The financial impact of achieving Q is huge. It has an ROI of about 1000% and if you’re hiring more than 10 people a year it will bring millions to the bottom line.
Achieving Q as shown in the graphic, is the not-so-rare occurrence of hiring an outstanding person quickly and at a low cost. It occurs whenever a top performer is promoted into the role or a person is hired who’s either personally known by the hiring manager or highly referred by a trusted advisor.
What is rare is focusing on something other than quality, like reducing cost or time-to-fill, and hiring a top person. Surprisingly, all three can be optimized when the focus is on maximizing quality of hire.
Here’s how:
- Use performance profiles, not job descriptions. Rather than describe a job as a laundry list of skills describe it as a series of performance objectives that define top performance. For example, rather than saying, “Have 10 years of experience in fluid dynamics and an MS degree in mechanical engineering,” say, “Lead the design effort for eliminating turbulence in a human transportation pod traveling at Mach 1 through an eight foot diameter tube.” Achieving the design result is the measure of quality. If the person can do this work, he/she has exactly the skills and experiences necessary.
- Assess past performance doing comparable work. Have candidates describe in intense detail what they’ve accomplished that best compares to each of the performance objectives defining on-the-job success. The closer the fit the higher the quality score. What you’ll discover is the people who have done comparable work have used a different mix of skills, experiences and competencies than listed in the job description. That’s why you need to rewrite the job description to focus on outcomes, not inputs.
- Ensure two-sided fit. Make sure the candidate who’s hired fits the culture and sees the job as a true career move. Achieving Q is not a one-sided affair. If the candidate does not see the job as a career move and is not clearly motivated to do the work described in the performance profile, the person will underperform.
- Use evidence, not intuition or emotion, to assess quality of hire. You can use this quality of hire talent scorecard to measure pre-hire quality of hire and accurately predict on-the-job performance. The graphic summarizes the factors needed to measure quality of hire.
Calculating the ROI of Achieving Q
The financial impact of achieving Q is huge. It has an ROI of about 1000% and if you’re hiring more than 10 people a year it will bring millions to the bottom line.
This online calculator will guide you through the steps needed to determine the ROI of hiring a top 25% person at your company. It’s based on determining the increased profit generated by a top person compared to the increased cost of hiring this person. An example will help clarify the approach.
Start by determining the incremental profit generated by a typical new hire. One way is to multiple a company’s revenue per employee by its variable profit margin. Then assume a top 25% person increases this by about a third. For example, if revenue per employee is $400 thousand and the variable margin is 40% then the profit contribution on average for each new hire is $160 thousand per year. A top person would increase this by 33% or $55 thousand per year. If the person stays with the company at least three years the overall gain is $165 thousand. The ROI would be determined by comparing this gain to the additional cost of hiring the person. It’s about 1000%.
This ROI impact of improving quality of hire is even more startling when you consider what happens when this impact is scaled to 10 new hires in a year or 100 or even a thousand. Here’s how this plays out. Assume you’re going to hire 100 people over the next 12 months at an average compensation of $100 thousand each. This is $10 million in additional compensation, $40 million in additional revenue and $16 million in additional profit. If all of these new hires are in the top quartile of their peer group this profit increases by about $5.5 million per year or $16.5 million over three years. This is why improving quality of hire is such an important strategic initiative. It’s the gift that keeps on giving.
Compare this to reducing the cost per hire, around $6 thousand each for most companies, by 25%. This will result in a one-time cost savings of $150 thousand for the 100 hires but at a cost of losing a potential $5.5 million in profit per year by hiring stronger people. Bottom line: It makes no strategic sense to focus on cost reduction.
Being strategic suggests it’s far better to measure the impact of hiring stronger people, not the cost to hire them.
Achieving Q represents a strategic shift in thinking about how to raise the talent bar. It’s an important shift to make even if you don’t always achieve it.