse. Currently, a search of “the cost of bad hiring” returns more than 36 million results in just over 60 seconds. Plenty of helpful articles have been written on the topic. If you haven’t done any reading on this, allow Forbes to summarize: A Bad Candidate Is Worse Than No Candidate.
The goal of hiring is to increase productivity, and this is an issue that HR and Management needs to be working in unison on for the good of the entire organization. According to Business Advisor, William G. Bliss, it can take 5 to 6 months before a new hire should be expected to reach full productivity. In the first month, a new employee is only producing about 25% of what is needed. Within the next two months, that percentage should climb to 50%. By months 4 or 5, the new hire should be up to 75% capacity, and by month 6, full productivity is to be expected.
Knowing and measuring this trajectory from the beginning can allow HR and Management to team up for minor course corrections along the way as they monitor the new employee. There is no need to wait the traditional 90 days to review progress. Giving early feedback not only benefits the new hire, but it helps managers spot potential problems early, as well as giving timely feedback on hiring decisions.
Start by Making Objective Hiring Decisions
In 2012, the Harvard Business Review informed us all that an estimated 80% of employee turnover is due to bad hiring decisions. And yet, just two years later, a 2014 survey by Fortune Knowledge Group found that 62% of executives still say it is often necessary to rely on gut feelings when making business decisions. Hopefully 2016 will demonstrate that hard lessons have been learned and improved statistics will reflect our efforts.
One of the ways to stem this tide is to change the way you make hiring decisions. Instead of hiring the likeable candidates who interview well (likely prompting that gut stamp of approval), you can make your hiring decisions more objectively. Performance issues aside, the most common factors suspected in failed hires tend to be poor skills match and unclear performance objectives. It is possible and prudent to strengthen your hiring processes with the addition of objectivity.
Track Productivity Across Your Organization
Business is like baseball. You measure everything. Listen to the data. Everything your organization does should result in improved productivity. Thankfully employee productivity can be measured easily at a high-level, across-the-board view, not just on an individual basis. These big picture trends can also provide indications of the quality of hiring decisions.
Track Output / Total Input = Productivity
This formula can be used to calculate the organization’s productivity by work hour. An organization that brings in $10M annually and employs 50 full-time (40hrs/wk) employees generates $96 per hour of work.
$10,000,000 / 104,000 hours per year = $96 per hour
The formula can also be used to calculate the average productivity contribution of each employee. In that same organization, we would see that each employee produces $200,000 in revenue each year. (This breaks down to $3,846 per employee per week, assuming a 52-week work calendar.)
$10,000,000 / 50 employees = $200,000 per year
Obviously this is not actually the case. Your administrative assistant is not directly contributing to the company’s bottom line at that rate, and your salespeople are probably going above and beyond that number. Businesses are systems, which makes it difficult to pinpoint issues like who contributed which dollar of revenue when. However, tracking these two numbers over time (making allowances for seasonal fluctuations) can clearly identify when the organization is making progress and when it is not.
Be Proactive in Finding the Reasons for Any Decreases in Productivity
Once the data-driven, objective hiring decisions are being documented and archived, and the organizational productivity is being tracked over time, managers have a better chance to accurately root out sources of decreasing productivity. Often, these fall into three categories:
Every business has yearly ebbs and flows. Measuring productivity will further identify these trends. This will allow for better forecasting in the future, and it may even reveal opportunities to explore new sources of income that could minimize the decreases.
Yep. We’re back to the bad hiring issue. The easy ones to spot are the employees who show themselves to be a bad culture fit and they aren’t producing at the appropriate level. The longer the poor employee is allowed to stay, the lower the group morale will be, and the more likely additional turnover will occur among high performing employees who have to carry extra work to compensate for the low performance employee. All of this drives the cost of the bad hire and his/her replacement higher and higher.
The trickier issue is with the employee who is a good culture fit but isn’t producing at the acceptable level. This is when additional investigation is needed. Most of this will be done by the C-levels and managers, but when the employee is identified, HR can be a big help in exploring more of the why’s. Take some time to review the information collected in the hiring process, such as assessment results and interview scores or notes. Doing this kind of investigation can help you (1) improve your hiring decisions, and (2) identify contributing factors which may be at play.
Immature Business Units
Anytime an organization starts a new initiative or business unit, productivity is likely to suffer for a time. Encouraging managers to set SMART goals--Specific, Measurable, Attainable, Relevant, and Timely--will be helpful in charting the course to the point of full productivity that appropriately contributes to the entire organization’s bottom line.
Believe it or not, personal assessments can help here, too. The ability to work smarter and more cohesively is even more important for new teams. The risks are higher, the pressure is greater, and the path forward is much more uncertain. Natural perspectives, motivations, behaviors, strengths, and weaknesses can hold clues to solving current challenges and planning for future possibilities. You can help keep this information in front of the key managers and team leaders.
So, hiring is expensive. And bad hiring is even worse. But the hiring decision is just the starting point of the journey. The longer it goes, the bigger the impact--for good or bad--and the more difficult it can be to identify the causes. Businesses are systems and HR can be the connective tissue that helps the systems work together more effectively.
What are other ways you work with managers to benefit the bottom line? Let us know in the comments.