December 2007 | Commentary | Viewpoint

The Best Companies Hire the Best People

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In today's complex business environment, nothing is more important than justifying dollar impact. In sports, when a team wants to win a championship, the least expensive option is never considered. Managers want to ensure a win, regardless of cost. They are looking at Return on Investment (ROI).

Likewise, all business functions ranging from sales and marketing to supply chain and customer service must rigorously and regularly determine ROI to increase their chances of success and survival.

Companies should define and calculate the quality of their supply chain hires the same way. To illustrate, let's build a model that includes the benefits of an effective hire and the losses of an ineffective hire.

Human capital can average 20 percent of a company's operating expense, according to Robert Albus, president of financial advisory Goodrich Capital, New York.

A candidate hired for a top supply chain management position with a salary of $100,000 (including benefits) is, in effect, responsible for five times that income in value, or $500,000 annually. If the person hired is ineffective and operates at 50 percent of capacity, the value delivered to the company is half that amount.

In other words, the wrong hire can cost a company $250,000 per year.

With a retained search cost of $33,000 to hire the "right" candidate the company would gain an ROI of 750 percent instead of losing $250,000.

The $10-Million Mistake

The bad-hire scenario can get even worse; a poor judgment call can cost millions. This is best illustrated by the following true story.

A major East Coast manufacturer shortcut the hiring process by using a contingency search strategy, and hastily hired a vice president of operations because its busy season was approaching.

On two different occasions during the threat of a hurricane, the new vice president opted to shut down the plant instead of waiting to see if the hurricane would hit. It did not hit. This hasty hiring decision cost the company more than $10 million in one day.

To avoid such disasters, companies must access talent management using a business process that integrates ROI. If an organization has 20-percent turnover each year, and new hires are mediocre, within five years the entire work force will be downgraded to mediocre.

What does all this really mean? It means that human capital is as critical to the success of a business as financial capital. Employees are the resource that separates and elevates companies over their competitors.

Another challenge in today's market is the obvious shortage of talent. With boomers retiring, an aging workforce, and more jobs than people, the supply chain hiring process is even more daunting. Fortune 500 companies in America are projected to lose 50 percent of their senior managers in the next five years, states Human Resources Management Guide.

Human resource audits confirm that retained search is a cost-effective alternative to locate and acquire the best talent. The problem is, few companies evaluate the recruitment return on investment in this manner.

A Cultural Fit

Retained search consultants understand the client's culture and the critical nature of each new supply chain hire in the company's value chain. This includes personality characteristics required to grow and thrive in various company cultures.

Search consultants gather valuable data and penetrate competitive environments and other similar industry sectors using proven techniques. They extract pertinent information required for the search and diligently reference candidates at the same time.

While outsourced recruiting may appear expensive, the cost is insignificant when compared to what top supply chain performers contribute to the company in results and innovation. By comparison, contingency placement counselors rarely recruit; their process is entirely different.

Because of time constraints dealing in a volume business, they act as brokers to "fill jobs" from their available inventory of resumes. Contingency fees are linked to candidate placement, which obviously creates bias. Retained search is impartial, seamless, and targeted.

With the tightest labor market in three decades, in-house recruiting also presents challenges. Often, there are too many job requisitions and too few recruiters to fill positions, or the positions are difficult to fill and the talent pool is inadequate.

In any given year, internal recruiters work on three or four times the number of assignments as dedicated search consultants. In-house recruiters do not have the luxury of focusing on individual projects and have the added responsibility of dealing with internal company matters.

The Best of Both Worlds

Retained search works as an extension of a company's human resource department, combining the best of both worlds. When consultants work in conjunction with human resource managers, the labor portion of the assignment is outsourced. Hiring managers have the ability to evaluate internal and external candidates with greater objectivity.

In turn, hiring managers are the best resource to ensuring a clear understanding of position expectations. When managers are presented with three high-potential candidates with varied backgrounds, the candidate of choice often clarifies, defines, and reconstructs the position.

Resourceful search consultants can help identify and evaluate supply chain candidates who are not actively seeking change. Passive candidates ensure that personal and professional goals are synonymous with client expectations.

For these reasons, recruited candidates are committed to the new opportunity ahead.

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