Tuesday, February 17, 2009

Get the Wrong Who and It will Cost You --- ALOT!

In a down and unpredictable economy, we cannot afford,“Ooooppps…  we hired the wrong guy…”  Sound hiring practices are paramount. The cost of unsuccessful hire can be extremely costly not only in terms of wages, benefits, and training, but also opportunity costs.  According to the Department of Labor, a wrong hire can cost 3 to 10x the annual salary of an employee.  If we base our numbers using the median income in America in 2007, that would be around $38K.  Therefore, a “costly mistake” of 3 to 10 times an employee’s annual salary would mean an average net loss of  approximately $115K-$380K to a company.  This may not appear as much for a big company as we’re only talking about a median income of a single contributor [but what if there's more than one "costly mistake"???].  Now, let’s consider the loss at higher-level positions such as hiring unqualified, B or C Player Managers, Directors, or worse, Executives.  These titles have a considerably higher salaries which also means higher risks of a bad hire.  In simpler terms, this can mean a painful price tag of up to $1.5M or more per year plus, wasted time and effort to the hiring company.  This statistic becomes even more shocking when we factor in the fact that the typical hiring success rate of managers is only 50%.  Wow!  

Jim Collins, author of Good to Great said, “The most important decisions that businesspeople make are not the what decisions but the who decisions.”  Having certain people in place can either make or break a business as this is where either good and right things happen or where the ugly and disaster starts. When filling a position, you’ll need the right person for the job.  One may have the knowledge on how to do the job but knowledge and the ability to execute on the job are not the same thing.  He or she must walk the talk but more so, it’s the walk that counts not the talk.

With the economy heading down steeply, times are tough.  Unfortunately, there are some people who would make engaging in political activities priority to create outcomes consistent with their own political agendas as they really have nothing else to offer.  But when you’re dealing with money and mean serious business, now is NOT the time for dirty politics nor political gains.   Now more than ever, we need to cut costs, be efficient, and ensure we have the right resources to not just stay afloat but to stay in business.  

In order to prevent this type of costly mistake, businesspeople need to be clear about what is required in a job, what the expected results are, and putting the right people in the right places.  Be selective.  Otherwise, you’ll be stuck with pricey hard costs and productivity loss paying people who deliver no value [that's IF they deliver at all] to the company.  Having the right people performing the WHAT will determine if you’ll succeed.   Do not hire a resume then later on discover that you hired the wrong guy.  Put in the time and effort and the due diligence in finding A Players which would require setting the bar higher.  

So, what is an A Player???  An A Player is defined as someone who has at least 90% chance of achieving a set of outcomes that only the top 10% of possible candidates could achieve.  However, this is just a piece of what’s required in ensuring you have the “right guy”.  Putting the “right people in the right places” doesn’t only mean qualified people who can execute and deliver but also someone who would make a good fit for the mission.  Depending on what the mission is, sometimes the individual has to also be a good match to work with the team and the environment of the team including a company’s culture.   

Below is an excerpt from a book that I read last year.  It is sooooo true that it stuck like glue.  :)

You are who you hire.  Hire C players and you will always lose to the competition.  Hire B players and you might do ok but you will never break out.  Hire A Players and life gets very interesting no matter what you’re pursuing.  Hiring “A PLayers” is not everything.  It is one of the most important skills to growing the value of a company.

In summary, most executives know what needs to be done but the greater challenge is finding the right people that will and can successfully execute on the job.  Astute companies arm themselves by learning and diligently implementing hiring best practices to ensure they have the right people in the right places.  Invest in the WHO behind the what and eliminate the costly oops.

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