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Stop Metric Madness

Posted by Colin Kingsbury

Nov 2, 2006 12:54:00 PM

Cross-posted to RecruitingBloggers.com

Quidquid latine dictum sit altum viditur.

If you want to know why corporate HR functions are so systematically weak, compare the way they operate to sales. Salespeople are generally the highest-paid employees in companies, and the reason is simple: they are very good at measuring the value they generate*. Good companies will invest almost unlimited amounts of money in sales people, sales training, and sales tools because the results can be measured.

Rajhav Singh spends a good nine paragraphs winding up to his point of today's featured article on ERE, "Measure What Matters." It's a pointed and amusing rant against know-nothing gurus and self-promoting analysts, but he finally gets to business when he writes,

Most recruitment metrics, from cost-per-hire to time-to-fill, measure the process. Satisfaction measures are marginally better but still not much use. Being able to show that recruiting makes more money for the company is unambiguous proof of effectiveness.

And therein our author begins commission of the very sins he just sermonized against....

Process Metrics Deserve Respect
Lately there seems to be a meme that 'process metrics are useless'making its way around, and it needs to stop. Cost-per-hire and time-to-fill can be compared to cost-of-sale and sales cycle time, and when the CEO and the SVP Sales sit down to talk, there's a good chance these two metrics will be on the agenda. In fact, uber-entrepreneur Guy Kawasaki says sales cycle time is one of the four most important things to know before starting a business (see item #12).

In fact, I'd argue that most recruiting organizations don't have nearly enough process metrics. How long on average does it take for you to respond to a qualified candidate (and I don't mean for your ATS to send an auto-reply)? How many candidates withdraw mid-process, how long on average does a candidate sit in the pipeline before the withdrawal happens, and how many desirable candidates are at risk of dropping in the next week if nothing changes? How many offers are rejected, and why?Chances are that most recruiters have a solid idea of the last item, some sense of the second, and a wild guess on the first. But they all matter, some would say equally--after all, the amount of time it takes to get someone on the hook will affect how much time you have to revise a rejected offer before another company closes the deal. You can't ask to be taken seriously at the macro scale if you haven't got the process tight at the local level first.

Measuring the Bottom-Line Value of Recruiting
Singh wants a metric which can demonstrate the direct financial impact of the recruiting function, much as revenue growth does for sales and marketing. He proposes a method outlined by Barber and Strack, which can be casually approximated as dividing the amount of profit by the number of employees. Singh writes,

This is a global metric for the recruiting function. There is no point trying to measure it for each individual job. That's because so many positions do not produce revenue directly. Productivity and costs at the individual level can only be guessed at for positions that do not generate revenue.

The first problem with this statement is that this metric in and of itself says absolutely nothing about recruiting. Let's compare Wal-Mart to Target: $13k vs $17k. That Target generates almost 25% more profit per employee is quite interesting, but the story it tells is so large that it's impossible to say what part of it belongs to recruiting or even to people for that matter. Even if you say it means Target is more efficient, I could respond that Wal-Mart's earnings are four times larger, so maybe their model is better on the whole. That doesn't mean this isn't a good place for HR professionals to open a dialogue with bottom-line managers, but it's little more than an ice-breaker. If any recruiters or HR folks have had this discussion, I'd love to hear how it went.

But the part I have a real problem with is "There is no point trying to measure it for each individual job." Recruiters and managers measure it every time they discuss salaries. They measure it by comp scales, salary surveys, and mostly, by gut feel. For everyone but sales people and top managers, comp plans today are often little more than horoscopes with numbers attached to them.

But don't just take my word for it--here's what Barber and Strack say:

Finally, people can't be effectively managed in the absence of relative performance information—information that can and will be acted upon. It's astounding how little of this exists at many companies.

To say this is challenging is one thing. But to wave it away is to miss what is by far the largest--and perhaps the only--opportunity for an HR professional to take on a truly strategic role.

For a great view of what a truly different organizational structure, look at the database vendor MySQL AB, which has 400 employees in 25 countries, only 30 of whom work out of the company's main office. This article in Fortune details how they manage such a potentially-chaotic organization, and one comes away with the impression that the result is in fact far more results-aligned than your average all-in-one-building company of the same size. You don't need to suggest that your company give up its headquarters and start hiring people over the phone to adopt some of the techniques described in the article.

Recruiting becomes a strategic function if and only when it can demonstrate alignment with and accountability for the overall direction of the business. Doing so will require more accurate means of measuring performance at the individual level, and measuring the processes which were used to select those people. To be fair to Singh, these are difficult problems that no one has come up with the definitive solution for just yet. But, that is also the point. The HR and recruiting professionals who answer these questions are the ones who will find themselves sitting at that table everyone keeps talking about.

* And about those salespeople...
One point on which I agree with Singh is that sales performance is often the product of a lot more than individual virtuosity. The problem is that the price of salespeople is determined by the market, so until we figure out ways to sell products without salespeople, they remain a great investment. They key challenge for recruiting is to tell which candidates succeeded because they really are good and which got lucky with a fat territory or some similarly happy accident.

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