Many managers have faced the nightmare scenario of hiring someone who just didn’t fit or who didn’t measure up to expectations. Either way, the cost to a business of a bad hire can be horrendous. Jane Cherrington reports.
A couple of uneasy months slipped by before they knew they’d definitely made a mistake, but it took a long time, a lot of money, and the loss of potential business in a new market before they could fix it.
Employing John* as manager of the newly-established Melbourne office had seemed like a good fit at the time.
He’d been a client of the major financial services organisation and was well-known to the firm. He had a background in the industry and good technical skills and knowledge. He knew all the key players and was expected to be a go-getter when it came to attracting new business.
But, says a senior executive of the firm who asked not to be named, the manager employing John had overlooked the fact that he had been difficult as a client. We also didn’t talk to others in the industry to get a broader view.
It was an expensive decision. Employed on a $100,000 plus package, John effectively brought about the demise of the Melbourne office. He wasn’t a team player, he had an obsession with detail that meant little progress was made, and his people management skills were poor, says the senior executive.
The firm really wanted it to work out and attempts were made to restructure John’s role and play to his strengths. They eventually retrenched him two years later along with the rest of his staff and closed the Melbourne office.
Their approach to the next senior appointment reflected a lesson well learned. We involved our HR Director, which gave us a more structured and formal approach to recruiting; we used psychometric testing, which gave us some confidence; and we talked to other people in the industry about the candidates, says the senior executive. So far the appointment has been successful.
At a time when many industry sectors are facing a critical shortage of skilled workers, selecting the best candidate for the job and retaining them has become central to business performance and survival.
We called it choosing the right people’ rather than the best people’, says Professor Graham Hubbard, a member of the research team that spent three years surveying more than 1000 CEOs to identify Australia’s 11 most successful organisations (The First XI: Winning Organisations in Australia, by Graham Hubbard, Delyth Samuel, Graeme Cocks, and Simon Heap, John Wiley & Sons, 2002).
The best person for the job doesn’t necessarily fit the organisation’s culture and strategy, says Hubbard, now head of the Adelaide Graduate School of Business. So hiring people just because they’ve got fantastic qualifications and experience doesn’t necessarily mean they’re going to do a good job in your organisation.
Imagine if you put the Macquarie Bank people into the Salvation Army and put Salvation Army people into Macquarie Bank it wouldn’t work. They each work in their own environment but they don’t work in another environment, he says.
Cost is another compelling argument for improving recruitment and retention strategies. According to one estimate, as many as 40 per cent of managers recruited in Australia fail within the first 18 months. Training company Forum Corporation calculates the cost of a failed hire at more than 24 times the annual salary. The calculation includes the costs of recruiting and preparation, compensating the managers and maintaining them in the job, severance pay, mistakes, failures, missed opportunities, and business disruption.
When selection procedures fail and a less-than-adequate candidate is hired, the pressure is on a company’s performance management practices to save the day.
Not one of Australia’s 11 most successful organisations thought they did a good job at recruiting but Hubbard says what sets them apart is their performance management.
It means that if an employee is not performing then they’re managed out’ of the organisation more quickly, he says.
So what you get in the good organisations is a strange phenomenon of high turnover in the first year or two. People would say that’s a bad signal but it’s a signal that the people who are being hired are not fitting and are being managed out before they become a problem. In weaker organisations they’re let go, then they’re past probationary period and it’s hard to get them out.
Hubbard says research shows that a lot of employers admit they’re soft on underperformance but companies such as the 11 successful organisations in The First XI take a more assertive approach. They tend to conduct, what we call, meaningful feedback sections. That is, they let people know what they’re expected to achieve, what the targets are; and they measure people’s performance, Hubbard says.
Poor performers cost $5.9 billion
Underachievers are costing Australian companies $5.9 billion a year, according to the results of a research project by The Future Foundation.
Commissioned by the psychometric testing firm, SHL, the report found that businesses waste $1118 for every full-time employee, based on the time managers spend dealing with those who don’t come up to scratch.
While improved performance management might help, SHL Managing Director Sarah Kearney suggests a better technique is to weed out the underachievers.
While the use of psychometric or psychological testing is not yet as widespread in Australia as it is in the UK and the US, the practice is beginning to gain a foothold, particularly among the multinational firms.
Kearney says the job selection process fails when employers leave too much of the decision to gut instinct. They hire someone because they like them, thinking, I can work with them; they’re going to fit in here’. But there’s been no strong match with the capability that’s required: the complexity, level of ability, type of personality, and the drivers they need to have.
Psychometric tools provide more information about a candidate; information that you’re unlikely to glean during an interview. That’s not to say I wouldn’t still hire them, but at least I’d be going in with my eyes open, says Kearney.
One of the things people may say is that the war for talent might force them to hire someone who isn’t a good fit because there’s nobody else. That’s fine, but at least know what you’re getting and what potential risks you need to manage. The psychometric assessment almost becomes [a] risk mitigation process in this context, she says.
Krispy Kreme, the donut business that arrived in Australia in 2003, introduced psychometric assessments earlier last year and attributes a drop in its rate of staff turnover to improved candidate selection.
Edweena Stratton, Krispy Kreme’s Director of People Development, says the tests take some of the guesswork out of the selection process.
It gives us an objective measure. Because we’re such a people-focused business, if we make the wrong decision, get the wrong manager in place, it’s a very costly decision for us from both a business perspective in lost business and also the expense of rehiring and retraining.
The use of assessment centres and behavioural interviewing are other techniques used by employers to help pick the right candidate. An assessment centre is a series of exercises designed to draw out from the participants the types of behaviours that are sought for the job.
Assessment centres are a way of seeing how people behave over longer periods of time, says Graham Hubbard. We all know that interviews are hopeless.
You can’t really fake an assessment centre; you have to behave for a long period of time and you’re much more likely to give away what you’re really like, he says.
Professional services firm Ernst & Young has estimated that the loss of a manager costs the firm about $300,000. With a financial penalty in mind, as well as the skill shortage in the accounting profession beginning to bite, the firm has refined its selection and retention strategies to help give it an edge.
Kate Herbert, Ernst & Young’s Senior Manager, Organisational Development, says the firm introduced a competency framework almost two years ago to provide a common language for all of its people processes, which has also helped refine the selection process. So, for example, when you talk about quality decision making, everybody understands exactly what that is. It doesn’t matter whether you’re using it for recruitment or to assess somebody’s performance or in terms of developing their performance or succession planning.
Assessment centres are used for both development and selection of employees. We run the centres using a mix of psychometric testing and behaviourally based simulations, says Herbert.
For example, Ernst & Young has run a simulation with a mix of the technical and behavioural skills someone needs to be successful in the business.
So they might have a simulation on how you might coach somebody who has some performance issues. Or, to assess people’s leadership behaviours, we run a group simulation to see how they interact with peers, how well they communicate, and what their leadership skills look like.
It’s about helping people to target their skills and accelerate them through the firm. So it’s about retention and career development career development is part of our retention strategy, says Herbert.
Shopping for staff overseas
As the doors opened, hundreds of people were already waiting to escape a dreary, wet London Saturday in search of the sun and a new life in Australia. There were young graduates clutching folders with freshly printed CVs, couples pushing prams, and middle-aged men and women with the glint of a sea change in their eyes.
Waiting inside the function room of an Earls Court hotel were Australian employers, immigration officials, and regional representatives, all eagerly waiting to sell their wares.
By the end of the weekend, more than 5000 Londoners, Aussie expats, and others who had flown in from all parts of Europe would file through the Opportunities Australia Expo.
It is a measure of the state of Australia’s war for talent that some of our biggest employers are prepared to travel thousands of kilometres to find staff.
And it’s not as if they’re happy about it. It’s harder work finding someone from overseas, says Hayley Roberts, Co-Director of Small World Media Group, the New Zealand firm that ran the expo.
Certainly the employers I’ve talked to don’t necessarily want to look overseas, but the fact is that the companies that are at our expo have been advertising on the job boards and the newspapers in Australia all the time and they simply can’t find the people.
For the past two years Helen Olivier, a Director of the recruiter Olivier Group, has travelled to London to interview accountants, particularly auditors, for jobs back home.
It’s astonishing that only 12 months or so ago it was still a buyer’s market, says Olivier.
The war for talent has definitely gone global, she says, with the Olivier Group also helping UK firms to find Australian staff.
This year’s Australian expo was a first but based on the startling success they’ll be held twice a year from now on.
Employers of engineers were represented in force at the expo, desperate to recruit for hundreds of unfilled positions.
Engineering consultants, Connell Wagner take on a large number of engineers every year and are always struggling to fill job vacancies, says HR Manager Leigh Arnold.
He says engineers from any country are welcome, providing their qualifications are accepted by the professional body, Engineers Australia.
Part of the problem is that despite the growth in high school matriculants, the numbers choosing an engineering degree have remained virtually unchanged, says the CEO of Engineers Australia, Peter Taylor.
Australia now ranks near the bottom of the list of OECD countries for numbers of engineering graduates per head of population.