The recruiting and hiring function has been eviscerated. Many U.S. companies—about 40%, according to research by Korn Ferry—have outsourced much if not all of the hiring process to “recruitment process outsourcers,” which in turn often use subcontractors, typically in India and the Philippines. The subcontractors scour LinkedIn and social media to find potential candidates. They sometimes contact them directly to see whether they can be persuaded to apply for a position and negotiate the salary they’re willing to accept. . .
The big problem with all these new practices is that we don’t know whether they actually produce satisfactory hires. Only about a third of U.S. companies report that they monitor whether their hiring practices lead to good employees; few of them do so carefully, and only a minority even track cost per hire and time to hire.
Pointer from Timothy Taylor.
The article suggests that modern firms are leaving $20 bills on the sidewalk, in that there are better hiring practices that could easily be adopted. Perhaps.
But I want to emphasize that this reinforces a key point that I make in The Great Miscalculator: In business, it is very difficult to measure the performance of employees.
The measurement challenge is bound to create discrepancies between pay and marginal product. And it is bound to make the hiring process quite error-prone.
If you need to track the success of your hires, you are likely a poorly run company, or you are too invest in doing it.
Half the point of the corporate technology, and I mean technology in the organizational/social sense, is to standardize output from non-standard inputs (labor). A well run company hires mediocre people, to do a mediocre job, in a well designed system that produces a good output. A poorly run company needs to hire great people to create good output, because their system is depends on heroes. A young company that is growing needs to hire great people to design the system so the great people can move on.
I like this take on things. Often I find processes in my job annoying, and think “just hire smart people who can figure it out and don’t need rules”. But those people are scarce and expensive. Even if you can’t idiot proof everything having some amount of process makes it possible for relatively inexperienced or mediocre people to just turn the crank and keep the system functioning.
Most of my career has been in non-IT tech startups, where the approach was to hire a few Ph.D. scientists who seemed bright (like me)(YMMV) and throw them at problems that may or may not even have solutions. If they come up with something that works and seems marketable, they gradually hand it off to the engineers to develop a process that produces the desired result reliably with when done by cheap labor or, better, robots. It’s not a hard dichotomy, but there’s a continuum between “we think we have an idea for how to do that” and “we can definitely do that for $499.95 at a 40 percent gross margin”. We Ph.D.s have much more versatile skillsets and can (sometimes) invent a new type of product, but creating systems that produce results cheaply and reliably is the only way to build a business.
The problem is, with all but the simplest jobs or the sales jobs there’s no good way to measure quality of high level workers. There’s what’s measurable, and there’s what’s not measurable. For one we have metrics, and for the other we have guesswork, voodoo, management fads and blame games.
There’s a good and obvious way to measure quality of executives, but who will bell that cat?
A genius cannot submit to discipline. He must be free to do what he thinks is best, otherwise there’s no point in being – or hiring – a genius.
It doesn’t get affiliated with being a Baumol sector, but HR/hiring has a lot of the same characteristics as EdMed that make it an increasingly expensive enterprise.
My guess is that if you were to isolate its own costs there’s persistent year-over-year inflation in hiring costs, with little productivity gains to show for it.
Overhead functions like HR also behave bureaucratically with internal empire builders scheming to expand their staffs and budgets by incessantly peddling management improvement strategies and the like. Outsourcing HR functions not only allows more competitive acquisition of the necessary services but also shortens staff meetings. Additionally, hiring is highly prone to litigation so moving it out decreases the likelihood of key management personnel wasting time in discovery. Lightning rods work best when they are grounded outside the house.
I suspect some of the trend is liability outsourcing. If your HR contract says the contractor will fully comply with all applicable employment laws, then any discrimination in your hiring process is somebody else’s fault.