About a month ago, I was at ERE and a session caught my attention: “A Framework for Improving and Measuring Quality of Hire.” I was delighted. Would talent management be ready for it? Would this be the turning point for the profession? My skepticism has been high; over 10 years ago I wrote one of the first, if not the first report on quality of hire when I was leading Taleo Research, and more recently we organized a roundtable with leading organizations from the Bay Area, but did not see much progress in between. Are we at a crossroads, at the tipping point? Are we at that place when finally talent acquisition will see themselves as more than just filling requirements? keep reading…
Chip and Dan Heath have two best sellers behind them and I suspect soon a third one. I am fortunate to know Chip, and received a pre-release of Decisive, their new book to be released on March 26. It is a must read for any business leader.
Of the many business decisions, it is often said that the most important decisions are people decisions. So the question is: How do we make better talent decisions when we know that we get it wrong half of the time? To reassure you, poor decisions are not only made in the field of talent management. The book mentions that doctors categorizing themselves as “completely certain” about a diagnosis were wrong 40% of the time.
In order to address this issue, to get it right, know what causes us to make wrong decisions. In Decisive, this is explained as “the four villains of decision making.” One that resonates with us a great deal, as we think about talent decisions, is the confirmation bias. The confirmation bias is the act of making emotional decisions and only gathering information that supports such decisions. The difficulty here is that these decisions appear to be researched and scientific, but when you look closer, they end up being subject to the confirmation bias.
Let’s look at an example and see how you can avoid the confirmation bias for you and your organization: keep reading…
About 80% of employers search and track the online activities of candidates in a practice often referred to as cyber-vetting. How and why is this done? How should you do it? Where is it going?
Here are a couple of ways employers are using cyber-vetting to assess candidates: keep reading…
The intention is good, for we all know that the more feedback one can gain on a candidate, the better. And this truth was discovered a long time ago. In 1906, for instance, Englishman Francis Galton, a cousin of Charles Darwin, stumbled upon an intriguing contest while attending a livestock fair. An ox was hanging on display, and the visitors at the fair were invited to guess the animal’s weight after it was slaughtered and dressed. Nearly 800 participated, but not one person hit the exact mark: 1,198 pounds. Galton’s insight was to examine the mean of these guesses from independent people in the crowd. Astonishingly, the mean of those 800 guesses was 1,197 pounds — accurate by a fraction of one percent.
Today, this phenomenon of having more accuracy collectively than any single individual is called collective intelligence, and the field is booming, as research has shown over and over again that estimations coming from many people, in the right circumstances, lead to results closer to the truth. This is because the extremes are essentially cancelled out. That is why it is often referred to as a statistical phenomenon.
Because of collective intelligence, organizations that try to stay on the cutting edge of information and technology think they should interview more individuals, because more is better.
This isn’t always true. keep reading…
How many applicants fake test results and assessments?
Does cheating work? Is it worthwhile?
What can you, the employer, do about it? keep reading…
Imagine you are on stage and in front of the cameras at the famous game show Who Wants to Be a Millionaire. The last question comes, and you know if you get it right you’ll leave the studio with a million dollars in your pocket. Yet, you have no idea what the answer is. You draw a complete blank. You know, of course, that you can rely on two types of support: help from the studio audience or from a friend who you believe knows the answer. What do you do?
In our world of experts and gurus, we have a tendency to rely on and believe in experts when, in fact, research has shown that in this case we should do the opposite. While experts are indeed right 65% of the time, the studio audience is right 91% of the time, so you should rely on the collective intelligence of the studio audience. How can collective intelligence be applied to talent management, recruiting, or even business?
In part one of this article we learned that selecting the right people for the right job is the most important talent-management decision you have to make.
We also asked why the internal-hire rate leads to successful placement about 90% of the time, while external hires barely reach the 50% success rate. It was concluded that the high internal-hire success rate can be partly attributed to the fact that internal hires and promotions are mainly based on performance and not experience.
Strategic talent management is about making one decision and making it right. Today I am going to show you how this key decision can be improved by incorporating a new way of thinking and some new techniques into the decision-making process.
Having the right people in the right job can make or break your organization. While it may sound simple and clich?, it is and remains the key strategic talent management decision any manager will make.
An excellent recruiter knows candidates’ expectations. They know what they like and what they dislike.
Do you know what the main complaint of your candidates is?
People who didn’t believe in the Internet as a sourcing medium 10 years ago started to look pretty foolish about five years ago. Likewise, some companies are still perplexed about accepting all of their new talent applications in a digital format, and, sure enough, research is starting to indicate that they too may look foolish tomorrow. But what comes after tomorrow? What do you have to pay attention to today to ensure your talent management practice is leading edge, and capitalizes on all the benefits of the latest technologies? To understand the answer, we will first review what companies have been doing when it comes to sourcing. We’ll see whether “we only accept online applications” is an acceptable practice for your company. What are other companies doing? Do you still have to accept talent applications on paper? Finally, we will contemplate where it will lead us tomorrow and what is the next strategic turn.
As the demand for talent intensifies, attention is again turning towards effective candidate sourcing methods. Many corporations have focused on retaining the high-value talent they already employ and are boosting the internal mobility initiatives in order to heighten employee satisfaction and reduce turnover through digital means. New web-based applications have even emerged that “webify” the standard concept of referral networks. The Internet and referrals represent the two most important sources for new talent and are supported by a digital medium. Agencies today often interact with organizations through portals that make this a digital medium as well, and of course job boards became a standard online classified medium. Nonetheless, the requirement for new external talent remains, and for growing organizations is under pressure.
Regardless of the balance of talent supply and demand, the need for speed and efficiency in managing candidates is clear. Notably, one key portal ó the corporate website careers section — has progressed. Throughout the economic turbulence and Internet technology developments, the corporate careers website has steadily grown in use and importance. It is today the main portal for candidates to interact with a corporation. According to our research, in 2000, 73% of Fortune 500 companies already had a direct link from their website home page to the careers section. In 2005 that number has barely increased to 79 percent and it is considered a standard practice. Although data does not indicate a major change, a closer analysis reveals an important evolution, specifically in the preferred method for accepting job applications.
Online Response Only
In 2000, only 27% of the Fortune 500 directed all candidates wishing to respond to job positions posted to the corporate careers website to a purely online response mechanism. But in 2005, 77% of the Fortune 500 do not give jobseekers the option of responding offline to job positions posted to the corporate careers website.
For years now, we have been looking at the economics of talent management and specifically written on the importance of quality in the talent acquisition process. We have looked at the return on staffing, and our quality of hire report has been well read. But often people come back to us and ask us how they can start very simply to measure quality? Rather than focusing on the strategic reasons to prioritize it or make the business case to show its huge impact, this article is around the very specific first steps you have to take on this journey in the world of quality. Measuring the Process Many companies have been completing hiring manager and new candidate satisfaction surveys for years. Those include questions such as “How satisfied are you with the overall service level of your recruiters?” or, “Did the response time of the recruiting team meet your expectation?” or again, “Is the recruiting professional’s knowledge and professionalism up to your need?” All those surveys measure the different components that come into the mix to produce a quality outcome. Yet for most companies, the outcome itself is either very poorly measured or else buried inside 25 other questions, such as, “Were you satisfied with the quality of the candidates you received?” The latter question is a first step towards a qualitative measurement, but it has the limitation of only giving a general direction on the overall quality of the outcome of the process. Therefore, the first lesson is to make sure to distinguish between the measurement of the process itself and the outcome of the process. If we could choose, first measure the outcome (quality). If quality is high, very little modification is needed to the process to improve the outcome itself, so you can keep doing what you are doing. In this albeit unlikely situation, you can then survey the process itself, but after having gained a benchmark to measure where you are starting from. In other words, you ensure that any change you make afterward will bring some positive results, which you can objectively compare to previous data. Measure the Quality This is the key to going forward. Don’t measure too many data points ó such as the satisfaction of the candidate or the level of professionalism of your staffing team ó but measure only the true value driver that matters: the quality of new hires. After this, measure what you believe will impact that result. As simple as this seems, we have observed the following misstep among several large corporations: They look at the satisfaction of the hiring manager with the recruiting department as a whole rather than measuring the satisfaction with the outcome of their department. To the traditional question, “Can’t we measure both?” my recommended answer is no. If you want to measure more, measure the root causes that impact the quality of the outcome. To crystallize the idea here, it’s possible to have an excellent staffing department, meaning that it provides the best candidates any manager can even imagine, even though your staffing professionals may not be rated as the friendliest. In that case, keep doing what you are doing! Of course it would be better to be seen as friendly as well, but this is only a “nice to have.” Historically speaking, we have been very good at measuring our friendliness, without even asking if it matters. Clearly then, separating completely what should be included in a quality survey is critical. We are focusing on the quality of the outcome only. We can follow up with questions to understand the drivers of this quality, but let’s not dilute our quest. To guarantee that, ask yourself, after every question you pose, how does it impact the measurement of quality? One Question One question remains. Now that we are sure you will keep your focus on quality, how do you start? We have outlined several examples of surveys that can be used to measure quality in our quality of hire report but the one we prefer ó and one of the simplest ó is the probability that you would rehire the individual in question. Companies that linked detailed skill requirements agreed upon by recruiters and managers to their quality survey have not wasted their efforts. For instance, if you sourced a candidate with intellectual property expertise (preferably from within your industry), it is good to understand at the granular level if you delivered that well. In other words, a specific feedback at the level of the skills and qualifications requested for the job is a good practice. Nonetheless, this can make the process cumbersome and also have many managers look at the questionnaire with glazed eyes, muttering to themselves about another long, useless form to fill out. To make the process less painful and still gain 80% of the benefit, we recommend starting very simply. The question to ask is, “Would you hire this employee again?” Make use of a grading scale in your responses, so you can have an overall gradation of your different answers and base level by manager. That answer to that one question will put you a long way towards assessing the quality of your hires.
After completing nearly 100 return on investment (ROI) studies on retooling and new process implementations in the staffing departments of the largest companies in the world, we have come to a simple conclusion: the big easy impact from investments and change is often not where our customers ask us to look. At iLogos, we refer to this as the little secret of large corporations. Let’s consider an analogy to illustrate. Imagine you are coaching your child’s soccer team and that you are also responsible for the funds of the club. Many people advise you to cut spending on items such as drinks, mailings, etc. But the numbers show the most expensive items for the club are the jerseys. You just learned that if you centralized the jersey order you could reduce the number one expense in your club by up to 22%. However, you also know that all the players will complain, because they had their special provider make, for instance, a little red line on the side for his unique jersey or a special fabric for hers. Similarly in staffing, many organizations ask us, how could we save on search firms and on recruitment advertising? Certainly, there are spending analyses and cost reduction initiatives that can be implemented in those areas. Often, though, organizations are not suffering from being unable to solve the issues they are aware of. On the contrary, the bigger issues are those they don’t see. So what is a very big issue where you could impact your company performance so much that the CEO could be inspired to invite you personally for a cruise in the Caribbean? Contingent Labor Spending The low hanging fruit that most organizations are overlooking is contingent labor spending. When we mention contingent labor spending, most people look at us and say, “Maybe somewhere else, but not here!” Well, then, what does your organization spend on contingent labor? If you cannot answer precisely, most likely you are among those that don’t know what they don’t know. A case in point is an experience we had with a company that chose to inquire a bit more into this issue. At the end of the initial meeting they assured us the spending was limited and no more than $25 million. At the end of the second meeting, after further investigation, they revised their estimation to be double. By the end of the third session, the estimate for their contingent labor spending was four times the original number! Our studies on contingent workforce management show potential savings between 4% and 22%. The impact is derived from better negotiated bulk rates, control of maverick spending, rate enforcement, risk avoidance (remember the “Microsoft case”?), as well as better process efficiency of on-boarding and off-boarding. Some of those savings will not appear on your budget, and often are only considered by the people with the total corporate savings in sight ó your CFO and/or CEO. Like the soccer team scenario, perhaps you are not responsible for the procurement of the “jersey” today, or you are reluctant to be the target of much complaining from the players and the providers of the jerseys. But if you are not ready for that, you can pass on the cruise right now. How Can I Start? Some organizations we are consulting with are in fact aware of the potential savings, and either blame the lack of ownership or accept non-action and lost savings. Others tell us that they have taken the appropriate measure to control it by implementing a model called VOP, which stands for “Vendor On Premise,” in which a staffing firm comes onsite to fulfill open job requisitions and manage administrative processes such as billing and reporting. VOPs market themselves as “experts in contingent workforce management,” when in fact their expertise lies in “fulfillment,” that is, putting temporary workers into open job reqs. But fulfillment should not be confused with contingent workforce management; VOPs are staffing agencies or subsidiaries of staffing agencies. Although the VOP model seems to be a step in the right direction, it is a long leap away from reaching the full savings potential. A VOP’s primary goals (turf protection and generation of fulfillment revenue) are incompatible with the client’s goals of protecting the company from potential liabilities, managing costs and leveraging spend, and guaranteeing a high degree of customer satisfaction. Most organizations are satisfied with the VOP model for the simple fact that it provides a feeling of control. Indeed, having fulfillment and visible reporting gives the organization that perception. However, there is an inherent and unavoidable conflict of interest. It is like having one of those soccer jersey vendors come to the club and take all the orders at once, and constrain access to the other jersey providers. The motivation for the main jersey provider is to ensure that it captures most of the orders. When special requests are made, this main provider (a.k.a. the VOP) draws on its competitors ó and you suffer the double mark-up. It is important to understand the structures and nuances of the different models available out there. The pitfalls of the VOP model are part of the little secret that you have not heard about too often, simply because most of the staffing suppliers don’t want you to know. Now You Know What You Don’t Know Most of the organizations we work with either don’t own contingent workforce management issues, greatly underestimate the impact they have on them, or have deficient processes, such as Vendor on Premise, in place. Don’t forget, the worst situation to be in is to not know what you don’t know. The average company spends approximately 7% of its revenue on contingent labor. If we apply the average rate of savings that can be achieved to that 7%, it represents approximately a 1% increase in revenue on the bottom line of your organization. Knowing that, it is likely worthwhile to allot the time and resources to start figuring out what you now know you don’t know!
Process improvement philosophies define quality as that which meets the customer’s requirements. Six Sigma, for instance, uses a concept of reducing defects as a way to detail the customer requirements. To measure the quality of a process is to measure the output of the process for conformity to the customer’s requirements. In the case of a staffing department, the primary customer is the hiring manager. The key to measuring quality of hire, therefore, is to define the hiring manager’s expectations at the point of identification of the need for a new hire. There is, however, no overarching or universal standard of employee quality. Quality Programs Interestingly, little or no focus has been given to quality of hire in the popular quality programs. Formalized quality programs began in the 1920s with the Plan-Do-Check-Act (PDCA) cycle, a systematic approach to improving work process. “Total quality control” practices in the 1940s were followed (primarily in Japan) by the introduction of “quality circles,” which included all employees, not just department managers. American companies began to embrace the teachings of quality gurus (e.g. Deming, Juran, and Feigenbaum) by the mid 1980s. During the ’80s, criteria for the first Malcolm Baldrige National Quality Award was established; ISO 9001, Quality Systems-Model for Quality Assurance in Design, Development, Production, Installation, and Servicing was published; and Six Sigma was developed at Motorola. James S. Beard, president of Caterpillar Financial Services, recently made the following analogy in Quality Digest:
We’ve proven that Baldrige and Six Sigma complement each other well. The analogy we use is that of an orchestra: Six Sigma takes the trumpet player and makes her a world-class trumpet player, but in isolation that doesn’t necessarily make the orchestra sound better. Baldrige looks at how all the elements are working together to make beautiful music. Put another way, Baldrige helps identify where we need to go, and Six Sigma makes the improvements happen.
Staffing professionals are faced with risk daily. Risk comes from a variety of sources, and can be a strong motivator. What are some of the specific risks facing a staffing professional, and what steps can be taken to mitigate those risks? EEOC Risk The most directly identifiable risk is from potential legal liability. Illegal hiring practices and selection processes that exhibit adverse impact expose a company to tremendous legal liability. Class-action lawsuits filed against a company can result in millions of dollars in damages awarded against the company. These suits are expensive to litigate, tying up significant corporate resources. Corporate resources are also required to mitigate non-compliance. In addition to the financial penalties of defending in these actions, there is considerable damage to a company’s “Employer of Choice” branding, which negatively impacts the ability to attract quality candidates in the future. There is also a negative impact on the company’s brand in the eyes of the public and the company’s customers. Recently, the U.S. Equal Employment Opportunity Commission (EEOC) issued an interpretation for how the uniform guidelines on employee selection procedures apply to recruiting in the era of the Internet and corporate candidate databases. You and your organization need to be sure you are conversant with and able to respond to this pronouncement. Risks of a Bad Hire Another area of risk in staffing lies in making the wrong hiring decision. A bad hiring decision occurs when the staffing process either screens out a candidate who would have met or exceeded the hiring manager’s expectations or fails to screen out a candidate who does not meet the hiring managers’ expectations. In addition, a bad hire may occur when the staffing process does not react fast enough to hire the candidate who best meets the hiring manager’s expectations, before he or she finds employment elsewhere. The risks and potential losses from making a low quality hire stem from poor productivity and a reduced quality of output. Low quality hires may also result in poor customer service, which leads to revenue loss and even loss of market share. A workforce with a lower overall quality of worker takes longer to bring products to market, resulting in lost competitive advantage. The cost of goods sold is also higher, as the company has to contend with lower productivity. The costs of poor quality are sensitive to the position, increasing dramatically for key positions. The wrong hire may also cost the company hundreds of dollars in employee theft, or millions of dollars in a liability suit. Having made the wrong hiring decision, a company may seek to cut its ongoing losses by replacing the worker. Replacement costs, including sourcing costs, administrative and processing costs, and lost productivity for the hiring manager, all become part of the cost of a bad hire. The cost of a bad hire for a software engineer can exceed millions of dollars, while the wrong choice of a CEO may result in the loss of billions of shareholder value. In short, the costs of a bad hire stem from:
- Loss of productivity
Workforce planning is a popular topic of discussion, especially when an improving economy drives changes in corporate staffing needs. Although workforce planning is simple in concept, rapidly changing market conditions and the complexities inherent in large and global organizations may make it unrealistic to accomplish. In workforce planning, an organization conducts a systematic assessment of the existing workforce, its size and composition, and how it compares to the workforce needed by the company in the future. Workforce planning then goes on to determine what actions must be taken to respond to those future needs. Workforce planning must take into account external factors (e.g., availability of skills in the local labor pool) as well as internal factors (e.g., age of the workforce). In theory, these factors then determine whether future skills needs will be met by recruiting, by internal redeployment, or by outsourcing the work. Workforce Realities But can we really plan our workforce needs? Staffing directors are often cynical about the prospects of workforce planning. A skeptical staffing director told me recently, “I don’t put a lot of value on workforce planning. As soon as you plan, conditions change. Last year was the best example of that…” In practice, workforce planning is often left far behind by fast-moving developments in business plans. Large companies are affected by a range of unanticipated circumstances, including global political shifts, natural disasters, or other major changes in lines of business, such as mergers and acquisitions. Unforeseen events may dictate a fast ramp-up or scale-down. The shift to a more fluid workforce ó for instance, project-based workgroups that form up and disband at a moment’s notice ó further frustrates attempts at workforce planning. Throughout, the new workforce realities require a fast response from staffing. That doesn’t mean workforce planning should be abandoned entirely. Its role is to provide a strategic overview of a company’s anticipated needs. Some organizations are approaching workforce planning in ways that take inspiration from scenario planning. Scenario planning involves the disciplined introduction of unorthodox assumptions into strategic thinking. Scenario planning contemplates more freewheeling what-if considerations in a wider range of internal and external factors. Workforce Logistics Today, responsiveness and planning that is well suited to a dynamic business environment can be derived from proficiency in workforce logistics. Workforce logistics is an aspect of human capital management that deals with the procurement, deployment, and redeployment of an organization’s current and future workforce, in relation to current skills possessed by the workforce and the future demand for skills. Workforce logistics focuses on a single, integrated view of the demand for skills in an organization in a timely fashion. A single technology platform is required to provide the ability to match demand flexibly and continuously to all sources of talent, from internal pools of talent to traditional sources of external talent: permanent, hourly, and contingent hires. To excel at workforce logistics, talent supply must be able to be identified to meet demand, at all job levels ó hourly, professional, and managerial. A consistent and scalable process for meeting enterprise-wide demand for talent, based on a database for defining the requisite skills for each position in the company, is key. The suppliers of talent ó internal and external candidates ó are then measurable according to those requirements. Profiling the current workforce in an internal skill database in advance of any identification of a hiring need further enables fast internal redeployment as needed. Single Platform The ability to manage all hire types on one platform is the next major milestone in the evolution of human capital management systems. A single platform integrating all hiring done by the enterprise provides unprecedented levels of service and flexibility to hiring managers, who are the true point of demand for talent. Being able to hire a professional salaried, temp, contractor, student/new grad, or hourly worker all from one system delivers considerable value to hiring managers striving to meet corporate goals. For executives of global enterprises, one system provides complete and consistent data, which supports better decision making for realistic and immediate workforce planning. Given the vagaries of the business climate and the powerful advances in technology, workforce logistics automation becomes the driver for timely responses to changes in workforce planning. Like business today, staffing will gain its superiority not by the best planning or crystal ball to predict the future, but by its nimbleness and ability to react and adapt quickly.
The centralization of a staffing model is defined as the extent to which management has direct control over the staffing function. In a highly centralized staffing function, management may exercise control over strategy, resources, budget, and process. In a decentralized staffing function, responsibility for the recruiting process is managed locally, with strategies and processes that are tailored to local circumstances. The corporate world heavily favors centralization: 59% of companies structure the staffing function on the centralized model, according to “2003 Recruiting Metrics and Performance Benchmark Report, by Staffing.org. Only nine percent of companies deploy a fully decentralized structure. The remaining companies (32%) place the staffing function somewhere between fully centralized and fully decentralized model, wherein some aspects of the recruiting process may be managed centrally and others locally. For instance, 65% of companies characterize the sourcing function as centralized. A centralized staffing model allows a company to pursue a coherent strategy, set out a consistent process, and take advantage of certain economies of scale. On the other hand, a decentralized staffing model may be more focused on the hiring manager’s needs and is more flexible in nature. The challenge for any company is to maintain a level of service for the local hiring manager while setting corporate strategies and standards, and measuring progress towards those goals. It is important for corporate executives to know how staffing is performing, regardless of the structure of the function. What then are the issues pertaining to metrics that are common to, and unique about, a centralized and a decentralized staffing function? Good Metrics Regardless of the structure of the staffing function, we know that to be effective and reliable, the metrics we choose to use need to have these key characteristics:
- Aligned with business goals: Corporate business targets and HR strategies need to be synchronized and then translated into the tactics HR implements.
There has been a steady decline in average cost per hire in corporate North America over the past several years. In this article, I’ll discuss some factors that contribute to the trend. I’ll also answer this important question: Does a decline in the average cost per hire mean that staffing is getting more efficient? Cost Per Hire Cost per hire is a well-known metric, calculated by dividing the total staffing costs by the number of hires. Total staffing costs break down into fixed and variable costs. Fixed costs include recruiters’ salaries, staffing infrastructure, and overhead. Variable recruiting costs are made up primarily of sourcing costs, but may also include agency and assessment fees if applicable. Among the 1,460 organizations participating in the 2002 Staffing.org survey, the average cost per hire was a few dollars under $4,000. This figure represents a decline of nearly 37% in average cost per hire compared to 2000, when the reported average was $6,342, and a decline of 11% since 2001 ($4,522 per hire on average). What explains the dramatic decline in average cost per hire in North America? Since sourcing represents the largest single outside expense in the cost of a hire, it makes sense to look more closely there. Candidate sourcing is undeniably changing. Newspaper revenues from employment classified ads have been dropping precipitously for a decade, as online venues such as job boards become the chosen media for candidates and corporate recruiters to connect. Even within the online world, though, the media mix is changing. Corporations are sourcing talent from the traffic coming to the corporate website. In 2002, 83% of Fortune 500 companies posted jobs and accepted applications on the corporate careers website, up from 71% in 2000. Sourcing on the corporate site has brought about decreased reliance on commercial job boards. In our study “Where the Jobs Are,” iLogos Research found that postings on corporate career websites outnumber postings on job boards by a factor of three to one. As corporations implement robust candidate relationship databases, sourcing costs will decrease further by better marketing of opportunities to candidates sourced in the past. Ultimately, corporations may adjust or reduce reliance on volume sourcing methods as the quantity (and quality) of candidates mined from its proprietary database rises and other sourcing methods become more targeted. Staffing Efficiency Ratio An alternative metric to cost per hire is the “staffing efficiency ratio.” This ratio is calculated by dividing total staffing costs by the total compensation of the positions recruited. That is, one takes both fixed and variable staffing costs incurred over a period and divides by the sum of the starting salaries of all the positions filled over the same period. Though not completely insulated from differences in geography, industry ,and job function, the staffing efficiency ratio is a better metric than cost per hire for comparing the financial performance of recruiting across companies. Staffing.org found an overall staffing efficiency ratio of 11.6% in the group of companies participating in its 2002 study. In other words, the average staffing function cost the corporation $11.60 for every $100 in salary of those recruited. The Staffing Efficiency ratio has dropped each year that it has been measured by Staffing.org, with a value of 16% in 2000 and 13.6% in 2001. With cost per hire dropping for three years running, it is no surprise that there is also a downward trend in staffing costs represented as a proportion of total salaries recruited for. To put the staffing efficiency ratio into perspective, it is interesting to compare an internal staffing function to third party agencies. A typical agency fee is in the range of 25% to 30% of the first year salary of the position being filled. In that sense, staffing efficiency ratio represents the ‘fee’ that an average internal staffing function would charge back on a cost recovery basis. Considering it this way makes clear the premium one pays for an outsourced service or a quality process. When analyzed by industry, size, and region, substantial differences in staffing efficiency ratios emerge. One pattern appears to be that larger organizations have a lower staffing efficient ratio than smaller organizations. Large companies enjoy higher volumes, with greater repeatability among hires, and possibly enjoy certain economies of scale with respect to recruiting overhead and infrastructure. Cost and Quality Does it make corporate economic sense to decrease the cost per hire as much as possible? Reducing headcount in the staffing department, cutting back on testing and assessment, or implementing poor staffing technology all have one significant impact on the company: they reduce yield quality of the staffing function and consequently have an adverse effect on corporate productivity. Without any reference to quality or productivity, both the standard cost per hire and staffing efficiency ratio metrics gives only a partial picture of staffing performance. The true measure of staffing efficiency should be not how much it costs to hire a certain level of total salary but how much it costs to hire a certain output in productivity. Being more cost efficient is a good goal in staffing. However, you should not get too focused on a single metric, nor should you take your eye off the ball on quality. Slavish devotion to cost per hire or the related staffing efficiency metric will have an adverse impact on company efficiency. Whenever I see a company embarking on a cost containment campaign, I make a point of asking, “What are you sacrificing?”
As a speaker and attendee at the recent SHRM conference in Orlando, I detected three current major areas of interest in the field of staffing management. One area of focus among staffing professionals is background checking, a staffing process step that has taken on even greater significance in light of recent security and economic developments. The second is ongoing discussion around the broad issue of assessment, and the availability and efficacy of assessment and testing tools. The third major areas of interest ó the subject of my conference presentation and of this article ó is the burgeoning focus on metrics. It’s easy for all of us to agree that making our organizations more metrics-driven is a worthy goal. Yet amid all the discussion, there is, ironically, a lack of a systematic approach to metrics. So let’s take a step back to explore not the choice of which metrics to track, nor even how to track them and analyze them, but instead, what are the characteristics of a good metric? What Is a Good Metric? We use metrics as a basis to make decisions on and focus our actions. To be effective and reliable, the metrics we decide to use need to have five key characteristics. Each metric must be:
- Aligned with business: In a Corporate Leadership Council survey, 62 percent of respondents cited “to better align HR strategy with corporate strategy” as the number-one goal for HR. More than half the respondents in a Towers Perrin study considered “shifting HR’s role to help address critical business issues” as the most significant challenge for HR leadership. Clearly, HR alignment with business goals is a priority to measure and improve upon, but it is also difficult to achieve. First, corporate business targets (direction set by the CEO) and HR strategies need to be synchronized, and then translated into the tactics HR implements.
Staffing systems have the potential to become the first in the family of HR systems to become truly global. I define a global system to be one that is based on a database having one single “instance.” This definition does not rule out distributed databases, but is intended to exclude regional standalone systems. Global Staffing Systems Staffing systems have passed the technological and conceptual milestones that make a truly global function within reach. Network infrastructure has progressed, with the widespread availability of broadband and high-speed Virtual Private Networks (VPNs), to the point where the Internet is capable of supporting a global staffing system. Staffing systems themselves have reached key business application milestones, such as role-based security and configurable workflow. The cumulative effect of these developments means that all divisions and locations of a corporation may use a staffing system based on a single database, in a global yet decentralized process. My previous article, A Global Workforce Calls for a Global Database, explains that a centralized database works best in any multi-location situation, no matter what the scale. The global database conveys advantages to a staffing function in candidate sharing, process consistency, coordination of recruiting efforts, and reporting. Localization in HR Systems HR systems must go through a process of localization to both languages as well as applicable laws, rules and regulations. A payroll system, for instance, must be localized to the tremendously complex systems of employment, accounting, and taxation rules that have evolved over decades of business practice. Each jurisdiction has its own unique system of rules and regulations, often with opposite implications for localization. The complex systems of rules and regulations across different jurisdictions may make it impractical to have one global HRIS that localizes to each jurisdiction. There are no savings to be had in trying to localize a single global HRIS or payroll system across multiple jurisdictions; in fact, greater costs due to the complexity of the job are the likely consequence. By comparison, there are fewer barriers to merging regional staffing systems into a global platform. Data Privacy Do localized data privacy laws pose an equal barrier to creating a global staffing system? In fact, data privacy principles around the world are increasingly becoming harmonized. Though there may be differences between jurisdictions, they largely uphold the same legal principles. Informed consent, right of access, accountability, and limits on data transfer are some of the fundamental principles common to legislation in jurisdictions around the world. Some jurisdictions go further than others in the rights and protections given to individuals concerning their personal information. The trend to international harmonization of data privacy legislation was set by the European Union, which demands that all countries trading with the EU pass data privacy legislation that is substantially similar to its own. It is a good corporate practice to meet and even exceed data protection requirements. A company can generally satisfy the requirements of all jurisdictions that it does business in by adhering to the standards of the jurisdiction with the strictest requirements. Payroll, taxation, and accounting rules and regulations are not as neatly aligned across all jurisdictions, so companies have to go through the detailed task of localizing to each one individually. The Future of Global Staffing Systems Once a company uses a staffing system based on a single database platform, it can then migrate all hire types onto the one platform, to optimize the performance of the entire staffing function. For instance, merging all hire types into a single platform will provide decision makers with better analytics for workforce planning. Increasingly, companies will leverage the configurability of staffing management solutions that are based on a robust centralized database to gain advantage in their staffing process.
An annual survey by iLogos Research, now in its sixth year, reveals that in 2003, 94% of the Global 500 maintains a corporate careers website. The near total adoption of corporate website recruiting by the Global 500 group of companies indicates that the Internet is the global medium companies are using to communicate with candidates. But are staffing functions and infrastructure of global corporations aligned to meet the challenges of recruiting in a global medium? Regional Parity in the Global 500 iLogos’s “Global 500 Website Recruiting, 2003 Survey” finds an emerging parity between geographic regions in the prevalence of careers website recruiting, with only two percentage points separating Europe from Asia-Pacific and North America. The gap in Careers website adoption seen in previous years between North American and European Global 500 companies has narrowed, with only two percentage points separating those two regions. Remarkably, adoption of a careers website by Global 500 companies in the Asia-Pacific region is on par with the adoption rate for North American Global 500 companies. The Mobility of Labor The acceleration in the past two decades of regional and intra-regional economic integration has had a profound impact on the global flow of human capital. The most extensive regional economic integration has been in Europe, where the European Union has been a zone of free movement for EU nationals since 1998. Increasing industrialization in Southeast Asia also has lead to rising levels of migration of skilled talent. Trends in labor migration show an increased mobility in the global workforce. Approximately 175 million persons currently reside in a country other than where they were born, which is about three percent of world population, and double the number since 1970*. iLogos Research has discovered that the number of candidates applying to a position located outside of their country of residence is as high as an amazing 49% in the case of one Global 500 company. Other Global 500 corporations show that the phenomenon is sensitive to industry and the company’s recruitment marketing efforts. The flow of talent is occurring primarily within a regional context, but is increasingly becoming intra-regional and truly global. Increasing Visibility of Hiring Demand Corporate careers website recruiting fosters the conditions for a global workforce. The Internet is the accepted medium in which to attract new talent. In contrast to traditional print media, the Internet attracts candidates without geographical implications or limitations. As I wrote about in my article, The Ubiquity of Skills Demand, the corporate careers website allows a global company to publicize its human capital needs to the broadest audience possible. The visibility to jobs around the world will be an additional stimulus for labor migration. The Need for a Global Database The global workforce is becoming more mobile, as migration legislation and policies change and as economic globalization becomes entrenched. Global corporations must ensure that staffing infrastructure stays ahead of the curve. A global workforce calls for a global candidate database. Since all positions in a global corporation are equally accessible through the careers website to candidates in any country, a candidate should be able to apply to one position in Europe and one position in North America using the same saved candidate profile. That is to say, the Careers website should be integrated with a robust backend, where every candidate has a unique record. It is too cumbersome for the candidate to create multiple candidate profiles in multiple regional databases. For the corporation, there is a risk of losing the candidate altogether. Candidates want the convenience of a single profile for use across the corporation. The wholesale structure of a staffing system ought to be based on what is best for the candidate and best for a scalable, repeatable process, not what is most convenient from an IT point of view. Careers site technology should facilitate interaction with candidates in the smoothest, most streamlined way. To accomplish this, the careers site technology must be based on a configurable platform to be able to localize properly for the candidate in his or her particular location. Staffing is a Global, Continuous Process Staffing is becoming a global, real-time process. The lack of a global candidate database hampers a global staffing function unnecessarily. Separate databases create artificial barriers to the smooth flow of talent between locations or regions: internal mobility opportunities are missed; accurate reports are difficult to generate and thrown off by duplicate candidate records. Even more critically, it is impossible for a recruiter to know when another region is making an offer to the same candidate. A North American-based corporation with multiple locations would not consider separate candidate databases in each of its locations. A centralized database works best in any multi-location situation, no matter what the scale, for candidate sharing, process consistency, coordination of recruiting efforts, and reporting. Global corporations have a global presence and a global employment brand. To use a global employment brand to best effect, a global staffing function needs a global candidate database.
*International Migration Report, 2002. UN Department of Economic and Social Affairs. New York, 2002.