So, you’ve accidentally hired the wrong person, or made a rushed hire due to business need. Does it matter in the long run?
Consider a travel insurance company. Due to a higher-than-normal turnover of employees last quarter, they need to recruit new talent. The recruiter, Pam, is under a lot of pressure from her boss to get bums on seats as soon as possible, since each week where there are empty desks on the sales floor, the company is losing potential sales and revenue.
The recruiter’s target is straightforward – she needs to hire six people by the end of the week in order to keep management happy. As long as those six people reach the minimum requirement, are able to do the job, and are willing to accept, it’s job done as far as she and her boss are concerned.
A few weeks later, her new hires come on board and after their training, pick up the phone and get stuck in. Success, right?
It might be as far as Pam is concerned, after all she has delivered on her objectives, but it’s not such good news for the wider business. Even if a candidate satisfies the required criteria, there is a significant difference between the business value of a good hire and of a bad hire, and huge gains to be made from managing to secure great hires.
Let’s unpack that a little.
Bad hires are bad news
Bad hires are expensive for a whole host of reasons. They are likely to generate less revenue than good employees, or even cost an organisation money due to their errors or complacency, and it’s contagious since they impact the productivity and morale of the employees around them. Further, the employer may have to invest over the odds in additional training or performance management, and if and when the employee does leave, the employer will likely need to invest more in finding an urgent replacement.
The average cost of a bad hire is around 30% of the employee's first-year earnings, according to US Department of Labor.
For certain positions, this can as much as 10 times an employee’s annual salary.
Regardless of the exact numbers, it’s clear that hiring the wrong people can cost a company a lot of money.
The good and the great
Getting great people rather than good people into an organisation is not just a nice to have – it has a profound impact on the quality of the output and, ultimately, business performance. Great employees are valuable in and of themselves, but they also drive wider team performance, inspire others, and make recruiting other great people easier.
The difference between good and great is widely reported. A report by McKinsey found that in a study of more than 600,000 researchers, entertainers, politicians, and athletes, high performers were 400% more productive than average ones. In highly complex occupations such as software development, high performers were found to be an astounding 800% more productive.
Gartner research shows high potential (HIPO) employees bring 91% more value to the organisation than non-HIPOs and exert 21% more effort than their peers. As such, employers would do well to actively recognise and retain top employees, especially when the cost of replacing them is so great.
Roles described as having low complexity, such as a packing role at a large distributor, a role that for many organisations does not merit special focus in terms of recruitment, demonstrate a productivity gap of 50% between average and high performers. The impact on productivity increases as the complexity of the role increases, with an extraordinary jump between high and very high complexity roles.
The balance here is in the volume of employees in each camp.
Looking at the graph below, one might suggest that the very highly complex role such as niche software engineering should be the key focus on recruiter since there is a such a massive gap in employee performance. However, these roles are often small in number. When you consider the sheer volume of employees in low complexity roles in a warehouse for example, the marginal gains that come from hiring good performers across hundreds of vacancies can scale up to have a huge impact on business performance.
Employers looking to drive the best results and value from employees would be wise to consider the economies of scale that come from nailing the selection process for low complexity roles, as well as reaping the benefits from hiring the most able candidates for the highly complex ones.
Figure 1: Productivity gap between average and high performers, McKinsey
So, what does this mean for Pam’s new hires?
Well, assume that we have two average hires, two poor hires, and two great hires.
Our two great hires are super-motivated, they are charismatic, and they go above and beyond to get the sale. Not just following the script, but responding to the queries from customers. They come across as genuinely interested in the holidays that the person on the other end of the phone has planned and advise them on the most appropriate insurance. They build rapport and trust, and when it comes to securing the deal, the customer feels as though they are getting a personalised service and are getting a good deal. These two employees are able to convert the more challenging customers that our average or poor performers cannot touch. Between them, they reach new customers and access revenue that the rest of the team cannot.
Our poor performers, however, do the bare minimum. They are compliant – they follow their sales script word for word – but they are going through the motions. They do not freestyle, they do not adapt their style or tone to match the customer on the other end of the line, and they recite the standard products, asking the customer which of them they are interested in. Only the proactive customers who were always going to buy anyway are converted; the majority are not.
Worse still, the colleagues on the neighbouring desks start to adjust their standards.
Afterall, if everyone is being paid the same, why go above and beyond?
This is especially prevalent in organisations where entry level staff are undervalued by employers who dismiss their importance and overlook their development since ‘we can always find people to do that job.’
This is a recipe for low morale and high turnover, and before she knows it, Pam is back out recruiting again.
As such, investing in an assessment process that is able to identify (and ideally excite) great candidates at all levels of the organisation is well worth the investment.
It matters more than you think.