Will your New Hire Deliver a Return on Investment?
By: John Rossheim
Since a stop-and-go economic recovery began in mid-2009, recruiters have frequently insisted that companies can't go on overworking their employees forever. But often, even when businesses have been able to pull off impressive growth, their headcount has stood fast.
For line-of-business managers and HR, the challenge today is to prove to boards, shareholders or the owners of small businesses that an ongoing investment in human capital will pay a good return.
Here's how to make the case that the return will justify an additional investment in a new hire.
Choose a method to demonstrate return. One approach: "Companies do a cost-benefit analysis," says Peter Cohan, a management consultant, venture capitalist and instructor at Babson College in Wellesley, Mass. "If they think they will miss out on profits, they hire."
Companies may forgo those profits if they don’t have enough people to handle customer inquiries, or lack sufficient IT talent for their computer and networking needs, he adds.
Demonstrate that you've done the upfront work. Show that you will hire effectively, because you know who you're looking for, how and why. "We look at hiring as an investment in our small business, because that’s what it is," says Nick Balletta, CEO of TalkPoint, a webcasting vendor in New York City.
"With hiring, when you do a lot of work on the front end, you avoid false starts. That work includes defining roles and responsibilities, as well as pathways for advancement."
Count all costs, obvious and hidden. When calculating the ROI of a new hire, win trust by conspicuously counting all costs of recruiting, onboarding, training and ramping up new employees — even as you keep up the pressure to hold down recruiting costs.
Show that you’ll curb costs wherever you can. For example, in this labor market most employers still have the power to call on exempt veteran employees to do much of the employee training. "Companies assume current employees who train new hires will just go from 70 hours a week to 80 hours a week," says Cohan.
Give recruiters the tools to execute efficiently. Whether your business is a global enterprise or a small startup, don’t short-circuit efficient recruiting by shortchanging investment in tools.
"It's key to empower recruitment teams with the analytics and tools to make good decisions and execute quickly," says Jay Floersch, a recruitment process outsourcing solutions architect with Aon Hewitt in Kansas City.
For example, with the right data at hand, the total cost of recruiting can be cut by concentrating on the most productive candidate pools and sourcing channels. "Closely tracking and reporting on where top candidates come from is easy, and the effort well spent," says Floersch.
Bear down on the ROI for back office. Granted, return on investment is much easier to calculate for some functions and roles than for others.
"Salespeople either make quotas or don’t," says Balletta. "It’s people in the back office whose return may be harder to define: bookkeeping, HR, and so on." But it’s still important to put an estimated dollar value on hires for roles that cannot directly affect revenue.
Especially at smaller companies, it’s important to demonstrate that you’re thinking creatively about how to get the back-office work done with staff that stays lean by being flexible.
When 100-employee TalkPoint needs additional back-office help, it's not usually one person performing one discrete function. Instead, the folks doing the work take the lead in hiring, reorganizing who wears what hats, in order to serve business needs within budget.
"When you let people hire to fill their own role, they get great people,” says Balletta.
Resolve not to hire B players. One sure way to make it much harder to show a positive return on people investment is to engage new hires who are less than stellar. For many employers, "the problem is the ROI of B players," says Ibraiz Tarique, director of global human resources management programs at Pace University's Lubin School of Business in New York City.
"With B players, employers often decide not to hire because they are risk averse." When you’re trying to convince partners or executives to OK the next round of hiring, you don’t want to have to explain why that hire you made 6 months ago “didn’t work out.”