Corporate Staffing: It’s a Risky Business

Mar 29, 2004

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
  • Loss of customers
  • Shrinkage
  • Loss of brand equity
  • Separation costs
  • Replacement costs
  • Legal liability

Risk of Not Using the Best Technology The choice and implementation of a new staffing management system is fraught with risk. Delaying until a clear technological winner may seem to be a passive, no risk approach. But postponing the implementation of a staffing management solution actively risks corporate assets. Keep in mind:

  • The competition is moving forward.
  • An inefficient recruiting process risks losing top talent to rival companies.
  • The company may lose top recruiters demoralized by the lack of leading technology and vision.
  • Dissatisfied hiring managers may perceive their HR department and recruiters as ineffective, old school technology laggards.

You may know the benefits of improved technology and have even calculated the ROI, but you must carry this forward to make the business case and get approval. Risk of Alienating the Internal Customer Hiring managers are your customers inside the organization. A lack of responsiveness and poor quality hires result in poor hiring manager satisfaction, and ultimately risk alienating your internal customer. This can add fuel to executive consideration of the ultimate risk: outsourcing the staffing function. Risks and Rewards Staffing professionals are faced with many kinds of risk, legal liability arising out of EEOC suits, the risk of a bad hire, the risk of alienating hiring managers as a result of poor service, and the risk of having the staffing function outsourced altogether. What is the recommended course of action in the face of these risks? Design a systematic staffing process that will allow you to:

  • Tailor your process according to the job and location to reap maximum quality of hire
  • Capture EEO data
  • Use reporting and metrics to keep internal customers and possible outsourcing initiatives accountable

With a systematic hiring process in place, staffing can be in a position to reap the rewards that come with contributing to the strategic business plans of the corporation and mitigate the risks.

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