The Move to Meaningful Metrics

October 25, 2005

"Did we make the right hire?"

    The link between recruiting practices and organizational success lies in the answer to that question, but few companies are prepared to respond. Common recruiting metrics document efficiency--speed and costs--but not effectiveness, which measures performance and results.

    "Recruiting effectiveness lies in the long-term performance of the new employee in the job," says Joyce Maroney, vice president of recruitment services for BrassRing, a global talent management provider based in Waltham, Massachusetts. Measuring this effectiveness, however, requires a group of metrics that captures results and may vary widely from one company to another.

    Quality-of-hire metrics, often based on a standard 90-day report back from the hiring manager, provide a good starting point but still miss the key issues of long-term performance and the impact of the employee on the organization. Beyond the 90-day report, few templates exist for effectiveness metrics, and constructing meaningful measures is often a company-specific task.

    "Quality of hire is the most critical recruiting metric because the quality of employee performance begins with it," says Robert Morgan, COO of Hudson Human Capital Solutions, the consulting arm of Hudson Highland Group, the global employment solutions provider based in New York City.

    "Measures such as cost per hire and time to fill are incomplete measures of staffing performance and are often misleading," Morgan says. "But improving the quality of hire alone can be the greatest financial booster for an organization.

    "Although this is known to industry leadership, and despite the fact that corporate America loses millions of dollars in the cost of bad hires each year, the number of companies that are proactively taking steps to manage factors that impact the quality of hire is surprisingly low," he says.

    The low response can be traced to the complexity of developing adequate quality-of-hire metrics and the cross-functional effort required.

    "For each company, a dialogue about the most meaningful metrics needs to occur between operations or the hiring managers and the staffing department, with the objective of defining a quality hire and determining how to track it," says Scott Pollak, a director in the San Jose, California, office of human resource services provider PricewaterhouseCoopers Saratoga. "The operations groups are open to this and interested in this discussion, so it’s really a matter of HR stepping up to the plate."

    One Saratoga client, Oakwood Healthcare System, a Southeast Michigan health care provider with 9,500 employees, incorporates recruiting metrics into HR scorecards that are customized for each division. The scorecards, which compare results with targets and best-in-class measures, go out to divisional presidents each month to stimulate discussions between HR and the divisions about changes needed to improve recruiting and staffing effectiveness.

    Based on this process, HR presented a business case for slowing down hiring to focus on quality hires and recruiting new staff instead of using agency labor. The changes implemented have reduced costs in the divisions and improved results.

Finding the right measures
    One prerequisite for meaningful metrics on effectiveness is pushing out the time frame for measuring the performance of new hires.

    "The 90-day hiring manager’s report is an important part of the process, but companies need to look beyond that," Pollak says. The choice of metrics should vary by job type and include separation data, the fit of the individual--captured in performance ratings or time to promotion, for example--and the metrics generated by surveys of employee and manager satisfaction.

    In addition, the metrics should include broader measures of overall workforce productivity and labor costs, which are related to the staffing process.

    "Also, it’s important to calculate succession planning ratios that indicate whether the company has an adequate supply of leaders and candidates in key roles, and how many managers are ready to be promoted--all of which indicate whether the company will have the talent that it needs in the future," Pollak says.

    In the end, however, the only truly adequate quality-of-hire and effectiveness metrics are specific to the needs of the company and the jobs that drive its strategic and financial objectives. "It’s important for recruiters and hiring managers to realize that every firm defines quality in its own unique way, and that the measures that are used to track it are equally unique," Morgan cautions.

    "Various departments within an organization perceive the quality of hire from different perspectives, and want different aspects of new-hire quality measured," Morgan says. A metric is meaningful and useful only if relates to the work of the organization and can actually have an impact on staffing initiatives.

    Although there are many ways to measure the performance of hires, Morgan suggests that companies use no more than four or five. "Too many companies go overboard with measuring everything, and individuals and the company lose focus," he warns.

    The right effectiveness metrics are always a combination of competencies and results, Morgan says. Competencies might include management abilities, communication skills or customer service capabilities. Results are the actual deliverables, commonly reported in productivity measures.

    Whether it’s a competency or a result, it must be a specific, measurable activity.

    "If it’s not, you sink into the black hole of assumptions, and that gets everyone in trouble," Morgan says. With information on competencies and performance results in hand, human resources and the recruiting staff can then link that information back to the recruiting source and the assessment methods used for the hire.

    The time frame for measuring competencies and results varies by job, but Morgan says that performance evaluation "should be an ongoing discussion instead of periodic event."

    "The typical annual performance evaluation is a good benchmark, but it is not adequate," he says.

    Morgan notes that some organizations conduct ongoing performance discussions and link the findings back to hiring, but many don’t because the relevant events occur in different silos within human resources.

    "Recruitment is separated from performance management, and performance management may be separated from succession planning, which may be separated from evaluating competencies and promotability," he says.

    "It’s difficult to connect all of these activities, but companies need an integrated approach for planning, acquiring and optimizing talent," Morgan says. "Without this, they’re wasting resources and they’ll never be as effective as they could be."

    Saratoga bases its quality-of-hire metrics on separation rates and the new-hire performance rate, which compares the average performance ranking of new hires with performance rankings for the overall organization.

    A Saratoga survey found that first-year employees received an average performance ranking 8 percent below the overall workforce. Companies should set a target for this metric, Pollak advises, based on the amount of time necessary for new hires to reach full performance on the job. For complex jobs, new-hire performance levels at the end of the first year may be well below those for experienced employees. For positions where new hires should be able to reach full performance quickly, the company may want set a more demanding target.

Long-term integrated planning
    Meaningful effectiveness metrics require both a long-term perspective and a broader approach to recruiting as part of strategic workforce planning. "The issue is talent management across the life cycle of the employees," Maroney says. "Most companies think of recruiting as external hiring, but recruiting in a more strategic sense is part of workforce planning, and includes succession planning, career ladders, retention programs and promotions."

    This strategic approach includes thinking through the needs of the company in one year, five years and 10 years, and capturing profile information for current employees, Maroney explains. The profiles should include all of the demographic and experience data found on any résumé, plus on-the-job performance measures, projects completed, new development opportunities, certificates earned and other information relevant to the employee’s current and potential abilities.

    Some companies use the same technology they use to capture résumé information for external candidates to create a separate internal candidate database. "With these profiles, the company can search and match existing employees to new needs, just as it would with external résumés," Maroney says. "The organization can also map employee effectiveness and tie it back to the recruiting source."

    This more long-term, integrated approach resembles a broad application of succession planning. "We see companies implementing succession planning for one tier of employees, finding that it works well, and then taking it to the next level," Pollak says.

    Succession planning typically focuses on only the most senior-level employees. "That’s a good place to start," Maroney says. "But broader succession planning is a smart way to build on the information a company has about its hires. The technologies available today make it easy to capture and catalog information about the human capital inventory in the company in the same manner that any inventory is cataloged."

    This form of systematic workforce planning requires substantial institutional discipline. "It means marrying the company’s HR and business strategies," Maroney says. "It means researching the internal resources and the external market to determine the availability of people who can meet the profiles for employees who will be needed and establishing regular communications with those people. For many companies, however, workforce planning is much more reactive. HR is not always in the loop in terms of understanding the supply of candidates that it will have to provide within a specific time frame."

    Pollak notes that some companies have generated information that links long-term performance back to the recruiting source, but it’s not widespread. The shortcoming is part of a larger set of issues that exists throughout workforce metrics. "In some cases, the basic information does not exist, or it’s not integrated," he says. "And HR is too focused on internal processes instead of the impact on the organization--a focus on efficiency instead of effectiveness."

    Morgan advises companies to broaden the reach of succession planning to include more employees, with a focus on employee development and career planning for this larger group.

    "Once again, it goes back to an integrated evaluation of the competencies you need, how your current workforce measures up, and how you are going to fill the gap though employee development or through external hiring," he says. "It is up to the HR function to take on the responsibility for integrating talent management throughout the organization. There’s not a more important role that HR can play."