Editorial by Jim Fairfax
By economies of scale, the author speaks about employee contribution to revenue potentially being worth millions and that’s probably way beyond the scale of the employees we hire but his proposition that we can put a monetary value on employees is most interesting to review.
It’s pretty easy for us to accept that more productive, higher work capacity, more talented employees with leadership talent give us maximum return. I’m not sure I can agree with his opinion that hiring better employees at lower salaries carries weight in today’s competitive market or that hiring from your competitors necessarily decreases their revenue although in Sales & Marketing or Product Development those hires could temporarily weaken a competitor. Perhaps the most important message is to stop, take stock and measure how to fill a position with maximum impact to your organization whether you measure it financially or by work output and quality.
Enjoy the article.
Show Me the Money — The Top 10 Revenue Impacts of a Great Hiring Process
Jul 30, 2012, 5:00 am ET
Many are surprised to learn that in growing corporations, recruiting can have the highest revenue impact of all of the HR functions. That is a powerful statement and it is also the premise of a presentation that I will make in September at the always-groundbreaking ERE national recruiting conference. We all know that in both the sports and the entertainment fields, there is a tremendous financial impact as a result of hiring top talent like LeBron James or George Clooney. Although the same significant financial impact also occurs in the corporate world, recruiting leaders have almost universally failed to focus on generating that revenue impact.
CEOs are laser focused on revenue growth
HR leaders seem to be continually looking for ways to be more strategic and to become better “business partners.” Unfortunately, many in HR make a major error by deciding on their own what they consider to be strategic. A superior approach is to instead let the CEO define what they consider to be strategic. And in most corporations, CEOs have a laser focus on revenue and revenue growth. Financial analysts also use revenue growth as an indicator of corporate health and future growth prospects.
HR is unfortunately the one remaining major corporate functional area where revenue growth is not a major focus. Clearly HR has not historically been “a champion” of increasing revenue, and even today, most HR functional leaders make no attempt to measure their impact on revenue. Unfortunately, in HR we instead typically restrict the definition of our success to pedestrian measures like the number of hires, employee turnover rates, or the number of training hours offered. Failing to focus on revenue is a fatal strategic mistake, especially given the fact that labor costs are often the highest corporate variable cost item and because improving the management of people has a higher ROI than equal investments in finance and capital projects. Other areas of HR also have significant revenue impacts but because every employee goes through the hiring process, recruiting has the potential to create the highest impact on revenue.
The revenue impact of a great hire can be in the millions
The first step in increasing revenue through recruiting is understanding the concept of a “performance differential.” A performance differential is the quantified percentage difference on the job between an average and a top-performing hire (in the same job). For example, Google has calculated that recruiting a top technologist (versus recruiting an average one) will result in 300 times more productivity and business impact. And because the average Google employee generates over $1 million in revenue each year, hiring a single “purple-squirrel” top technologist has the potential for adding $300 million to Google’s revenue each and every year that the new hire remains with the firm.
Other firms like Apple, Microsoft, GE and Yahoo have all found at least double-digit performance differentials between hiring average versus top performers. Unfortunately, rather than focusing on the revenue impact of a great hiring process, most recruiting leaders instead dwell on cost reduction (i.e. cost per hire). Most recruiting leaders have failed to understand that even saving $1,000 per hire over 500 hires produces only “chump-change” savings, at least compared to the multi-million dollar revenue impact resulting from a single great hire in a key position.
The top 10 revenue impacts of a great hiring process
The primary goal of recruiting should not be to simply fill every position at a low cost. Instead the strategic goal should be to make sure that every hire produces the maximum impact on business results and revenue once they are on the job. And if you’re going to have a significant impact on revenue, you must first identify each of the ways that hiring can have a major impact on revenue. In this section I have outlined the 10 hiring focus areas with the greatest potential impact on revenue. They are listed in descending order, based on their potential to dramatically increase revenue.
- Hiring those who perform at a higher level will increase revenue — hiring a higher percentage of top performers (instead of average performers) over all of your openings will obviously increase your output. For example, if a superior hiring system selected more productive hires (i.e. new hires who produce 25% more on the job than the average worker), over a large number of hires, the economic value of that increased productivity and output would be significant. And on the opposite end of the spectrum, a hiring process that generates a significant percentage of “hiring failures” (i.e. poor performers, those who make major errors, and those who must be terminated) will actually result in a significant decrease in revenue.
- Hiring better performers into revenue-generating positions will directly increase revenue — although new hires in every job have a revenue impact, new hires who work in revenue-generating positions (i.e. sales) have a more direct, more measurable, and more immediate impact on revenue. A sales job for example obviously generates direct revenue. So if your process hires salespeople who sell 25% more than last year’s hires, over many sales hires, your overall revenue will increase significantly. Having excessive “position vacancy days” in these revenue-generating positions is also extremely costly, because if the job is vacant, the position cannot produce a single dollar of its expected revenue. Support jobs can also have an impact on revenue. For example, hiring top people into positions that “impact revenue” but don’t directly generate it (like customer service and sales support positions) will also have a significant impact on revenue. In order to maximize the revenue from filling these two types of critical positions, the hiring process must give their requisitions the highest priority, the most resources, and the best recruiters.
- Hiring more innovators, pioneers, and game changers will increase revenue — if the recruiting team does exceptional sourcing, assessment, and candidate closing, the organization will hire a larger percentage of innovators. Having more innovators is critical because their ideas result in exciting new products and services and these products and services will have higher margins because of their uniqueness. Companies like Google, Facebook, and Apple excel in revenue production not just because they hire good people but because they focus on hiring a large number of innovators, game changers, and pioneers. If your process can also hire individuals in support positions who have the skills and experience to handle continuous innovation, the ideas generated by your innovators will likely be successfully implemented much faster.
- Hiring productive people that stay longer will increase revenue — the increased revenue differential produced by hiring a top performer continues each year that they remain on the job. So if your hiring system identifies and selects top-performing individuals that stay with the organization longer than the average employee, this in effect multiplies the revenue impact of the new hire.
- Hiring exceptional executives will increase revenue – obviously filling key executive positions like the CEO, CTO, CIO, and COO with exceptional talent can dramatically jump-start a business and it can lead to better products and increase revenues. Unfortunately, most recruiting functions outsource this key executive search role, so they miss the opportunity to take credit for the resulting revenue increases.
- Hiring more leaders at all levels will increase revenue — a hiring process that selects a larger percentage of new hires at all levels with superior leadership skills will increase revenue. This is because superior leaders plan better, prioritize, make better decisions, and get the most out of their team. By hiring individuals who already have proven leadership skills, you not only get immediate benefits from those leadership skills but you also save the costs associated with leadership development. Hiring all employees with a higher level of team skills will also increase cooperation and speed up the rate of change and innovation in your firm.
- Hiring key people from your competitors will decrease your competitors’ revenue – if you to have a robust hiring process, you can successfully recruit top performers, high-impact individuals, and innovators directly away from your competitors. Not only does this recruiting action get your firm new ideas and increased performance, but the revenue of your competitor will go down as a result of their loss of key talent.
- Hiring people who work more hours will increase revenue – if a position is vacant for a single day as a result of an absence, you will obviously suffer a loss of revenue and output. If your hiring system identifies and selects top-performing individuals who have fewer absences than the average employee, you may get as many as seven days more productivity and thus revenue from each hire each year. If a new hire is in an exempt position and they end up working more hours than the average employee, you will also generate more productivity and revenue.
- Hiring individuals who demand less salary will increase overall revenues – if your recruiting system targets and hires individuals who perform at a high level but who will also work for a lower average salary, you will generate salary savings. If you use these salary/labor savings to hire additional employees, you will end up with an increase in output and revenues, with no increase in overall labor costs.
- Hiring low-maintenance employees will allow managers to increase revenue – if your talent acquisition process hires “low-maintenance” employees who require less counseling, discipline, training, and supervisory time, your new hires will spend a larger percentage of their time producing. In addition, with their reduced counseling load, their managers will be free to focus on activities that generate more revenue.
In summary, if you want to produce a measurable impact on corporate revenue you must understand and then focus on the above hiring approaches that have been shown to produce the biggest increase in revenue. That means that you must design a hiring process that is capable of hiring more top performers, more innovators, more leaders, and fewer slackers. The process should also be able to generate new hires who will stay longer and who don’t expect outrageous salaries. And finally, your recruiting process must focus on quickly filling the jobs that directly generate revenue with top performers.
Action steps to take in order to implement a revenue focused recruiting strategy
In order to shift to a revenue impact model in recruiting, you must take five important steps.
- Goal setting — set as your primary recruiting goal directly increasing corporate revenue as a result of improved and focused hiring.
- Identify revenue-generating factors — identify the characteristics, skills, or experience that the new hire must have if they are to generate increased revenues once they’re on the job.
- Prioritize jobs — identify and then prioritize the jobs that have the highest revenue impact.
- Reengineer your recruiting process — you must select a recruiting strategy, hire recruiters, and redesign your recruiting process, so that it is capable of sourcing, assessing, and closing candidates who meet the revenue generating characteristics in item #2 above.
- Metrics are required – you must develop a system of metrics and measurements so that you can assess and quantify (in dollars) the actual impact that recruiting had on increasing corporate revenues. Work closely with the CFO’s office to ensure that you develop metrics and a quantification process that are credible to cynical executives.
If you were producing a new movie, there would be no doubt in your mind that if you added stars to the cast like George Clooney, Angelina Jolie, or Brad Pitt, your revenues would increase dramatically (and well beyond the additional costs of hiring the star). In the same light, you wouldn’t get an argument from the CEO of the Miami Heat that the hiring of LeBron James dramatically increased revenues and the value of their franchise by tens of millions of dollars.
Well it’s time to realize that the corporate world is really no different than athletics or entertainment. If you hire a new CEO like Marissa Mayer at Yahoo, you do it with the specific goal of increasing your revenue and your stock price. The overall lesson that must be learned by recruiting leaders is that recruiting can be a powerful revenue generator. Reengineering your recruiting system so that it focuses on revenue impact can not only result in significantly increased corporate revenues but it can also dramatically raise the stature of the recruiting function. If you can prove to your CEO’s satisfaction that you increased corporate revenues by 10% each year simply through improved and focused recruiting, you will never have your recruiting budget cut again, ever!
The strategy and the process for reaching that revenue-increasing goal are relatively simple; all that is lacking is courage on the part of recruiting’s leadership.