Paul Gillin once said, “When you say ROI, do you mean return on investment or risk of inaction?” I work with many HR and Talent Acquisition leaders that spend far too little on their Talent Acquisition, and as the saying goes… “You can have speed, quality or low cost. Pick two”. When spending more money isn’t an option, either speed or quality will suffer, more often it’s both.
With today’s competitive recruitment landscape, we need to have the right people, process and technology in place to attract, engage, assess and hire efficiently. Yet how can we convince our CFOs to loosen the purse strings and invest in the hiring function? Let’s examine how we can build the business case.
I remember reading a study several years ago from Watson Wyatt that concluded what I thought was obvious. The study asserted that companies who possess a highly effective recruitment function have better overall financial performance.
Working with a myriad of organizations to help them address their talent attraction and acquisition strategies and their hiring processes, it became clear that what I thought to be obvious was getting lost in day-to-day activities and “process for the sake of process”. Most recruitment these days is still heavily rooted in decades old processes and is steeped in a “Buyer’s mentality” – aka: “all the candidates are dying to work for us and will endure our slow and disrespectful process because we’re so awesome and there are a plethora of highly qualified candidates waiting to work for us.”
There are many articles, blog posts and opinions about the impact our recruiting approaches, strategies, tactics, candidate care, their experience and speed of recruiting has on our employment brands. Taking these notions a step further, our employment brand has a direct impact on our ability to hire top talent and maximize retention. Yet, somehow, few organizations have truly embraced these readily available ideas because there is a lack of demonstrable ROI.
Until there’s a direct financial impact that’s identifiable by the C-Suite, your organization will not likely be ready to embrace the change required to move the needle.
Considerable research exists on the financial impact different corporate functions have on an organization. A recent study by Boston Consulting Group (BCG) discovered that top companies “Delivering on Recruiting” had 3.5 times the revenue growth and 2.0 times the profit margin of bottom companies that were not.
To put that into perspective, let’s say a midsized firm with a mediocre recruiting function has $500M in revenue and a $50M in profit. Instead of growing at 5% annually, that firm could grow at 17.5% annually and catapult the profit to $100M. Can you imagine revenue growing from $25M to $87.5M Year over Year due to your ability to effectively recruit?
Yes, I’m over simplifying however if half of the improvement is realistic, doesn’t some investment in your recruitment and retention strategies make sense? Isn’t this the kind of ROI that will raise awareness and buy-in at your leadership’s table?
Identifying and quantifying Return on Investment (ROI) into your recruitment probably seems overwhelming, and frankly akin the age-old question; “How do you eat an elephant?” Let’s look at a couple bite-sized areas that we can use to illustrate the impact recruitment effectiveness can have on your company’s results.
Time to Productivity
For most of us who have been around recruiting for a while, the link between speed of hire and impact on the business is likely obvious. Whether the position is revenue generating or not, filling a position quickly means that the work that needs to be done is getting done sooner. If we include a quality component to the mix and focus on “time to productivity” instead of raw speed of hire, the financial impact becomes tangible. Let’s look at examples of time to productivity impact:
- Revenue Generating Positions: Sales people drive new revenue to an organization. Whether or not you’re exposed to the work behind the scenes, every CFO, Head of Sales and CEO set sales targets to achieve and from that, a formula to calculate the number of sales reps, annual quota, and quarterly objectives. For example, your company aims to sell $12M in new business this year and each sales person carries a $1.2M quota, you need 10 sales people productive for the entire year.Yes, I chose an “HR Math” example, however from a recruiting perspective, for each extra month it takes to fill and get a sales rep up to speed (time to productivity) it’s costing your business $100,000 in unrealized sales. If you’re down 3 of salespeople from your 10 and each role takes 6 months to fill and ramp up, is there not an ROI for investing in your recruitment to shorten that time to 3 months? Absolutely. A $900,000 ROI.
- Customer Service/Front line positions: Front line positions are not as transparently rife with opportunity costs however there are many metrics that your organization likely tracks that impact customer retention, satisfaction, issue resolution times, call abandon rates, the list goes on. Having staffing gaps will invariably impact your employees and customers. When you’re understaffed, or overworking your team (usually both) it will have a financial impact on your business.To illustrate this point: Let’s say your 10-team member call center can handle 100 calls an hour, that’s 10 calls per person (hourly) and with a call answer time of less than 60 seconds. For every empty seat, there is an impact on the call answer time, AND the number of calls that are abandoned by your customers (I’m not going to try that math). How many abandoned calls or extra minutes on hold does it take to lose a customer? There’s a good chance your company possesses that information. Are you leveraging it to improve the time to productivity in the call center?
There has been a lot written about the candidate experience, in fact I’ve contributed a few of my own over the years. A recent Inc. article did a great job highlighting negative financial impact a poor candidate experience can have as well as how a positive candidate experience can actually generate more customers and revenue to an organization. I strongly encourage you to read the article but in a nutshell, Virgin Media turned a negative customer experience, which translated into a $7M dollar annual revenue loss (they lost customers because of their poor candidate experience) into a plan to add $6M in annual revenue by creating a truly positive experience.
It doesn’t matter what business you’re in, taking care of your candidates in an engaging way will reap financial and other intrinsic rewards. Though it’s very challenging to quantify the candidate experience, here’s a challenge: For years I’ve been recommending that organizations survey all the candidates that come through their recruiting process. Yes, every candidate. A simple question on that survey should be “based on your experience in the recruiting process with our company are you more or less likely to become or remain a customer?”. This can change to “be more or less likely to recommend”, or “speak positively or negatively about your experience with us”. Whichever suits your business. Want to identify ROI? Watch the results roll in.
Still think the candidate experience doesn’t matter? Let’s face it, we don’t ask these questions because we don’t want to see the answers.
A significant underlying challenge that most recruiting departments face is the lack of resources. Trying to do too much with way too little. Recruiters are expected to carry a crazy requisition load, and to be experts in all areas of the business. As a result, organizations either willfully lavish ridiculous amounts of cash on “specialist” agencies or underwhelm their hiring managers with mediocrity – frequently they do both. Winston Churchill famously said, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”. HR hasn’t traditionally done a great job of demonstrating the value they can bring to an organization, how they can contribute to the business’ success or how their expertise can positively impact business strategy.
With a thoughtful approach to your people strategy, and understanding how having the best people in the right roles at the right time will impact your business, the business case to invest in your recruitment will seem to build itself. Thomas Edison once famously said, “Most people miss Opportunity because it is dressed in overalls and looks like work.” It will take time, effort and tenacity to build the framework to identify the impact Talent Acquisition has on your business, yet armed with the right information and the fortitude to see it through, we can drive significant demonstrable value into our organizations.
By Michael Palmer
Michael, as the Vice President of Customer Success, leverages his many years of experience building/leading recruitment teams and understanding of complex hiring challenges to drive alignment and optimization into his customer’s talent acquisition. Follow him on twitter @hireinsite