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Show Me the Money — the Top 10 Revenue Impacts of a Great Hiring Process
Posted By Dr. John Sullivan On July 30, 2012 @ 5:00 am In Advice and How-Tos | 11 Comments
Many are surprised to learn that in growing corporations, recruiting can have the highest revenue impact of all of the HR functions. That is a powerful statement and it is also the premise of a presentation that I will make in September at the always-groundbreaking ERE national recruiting conference . We all know that in both the sports and the entertainment fields, there is a tremendous financial impact as a result of hiring top talent like LeBron James or George Clooney. Although the same significant financial impact also occurs in the corporate world, recruiting leaders have almost universally failed to focus on generating that revenue impact.
CEOs are laser focused on revenue growth
HR leaders seem to be continually looking for ways to be more strategic and to become better “business partners.” Unfortunately, many in HR make a major error by deciding on their own what they consider to be strategic. A superior approach is to instead let the CEO define what they consider to be strategic. And in most corporations, CEOs have a laser focus on revenue and revenue growth. Financial analysts also use revenue growth as an indicator of corporate health and future growth prospects.
HR is unfortunately the one remaining major corporate functional area where revenue growth is not a major focus. Clearly HR has not historically been “a champion” of increasing revenue, and even today, most HR functional leaders make no attempt to measure their impact on revenue. Unfortunately, in HR we instead typically restrict the definition of our success to pedestrian measures like the number of hires, employee turnover rates, or the number of training hours offered. Failing to focus on revenue is a fatal strategic mistake, especially given the fact that labor costs are often the highest corporate variable cost item and because improving the management of people has a higher ROI than equal investments in finance and capital projects. Other areas of HR also have significant revenue impacts but because every employee goes through the hiring process, recruiting has the potential to create the highest impact on revenue.
The revenue impact of a great hire can be in the millions
The first step in increasing revenue through recruiting is understanding the concept of a “performance differential.” A performance differential is the quantified percentage difference on the job between an average and a top-performing hire (in the same job). For example, Google has calculated that recruiting a top technologist (versus recruiting an average one) will result in 300 times more productivity and business impact. And because the average Google employee generates over $1 million in revenue each year, hiring a single “purple-squirrel ” top technologist has the potential for adding $300 million to Google’s revenue each and every year that the new hire remains with the firm.
Other firms like Apple, Microsoft, GE and Yahoo have all found at least double-digit performance differentials between hiring average versus top performers. Unfortunately, rather than focusing on the revenue impact of a great hiring process, most recruiting leaders instead dwell on cost reduction (i.e. cost per hire). Most recruiting leaders have failed to understand that even saving $1,000 per hire over 500 hires produces only “chump-change” savings, at least compared to the multi-million dollar revenue impact resulting from a single great hire in a key position.
The top 10 revenue impacts of a great hiring process
The primary goal of recruiting should not be to simply fill every position at a low cost. Instead the strategic goal should be to make sure that every hire produces the maximum impact on business results and revenue once they are on the job. And if you’re going to have a significant impact on revenue, you must first identify each of the ways that hiring can have a major impact on revenue. In this section I have outlined the 10 hiring focus areas with the greatest potential impact on revenue. They are listed in descending order, based on their potential to dramatically increase revenue.
In summary, if you want to produce a measurable impact on corporate revenue you must understand and then focus on the above hiring approaches that have been shown to produce the biggest increase in revenue. That means that you must design a hiring process that is capable of hiring more top performers, more innovators, more leaders, and fewer slackers. The process should also be able to generate new hires who will stay longer and who don’t expect outrageous salaries. And finally, your recruiting process must focus on quickly filling the jobs that directly generate revenue with top performers.
Action steps to take in order to implement a revenue focused recruiting strategy
In order to shift to a revenue impact model in recruiting, you must take five important steps.
If you were producing a new movie, there would be no doubt in your mind that if you added stars to the cast like George Clooney, Angelina Jolie, or Brad Pitt, your revenues would increase dramatically (and well beyond the additional costs of hiring the star). In the same light, you wouldn’t get an argument from the CEO of the Miami Heat that the hiring of LeBron James dramatically increased revenues and the value of their franchise by tens of millions of dollars.
Well it’s time to realize that the corporate world is really no different than athletics or entertainment. If you hire a new CEO like Marissa Mayer at Yahoo, you do it with the specific goal of increasing your revenue and your stock price. The overall lesson that must be learned by recruiting leaders is that recruiting can be a powerful revenue generator. Reengineering your recruiting system so that it focuses on revenue impact can not only result in significantly increased corporate revenues but it can also dramatically raise the stature of the recruiting function. If you can prove to your CEO’s satisfaction that you increased corporate revenues by 10% each year simply through improved and focused recruiting, you will never have your recruiting budget cut again, ever!
The strategy and the process for reaching that revenue-increasing goal are relatively simple; all that is lacking is courage on the part of recruiting’s leadership.
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