Measure What Matters

I just returned from the first of many HR conferences to come this season. At some, one of the main events are panel discussions featuring industry analysts. They are touted as holding the promise of deep insights into trends that will affect our professional lives in the future.

As many who have attended these can attest, there’s a need for more truth in advertising here: much of what is said is not very useful or interesting. Some of the pronouncements, when combined with two quarters, are worth almost 50 cents.

I suppose it’s a difficult job being an analyst. You’re expected to be some kind of guru or sage who spends their time thinking about the finer points of products and vendors and offering critical analysis about what works and what doesn’t. You’re also expected to divine the future and predict what it will bring in new products and what it holds for vendors and users.

If only this was true. In reality, you’re not Nostradamus and you have no crystal ball. You spend your time watching mind-numbing, carefully crafted demos and listening to spin offered by vendors.

Your livelihood depends on the same vendors whose products you evaluate so you can’t be too critical lest they get annoyed and stop paying protection, er, their subscriptions. You know that anything you say has virtually no impact on buyers since few know you exist and even fewer give a hoot about what you have to say.

So you write reports that offer little more than generic descriptions of products and voice opinions of vendors that are designed not to offend but leave them jockeying for better positioning among their competitors. You do whatever it takes to impress those gathered at a conference to listen to you, and try to outdo your peers on the panel. This game of one-upmanship can lead to some strange occurrences.

At one panel discussion, in response to a question, one analyst replied with the first sentence in Latin. Given the substance of what was said, it might have been better to say it in Pig Latin. I thought of an appropriate response but using Google on my PDA, I wasn’t able to find the Latin word for the name of this animal.

Actually calling these staged events panel discussions is stretching the truth since it’s hardly a discussion. In fact, each analyst is usually trying to outdo the others. Occasionally someone says something interesting, but mostly it’s the same old stuff. Of course, that’s to be expected. This is not genetic engineering or astrophysics; there really isn’t that much that changes from one panel discussion to the next.

A Diamond in the Rough

I’ve said it before and I’ll say it again: HR conferences should be on the same schedule as the Olympics. I’m still waiting to hear something that’s the equivalent of finding a new planet or even a cure for baldness. Once in a while, something gets said that makes these meetings worth more than the breakfast buffet.

This was one of those times where there was a diamond among all that cubic zirconium on display. It was a small diamond but still a diamond. Talking about new products, one speaker explained what he thought makes something strategic: it had to show it could make more money for the user.

This seems somewhat crude and simplistic but it makes a lot of sense, especially in the context of recruiting. The clearest measure of an organization’s success is the number on the bottom line. That is what defines an organization’s future: the value it produces for the owners and if it has the resources to grow. Anything that makes more money for an organization is strategic. Yet what do we measure in recruitment?

Most recruitment metrics, from cost-per-hire to time-to-fill, measure the process. Satisfaction measures are marginally better but still not much use. Being able to show that recruiting makes more money for the company is unambiguous proof of effectiveness.

The Value of Employee Performance

One way to measure the amount of money made by recruiting is to estimate the value of employee performance in the first six months after hire. The logic behind this is simple: if recruiting is doing a good job of hiring, then it should be bringing in high performers.

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Other than ability, there are all sorts of factors that affect performance, including culture, peers, training, supervisors, etc. But these factors take time to show their effect, and they usually do not affect performance early. The time period can be different for organizations, since different companies believe that it takes more or less time before an employee’s ability is affected by these factors.

Leaving that aside, an easy approach to measuring employee performance has been proposed by Felix Barber and Rainer Strack at the Boston Consulting Group. Start with sales per employee (S) and subtract supplier costs (including outsourced activities) per employee (SC) and capital costs (CC) per employee. The remainder is a measure of employee productivity. Subtract employee costs (EC) including salaries, bonuses, and benefits, per employee. What’s left is economic profit per employee (P), or the money that recruiting has produced for the company.

P = S ? (SC + CC + EC)

This approach to measuring recruiting effectiveness has some major advantages over process metrics or satisfaction measures. First, it is grounded in hard financial information rather than in soft assumptions. It also provides meaningful comparisons across groups, so we can tell where recruiting is most effective. Finally, it forces a level of objectivity in evaluating recruiting that’s hard to dispute.

This is a global metric for the recruiting function. There is no point trying to measure it for each individual job. That’s because so many positions do not produce revenue directly. Productivity and costs at the individual level can only be guessed at for positions that do not generate revenue.

Even salespeople, who do generate dollars, can’t be shown to be singularly responsible for those dollars. Things like the brand, store location, and advertising contribute to sales generation, as well as the employees in the development and distribution departments.

However, it should be a global metric, because recruiting is a function that has a very substantial impact on an organization. It is not the individual recruiting actions that matter as much as the overall value provided.

Organizations should evaluate recruiting with the same standards as other business-critical processes. For recruiting to matter, it must demonstrate that it adds value and it must show that it makes more money for the organization.

Like it or not, if it’s not evident that recruiting helps make more money, then there is clearly a need to do something different. It is fine to talk about cost-per-hire and time-to-fill, but the bottom-line impact cannot be assessed from metrics like that.

Results matter, and there is no better measure of results for an organization than money added to the organization.

Raghav Singh, director of analytics at Korn Ferry Futurestep, has developed and launched multiple software products and held leadership positions at several major recruiting technology vendors. His career has included work as a consultant on enterprise HR systems and as a recruiting and HRIT leader at several Fortune 500 companies. Opinions expressed here are his own.