Red Adair, the renowned oil fighter who rose to prominence in the ‘50s
and ‘60s once stated, “If you think it’s expensive to hire a
professional to do the job, wait until you hire an amateur.” Although
this quote comes from a time and profession far removed from those in
which we operate today, the message may hold more truth now than ever
before.
With technology rapidly evolving and consumer demands constantly
shifting, it seems the only way that organizations can stay ahead of the
curve is to have the best people on their team. For this reason, in the
modern era of business, there has been a heavy emphasis placed on hiring
the top talent. For evidence of this, just look to Apple’s secret for
success:
“The secret of my success is that we have gone to exceptional lengths
to hire the best people in the world.”
-Steve Jobs
Unfortunately, as companies race to recruit the best talent, it appears
that few organizations are equipped to do so. Based on a study from PwC,
61% of CEOs have yet to take any action to revise their recruitment
despite 93% of those same CEOs acknowledging the need to do so. This
lack of preparation is having profound consequences on organizations.
According to a survey conducted by Glassdoor and Brandon Hall Group,
95% of employers suffer from a bad hire every
year.
However, what is the true cost of these bad hires? Recent research is
beginning to provide the answers to this question and the numbers are
startling.
Dr. Gray Kustis, who co-hosted our Bootcamp, How to Hire a Successful
has spent decades as a management consultant helping leadership build
out effective recruitment programs. Through his research and experience,
Dr. Kustis found that bad hires lead to 80% of employee turnover and
cost 2-3 times the salary level of the position that they were hired
for. Although this may sound like an exaggeration, when you factor in
the direct and indirect costs of a bad hire, Dr. Kustis’ numbers
actually seems fairly conservative.
Direct Costs of a Bad Hire
According to Dr. Kustis, the direct costs of a bad hire include
recruitment, interviewing, training, bonuses, and severance. Beyond
these costs, organizations must also consider losses on wasted
tax withholdings, and unemployment. According to employers surveyed in a
Careerbuilder study, the direct cost of a bad
broke down as follows:
* 41% of of organizations reported that a bad hire cost them more than
$25,000
* 24% of of organizations reported that a bad hire cost them more than
$50,000
Indirect Costs of a Bad Hire: The Ripple Effect
Clearly, there are direct costs that can be immediately associated with
bad hires. However, what about the ripple effects resulting from the
“indirect costs” of a bad hire? Dr. Kustis believes it is these costs
(which include losses in employee morale, job knowledge, customer
satisfaction, work quality, reputation, and productivity), which bring
the most harm to organizations.
Causes of the Ripple Effect
So what causes a bad hire to have such a large ripple effect throughout
an organization? To start, hiring a new employee is collaborative work.
Often times, an entire team will be involved process, from recruiters
and hiring managers, to executives and other team members. As a result
of this, when a bad hire occurs, the wasted time and resources are
multiplied across these various departments and employees, compounding
the effects.
Beyond this, hiring someone is not a one time transaction. The actions
taken leading up to hiring a new employee–screening, interviewing, and
so forth–they only make up the tip of the iceberg. The real input of
time and resources happens once a new employee joins the team. From
initial onboarding and training, to continual guidance and work reviews,
employers must invest substantially in their employees to promote their
professional development (leaders in the industry estimate this cost to
be around $240,000 per
employee).
With a bad hire, this significant investment is completely wasted.
Lastly, compounding on top of the wasted time and resources, it is
inevitable that a bad hire will not carry their weight. As a result of
this, the rest of the team will have to take on additional work. Greg
President of international staffing operations at Robert Half, addresses
this point by explaining, “Hiring a bad fit or someone who lacks the
skills needed to perform well has the potential to leave good employees
with the burden of damage control, whether it be extra work or redoing
work that wasn’t completed correctly the first time.”
Fallout of the Ripple Effect
When you account for these massive indirect costs, coupled with the
already substantial direct costs discussed previously, the magnitude of
the consequences stemming from a bad hire becomes clear. Two areas that
appear to be most heavily impacted by these consequences are
organizational productivity and employee morale. Based on a report by
CareerBuilder, 39% of employers identify a loss in productivity as the
hire,
with 33% identifying lowered employee morale as the number one cost.
Robert Half found similar results
in their survey:
* Supervisors spent 17% of their time, or about one day a week,
managing bad hires
* 39% of CFO’s reported that bad hires cost them in productivity
* 95% reported that a bad hire affects team morale, with 35% saying
that it is greatly affected
Leading Reasons for Making a “Bad Hire”
If bad hires are so costly for organizations, then why do they persist?
CareerBuilder carried out a study to find the answer, uncovering the
following leading reasons for a bad
hire:
* Needed to fill the job quickly – 43 percent
* Insufficient talent intelligence – 22 percent
* Sourcing techniques need to be adjusted per open position – 13
percent
* Fewer recruiters due to the recession has made it difficult to go
through applications – 10 percent
* Didn’t check references – 9 percent
* Lack of strong employment brand – 8 percent
A separate report from Glassdoor and Brandon Hall
found that:
* 69% of employers that made a bad hire identified a broken interview
process as the cause
* Companies lacking an established interview process are five times
more likely to make a bad hire
To Avoid Bad Hires, You Must Hire the Right Recruiters
Based on the stats discussed above, we now have a fairly clear picture
of how costly just one bad hire can be. But what happens if that one bad
hire ends up leading to significantly more bad hires. You know the
saying, “one bad apple spoils the whole bunch?” This is the case when
you hire the wrong people to manage your recruiting efforts, and the
fallout of this can be disastrous.
Just imagine the direct and indirect costs discussed above, compounded
for each subsequent poor hire made by one “bad hire.” Tony Hsieh,
experienced this problem first hand at Zappos. In this interview, he
discusses the consequences stemming from bad
hires at
his organization, which led to further bad hires and ultimately cost
Zappos over $100 million!
For this reason, as an employer, it is essential that you hire the right
recruiters to ensure that you have effective talent acquisition process
in place. This sounds easy enough right? Actually, not so fast. Remember
that recruiters have spent their whole careers playing this game. Most
likely, they will be working you as much as you will be working them
during the interview process. As a result of this, recruiter candidates
are always the most difficult to assess and effectively doing so is
somewhat of an artform. Fortunately for you, here at Newton, we have
spent decades perfecting this art, and we are happy to share our secrets
and insights with you!
Watch a Recording of Newton’s Bootcamp, “How to Hire a Successful Recruiter”
Unsure of where to start when evaluating candidates for your next
recruiting position? Watch Newton’s recent Bootcamp, How to Hire a
Successful
with Newton co-founder and recruiting expert, Joel Passen and Industrial
Psychologist and Management Consultant, Dr. Gary Kustis. Dr. Kustis has
decades of experience advising organizations on their recruitment
processes, so this is a session that you won’t want to miss!
In the “How to Hire a Successful Recruiter” Bootcamp, Dr. Kustis and
Joel will provide you with their deepest insights to creating a
comprehensive and scalable recruitment strategy. From the session,
expect to learn the following:
* Top qualities to look for in a successful recruiter
* How to develop a recruiter interview guide with specific interview
questions
* How to build out assessments to evaluate your candidates
Watch the “How to Hire a Successful Recruiter” bootcamp
here.
Guest
Post by Danny Madigan, Marketing Associate