Large corporations have thousands of business processes. However, I doubt that you have ever heard of a single process that has a 50 percent failure rate. So your firm’s executives will be shocked to learn that the recruiting process (the HR process with the highest business impact) often has a failure rate of 50 percent.
Moreover, that astonishing failure rate occurs at every job level, from hourly employees to managers, and even at the executive level. You do not have to be an accountant to calculate the tremendous dollar costs, negative business impacts, and the lost productivity that results from every hiring failure. So assume for a minute that you are a corporate executive. What would your response be when after you reviewing the following table?
What Is Going on in Recruiting?
If you understand the standard business process success measure Six Sigma, you know that in layman’s terms it means that a little higher than three errors occur per million tries.
The failure rate in these five job level areas ranges from a low of 40 percent and a high of 82 percent (or an average of 500,000 errors per million hires). Even if the reported failure rates are off by a significant margin, something is seriously wrong with the results produced by most corporate recruiting processes.
If the business processes of production, customer service, marketing, or product design had anything close to these failure rates, heads would roll, and slashed budgets. While the recruiting leaders march on oblivious to the damage that these bad hires are doing to their corporation.
"Selection decisions are often about as accurate as a coin flip."— The Recruiting Roundtable
The Causes of The High New-Hire Failure Rates
There are dozens of reasons why executives are not measuring the failure rates in recruiting. The six most impactful reasons include:
No measurement of the cost of a bad hire
Executives at all levels only demand change when they see that it costs them revenue. If they realized that the cost of a hiring failure could easily reach three times the salary for the position, they would demand immediate action. And if the new hire interacts with customers, the costs are much higher.
Process design isn’t scientific
Almost all corporate recruiting processes are designed based on past practices or intuition. Unfortunately, it is quite rare for recruiting processes to be created from the ground up based on correlation data that reveals which process elements accurately predict future success on the job. Without using process re-engineering principles, it is unlikely that recruiting results will improve.
Intuition rather than data-based decision-making
Research shows that over 75 percent of the decisions made during most corporate recruiting processes are made by humans relying on their intuition, rather than data. And unfortunately, even when hiring executives have the data, they seldom take immediate action. Expressive people get higher at a much higher rate than high-potential candidates.
The best candidates are rarely the best hires. Most people end up hiring people like themselves. Moreover, most hiring processes are designed to ensure this occurs. Some of this happens during the filtering phase and the balance during the interview. You must change at the process level; otherwise systemic and personal bias will continue to rule every hiring decision you make. Companies spend too much energy on trying to find “ideal” candidates. However, there is no correlation between great candidates and high performers.
Process updates are a hodgepodge
Most corporate recruiting processes are never periodically redesigned based on business process engineering principles. Instead, elements of the process are added, removed, or modified on an individual basis. Often these changes only occur when a significant issue or new vendor offering comes along.
Hiring failure rates and quality of hire are not even measured
Although it is a standard business process step, I estimate fewer than 10 percent of corporate recruiting functions systematically measure and report their process failure rates. Moreover, if you don’t measure hiring failures, you can’t use “root cause analysis” to find out and fix the causes of that failure. And since a majority of recruiting functions don’t even measure the quality of hire (the on-the-job performance of new-hires), they also have no way of knowing when a new-hire was a success.
HR is not a data-driven function
Because very few things in HR are data-driven. It’s not surprising that recruiting and all other processes in HR have not shifted to a data-driven approach. Without pressure from the rest of HR, there is little reason for hiring to become data-driven proactively.
Additional High-Impact Failures In Recruiting
Even if you choose to ignore new-hire failures, recruiting fails in many other areas too. A small sample of those failures include:
- Application process drop out— “The typical Fortune 500 company loses 9 out of 10 qualified applicants to these unwieldy processes” (Source: Indeed survey)
- Interviews don’t predict— We looked at tens of thousands of interviews results and how that person ultimately performed in their job. “We found a zero relationship. It’s a complete random mess” (Source: Google)
- Managers regret hiring decisions — “66 percent of hiring managers come to regret their interview-based hiring decisions” (Source: DDI)
- Qualified applicants — A majority of managers surveyed “believe that less than half of all candidates that they interviewed were qualified” (Source: eBullpen LLC).
- Resume sorting — Of all the “perfect resumes” sent out by mystery shopper candidates, only 12 percent of these “ideal candidates” were scheduled for interviews (Source: Hodes’ Healthcare)
- Promoted executives— “40 percent of newly promoted managers and executives fail within 18 months of starting a new job” (Source: Manchester Inc.).
Define New-hire Failure
Every situation is different. Recruiting leaders need to work with executives to determine the definition of a “hiring failure” that is most appropriate for their organization. Some of the factors (negative things that occur within 18 months of hiring) that others have included in their definition of the hiring failure include:
- Terminations — new hires that must be terminated or forced out
- Turnover — early voluntary turnover among above-average-performing new hires
- Job performance — new hires that perform at below average or unacceptable levels or new-hires who are assigned a performance management program
- Training — new hires who requires significant unanticipated training
- Up to speed — a time to meet minimum productivity standards that are 50 percent above average
- Salary cost — salary waste when a new hire;s salary is above the midpoint underperforms
- Movement — a new hire is redeployed because they didn’t fit their initial team
- Legal issues — complaints or legal matters as a result of the employee’s hiring process
- Manager satisfaction — a high percentage of dissatisfied hiring managers
- Diversity — unacceptably low diversity among new-hires in customer impact positions
I recommend you use the diversity wheel, developed by the Diversity Leadership Council at Johns Hopkins University. It covers the full breadth of difference. I shared an earlier insight, How to Eliminate Bias from Your Selection Process. It is a companion article to this post.
What if you could predict success?
If you could see into the future, would you change the course of what you are doing today?
When it comes to careers, Gallup research points to a resounding “yes.”
- Seven out of ten working adults believe they are in the wrong job
- One out of those dissatisfied seven thinks that they are in career hell.
What if, like your chromosomal DNA can predict your future health, you could analyze your unique behavioural make-up and career interests (let’s call it your behavioural DNA) to predict your potential success across more than 500 of the most sought-after job roles?
Our elegant solution gracefully extends from the individual or team to the organization. We provide a platform for evidence-based making decisions across the employee lifecycle,
Recruiting → Onboarding → Development → Performance → Succession
What makes us different?
We can predict success with up to 85% predictive validity. We predict career satisfaction and success based on an individual's unique superpowers. Along with skills and experience, these traits are critical differentiators in determining performance. High performers share a common subset of behaviours that they are extremely adept in using.
"Firms appear willing to forgo a 30 percent improvement in subordinate performance to achieve better incentives or to avoid costly politicking — evidence that those in charge of promotions may be victims of the Peter Principle themselves.” — Alan Benson
Final Thoughts
High-performance is different than high-potential. Organizations are hurting themselves by not seeing the difference. If your organization is like most, you find your next leaders from a pool of your top performers. They might be salespeople or project managers skilled developers, or engineers, but in any event, they have a reputation for delivering results. Invest in a robust succession planning process as the centrepiece of your talent management strategy. Otherwise, it is a revolving door of bad hires.
“Every new member in a hierarchical organization climbs the hierarchy until he/she reaches his/her level of incompetence” — The Peter Principle
Although few corporations measure new hire failure rates, a significant number also inexplicably fail to measure the on-the-job performance of new hires (i.e. quality of hire). If your goal is to increase the business impacts of recruiting, measuring the percentage of new hires that are above average performers is probably an even more important measure. Work with the CFO’s office to calculate the dollar impact of each bad, weak, or top performer/innovator new hire. Because like most things in business, recruiting is really all about the money.
