Impact of Wrong Hiring Decisions

Having spent almost 25 years in global senior executive Human Resources roles, I was always looking at getting our cost of hire down……..but were we measuring the wrong thing?

Now working on the “other side” as a Managing Partner at Executives Online I have begun to understand that the costs of the wrong hire are highly damaging and that partnering with a high quality search partner is one of the most important investments you will make.

Let’s have a look at why an initial choice for a cheaper solution easily ends up in much more expensive results and on top of that side effects like loss of image, lower productivity, frustration and so on.

Companies and their decision makers will ask themselves whether the money spent on an executive search assignment or interim assignment is well spent or simply a waste of money.

We can tell you with absolute certainty that one of the most costly, time-consuming blunders a business can make is picking the wrong person for the job...so any money spent on preventing this is money very well spent

But how costly exactly is a wrong hire…?

Various sources (amongst them the US Department of Labor) about this subject estimate that the average cost of a bad hiring decision in large companies can easily equal 30% of the individual’s first-year base salary. That means a single bad hire with an annual income of €100,000 can equal a potential €30,000 loss for the employer and that is only the “hard “cost, the intangible cost like the impact of a bad hire on productivity and team morale is difficult to materialize, but one wrong hire can throw an entire department into disarray. Team members end up investing their own time into training someone who has no future with the company, talking about loss of productivity and efficiency here.

Recruiting isn't just a stand-alone function of recruiters, it also includes hiring managers and their teams and the time they spend on meeting candidates

In the SME business the impact is even higher as they just doesn't have enough time, energy, or resources to react quickly enough to the demands of their customers. As a result, quick decisions are made on critical hires, which results in the poor fits and related consequences as described above.

Quite often small businesses hire someone because they needed to fill the position quickly with all possible dangers involved and related to this; research has shown that as much as 80% of employee turnover is due these kind of bad hiring decisions.

In other words, how and with whom you hire couldn't be more important.

Statistics say that if you made a mistake in hiring and you recognize and rectify the mistake within six months, the cost of replacing that employee is even going to cost you two and one-half times the person’s salary. That means a poor hiring decision for a candidate earning €100, 000 per year could cost, on average, €250,000 and that expense comes right off your company’s bottom line.. (John Brandon, Inc.com)

So, to visualize this frightening effect, I made a little graph showing the exponential increase of cost related to hiring wrong executives:

Image - gtb.jpg

You don’t want to be confronted with these kind of losses, do you?

Expenses associated with hiring include interview expenses such as travel, hotel and meals, training and orientation, employment testing, termination costs unemployment and potential litigation expenses should the candidate decide to sue you for wrongful dismissal, plus relocation costs and outplacement or career transition costs. But mostly it’s because you need to repeat the entire hiring process to replace the wrong hire, which includes time and expenses.

In addition to these tangible cost, there is also the so called intangible costs that harm your business such as lower employee morale, customer dissatisfaction, lost customers, lost sales, reduced quality of products and low production. Also, whenever someone is terminated, there’s a disruption among the other employees who begin to question what caused the termination and does it affect how their performance is evaluated, not to mention the increased work load on all the other employees who have to pick up the work of the employee who was let go. 

In addition to these tangible cost, there is also the so called intangible costs that harm your business such as lower employee morale, customer dissatisfaction, lost customers, lost sales, reduced quality of products and low production. Also, whenever someone is terminated, there’s a disruption among the other employees who begin to question what caused the termination and does it affect how their performance is evaluated, not to mention the increased work load on all the other employees who have to pick up the work of the employee who was let go.

Many hiring managers make the mistake of choosing someone based on an instinctual “gut feeling” or because they “liked” a particular candidate, only to find out later that the candidate was completely ineffective for the position for which he or she was hired. Time and again, we’ve heard statements like, “She made us laugh so we hired her.”

Working with Executives Online senior management consultants who are specialized in a given field, can help hiring managers to identify job candidates with the appropriate skills. We provide an assessment, which adds assurance on a prospective employee’s skills. 

"Organizations need to look beyond the dates on a resume and focus on the skill sets the candidate brings to the table, we always say “you hire on skills and knowledge, but you fire on behavior”

The most important asset any business or any organization has is its people. That holds true whether you have a small company or manage a department within a business employing hundreds or even thousands. Taking short-cuts to build your team may ease immediate growing pains but create regrets in the long-term.

When hiring a leadership position, the opportunity and risk is much greater, so look for a recruitment firm with a relevant database and a proven record of placing top talent in your industry.

Executives Online has a Global Talent Bank of more than 150.000 senior executives instantly, available for your organization.

Why take the risk, we’ll do it for you so you can focus on your core business while we search for the top talent out there that will enable your company to develop on its growth path to higher revenue and turnover.

So what’s the answer? 

One of the reasons we are able to offer a 12 month guarantee on our search assignments is as a result of our market leading platform – executive-intro™ .  To find out how we achieve 96% retention over the first year using this technology then please do not hesitate contact me.

Call us today to take care of your future top talent…

 

Jan Piet van der Plank

Managing Partner

Executives Online Breda, the Netherlands

 

 

 

 

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