The Future of Recruiting, Part 5: Metrics Dominate Decision Making in Recruiting

Most recruiting departments currently get by with a minimal use of metrics ó and the metrics that they do utilize are insignificant from the strategic standpoint. But as time passes, most VPs of HR will no longer tolerate such silly metrics as cost per hire, interviews per offer, and the number of requisitions filled. After years of being beat up by CFOs, senior HR leaders will eventually realize that the only way that recruiting can become a strategic business function is to shift to the fact-based decision model that has been used so successfully in Six Sigma, CRM, and supply chain management. A fact-based decision model requires that all decisions in recruiting ó including sourcing, resume sorting, candidate assessment, and candidate closing ó be made using metrics-driven information. Metrics Dominate Recruiting The major shift in thinking and acting in recruiting will not be just the utilization of metrics but the dominance of metrics. By that I mean that, instead of metrics being merely an afterthought that recruiting uses to “cover its butt,” metrics and data will drive everything in recruiting. Individual recruiters will be required to demonstrate that they are using the most effective sources and techniques and producing quantifiable results. Recruiting budgets and expenditures will shift, based on the ROI and business impact of the different strategies and tools. Commonly used tools such as large job boards, job fairs, and newspaper ads will become incidental as fact based decision-making demonstrates that employee referrals, “resumeless” internet search engines, and trade and professional association conferences are the best sources for the very best top talent.Presenting Dollar Impacts Instead of Numbers The second major shift in metrics will be the realization that providing numbers alone will no longer suffice. The recruiting department of the future will convert current metrics into dollars. For example, the time-to-fill metric, which is currently reported in “days,” will be converted to the dollar consequences that occur to the business when a position is not filled on time. Converting numbers to dollars will allow recruiting to better demonstrate its impact to the CFO and to line managers who, incidentally, seem to only understand dollars. Dollar impact will be calculated for such common recruiting areas as the costs of a position vacancy, the dollar impact of poaching away top performers from competitors (versus hiring active candidates), the cost of a bad hire, the value of diversity hiring, the cost of losing a top performer, and the dollar impact of hiring a top performer versus an average hire in the same position.Seven Strategic Metrics That Will Be Reported to the CFO The most important metrics in recruiting are those that are reported outside of HR. In the future, these are the metrics world-class recruiting departments will provide to C-level executives.

1. The total dollar impact of great recruiting on the business this year. This metric demonstrates the total dollar impact that recruiting had on the business. Most of the dollar impact is based on the added productivity of hiring individuals who become top performers. By comparing the on-the-job performance output differential between top-performing hires and average-performing hires, one can determine the impact of a great recruiting process. This dollar impact calculation will also include the positive benefits of starting and completing projects on time as a result of great hiring systems.

 

1. Recruiting’s ROI compared to other overhead and business functions. This return-on-investment ratio will demonstrate the relative impact of recruiting per dollar spent. By calculating the ROI, senior managers both within and outside of HR will be able to easily compare the dollar impact of investing more money in recruiting versus other business functions like marketing, research and development, or finance.
2. On-the-job performance of new hires. Often referred to as “quality of hire,” this metric will demonstrate the relative on-the-job performance outputs of new hires in the current year versus the previous year. Some firms will substitute for actual output measures the weaker, but still acceptable, manager performance appraisal scores of new hires six and twelve months after their start date.
3. Employee referral rate. This metric demonstrates what percentage of all hires come from employee referrals. In addition to producing top-performing hires, referrals are a key talent index, because a high employee referral rate also indicates that employees have pride in their company. Referrals also have a significant marketing impact as a result of having hundreds of employees talking up the positive aspects of the firm to their friends and colleagues.
4. Critical start dates met. This metric indicates the percentage of key positions that are filled by managers’ designated need dates. This metric is superior to the currently used time-to-fill metric, which merely indicates the average time it takes recruiting to fill all positions. That narrow metric is really a generalization. It can essentially hide the fact that a large number of mission critical positions were not filled by the time the managers actually needed them. Reporting the percentage of critical positions that were filled by their need date will give senior managers a better idea of whether slow recruiting is holding up project start dates or store and facility openings.
5. Giveaway/takeaway ratio. Senior management looks at everything in a competitive light, and it expects the same approach from recruiting and retention. The giveaway/takeaway ratio compares the number of employees in key jobs that a firm poaches from a particular competitor, compared to the number the competitor poaches from the firm. A positive ratio indicates the firm is winning the recruiting and retention war with that competitor.
6. High-level diversity hires and retention. As firms become more global, the need for firms to provide diversity that fits their local situation will become even more essential. As a result, diversity definitions and metrics will be localized. In addition to traditional diversity metrics, there will be an additional focus on metrics related to retaining diverse employees, because they often resign as fast as firms can hire others. Recognition of the added importance of diversity at higher level jobs will cause HR to add to the overall employee diversity metric a new metric that reports the percentage of diversity hires and turnover in higher level management and professional jobs.

Other Strategic Recruiting Metrics That Will Be Reported to the VP of HR In addition to the strategic metrics that will be reported outside of HR, there are several strategic metrics that will be used primarily by the VP of HR to improve the recruitment process and strategy. They include:

• Employment brand strength. This metric demonstrates the effectiveness of HR in spreading the word to working professionals that a firm is a great place to work. Brand strength will be measured through focus groups and professional conferences. These focus groups will ask randomly selected professionals to rank a firm as a desirable place to work and to identify people programs and best management practices. If a firm appears in the top five list of great places to work for most professionals, and if these professionals are aware of its specific programs and best practices, the firm will know that it has a strong employment brand.
• Voluntary turnover of new hires. This measure assesses whether new hires are quitting within their first year. Although few recruitment departments currently rank rapid turnover as a failure of the hiring system, future leaders will see the connection and the negative impact on the business. The actual metric will be the percentage of new hires that voluntarily quit within their first year.
• Source quality. This metric assesses whether the firm is using the very best sources to find candidates. The first metric is identifying and ranking which sources produce hires with the highest on-the-job performance ratings. The companion metric reports the percentage of key jobs that are actually sourced through those top sources.
• New hire time to productivity. This metric determines how fast new hires reach the job’s minimum expected level of on-the-job performance. Smart recruiting and line managers will soon realize that hiring individuals who are slow to reach the expected performance level is a failure of the hiring process. The actual metric is calculated by identifying the average time (in days) that it takes for new hires in key jobs to reach the minimum output standard for that job.
• Manager satisfaction. It’s important for recruiting managers to know if they are pleasing their internal customers. The metric that will be used to assess the recruiting process is the percentage of key managers (in a survey) who state that they were very or extremely satisfied with the hiring process and the results it produced.
• New hire and candidate satisfaction. It’s also important for recruiting managers to know if they are pleasing or angering applicants, finalists, and new hires. The metric that will be used is the percentage of new hires, finalists, and applicants (for key jobs) who were very or extremely satisfied with the hiring process. High ratings are essential for all firms, but especially for those that deal in consumer products and services, because angry former applicants and candidates will certainly not purchase or recommend your products or services.
• New hire termination rate. Although few recruitment departments currently rank rapid firings as a failure of the hiring system, someday they will see the connection and the negative impact on the business. This metric will report the number of new hires who must be terminated or asked to leave within the first year. This information can be fed back to sourcers and recruiting process managers in order to eventually lower the number of terminations among new hires.

Conclusion These refined metrics will provide data that will allow C-level executives, VPs of HR, hiring managers, and recruiters to make improved, results-oriented decisions. The resulting data and information will allow for dramatically improved decision-making and answer questions like what are the best sources for identifying top candidates, what are the best assessment processes and tools and what is the best way to close every offer. This more targeted information is the entry point that will allow current departments to transition into the world-class recruiting departments of the future.