Putting metrics around your top talent offers some useful insight.
By The Editors
Recent research from The Conference Board reports that the top challenge CEOs face is human capital, a finding that further emphasizes the potential impact talent has on the bottom line. If talent is so valued, how can organizations quantify their quality of hires? That complicated question was researched by a recent study undertaken jointly by Hudson RPO and the HRO Today Institute. The research sought to glean information on global opinions of the importance of quality of hire and the efforts to measure it quantitatively.
The study surveyed 246 companies worldwide, with 47 percent coming from the Americas, 35 percent from the Europe-Middle East-Africa (EMEA) region, and the remaining 18 percent from Asia Pacific (APAC). Of those 246 organizations, 80 percent were from the private sector with the other 20 percent being government or nonprofit organizations.
“I think most of us who are in professions of recruitment or HR because we fundamentally believe that talent makes a difference,” says Global RPO Leader for Hudson RPO Kimberley Hubble. That feeling was reflected in the study. Among the companies surveyed, 97 percent believed that quality of hire is a critical element of business success. Earlier studies have provided evidence of this. As Hubble explains, “The differences between average performers and high performers create real business impact.” A McKinsey study provides empirical proof. McKinsey reported that in operational roles the difference in business impact between an average and high performer can be as much as 40 percent, while it approaches 50 percent in general management roles and reaches as high as 67 percent for sales personnel.
In spite of these quantified impacts, only about one-third of the companies surveyed were measuring quality of hire with a formal process and 45 percent report they had discussed the issue internally but did not have plans in place to establish an appropriate process. While measuring this metric is on the table for many organizations, very few have taken any action, and among those that had, most had only began their programs in the past two years.
Why is this—especially when the quality of employees drives so many important business outcomes?
Executives stress that when measuring quality of hire, it can be hard to pinpoint exactly what to measure, and how to quantify and evaluate it. Hubble offered some metrics that are a solid starting point for evaluating quality of hire:
Feedback from hiring managers;
Employee performance appraisals;
Employee productivity measures; and
Actual financial metrics such as revenue, profit, or revenue growth per employee.
In fact, the study found that of those measuring quality of hire, 82 percent monitor retention of new hires, 74 percent look at hiring manager feedback, and 63 percent analyze employee performance appraisal ratings. It’s also necessary to cross-reference metrics to create a multidimensional view of performance when measuring quality of hire — a single metric in isolation may not reveal the full story. For example, using employee performance ratings without integrating retention data only tells half the tale; an organization that hires good people who leave within the first six to 12 months needs to know more.
Companies also need to consider developing specific metrics to fit specific job positions. Currently most employers do not differentiate between executives, managers, professional, and sales—and that needs to change.
“My view is that a good quality of hire program will have far more impact if you are focusing on the really business critical roles for your organization rather than an one-size-fits-all approach,” Hubble shares.
Businesses therefore must be able to identify those critical roles and choose the most effective metrics to measure quality of hire within those areas. According to Hubble, part of this challenge stems from inefficiency in human resources information systems (HRIS). Only around a third (35 percent) report their systems work ‘very well’ or ‘fairly well’ in delivering the data needed. The remaining two thirds say their systems are ‘okay’ (31 percent), ‘poor’ or ‘very poor’ (34 percent). Why is this the case? Organizations are plagued by systems that don’t capture the necessary data; a lack of integration; inaccuracy in data; difficulty reporting data; and a misstep in analyzing the data.
While there are a number of obstacles to improving and measuring quality of hire, Hubble believes that these hurdles can be overcome. “I believe that as a profession we really need to get better at this,” she said. “We need to put the hard yards in to get the results. If we do that, there’s a great reward at the end.”
In fact, a clear majority (85 percent) of organizations that measure quality of hire and take action as a result believes doing so has a positive impact (10 percent or more improvement) on hiring quality. Close to half (45 percent) believe there is a significant impact (improvement of more than 25 percent).
Of the top three quality of hire metrics used, (retention of new hires, hiring manager feedback, and employee performance appraisal ratings) the study found that retention of new hires is most significantly affected by the introduction of quality of hire measures: 62 percent say there is a dramatic impact (more than 25 percent improvement). Employee performance appraisal ratings and hiring manager feedback are also boosted with the introduction of quality of hire metrics: 56 percent and 52 percent respectively report a significant impact.
“I think this has great potential,” concludes Hubble. “It can change the process, make organizations look more seriously at their recruitment panels to see who is getting more involved and who training hiring managers are. You’ll be able to determine the source of the highest performers. There are lots of other interesting implications companies can introduce once they know.”