Comments on: Make Your Vendors Prove Their Quality of Hire Claims

By: Joshua Letourneau

Joshua Letourneau — Mon, 14 Dec 2009 18:16:24 +0000

Dr. Janz, just saw your comment. Actually, I never referenced NPV – I referenced Cost-of-Capital, which would be more relevant to EVA than NPV. I don’t agree that being able to speak financially is about gaining “brownie points” with the “financial crowd.”

It’s about talking the talk – talking the talk that leads to you winning the battle for internal capital. With multiple business units competing for the same finite capital, it makes sense to understand how the CFO thinks (and/or anyone who has the ability to approve your request for capital over other alternatives). We have to be able to speak their language – when in Rome, do as the Romans do.

I acknowledge your vehement agreement with Lou – it makes sense as I could understand that your BDI technique would play a difference in improving day-1 QOH. Where does “web technology” fit in though? (i.e. “performance-driven staffing decisions”)

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By: Dr. Tom Janz

Dr. Tom Janz — Fri, 13 Nov 2009 19:13:47 +0000

I always check my bar tab a couple of times when I am in such violent agreement with Lou. Kidding aside, Lou’s points are well made, intuitively brilliant, and largely supported by selection science. Investing to double the accuracy with which organizations acquire “their most valuable assets”, seems like such a no-brainer, but unless we quantify the return, staffing will continue to be viewed as transactional vs. strategic.

While the science of staffing utility supports most of what Lou argues, the difference in the value of a top vs. bottom third candidate (called one SDy by us pointy-headed types) is not uniformly a ratio of 2 times that person’s compensation. For routine manufacturing jobs, the ratio averages 50%. For investment bankers/stock brokers, one study found the ratio close to 10 times. So while 2 times may come close for most technical professional jobs that have sales or creative impact, it doesn’t apply to all positions.

Regarding Joshua’s cost of capital comment, one could gain some brownie points with the financial crowd by citing Net Present Value, but it won’t make much difference. Performance-driven staffing decisions supported by web technology often cost less than their inacurate traditional alernatives. So the need for “investment” capital can be quite short term, as the cost saving alone delivers a payback that covers the new system startup costs within a few months of going live.

By: Joshua Letourneau

Joshua Letourneau — Fri, 13 Nov 2009 15:48:02 +0000

Lou, good article – the only thing I’d recommend adding is to account for the cost of capital. ROI is an antiquated Finance concept, just as is using Cost-Per-Hire for Recruiting.

I mean, if you really (and I mean really) want to reinforce your points #3 and #4 above, you have no choice than to account for the cost of capital.

Otherwise, it’s just sounds like another consultant or vendor (or in some cases, Recruiting or HR unit) half-stepping in financial conversations. Case in point: if you don’t account for the cost-of-capital with the most basic projects of MBA programs, you won’t pass.