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Why Forward-Looking Metrics Are Needed in a Changing Economy
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I just read an article about the “supposed” benefits of the steel tariff, but which also reminded me that there are really three types of metrics. I’ll get back to the steel part in a moment, but consider these three types of metrics: Historical metrics: These tell you what happened after the fact. Accountants use these a lot. Company financial reports are all historical. They include items like sales; profits; costs; earnings and cash flow; and derivatives like ROI, margins, profitability by business line, and the like. For a recruiting department, historical metrics include time to fill, cost per hire, and derivatives such as positions filled per recruiter, sources of candidates, user satisfaction surveys, turnover, and, if possible, some type of candidate quality level by sourcing channel. Historical metrics are all important indicators of a company or department’s health, but they are of limited value, since the information is available too late to do much about it. As some pundit once said, “It’s like driving a car using only the rearview mirror.” You can’t (or shouldn’t) manage a company or a department using historical metrics. The problem is that you won’t know if a change you’ve implemented is working until it’s too late to do much about it. For example, assume there’s been a decline in the quality of candidates from your employee referral program. The initial report came out after 30 days, and it took another 30 days to make changes, and another 30 days until you got the next report to see if the changes worked. That’s 90 days after you’ve first learned about the problem. By that time something else is going south. In a stable economy, this isn’t too bad. In a rapidly changing economy, it could be disastrous. Real-time metrics: These metrics tell you what’s happening at the present moment. Real-time metrics, commonly referred to as “process control metrics,” are at the heart of every business process, especially Six Sigma. For a company it could be incoming orders, backlog, shipments, and the more process activities like incoming calls per hour and machine scrap rate. By tracking the trends of these ongoing activities, you can spot problems before they become critical. For example, I visited a factory last month in Chicago that was making automotive fasteners. They constantly monitored the force applied to their stamping presses. If the force was either too low or too high, they instantly stopped the press, threw out all of the bad parts in the batch, and reworked the machine. This is how you control operations ó whether they be in a call center, factory, or warehouse. If something goes wrong, you can pounce on the problem and make instant changes. Time is of the essence in any business process. As we move towards Hiring 2.0 ó making hiring top talent a business process ó this will become one of the key challenges. In my opinion, there are not enough real-time metrics being used in the recruiting department. Some that should be considered include daily sendouts by recruiter, candidate quality, volume by sourcing channel, acceptance rates by job category, status of all open requisitions, and recruiter workload. Using real-time metrics, department managers and recruiters can monitor their activity levels and instantly spot potential problems. If something goes wrong, such as candidate quality declining from the employee referral program, you have the ability to instantly change direction or refocus your attention. In the case of employee referrals, you can expect this pool to dry up as the economy recovers. Real-time metrics will spot the switch and give you ample time to offset this natural decline. You might want to increase the bounty, expand internal marketing, and get recruiters to personally ask your best employees for the names of the best people they have ever worked with. Whatever you do, having a few weeks extra can make all of the difference. Forward-looking metrics: These tell what’s likely to happen before it happens. Now here comes the part about steel tariffs. While it’s a personal story, it does provide a good example of how forward-looking metrics can be useful. In the early ’70s, I was on my first management assignment as the budget manager for Rockwell International’s Automotive Group outside of Detroit. This was a 15-plant international manufacturing company with over $1 billion in sales. Every month we re-forecasted our changes to the annual plan, and always put together an analysis of changes between these monthly forecasts. One month, our biggest plant forecasted a 6% increase in steel prices from U.S. Steel later that year. The plant used about $20 million in steel annually, so this was a huge unexpected cost increase. This came as quite a shock when we told the Group President, Bill Panny, the next day. What Bill did then offered a great learning experience for a young manager. He immediately put in a call to the president of U.S. Steel. I only heard half of the conversation, but in the heated discussion that followed, Bill refused to accept the steel price increase and threatened to move all of our steel procurement offshore. The threat was real, since we had enough time to pull this off, and there were no tariffs. Within 30 minutes, the price increase was reduced to 2% ó a savings of $800,000 at our plant, and probably $3-4 million companywide. The lesson learned and never forgotten: forward-looking metrics help you manage problems before they become serious. The same principle holds true for recruiters and recruiting departments. In the case of the employee referral program, a forward-looking indicator might be the weekly trend of names voluntarily submitted by job function. A decline would be indicative of a tightening in the labor market. Tracking the number of competitor ads on Monster or HotJobs for the same jobs you’re offering would also indicate a pick-up in future demand. Here are some others ideas for some forward-looking metrics. They’re just ideas, though. I’d suggest you get together with your team and modify these, or develop your own. First, figure out what kind of anticipatory information you will need to manage your recruiting department in a rapidly changing economy. As the economy strengthens, you’ll want forward-looking information in the areas of hiring needs by position, the change in effectiveness of specific sourcing channels, and the productivity level of your recruiters. Spotting a trend early is one way to minimize problems later on when you have fewer options. Here, then, are a few suggested forward-looking metrics:
In order to anticipate changes in the economy, you’ll need to increase your reliance on more real-time and forward-looking metrics. Getting additional resources or reorganizing them is never easy, but it’s a lot easier if you have a few extra weeks, or a month or two. This gives you the time needed to plan out your needs, and to make your business case in a logical manner. This is far better than making a desperate plea for additional team members or additional budget while 50 hungry managers are knocking down your door, or calling their favorite TPR. No doubt, you have information somewhere in your company today that’s telling you right now what’s going to happen next month and next quarter. Do whatever it takes to find it and bring it to the surface. It could be the difference between a great 2004 or a miserable one. Why not have a happy new year?