An ROI Roadmap for Talent Acquisition Leaders

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Mar 9, 2016
This article is part of a series called How-Tos.

Recruiting leaders are constantly asked to justify additional investments in their team, tools, and technology. At the same time, they face increasing demands from hiring managers to handle their requisitions quicker and better than other openings in the organization — regardless of their relative importance to the goals of the business.

In a nutshell, recruiting leaders know three things to be true:

  1. Hiring managers, across the board, believe their vacancies are the most important to fill.
  2. Talent acquisition resources are limited; therefore it is impossible to fill every job with the same effort — regardless of the size of the organization.
  3. Given these two things above, it is tremendously difficult to achieve the right balance of efficiency and effectiveness in talent acquisition.

What’s a recruiting leader to do? Seek higher ground.

The higher ground in talent acquisition is reached through understanding the relative criticality of jobs to the value they contribute, and the availability of talent for these jobs in the marketplace. This understanding provides a rational basis for organizing and deploying recruiting resources in order to balance workload and achieve critical results.

Hiring strategy based on these criteria is a winning formula because it takes into account the best interests of the business. It is a valid framework for making talent acquisition investment choices, and determining performance targets for the talent acquisition effort.

In our book, Talent Valuation (Pearson Press, 2015), Tom McGuire and I use the matrix shown here to plot data points for criticality and availability.

talent strategy matrix

Where a role falls on this matrix indicates what methods will be most appropriate to achieve the desired talent results, including build, buy, and borrow decisions. This article focuses on the impact to recruiting (“buy”) decisions only. For example, lower criticality and higher availability might mean that well-written and carefully-placed job postings, coupled with robust screening questions through the ATS, will drive the talent you need. On the other hand, higher criticality and lower availability likely indicates the need for research and sourcing capability and executive-search level recruiter skills.

This construct will also assist in making investment decisions. The dynamic of lower criticality and higher availability will often indicate efficiency investments as being attractive, depending on the circumstances. Efficiency investments like this allow the existing resources — the team, technology, etc. — to be used more effectively. The Return on Investment equation is:

ROI =  Net Savings divided by Cost of Investment

Efficiencies are not limited to cutting costs. Dedicating resources differently to increase their productivity can also generate significant efficiencies.

Consider this example: The recruiting department invites professional candidates to in-person interviews three times on average before making an offer. Many candidates travel from out of town to interview, and the average interview travel cost is $999. The recruiting department piloted and determined that two virtual interviews with one in-person interview yields substantially the same hiring outcome from all stakeholders’ perspectives. Currently, there are 1,000 interviews per year. The department has selected a virtual interviewing technology that has a license fee plus per usage cost totaling $257,000 annually at that volume of hiring. A $150,000 technology investment is required to enable this change. This is a nice return on an efficiency investment as follows:

ROI = $409,000* divided by $150,000 = 273%

*how I came up with $409,000: ($999 x 1,000 x 2/3) – $257,000 = $409,000

ROI on effectiveness investments involves a little more science to land on the numerator. While improving efficiency generally means lowering a specific dollar cost, improving effectiveness means making better hires. Arguably assessing candidates before hiring them yields a better hire; but how much is that worth? Likewise, sourcing passive candidates expands the pool and leads to improved candidate quality. Again, how do you place a value on that?

Effectiveness investments would normally be thought of as increasing the quality of candidates hired. We won’t go into a discussion of defining or measuring quality of hire in this article, but clearly one would expect quality hires to perform better in their roles, stay longer, and perhaps advance further within the organization than lesser quality hires. The value of performing better in a role will certainly be dependent on the specific company and role, and multiple studies show the difference in productivity between average and star performers to be exceedingly high.

Using retention as one tangible indicator of quality, an investment that is expected to have a measurable impact on decreasing turnover in the higher criticality and lower availability quadrant is a vital example. For hospital organizations, RNs can be considered higher criticality and lower availability. No nurse, no bed, no revenue. Anyone who works in the industry knows there is zero unemployment among qualified nurses.

Let’s say you’ve determined that an investment in employment branding that differentiates the opportunity for the nurses you want to target at your organization — distinct from your competition — should increase the attraction of quality candidates and decrease turnover by at least 1 percent. You have determined that the hard cost of turnover includes expensive contract nurses (or overtime) to backfill vacancies, plus the cost of recruiting. These incremental costs total $25,000 per vacancy. A decrease of 1 percent turnover in a 5,000-nurse organization represents 50 positions, or a total savings of $1.25 million. If the total investment to develop and communicate a strong employment brand and value proposition is $350,000, the return calculation is as follows:

ROI = $1,250,000 divided by $350,000 = 357%

In this case, a targeted EVP/employment brand effort has a clearly compelling (and conservative) investment return. There are other, more difficult to quantify, returns such as improved patient satisfaction which, in a healthcare setting, has a positive impact on revenue.

Using the framework of talent criticality and availability, the highest priority TA investments for the business can be determined and then validated by applying the ROI tool. This is a winning approach to building the business case for future investment. The more TA can demonstrate a clear understanding of the relationship between talent and business value, the sooner it can graduate from being viewed as a “cost” to being viewed as an “asset” in the eyes of those executives holding the purse strings.

This illustrates the peril of two paths we commonly see talent acquisition leaders take:

  1. Failing to try to measure the return on any TA investments, or
  2. Trying to measure the return on the TA function as a whole.

The latter is not a rational way of thinking about an integral business function. In the words of my friend and partner Tom, a former CPA, CFO and head of global talent acquisition for The Coca-Cola Company, “calculating the ROI on talent acquisition is like calculating the ROI on the woodwinds section of a symphony orchestra — you can’t.”

Want to learn more? Contact me, join me at ERE in Las Vegas April 7 and 8, or comment in the comments section below.

This article is part of a series called How-Tos.
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