October 21 , 2017

Five Ugly Numbers That You Can’t Ignore – It’s Time to Calculate Hiring Failures

It’s Time to Face the Numbers and Facts…

Almost any senior executive would be alarmed upon learning that users were dissatisfied, failure rates approached 50%, and a significant percentage of your customers regretted their decisions.

Obviously, if the numbers listed above came from an important profit-impact function (supply chain, finance, customer satisfaction), everyone would be screaming for a complete rethinking of the entire process.

Unfortunately, the above metrics represent failure in the recruiting and retention elements of the talent management function. I have encountered no other business function that more completely avoids defining and measuring process failure than talent management.

Selection decisions are often about as accurate as a coin flip.

–The Recruiting Roundtable

Talent Management Failure Metrics Are In*

Here are more details on the five numbers provided above.

 

This data can be taken together as a clear indicator that we might have numerous failures in talent management:

  • 70% dissatisfied — 70% of the external customers (applicants) and 28% of the internal customers (hiring managers) indicate they are dissatisfied with the hiring process (Source: Staffing.org).
  • 50% customer regret — 50% of the processes users (both managers and new hires) later regret their “buying” decision (Source: The Recruiting Roundtable). In addition, 25% of new hires later regret taking their new job within one year (Source: Challenger, Gray)
  • 46% turnover — 46% of new hires leave their jobs within the first year (Source: eBullpen, LLC) and 50% of current employees are actively seeking or are planning to seek a new job (Source: Deloitte).
  • 46% failure rate — 46% of U.S. new hires must be classified as failures within their first 18 months (fired, pressured to quit, required disciplinary action, etc.) (Source: Leadership IQ). In addition, 58% of the highest-priority hires, new executives hired from the outside, fail in their new position within 18 months (Source: Michael Watkins).
  • Only a 19% success rate — only one out of five of the process output can be classified as unequivocal successes (Source: Leadership IQ).

Some additional data points to consider include:

  • 66% regret hiring decisions — Nearly two-thirds of hiring managers come to regret their interview-based hiring decisions (Source: DDI)
  • 50% new executive turnover — nearly half of new executive hires quit or are fired within the first 18 months at a new employer (Source: Corporate Leadership Council).
  • Newly promoted executives don’t do much better (40% of newly promoted managers and executives fail within 18 months of starting a new job (Source: Manchester, Inc).
  • Less than 50% are qualified — a majority of managers surveyed (59%) believe that less than half of all candidates they interviewed were qualified (Source: eBullpen, LLC).
  • 65% lie on resumes — the key data source that we rely on to source and narrow down applicants contains untrue information more than half the time (Source: The Risk Advisory Group )
  • Resume-sorting failures — Of all the “perfect resumes” sent out by mystery shopper candidates, only 12% were actually scheduled for interviews (Source: Hodes’ Healthcare).
  • Bottom performers produce less — hiring and retaining below or even average performers have real opportunity costs because top performers can increase productivity, revenue, and profit by between 40% and 67% over average performers (Source: McKinsey & Co.).

* Note: I have purposely chosen publicly available sources that cite these research results. To find the material, you may use a simple Google search, but please don’t contact me for detailed references.

The samples in each case varied, but what if they were an indication of how poorly your organization’s talent-management function was performing?

Only 30% of organizations measure quality of hire, and only a handful specifically define and measure recruiting process failure. It’s time to adopt a business process management approach; start to measure successes and failures in the same way that other business processes already do.

Plan B, of course, is to ignore this warning and to continue to assume that existing processes are either error-free or on par with the Six Sigma standards of production, quality control, and customer service.

My Goal Is to Get You to Pay Attention

You can conjure up arguments about the validity of the research done by outside consulting firms, but that’s not the point. The key learning is to take a moment and ask yourself these key questions:

  1. Have you clearly defined what “hiring failure” is? What failure rate is acceptable?
  2. Can a process be properly designed so that so many that are involved in it do not have remorse or regrets about their decisions?
  3. Is it ever acceptable to have a process where the dissatisfaction rates exceed 25%?
  4. Has the time finally come where you bite the bullet and calculate the quality of hire, failure rates, and the ROI of your function?
  5. Is it time to move beyond simply calculating output metrics (i.e., 22% are dissatisfied) and in addition to begin to use metrics to identify why your failures occur?

After viewing these research numbers, I hope you’ll agree it is time to rethink most talent management processes and metrics.

Do not concern yourself with the accuracy of any particular external study; their primary value is simply to stimulate you to do your own research within your own firm to find out if these problems and failures identified by others are currently occurring.

Action Steps to Consider

There are a handful of firms (DaVita quickly comes to mind) that have adopted a business process approach to their recruiting function where they clearly define and target failure.

If you’re interested in adopting this approach, here are some action steps to consider.

  • Clearly define failure — include top candidates you failed to identify or attract; top candidates who dropped out early; the quality of candidates you didn’t hire; offer turndowns; good hires but bad initial placements; poor-performing new hires; legal costs; delayed time to initial productivity; dissatisfied or disillusioned candidates; frustrated hiring managers; and early turnover among new hires.
  • Adopt a business process management approach — work with experts in supply chain, CRM, Six Sigma, etc., to learn about business process improvement tools and approaches.
  • Shift to data-based decision-making — shift away from the approach where you assume that things are working; instead, rely on hard data to meet decisions and to continually improve every key process.
  • Mystery shoppers — use mystery shoppers to identify process problems.
  • Change your assessment approach — a significant portion of recruiting process errors occur because of an over-reliance on subjective tools like interviewing. A superior approach is to increase the use of validated skill assessment tools and to ask candidates to solve real problems.
  • Conduct failure analysis — whenever you have a major process failure, use a failure analysis/root-cause identification approach to move beyond symptoms and to identify the real underlying causes of the failure.
  • Assume failure — even when the process is made more objective, there will still be significant number of failures. Accept that fact and develop a process that allows you to identify those failures early and to minimize your losses.
  • Calculate the cost of each error — work with the CFO’s office to calculate the costs and the business impacts of all major errors.
  • Assume that all sub- processes are suspect — assume that bad hiring decisions are a result of poor design features in a multitude of sub-processes including job descriptions, resume sorting, interviews, reference checking, hiring manager monitoring, and onboarding.

Final Thoughts

Throughout my career, whenever I have had the opportunity, I ask recruiting and talent management leaders a simple, straightforward question:

If you hired 100 people, what percentage would turn out to be failures?

Not surprisingly, 99% of the time all I get in return is a blank look. In direct contrast, if I ask the same question on failure rates to those who lead other business functions like supply chain, production, sales, customer service center, etc., I get an immediate numerical response coupled with the costs associated with each increased percentage point of errors. It is my hope that the data referenced in this article will cause you to increase your focus on identifying failures and failure rates in each of your major sub-processes.

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.