Make Your Vendors Prove Their Quality of Hire Claims

Nov 13, 2009

Over the past several months I’ve been advocating a strategic view of the recruiting function based on quality of hire as the metric of choice. In case you missed any of the missives, here’s a quick summary of what some would contend are blasphemous repudiations of the recruiting department of yesteryear.

  1. Cost per hire is a misguided metric that is at best useless, and at worst, can harm the organization. While tracking costs and spending wisely is essential, to divide that cost by the number of hires makes no sense. Instead, track costs in total and focus on reducing them if you’re not hiring as many people, or you can prove an improvement in productivity without a degradation in quality. Reducing quality while reducing costs is a strategic mistake for the sake of a tactical gain.
  2. The HR/recruiting department must take company-wide responsibility for quality of hire. Forget the mantra of shared responsibility. If some line manager blows the hiring decision, who has to clean up the mess and find a replacement? While HR/recruiting doesn’t make the hiring decisions, it needs to make sure that the proper decisions are made. This is comparable to finance owning the budgeting and investment analysis process. Finance doesn’t spend the money, but it makes sure the money is spent wisely. Having an audit function in place to validate that the right hiring decisions were made is one way to make sure the process is adhered to.
  3. Measure quality of hire on a financial basis. The financial benefit of hiring someone in the top third vs. the bottom third is at least twice the compensation of the person. (Here’s a recording of a recent webinar with a handout including the actual calculations for this.) This benefit is due to increased productivity, less management effort, higher-quality work, and far less turnover.
  4. Calculate the ROI of any new recruiting or sourcing initiative on an ROI basis. To do this, figure out how many people you’ll be hiring in the top-third instead of the bottom-third. (Email me if you want to walk through this calculation.) If the minimum financial impact of a top-third person is two times his or her compensation, it’s pretty easy to figure the gross financial gain of this. Compare this to the cost to obtain the gain in order to determine the ROI of the program.

I’d like to add a fifth topic to this list of quality of hire maxims: make your vendors prove quality of hire improvements before you spend any money. No one should be excluded, whether it’s a new ATS or investing in web 2.0 social media or whatever product-of-the-month comes along. If it doesn’t improve quality of hire on an ROI basis, don’t waste your time or money.

Proving a quality of hire improvement is no easy thing, but just going through the effort will get you to think about it at a strategic level.

For example, talent hubs, prospect pools, CRM, and social media are the current craze, and some actually can improve quality of candidate. However, getting better candidates doesn’t mean better hires. I advocate an early-bird sourcing strategy. This means getting candidates before they enter the job-hunting market, or during their first week looking for a new job. This is a huge competitive advantage.

Unfortunately, if you wait a week to call or you make them jump through hoops to talk with someone, you’ll lose them. Now add into the mix hiring managers who blow the interview or who can’t recruit top performers to join the team. So even if a new program offers better candidates, if your backend processes aren’t changed, you won’t improve your quality of hire.

To improve quality of hire, consider everything collectively: sourcing, screening, recruiting assessing, and closing. For now, and for the sake of simplicity, let’s assume your backend is in great shape, and just consider how you could make your sourcing vendors prove an improvement in quality of candidate. The premise is that if you invest in the vendor’s offering, the candidates you’ll be seeing are of a superior quality than what you’re now seeing or you would see by using some alternative.

The ROI calculation would be performed based on the assumption you’ll be hiring more people in the top third than the bottom third. If they can’t justify a quality of hire improvement, which is a strategic impact, then you’re left with the more tactical approach of using cost savings or productivity enhancements to justify the effort.

With the focus on quality of hire improvements, here are some ways you could get your vendor to validate their programs:

  1. The smell test. The idea behind this is that it doesn’t make much sense to conduct any type of rigorous analysis unless the vendor’s approach seems logical. For example, one major job board vendor told me at Onrec (Chicago, November 2009) that candidates from her board had lower turnover than from the other major job board for the same job. Not surprisingly, she didn’t know why. This fails the smell test. On the other hand, one vendor told me that candidates in their network were more passive than those in the most well-known network since a person couldn’t join to get listed. The CEO then went on to say that people could only get listed in their network if they were mentioned at least three times in some independent Internet article. This passes the smell test. Of course, you still have to do the analysis to prove that the candidates are better.
  2. The before and after biggest stack test. Before you decide to consider any vendor, take 100 candidates at random from your current sourcing process and divide them into three piles. Pile A is comprised of those you absolutely would consider in depth. Pile B is filled with the maybes. Pile C is filled with those you wouldn’t ever consider. Now measure the height of each stack. In a pilot of some type, take another 100 candidates sourced based on the proposed process and divide them into the A-B-C stacks. If the A stack has increased in height and the C stack has decreased, you’re on your way. Now calculate the percent increase in the size of the A stack by the financial impact of each person to determine the total impact. From this you can easily calculate the ROI of the new process. Of course, you could conduct some type of rigorous statistical analysis to validate the results between the two groups, but if the A stack grows significantly, you’ll probably get the same result. If you don’t want to do this yourself, have your vendor show you the statistical results of other clients they’ve done this for.
  3. The side-by-side stack test. Using some type of quick pilot test, select 100 candidates at random using the new process and 100 candidates using your current process. This is better than the before-and-after test above, since more things are the same, especially labor market conditions. Now divide the candidates in the A-B-C stacks as above and compare them as before. If the A stack is significantly bigger using the new process, you’ve got a winner. You can compare competing vendors the same way. Find out who has the biggest stack of A-level candidates.
  4. Use metrics that indirectly measure quality of candidate. This is a variation of the A-B-C stack approach. If you don’t need to review as many resumes to find someone worth interviewing, it means you’re seeing a higher percentage of better candidates. So start tracking this. Also, track the percent of candidates sent to your hiring managers who are actually interviewed. This is one way to track the quality of your sourcing programs and the quality of your recruiters. Start asking your candidates how long they’ve been looking. If you’re seeing them a few days after they’ve started looking, it means your advertising is highly visible. Now compare the quality of these people using the A-B-C stack approach to determine if the best people are seeing your ads first.

There are many other ways to measure quality of candidate, but the point is that you should make your vendors prove it before you proceed. This is still just the first step. Even if the vendor has proven a quality of candidate improvement, you still must do at least two more things. First, compare the offering of competing vendors who claim the same quality of candidate improvement doing the same thing. There might be a newer approach that is less costly, more efficient, or more effective.

In this case, go with the vendor that brings in the best candidates most efficiently, rather than most cheaply.

Second, ensure your backend processes, including the interview itself and your hiring managers, are capable of reeling in and hiring stronger candidates. This is where most sourcing programs and new recruiting initiatives fall flat. That’s why it’s important to consider quality of hire from an end-to-end perspective, not just at the quality of candidate level. If you ignore the rest of the process, you just might wind up with a lot more great people you won’t be hiring.