Recruiting Is Literally the Last Function to Measure It’s Output Quality
Quality is such an easy-to-understand thing. It is an improvement in performance above and beyond the ordinary. Since the 1980s, every internal corporate business function has found a way to measure the quality of its outputs, whether they are products or services. There is no debate among corporate executives and managers in other functions about the need to measure output quality, because their customers and partners demand quality. And in many cases, government regulations even require that the quality of the output be measured. The sole remaining functional corporate holdout that has resisted measuring output quality is HR. And the worst offender within HR is recruiting, which is the focus of this article (and features prominently in ERE’s fall conference).
Other business functions from production, customer service, supply chain, and even maintenance have found a way to both define and then measure the performance of their provided services. Most business functions have even gone so far as to measure quality at a Six Sigma level, which is an astonishing low 3.4 errors per 1 million actions. With Six Sigma being the gold standard, if recruiting did measure quality, it appears that it would only reach a painfully low 1.6 Sigma level (One study reveals the hiring failure rate within 18 months to be 46 out of 100 hires, and another found that 50 percent of hourly hires will quit or be fired within six months).
It is simply unprofessional to assume that your function is automatically producing a quality output without actually measuring it. Only 58 percent of recruiting departments report measuring quality of hire, but when you look closely, less than half of those actually measure new hire performance on the job (the No. 1 quality factor that must be measured). In a world where “quality is job No.1,” recruiting is unemployed!
There are three essential reasons why you must measure the performance of your new hires. They are:
The output goal of recruiting should be to increase new-hire on-the-job performance by a measurable percentage. By proving that new hires perform at a rate of say 5 to 10 percent higher (compared to last year’s hires), recruiting can then easily calculate its total yearly revenue impact in dollars.
At a company like Apple, a mere 10 percent improvement in the performance of a single new hire generates an extra $229,000 in revenue each year (just multiply its average yearly revenue per employee of $2.29 million by 10 percent). For 100 new hires, that’s an extra $22 million that would be generated and nearly $230 million added with only 1,000 better-performing hires in a year. No matter how high your “cost per hire” amount is, recruiting better performing hires has a helluva ROI! And improving new-hire performance is thus a good supporting argument for requesting more budget.
You can’t improve what you don’t measure, and generally whatever you measure improves – a HP motto
The second essential reason for measuring your quality of hire is that it allows you to continually improve the process that generates that output. Any continuous improvement process expert (i.e. Kaizen) will tell you that the only way to “validate” each of your process components is by finding out the common factors that were present when a high-quality product was produced and which were absent when a lower-quality output was produced. Obviously without a measure of output quality, you can’t identify the “root causes” that hinder process performance.
In recruiting, that means (and often it’s a legal requirement) that you validate critical process elements including your hiring criteria, the best sources, accurate candidate screening processes, hiring manager performance, the best interviewers, and offer closing process. Fortunately with a quality measure as a benchmark, simple statistical methods can reveal which process elements make the largest contribution to success (hiring above average performers). Unfortunately, firms never seem to ever find the time to validate each of the components of its hiring process. The one exception, Google, in its validation effort showed that its well-established screening criteria like grades and unstructured interviews simply didn’t make any contribution to producing higher-quality hires. Simply put, if you don’t identify what process components have an actual impact on output quality, you’ll never know which process components accurately predict on-the-job success.
“Quality is remembered long after price is forgotten” – Motto of Gucci
Once again lagging behind all other business functions, many recruiting functions have recently begun moving in earnest toward an approach where all decisions are based on data. This approach is more impactful because executives and managers love numbers, so using and presenting numbers makes recruiting more credible and businesslike. Because the No. 1 contributor to hiring success is the recruiter’s relationship with their hiring managers, being able to influence them is critical. As Google puts it, “The best thing about using data to influence managers … is that it’s hard for them to contest it. For most people, just knowing that information … causes them to change their conduct.”
If you’re looking for a quality of hire measure that takes little time, money, and statistical expertise, consider this four step simple model.
If you listen to people who claim to be experts in recruiting, from the arguments that they present, you would think that measuring output quality was an insurmountable obstacle. Obviously experts like JD Power and Consumer Reports would disagree because they have somehow found a way to measure product quality and even service quality in areas that are much more complex than recruiting. Below you’ll find some of the most common arguments against measuring the performance of new hires, and why each one doesn’t hold water.
If you use agency or executive search recruiters, it makes sense to measure the on-the-job performance of the new hires who they provide your firm. If you use recruiting process outsourcing, you should also demand that they work with you to provide proof that they are providing above average performers.
It’s time for recruiting leaders to face the reality that the “measuring quality” problem has been solved by every corporate functional area except recruiting. Hotels, restaurants, airlines, and automotive manufacturers have also found a way to accurately measure the performance of their product/service. And even Denny’s measures quality with a customer comment card on the table.
We have come up short in many areas but perhaps the hardest to understand is “the failure rate of new hires” (which is the new-hire performance area that is easiest to measure). Measuring the number of new hires who must be fired is easy because there are so few of them, but it is at the same time critical because “bad hires” can do a great deal of damage. Next measuring the turnover rate of new hires is also quite easy and objective. Rather than attempt to get actual performance data, at least initially use the hiring manager’s assessment of their own new hires. I would specifically avoid commonly proposed metrics like quality of applicant, candidate/hiring manager satisfaction, time to productivity, and training hours required because these are not actual year-end on-the-job performance measures. Next you simply need to validate each of the components of your hiring process to determine which ones actually contribute to finding and selecting better performing hires in each of the firm’s critical jobs. And finally after conquering “the measuring quality issue,” recruiting should work with HR leaders to help them also move into the 21st century of the measurement.
The time for excuses is over, and it’s no longer acceptable to whine about how difficult it is to measure new hire quality, when everyone else has found a way to measure quality long ago. And by the way, if it takes longer than six months to develop a measuring process, you are part of the problem.
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