Chapter 13 Staffing System Evaluation and Technology

Staffing Metrics

Because people pay attention to what gets measured, carefully selecting key metrics to track can help focus employees on key behaviors and outcomes. But too much information makes it difficult to focus attention on the metrics and outcomes that are the most important. To evaluate its staffing success, telecommunication company Avaya sets goals for how many experienced employees it intends to acquire from its competitors. The company also measures the performance of individuals who move internally from one business to another compared with the average performance of employees in that division. One company representative says, “Most companies will say their recruitment is successful if they retain the people that they hire. We look beyond that and set very specific goals for ourselves.”

Southwest Airlines measures key metrics including cost per hire, new hire quality, compensation, time to productivity, and retention and promotion rates of high-potential employees and uses these measurements to continually improve its staffing and talent management process. If Southwest notices that an operational group is logging above average overtime, for example, it works with that group to reduce overtime by decreasing turnover or increasing staffing.

Staffing metrics can be thought of as long term or short term, and can be efficiency or effectiveness oriented. Next, we discuss these different types of metrics and how they are best used.

Long-Term and Short-Term Metrics

Metrics can be tracked over many different time periods. Short-term metrics help a firm evaluate the success of its staffing system in terms of the recruiting and new hire outcomes achieved. These metrics include:

· The percentage of hires for each job or job family coming from each recruiting source and recruiter

· The number of high-quality new hires coming from each recruiting source and recruiter

· The number of diverse hires coming from each recruiting source and recruiter

· The average time to start (by position, source, and recruiter)

· The average time to contribution (by position, source, and recruiter)

Long-term metrics help a firm evaluate the success of its staffing system in terms of the outcomes that occur some time after employees are hired. These metrics include:

· Employee job success by recruiting source and by recruiter

· Employee tenure by recruiting source and by recruiter

· Promotion rates by recruiting source and by recruiter

Short-term metrics are useful as leading indicators of a company’s ability to have the right people in the right jobs at the right time to execute its business strategy and to meet its immediate staffing goals. Long-term metrics are useful as lagging indicators. They are best used for evaluating the effectiveness of the firm’s long-term staffing system—for example, the long-term, on-the-job success of employees and their turnover and promotion rates.

Staffing Efficiency Metrics

staffing efficiency refers to the amount of resources used in the staffing process. Efficiency metrics are analyzed to make process improvements designed to minimize the amount of resources needed to staff a firm—specifically, the firm’s hiring costs and replacement costs. A firm’s hiring costs include sourcing, recruiting, screening, referral bonuses, travel expenses, advertisements, the cost of assessing and doing background checks on candidates, and the meals and transportation associated with their recruiting processes. Replacement costs include hiring costs as well as the productivity losses that occur while positions remain unfilled. Staffing efficiency metrics include the cost per hire, the time to fill positions, and the number of requisitions handled per full time equivalent (FTE) staffing member. Many firms also calculate onboarding costs, such as training and time-to-contribution costs, which can also be used as indicators to measure a firm’s staffing efficiency.

Staffing Efficiency

the amount of resources used in the staffing process

The critical factor to remember when tracking staffing efficiency metrics is that it is necessary to be efficient but also meet the needs of a firm’s customers. On the one hand, time-to-fill rates that are below a certain benchmark might reflect that the firm is staffing itself efficiently. On the other hand, the same rates might indicate that hiring managers are not spending enough time interviewing enough candidates to ensure that they are hiring the best ones.

One way to compute staffing efficiency is as a percentage of the amount of new hires’ compensation. The staffing efficiency ratio can be calculated by dividing a firm’s total staffing costs by the total compensation of its new hires recruited, and then multiplying the result by 100. For example, a staffing efficiency of 12 percent means it costs $0.12 cents to bring in $1.00 of compensation, or $12,000 to hire someone who makes $100,000 a year. An organization that hires 400 employees annually, each with a compensation of $40,000 annually, would save about $320,000 in staffing costs every year by improving its staffing efficiency by just 2 percent (400 × $40,000 = $16 million total compensation recruited; 2 percent of $16 million = $320,000). By relying more on technology to source, recruit, and screen their employees, many firms could easily achieve such a 2 percent savings.

Staffing Effectiveness Metrics

Strategic staffing is not simply hiring a large number of people or hiring them quickly or cheaply. Strategic staffing is hiring people who become successful in the job, are a good fit with the company, and stay with the organization. Although efficiency and cost are often the initial focus of a firm’s staffing evaluation efforts, many companies subsequently shift their focus toward measuring their staffing evaluation. Staffing effectiveness relates to how well the staffing process meets the needs of a firm’s stakeholder needs and contributes to the organization’s strategy execution and performance. Staffing effectiveness metrics help answer questions such as “Is the number and caliber of finalists being sent to hiring managers meeting their needs?” and “Is the hiring experience and speed acceptable to candidates?” Staffing efficiency is often easier to measure and evaluate than staffing effectiveness. For example, it is relatively easy to measure how many jobs each recruiter is filling (staffing efficiency), but what is often more important is whether the jobs are being filled with the right people (staffing effectiveness).

Staffing Effectiveness

how well the staffing process meets the needs of a firm’s stakeholders and contributes to the organization’s strategy execution and performance

There are many possible measures of staffing effectiveness. Perhaps the most obvious measure of staffing effectiveness is new hire job success. Job success refers to job performance as well as the new hire’s fit with his or her work group, unit, and organization, and the degree to which his or her values are consistent with the company’s culture and values. Tracking this metric by recruiting source, recruiter, and hiring manager can help improve a company’s future staffing efforts. The quality of hire reflects whether the company hired the people it set out to as defined by hiring managers’ predetermined job performance requirements. New hire job success starts with the quality of the people hired. The quality of hire can be assessed using new hires’ performance ratings after an appropriate time on the job, hiring manager satisfaction surveys, objective employee productivity measures, and even safety, absenteeism, and turnover rates. New hire quality matters when it comes to an organization’s performance. The War for Talent study, published in 2001 by McKinsey & Co., revealed that high performers in operations roles increased the productivity of their firms by 40 percent; high performers in managerial roles increased their firms’ profits by 49 percent; and high-performing salespeople created 67 percent more revenue for their firms than average or low-performing employees.

Overall retention or turnover rates might seem like good metrics, but remember that retaining poor performers can actually impose a cost on the firm. Tracking the voluntary turnover rate of top performers as well as measuring the turnover rate of bottom performers, as we discussed in the last chapter, can provide more meaningful information. Tracking monthly turnover by hiring manager, department, or business unit and by race, gender, or age group need not take a lot of time and can reveal patterns that might suggest poor staffing or poor management. Measuring the turnover of employees based on the sources from which they were hired can help identify the return on investment (ROI) from each source. Jeff Cottle, senior vice president of human resources and organizational strategy at SCT, a global information-technology company, tracks turnover by employee type to assess controllable voluntary turnover and understand what’s causing it. Says Cottle, “Our perspective on the use of metrics…is based on our belief that human-capital metrics have a direct correlation to financial metrics.”

Evaluating the value of top performers can also be a useful metric. When a competitor was pursuing one of its top technical employees, Texas Instruments (TI) wanted to find out what the employee was worth. TI added up all the ideas that the employee had generated for the company, and what those ideas were worth in terms of patents. TI decided that the employee was probably fairly valued at about $25 million and decided it was worth its trouble to get him to stay. TI gave him a nice amount of stock, structured in a way that provided him an incentive to stay another decade. The company even arranged for a week of private golf lessons for his wife and him at a famous golf resort.

Measuring what a top employee is worth, and comparing that to what an average employee is worth, can be a useful indicator. McDonald’s knows that a top manager is worth 35 percent more in profits than an average manager. Calculating the value of a company’s top performers can help managers justify what it is worth to invest more in recruiting, hiring, and retaining them. TI doesn’t track, and isn’t concerned about, what it spends to hire key technology workers. The company understands that these employees will produce far more for the company than what they’re paid, and believes that hiring costs are too small a percentage of an employee’s value to worry about.

Many other metrics are possible. To identify which divisions in the company are creating new talent, Cisco Systems uses a metric that tracks why a person moved within the company rather than simply how many people moved. High performers tend to want to take on new challenges so tracking their movement inside the company is a way to make sure managers serve as talent “launching pads,” rather than talent hoarders. Once identified, those managers who “launch” talent are rewarded accordingly.

Some of the key staffing metrics utilized by Valero Energy include:

· Brand-related metrics. Valero measures the value of its employment brand by calculating the cost savings related to the positions it fills via its corporate Web page, community referrals, and nonemployment-related TV ads. The recruiting department estimates that the Valero brand saved the company $4,309,005 in recruiting costs.

· Staffing efficiency metrics. Valero utilizes the staffing efficiency measure developed by , an independent and nonproprietary nonprofit corporation that develops standard human resource performance metrics. Valero calculates its staffing efficiency by dividing the firm’s total recruiting costs by the total compensation for all the positions it fills annually (the sum of the base starting salaries for each external hire during their first year). Staffing efficiencies in the range of 5 to 9 percent are considered excellent, and those above 16 percent indicate inefficiency. However, these ranges can vary by industry, organizational size, and region.

· Sourcing channel metrics. Some of the measures Valero applies to each sourcing channel are:

· The staffing cost of the source

· The percentage of the firm’s budget the source represents

· The percentage of applicants recruited via the source

· The percentage of positions filled via the source

· The source’s speed

· The source’s efficiency

· The turnover at 12 months of new hires recruited from the source

· The dependability of the source

· The average salary of the position filled via the source

· Internal recruiters are also monitored on the preceding metrics.