In my experience, recruiting has long overemphasized cost-cutting. And that focus has, unfortunately, reduced both our effectiveness and our business impacts. It's time to rethink cost-cutting and instead, we must learn how to increase expenditures in key recruiting areas. Interestingly, the value resulting from maximizing your total spending on recruiting was recently illustrated in the College Football Playoff national championship game. The final two teams (Georgia and Alabama) had one major factor in common... they ranked No. 1 and No. 2 in total recruiting spending within their conference. Rather than striving to reduce costs, these championship-caliber teams demonstrated that winning is associated with spending the most on recruiting. Google, which receives nearly 3,000,000 applications per year, has even bragged that its recruiting budget is double that of the average corporation. So if you'll bear with me for a few minutes, I'll demonstrate why most cost-per-hire reduction efforts actually decrease your quality of hire and inadvertently reduce your business impacts. For a moment, let's use a fishing tournament as an analogy covering cost-cutting. If you were totally committed to winning the top prize, would you purposely try to cut your costs by using inferior bait, moving your boat less to save gas, or by using cheaper fishing gear, knowing that the few dollars that you saved would significantly reduce your chances of catching the prized fish? In the same light, would you ask your brain surgeon, your gas leak repairperson, or your brake specialist working on your family car to cut corners in order to save a few dollars? Of course you wouldn't, because you know the tremendous costs and risks associated with even a minor process failure. When recruiting leaders know the real impact that cost-cutting has on their recruiting results, they almost instantly stop most across-the-board cost-cutting. I've written extensively in the past about the futility of focusing on cost per hire. And to me, it's clear that our multidecade effort to become an HR hero by cutting costs has been a failure. Some of the reasons why the process of reducing cost per hire is almost always flawed include: A BCG study revealed that of all 22 HR functional areas, recruiting had the highest impact on the critical business impact areas of revenue and profit. But that high impact can only be maintained if you maximize spending in the specific areas of recruiting that have the highest impact on hiring success. I call these factors Critical Success Factors. And because of the high impact of these factors, reducing expenditures in these areas (beyond any obvious waste) will cost you multiple times more in lower new-hire productivity over the employee's tenure than any initial savings during the hiring process. The seven highest-impact critical success factors in recruiting where you should avoid cost-cutting, and instead be adding resources, are listed below. The highest impact areas where being starved of essential resources does the most damage appear first on the list. All professionals should be conscious of waste because the cost of that is simply part of their job. But overly focusing on the transactional aspects of recruiting has proven to consistently be a distraction. So the lesson to be learned is that if you insist on focusing on cost-cutting, do it outside of the above seven critical success factor areas and focus it on your low-priority, low-impact jobs. And finally, in this new data-driven world of recruiting, you absolutely must measure the performance of new hires on the job (i.e., quality of hire) so that you can use it to improve every aspect of the hiring process. But also because a quality of hire measure allows you to identify the specific areas where excessive cost-cutting negatively impacts the quality of your candidates and the performance of your new hires. Remember that cutting costs means fewer resources and fewer essential resources in critical areas, which results in lower performance.Spend More Win More
More Illustrations of How Cost-Cutting Damages Results
10 Reasons Why Excessive Cost-Cutting Damages Recruiting Results
Unfortunately, few recruiting leaders realize or take the time to measure the direct impact that cost-cutting in critical areas has on the quality of those who we hire. Leaders need to know the areas where cost-cutting can do the most damage, so they can avoid cutting costs in the wrong places.
The business impact of a top performer or innovator new hire over multiple years at most corporations reaches into the millions of dollars. And the cost of a single bad hire that, for example, sexually harasses can also be in the millions. So the focus should instead be on increasing recruiting's business impacts, and that often involves spending more money in key areas.
In a highly competitive world, you are often competing against firms that are willing to spend much more. And although recruiting itself is expensive, successfully hiring top talent may cost up to 50 percent more in recruiter and management time alone. And because it's a competitive battle, you have little choice but to "match" the new programs and the increased spending of your talent competitors.
With an average cost per hire of slightly over $4,100 (source: SHRM), over even hundreds of yearly hires, even major reductions in the average CPH will save much less than 1 percent of the overall corporate budget.
This is perhaps the most important reason not to focus on hiring costs. Many recruiting costs are fixed, and as a result, cost per hire shifts dramatically when the volume of hiring changes significantly. And as a result, even when recruiting leaders put a lot of emphasis on cutting cost per hire, the figure generally only goes down by only a single-digit percentage. That means that a great deal of effort produces very little cost saving, while simultaneously damaging recruiting results, which is not a good prescription for success.
If you cut costs by understaffing either recruiters or your administrative team, your time to fill will increase dramatically. These cost-cutting created delays will mean an increase in costly vacant position days (especially in revenue-generating positions). Additionally, being slow to close on candidates who are in high demand will cause you to lose many of the very best ones.
The very best candidates will, unfortunately, judge your company based on what they experience during the recruiting process. So if you lowball a top candidate on interview transportation and meal costs, they may judge your entire organization to be equally as cheap. A cheap recruiting process that doesn't use innovation and technology may scare away the best candidates.
Overworked recruiters and low budgets will reduce the attention that recruiters can give to top candidates. And that will negatively impact the candidate experience.
Top recruiters aren't stupid, so if you dramatically cut recruiting resources, you simply won't be able to recruit or retain top-quality recruiters. Without sufficient resources, even the best recruiters can't work miracles.
Because the formula used to calculate costs varies so much, you simply can't make accurate external comparisons with your talent competitors.
The 7 Highest-Impact Recruiting Areas Where You Should Avoid Cost-Cutting
Final Thoughts