These are some metrics that point to the riskiness of typical hiring practices and which indicate the need for the processes we utilize in conducting executive searches
Heidrick & Struggles Discovers its Failure Rate
In a recent interview with Financial Times, Kevin Kelly, the CEO of global executive search powerhouse Heidrick & Struggles, revealed the results of an internal study of 20,000 executive searches performed by his firm: “We’ve found that 40 per cent of executives hired at the senior level are pushed out, fail or quit within 18 months”
This is astonishing. He’s describing a 40% failure rate by one of the most trusted and reputable brands in the executive search business. Mr. Kelly concluded from this research that more follow-up was called for. The article noted that Heidrick ”now offers companies everything from initial training and early feedback for their new recruits to regular assessments of current executives and succession planning and staff development programs.” In other words, he solves the problem by offering more services. I don’t know about you, but I think this is real chutzpah.
At Fulcrum, we have a different solution. We improved our processes and guaranteed success. We would be embarrassed to offer our clients more services if our recruiting failed. We are a little guy in a big industry. We have to try hardeer.
The Bad and Ugly of Executive Search
These hiring and retention metrics come from Dr. John Sullivan, Five Ugly Numbers That You Can’t Ignore–It ‘s time to Calculate Hiring Failures
- 70% dissatisfied — 70% of the external customers (applicants) and 28% of the internal customers (hiring managers) indicate they are dissatisfied with the hiring process (Source: Staffing.org).
- 50% customer regret — 50% of the processes users (both managers and new hires) later regret their “buying” decision (Source: The Recruiting Roundtable). In addition, 25% of new hires later regret taking their new job within one year (Source: Challenger, Gray)
- 46% turnover — 46% of new hires leave their jobs within the first year (Source: eBullpen, LLC) and 50% of current employees are actively seeking or are planning to seek a new job (Source: Deloitte).
- 46% failure rate — 46% of U.S. new hires must be classified as failures within their first 18 months (fired, pressured to quit, required disciplinary action, etc.) (Source: Leadership IQ). In addition, 58% of the highest-priority hires, new executives hired from the outside, fail in their new position within 18 months (Source: Michael Watkins).
- Only a 19% success rate — only one out of five of the process output can be classified as unequivocal successes (Source: Leadership IQ).
This data can be taken together as a clear indicator that we might have numerous failures in talent management:
- 70% dissatisfied — 70% of the external customers (applicants) and 28% of the internal customers (hiring managers) indicate they are dissatisfied with the hiring process (Source: Staffing.org).
- 50% customer regret — 50% of the processes users (both managers and new hires) later regret their “buying” decision (Source: The Recruiting Roundtable). In addition, 25% of new hires later regret taking their new job within one year (Source: Challenger, Gray)
- 46% turnover — 46% of new hires leave their jobs within the first year (Source: eBullpen, LLC) and 50% of current employees are actively seeking or are planning to seek a new job (Source: Deloitte).
- 46% failure rate — 46% of U.S. new hires must be classified as failures within their first 18 months (fired, pressured to quit, required disciplinary action, etc.) (Source: Leadership IQ). In addition, 58% of the highest-priority hires, new executives hired from the outside, fail in their new position within 18 months (Source: Michael Watkins).
- Only a 19% success rate — only one out of five of the process output can be classified as unequivocal successes (Source: Leadership IQ).
The High Cost of Executive Hiring Mistakes
This is from Germane Consulting, Avoiding the High Cost of Executive Mis-Fits
“Executives are hired on experience and fired on personality.” This well known phrase in the executive search business sums up years of collective experience and the prevailing findings from executive derailment research. The good news is that there are ways to predict and avoid hiring a poor fit as well as being alert to and addressing early warning signs of problems.
Estimates of the financial cost of a single failed manager range from $1,000,000 to 2,700,000. This figure does not include golden parachutes; losses related to intellectual capital, the good will of the firm’s reputation, unmet business opportunities and goals; damage to employee productivity and effectiveness; or the cost to the external environment, as seen in recent failures of financial institutions and auto makers. The average rate of senior manager and executive failure from nine independent research studies is 47% with the majority of these failures taking place following the transition to a new role. The most prevalent cause is not lack of technical skills or business acumen but personality factors. The shadow side of the executive’s personality, not typically detected during the interview process, shows up later as the inability to build a team, the trail of injured direct reports who become less effective and productive, failure to address performance problems, poor judgment and bad decisions
Check List for Calculating the Cost of a Hiring Mistake, from Hire Smart
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Cost of Termination It takes considerable staff time to process out an employee. The processing usually takes a few hours to collect badges, keys and company equipment. The person has to be taken off of payroll and off of company security lists. There are often benefit program extensions. The typical Cost of Termination is often between $1000 and $1500. Calculate your actual cost of termination below:
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Cost of Replacement Usually, the departing employee has to be replaced. The average cost of hiring and orientation for a non-exempt employee was about $1,100 (Saratoga Institute – 1999 Human Resource Financial Report)>. The average cost of hiring and orientation for an exempt employee was about $9,000 (Saratoga Institute). The Cost of Replacement figures will vary from one company to another. Calculate your actual replacement costs below:
Total Costs of Replacement $___________________ |
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| Cost of VacancyAssuming that a job adds value, your company will experience a loss of revenue for every day your position is vacant. The amount of loss depends on the position. You can calculate the Cost of Vacancy as follows:
Total Cost of Vacancy $__________ |
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Learning Curve Productivity LossA new employee is usually not as productive as the departing employee. The new employee doesn’t know the company’s ropes and resources. There is an observable loss of productivity until the new person’s productivity matches the departing person’s. The minimum loss is usually about three to six months pay and benefits for exempt employees and about twelve months pay and benefits for a non-exempt employee (Saratoga Institute). The cost of replacing a salesperson or a manager is often far greater than the turnover cost of a non-exempt employee. Which of the following costs are observable in your company:
Total Learning Curve Productivity Loss $__________
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