The Cost of a Bad Hire is a Direct Cost to Your Growth

We’ve seen many articles covering this topic but bad hiring decisions continue – WHY?

Can the cost of a bad hire be quantified? It’s a fairly simple matter, in terms of pounds and pence, as evidenced by The Recruitment and Employment Confederation (REC), who calculate that a bad hire at middle management level, with a salary of £42,000, can ultimately cost a business over £132,000. 

Astonishingly this figure does not include the hidden costs of making an inappropriate decision. Add-ons include such things as the cost of the initial recruitment and training, the decrease in productivity that can occur which may itself lead to increased staff turnover and finally the amount of money it costs to replace the employee. 

It soon mounts up and with up to 85% of senior HR staff admitting to making a bad hire for their organisation, it’s not one that many businesses can afford to repeat, especially specialist companies and smaller start ups.

Further research from the REC demonstrates that good recruitment boosts UK productivity by £7.7 billion each year. This is led directly by specialist recruitment companies whose expertise and wide range of contacts enable them to place the right person in the right role.

Let’s take a look at each of the hidden cost issues raised by the REC in detail.

• Initial recruitment – a company’s staff are often talked about as its biggest asset but many employers view the recruitment process as something akin to fast food – it’s cheap and cheerful but has little nutritional value, and you’ll need another one very soon. This wasteful process, which costs the average company around £5,000 per employee, will inevitably backfire and impact the organisation’s bottom line.
• Training – it’s estimated that, whether it’s in-house or external, companies in the UK spend an average of £1,000 per employee on training. If the training process has to be repeated frequently due to the employee not being suitable for the role or vice versa, the costs soon mount up.
• Decrease in productivity – almost 40% of businesses say that a bad hire reduces productivity. This might manifest itself in them not being able to cope with the work, even after training, not ‘gelling’ with an already established team, being unable to meet deadlines, or issues with attendance and absenteeism.
• Increased staff turnover – the impact that a bad hire can have on other members of staff can be catastrophic, causing a domino effect of low morale, resignations and more recruitment, which may be done in a state of panic in order to get staff numbers back up to their original level. It also impacts on HR staff who have to devote more of their time to dealing with the impact of the bad hire, and less on members of staff who may genuinely need their input. Additionally, the company may gain a reputation for being somewhere that staff do not linger because they don’t feel valued.
• Replacing the employee – as we mentioned in the first point, a department’s recruitment budget should be wisely used, not squandered. 

What’s the solution?

The most obvious solution is not to make the bad hire in the first place. However, it’s not always as simple as it sounds. Let’s take a look at the steps you can take to avoid finding yourself and your company in such a situation.

De-risk your hire

Firstly and most importantly, companies should seek a recruitment consultancy that strives to eliminate risk from the recruitment process – both for the candidate and the company hiring them. It sounds straightforward but not all recruitment suppliers are willing or able to achieve this.  

Decreasing risk includes such strategies as:

• Working with a recruitment consultancy that is open and transparent about its processes and what it can bring you. Conversely, you should also be absolutely clear about your needs in terms of future growth, culture and vision. Anything less will be selling yourself short and may not result in your ideal candidate, so it’s important to have a thorough brief for your agent and you should expect them to ask you about such matters. Ask them how they will raise your profile, increase your brand recognition and position you as a desirable employer.
• Asking the recruitment consultancy about its selection procedures. Have they conducted thorough face-to-face interviews to establish the candidate’s skill level, knowledge of their industry and their personality (something which is often overlooked) or do they rely simply on a CV? Do they conduct bespoke competency matrix screening on every candidate to analyse their competencies and skill sets and determine whether what they bring to the role will complete the team? Do they delve into the candidate’s background, cross-referencing their CV and even exploring their social media accounts? Do they offer you a shortlist of the best possible applicants for the role?
• Utilising data and innovative bespoke software to drive industry-leading research which enables them to identify rising stars in the industry. Mapping top talent doesn’t happen by accident, and if your current recruitment agency is waiting for the next big thing to simply fall into their lap, it’s time to look for someone more proactive. 

Ultimately in recruitment, as in life, there are no ‘no-risk’ situations. However, careful planning and working with an agency who seeks to minimise your risk and assist in your future growth is a sensible strategy that will pay off.  If you’re looking to make the right hire for your business, whilst minimising risk and maximising effectiveness, get in touch with JIE Search.