Paul Austermuehle on a New Twist in Recruiting Efficiency

A New Twist in Recruiting Efficiency

Raise cost-per-hire to increase profitability

Paul Austermuehle, with over 25 years of experience in the recruiting industry, is one of the leaders of the Employer Brand practice at Hodes. An expert at applying employer brand analytics to real world scenarios, we caught up with Paul at Hodes’ Chicago office and asked him to elaborate on some of his recent writings.

Q. In your recently released white paper on employer branding, you’ve taken a rather controversial stand about cost per hire.  What’s that all about?

Simply put, after more than 25 years of telling clients how firms like Hodes can help drive down cost per hire, I’ve come to believe that we do them far greater value by showing them how to raise it.

Q. Spend more?

Spend more. Spend what is clearly necessary.  Spend against a near future objective that is far more important than saving money in the short term.

Q. Won’t that alienate the client?  Aren’t we supposed to be helping them recruit more efficiently?

It’s how you define efficiency. If a client needs to increase their spend to above-average levels to help them reach an above-average competitive advantage, then that will translate into efficiency. They will ultimately gain more profitability by investing properly, or perhaps what they needed to in the first place, in their recruiting efforts.

Q. But why the change?  And what is the right objective? 

Simply put, there’s a new wave of research that is changing (or at least it should be changing) the thought process.

The primary goal of the employer brand is raise the quality of the workforce and enhance the quality of their contribution to their mission. 

For corporations, this will drive greater profitability.  For other organizations like health care providers or educational institutions the quality will show up in meaningful metrics that may not be exclusively financial but can be positively impactful to their community, industry or even to society as a whole.

But profitability gives the clearest example of why quality of workforce is the real “holy grail” for the custodians of the employer brand.

When you look at profitability as expressed by profit per employee (FTE), you can get a clear gauge of how all employees are contributing to both revenue and cost containment.  With this one metric you can measure the organization against itself, year over year, or against competitors in the marketplace, including the talent marketplace.

Q. Quality of workforce translates to higher profits?

It’s been proven in more than a dozen valid research studies in just the last four years.  The data is current, conclusive and matched to profitability as it is evaluated by shareholders. 

More and more companies are conducting research in an attempt to connect the dots between human capital investments and performance in the marketplace; including equity markets.  In fact, going back a decade, Watson Wyatt has been measuring over a dozen factors that can impact shareholder value.  Employer brand has been one of those factors since day one.

Now, with more research exploring individual components that are part of the employer brand, the business case has become compelling.

Take communication with employees, take levels of engagement, or training and development, or integrated performance management; we now have conclusive evidence that excellence in these areas drive superior profitability.

Q. Okay.  But when did employer branding become a collection of components?

In my mind, it’s always been that.  There are probably a dozen good definitions out in the literature that can help us talk about employer brands and their power in the workplace or marketplace.  But no one is contending that employer brand is a single “thing”.  It’s a collection of things that can best be characterized as a relationship. 

And, you know this, relationships are complex.  They have very cognitive, factual components and very emotional components and, usually, they reflect a shared set of values.  So, let’s figure out how each of these can be understood, measure them as benchmarks, then let’s go enhance them.  That’s where spending money comes in.

Q. But why don’t you think quality of hire is a valid measurement?

Talk about a trend.  Quality of hire is definitely all the buzz.  Because quality of hire is directly linked to quality of workforce and so predictive of quality results, it would be great to track it directly.  But as simple as it seems, it’s hard to pin down.

For instance, if you want to measure quality of hire just keep track of your performance ratings, promotions and other recognition systems.  Right?  Well, there’s some very recent research out that documents the scarcity of performance management systems in the workplace.  It’s just not widely adopted. t’s rare to see automated systems, even rarer to see linkage back to other “data silos” like source of hire.

If an organization can do it, they should.  Because performance ratings say a lot about the quality of “match” to the job, the culture, the organization. It’s a nice measure for employer brand managers.

Q. But if most companies can do it? 

Well, then you have to construct a system that measures quality of hire as determined by the hiring manager.  Most of the people advocating this type of system argue for a pre-recruiting template of quality characteristics and a post-hire grading against those characteristics.  In other words, you rate quality of hire by first pinning down expectations.

Q. Sounds good.

Couple of things though.  First, compliance. The organization has to do a reality check to determine if they can actually get managers to take the time to do the expectations piece for each and every req. Then, track them down and get the evaluation piece for each and every hire. That can be tougher than it sounds—even with such a valuable outcome.

Now let’s say that happens. The next consideration is the built-in bias toward positive ratings.  Since the hiring manager is the decision maker, asking him or her to rate the quality of the hire is a lot like asking for a rating on his or her own judgment.  Or desperation.  In either case, its hard to imagine a manager who just pulled the trigger on an offer coming back to HR to say, the quality was not so good.

So you get inflation of the quality.  And if its inflated, how do you use it to fine tune?  Where do you go when you already have very high scores and they don’t seem to move over time?

Q. You’re bursting a lot of bubbles.

Sorry.  But then again, there is a very good metric and it’s actually easier to capture. 

To illustrate it, let’s do a wine tasting.

I put five unlabeled glasses of nice bubbly champagne in front of you.  Four of them are plonck, but one is a pretty good wine.  Nothing that would get a rating of 97, but still good. You pick the good one and then, as we measure quality of selection your comment is…

“This one was the best, it was a good hire.”

Q. We hired the wine?
 
Okay. “It was a good wine.” 

So now we do the tasting again and I put five really good champagnes in front of you.  You sip, think, sip again. You smile. You say:

“I liked them all, but I like this one the best.”

Q. So, hire her! 

No, drink her.  But yes, that’s the point.  If you work to improve quality of the talent pool, you will most surely improve quality of hire.  Measure quality of applicant! Measure it right at the first read of the resume, then again on the first phone screen, then again at the interview.  Use a scale of 1-10.  Let your hiring managers select from as many 9’s and 10’s as possible.  And if sourcing is not delivering at that level, you can now trace back to source of hire and intensify your efforts.  Remember, you’re 9’s and 10’s could be some other company’s 3’s and 4’s. The “match” is what branding is all about.

This metric is a fine tool for managing the employer brand and enhancing its contribution to workforce quality.  I would dare to say that quality of applicant will drive profitability at for-profits and will drive other meaningful results at non-profits.

Which brings us back to cost per hire.

So simple really.  You spend what it takes to build quality of applicant.  That means invest in the research to get your message right.  That means make appropriate investments in your website, your PR initiatives, your on-campus presence, your candidate relationship tools, all the touch points of your brand.  Move the needle, with one eye on cost, but most of your attention on quality.

Q. Then...?

Simply put, when 80% of your hires are filled from candidate pools that average above a 9.0, you can start to look at how and where to drive cost out of the process.  That’s when you may want to push cost-per-hire down.  But not until then.

And really, those are general numbers. Some CEO’s might want to actually push for higher quality and try to push for higher profitability.

Q. CEOs.  Really?

Like I said before.  There’s a business case here and it will stand up. 

I’ll leave you with a short illustration that we found in our work for a restaurant company.  In fact, I’ll put it in the form of a question. 

This was a company that brought in a new CEO to take them to the next level of performance.  The leadership team saw opportunities to make three fundamental changes.

1. Raise the quality of the food
2. Enhance the dining experience
3. Bring in customers who were willing to pay more for both

They wanted to create a new brand; one that would earn them higher margins.  They saw a clear connection between quality and profitability.  And more important, they knew that delivering on the promise raised a new challenge to their workforce. Hence the need for a new employer brand.

One more fact. They bumped their advertising budgets by millions of dollars—more than 10% year over year.

So, which direction should they push their cost per hire?

Q. Now that is food for thought.   Thanks Paul.

Paul Austermuehle is a Senior Vice President at Bernard Hodes Group. An industry veteran, he started his career as a copywriter in 1975 and ran recruitment advertising operations at Bentley, Barnes & Lynn until it was sold to TMP Worldwide. He joined Hodes in 2000 and currently is a leader in its Employer Brand practice.

How Does Your Organization’s Employer Brand Measure Up? Ask Paul. Paul is available for a one on one free consultation or a presentation within your organization on Efficient Employer Brand Building. Contact Paul directly at paustermuehle@hodes.com