Tue, Aug 26, 2008

If Your Hiring Process is Broken, You're Wasting Time and Money

P&L and Missed Opportunities

The CEO may not be scrutinizing what is going on with the HR process yet, but they will, and very soon. As talent management becomes an integral part of business strategy, planning and execution, the expectation level for specific and measurable results will rise rapidly.

It's widely known that payroll is the largest line item expense that any organization has. Employees deliver results that are either good or bad. Good or bad equates to the numbers associated with customer satisfaction, revenue, profits, repeat business, product quality, image and all other factors that represent the health and identity of your business.

Recruiting and hiring are a key source of positive or negative business results. So how can organizations hire more effectively? What is the secret to hiring top performing employees that will stay with the organization consistently?

Forget about identifying an oracle that can read minds or foresee the future. Instead, create a process that delivers positive business results consistently.

Why spend time on the process? In addition to what was already noted above, it will create less work for you and produce better employees that consistently deliver results that your CEO can measure.

Why You Should Embrace Your Process

Creating effective processes may be considered a rather dull subject by many, but it's the lifeblood of successful businesses. Depending on the size of the organization, thousands to millions of dollars may be spent on a single technology to improve operations. Amazingly, very little thought goes into the process that is needed for the specific environment. This is particularly true in the world of human resources, where many of the people that administer or install the software lack business experience and are not process-oriented people.

Building on that same concept, once a software application is in place, it is more often than not left with almost the same configurations that it was implemented with. In some cases a few minor changes that addressed insignificant issues may have been made, while the real problems that cost the company time, money and opportunities are overlooked.

Accurately Identify the Issues

So what needs to be addressed to improve your hiring process? From a Six Sigma perspective, let's first look at the recruiting process as if it were a manufacturing process and think about bad hires in terms of “defects”. Some key hiring defects that we might have are listed below:

- New hire quits before they pay off in terms of cost of hire, training and profit

- New hire must be fired

- Person that was not hired “should have been hired”

The examples above represent defects that are the result of a broken process. In the first case, hires are being made, but the employees are quitting before the organization is able to effectively yield positive business results from their work. In the second example, the wrong hire was made, and unnecessary time and resources were expended and opportunities were lost. In the third example, a perfectly qualified person was not given the job, which is a significant opportunity cost for the organization. With the estimated cost of hiring and training an employee running at $25,000 or more, bad hires can be a significant hidden expense. In some instances, a bad hire can cost an organization three times the annual salary of the position in terms of hard and soft costs.

So what caused the defects in the hires? To understand this, it is necessary to take a look at the recruiting and hiring process that is in place today and analyze it in terms of key data points. When in doubt, adopt a few key measures:

• Time to hire (from opening to filled)
• Percent of qualified candidates received from employment ads
• Total turnover rate (percent of employees leaving per month)
• Percent of employees that turnover within 30, 60 or 90 days of start date
• Estimate that your “false negative” rate (i.e., people not hired that should have been hired) roughly equals your “false positive” rate (i.e., new hires that leave before payoff).

Data captured is typically a great way to understand what is going on with your process. In smaller companies, use Excel. In larger companies use an HR System. Analyzing the root cause of the defects is also a critical component of understanding what went wrong with the process that resulted in the defect.

Time to hire, although not a defect, impacts your ability to deliver your services in a timely manner. As with manufacturing, the result is long wait times and unhappy customers. An example would be Apple not delivering enough of the latest versions of their iPhone to the market. Consumers may buy a product from someone else. For every person that you don't recruit on time, your costs increase, and even worse, business opportunities are lost.

Addressing the Problems

So how to you address this issue of a broken process?

1. Map out your current hiring process using Excel's Drawing tools or Visio.

You need to understand what you're doing today in order to understand where there are opportunities for improvement.

2. Analyze available data to identify the most common causes of turnover. (hiring ads, poor candidate pool, pay, management, and related items) Creating charts that show the issues that have the largest negative impact on the organization is a good way to focus your attentions. Pareto Charts, which show values plotted in descending order, high-light the major issues that have the potential to provide the largest positive improvement in your recruiting process.

3. Analyze the root cause of the defects and the delays, which is simply a matter of considering all of the variables that impact the outcome and determining what is causing your defects and delays. Examples might include poor job descriptions, inconvenient job locations, or poor interviewing practices.

4. Identify the process issues that are having the biggest negative impact on the organization and resolve them.

You can't boil the ocean, and often times big results come from focusing on a few important items. Using your understanding of the data, pick the items that are causing the most defects and the longest process delays.

As an example, let's assume that you identified a distinct mismatch between the type of people that were hired and the job being performed. In this case, let's say that you were hiring people to work on a manufacturing line, but advertised the position as a creative opportunity in the retail industry. You may also identify a problem with the screening questions that are being asked that yield a mismatch between the type of personality that is needed to perform repetitive tasks. These are process items that can be analyzed, modified and implemented. There are hundreds of variables that might impact the effectiveness of your process, including compensation and benefits. The key is to work on those that have the biggest negative impact first.

Start from the front of the process (e.g., the job opening) and work your way down the line. If you create the right process, you will be giving your team the tools to be successful consistently. Once your process is in place, continue to refine it until you are hiring for maximum efficiency.