What is the cost of putting that diamond drill hole down in the wrong place? What is the cost of having to redevelop 25 meters of mis-directed U/G decline? What is the cost of having that Sag Mill or Concentrator stopped for 2 hours longer than it needed to have been? What is the cost to your company if your feasibility study comes in 3 months later than it could have.
With these questions in mind, consider this follow on from our Page one article by Dr John Sullivan….
There is nothing more important in the business world than demonstrating the dollar impact of what you do. Every major business function from marketing, sales, finance, supply chain, customer service, and production routinely demonstrate their return on investment. However, as with many aspects of corporate life, HR tends to be the exception to the rule.
Over the course of my career I have routinely heard complaints of the recruiting function being underfunded, underappreciated, and not taken seriously. Such poor treatment should hardly be a surprise given that most recruiting managers have historically not been willing or able to convert what they do into the universal language of business… the $$ impact on revenue. What could be more fundamental and important than demonstrating to senior management the dollar impact of hiring top performers versus average ones? To me, it's the single most egregious error in recruiting.
The ROI of Recruiting the Right People
Many recruiting organizations shy away from targeting top reformers because they are harder to recruit and in some cases require more pay. To me, such an approach is shortsighted, because it's not the amount of money that it takes to recruit or compensate these top-performing individuals that matters.
Instead, it's the amount of revenue or profit that these individuals return compared to their cost. Calculating ROI requires two components: return (revenue or profit) and investment (cost). Unfortunately, too many leaders are laser-focused on the latter (with efforts to contain it, in particular).
However, two industries are light years ahead of the rest when it comes to calculating the ROI of hiring a top performer.
The first is sports.
Obviously, Tiger Woods would be more difficult to recruit and might cost 10 times more in salary, but his ability to return 15 to 20 times more in winning purses and merchandise sales would make him a smart choice. In basketball, hiring two six-foot "short" centers is much easier and cheaper than hiring one "tall" seven-foot center like Shaquille O'Neal. But if you want to win a championship, the cheap and easy option is just silly.
The second is entertainment.
The entertainment industry has made a concentrated effort to quantify the ROI of hiring the "right" person. Not only did this industry invent the word "talent," but managers in the entertainment industry excel at calculating the performance differential and the ROI between hiring one actor over another for their movies.
Let's look at an example to illustrate the ROI of top actors. If you were going to hire a well-known actor for an upcoming action movie you could pick from many obvious choices like Russell Crowe, Tom Cruise, Johnny Depp, Brad Pitt, Matt Damon, and Angelina Jolie, or you could hire "Joe Nobody."
Each of the well-known actors will cost you significantly more than hiring an unknown newcomer, but each also has a demonstrated ability to attract a greater return. Forbes.com recently completed a calculation of the ROI of top actors and what it found was:
- Matt Damon returned $29 in gross movie revenue for every dollar that he was paid (29X or 29 times his salary).
- Brad Pitt returned $24 for every dollar that he was paid.
- Tom Cruise returned only $12 for every dollar in pay.
- Russell Crowe returned only $5 for every dollar in pay (five times his salary).
It doesn't take a rocket scientist to do these calculations. The results, even to an untrained eye, are startling. If you hire Matt Damon, he will return nearly six times more per dollar invested than Russell Crowe. That's not a 6% difference; it's a 600% difference! If the comparison was made broader to include the comparison of hiring "Joe Nobody" as a lead actor (instead of a noted star), the difference in the ROI would simply be mind-blowing.
The lesson to be learned here is that the "on-the-job performance" of the hire (often called quality of hire) can be quantified and converted into dollars in the sports and the entertainment industry and that the same calculation needs to be done by the recruiting function in the corporate world.
Consider your own ROI questions.
Now go back to the 4 questions at the top of this article and ask yourself how more likely it is,
that the person you might consider hiring (but who wants to be paid 33% more than the 2nd
candidate) will make the right decisions versus the wrong decisions?