Stop Flailing, and Finally Understand What Makes a Metric Strategic
During the many decades that I have been a metrics expert, I have found that the amount of time recruiting leaders devote to recruitment metrics adds little value to recruiting or to the business. Those frustrating failures can be attributed to three basic causes.
The first is that the metrics that recruiting leaders use are mostly tactical or operational so that they omit any “big-picture” business impacts. And as a result, executives outside of recruiting have little interest in seeing these operational results. The second cause is that current recruiting metrics are 100 percent historic. The metrics tell you “what happened last year,” which again has little value for executives who want to know what’s going to happen next year.
And the third cause is that after the recruiting metrics are calculated, they are reported to “barely interested eyes”, which pay little attention to them. The usefulness and impact of the metrics are limited because there is no systematic process within recruiting to actually use these metrics as a driver to change and improve the recruiting function. So to put it succinctly, if you want senior executives to actually read and act on your metrics, those metrics need to be:
- Strategic and quantified with a focus on big picture business impacts.
- Focused on the near future, so there is time for managers to act after being alerted about a soon to occur recruiting problem or opportunity.
- The metrics must be actionable, so when metrics indicate a problem, they are accompanied by an action plan on how the data will be used to actually increase the business impacts of recruiting.
The Six Strategic Categories of Recruiting Metrics That I Recommend
Here is a list of the six truly strategic categories of recruiting metrics. For each one, you need to look at historical trends, as well as current and predictive metrics. And when the metrics are headed in the wrong direction, there needs to be an action plan with someone assigned to make sure that the data is applied in order to actually improve recruiting results.
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- The positive performance increase added by more productive hires — hiring people is expensive and time-consuming, so replacing an employee with a new one who performs at only an average level really adds no significant business value. Recruiting can help the business, however, if it hires employees who end up producing more than the average worker (as a result of superior skills, experience etc.). So the strategic metric that needs to be tracked is the average percentage of improvement in the performance of new hires when compared to the baseline performance of the average replaced worker in the same job family. Whenever the recruiting process is effective enough to hire an innovator, obviously this productivity improvement will be dramatically higher. Many call this metric the quality of hire but a more accurate term would be the “performance improvement metric.” Because any performance improvement will be multiplied if the employee is retained for a longer period of time, the retention rate of recent hires should be a metric that are included in this category. In order to ensure that the performance improvement and retention will continually get better, recruiting must have an action plan for identifying the candidate selection factors that currently and in the future will result in additional better-performing and longer-tenured new hires.
- The failure rate of new hires and the damage done by weak hires — every major business process periodically measures and attempts to improve its failure rate, except recruiting. First recruiting needs to define a “hiring failure,” which is generally a new hire who severely underperforms, fails training, quits within a few months, who must be encouraged to leave, or who is fired. The primary reason why you need to track new hire failures, as well as weak performance hires, is because of the tremendous damage that they can do on the job. These damages include their lower performance level, the added management time that they require, the fact that they drive away and frustrate good employees, and their replacement recruiting costs. One study showed that the new hire failure rate can be as high as 46 percent, so it’s not something that we should ignore. But the real damage will result from their offending customers and making expensive on-the-job errors that can have a value of up to 2¼ times their salary. And because these weak hires will probably not be able to get a new job elsewhere, they will likely compound their damage over time by literally staying at the firm for decades. After calculating the tremendous losses created by hiring failures and weak hires, recruiting needs to have an action plan that convinces executives they need to invest in improving the recruitment process so that both these metrics continually decrease.
- The losses created by a weak hiring process — in addition to producing underperforming hires, a weak hiring process can cost a firm a great deal in lost productivity if the hiring process is unnecessarily slow which result in positions vacant for a longer period of time. Slow hiring means that there are excessive “position vacancy days”, obviously, no work is getting done. Excessive vacancy days are particularly damaging for revenue-generating and revenue-impact positions. This is because that lost revenue may never be recovered and it may even mean that we will lose purchases to one of our firm’s competitors. A weak candidate experience can also create major damage to the business because poorly treated candidates may reduce their and their friend’s product purchases from your firm by as much as 32 percent. A bad candidate experience may also reduce future job applications from individuals in the offended candidate’s network by up to 22 percent. Recruiting should work with the CFO’s office to calculate the current and projected future losses as a result of both preventable slow hiring and a bad candidate experience, and then develop an action plan to reduce those losses.
- The opportunity costs of “missed” landable top talent — although obviously you can’t land every candidate, there is certainly a large business opportunity cost associated with not hiring a top-quality candidate who applied for a job at your firm. Because a high-value candidate has shown an interest in your firm and they took the time to apply, not hiring them must be considered a business loss. Obviously, if the high-quality candidate goes elsewhere in your industry, you lose their potential productivity and innovation value and a competitor, unfortunately, gains it. Recruiting should calculate the probability of landing exceptionally qualified candidates and then compare that number to their actual success rate. And then work with the CFO’s office to calculate the missed opportunity costs based on the value that they would’ve added.
- The cost of using excessive hiring manager hours — every hour that hiring managers spend on recruiting and hiring is an hour that they can’t spend on normal business responsibilities. So it helps the business if you can still produce high-performing hires without excessively using up the time of hiring managers. Recruiting should survey hiring managers to develop an ideal number of hours that they need to commit as a target. They should also work with the CFO’s office to put a dollar amount on those excess manager hours used. And finally develop an action plan to identify the causes and the solutions to the overuse of hiring manager’s time.
- Calculate the ROI of the overall recruiting function — the most commonly calculated of all business metrics is a return on investment, or ROI (the ratio of the $ of return compared to the $ spent). However because recruiting almost universally does not quantify its positive business impacts (item No. 1 above), recruiting leaders in most cases can only report the recruiting expenditure part of the equation. If recruiting is to be considered strategic by corporate executives, it must compare its overall functional ROI to last year’s and then with the ROI’s of other prominent business functions. Obviously, recruiting should also project future reductions in its ROI and have an action plan for continually improving this important ratio.
In my opinion, 95 percent of all the work that is done on recruiting metrics ends up being a waste of time, because the work focuses on creating historical tactical metrics never actually used to improve recruiting performance. Instead, what is needed is for recruiting to adopt a completely new “executive viewpoint.”
Where recruiting focuses its metrics on revealing what executives really care about, the business impacts of recruiting. That means a focus on measuring and reporting the positive business impacts that result from hiring better-performing candidates. It should also calculate and report the negative cost associated with weak hires and an inefficient recruiting processes. And finally, recruiting needs to show that it has the highest ROI (which in most cases it actually does) of any HR and most business functions.