The Invisible $200,000 Problem in Your Recruiting Efforts

Jim leads the recruiting effort for Habenae Muneris (HM) - a professional services firm with about 50 employees.  For the most part, things are working pretty well for him, meaning that business is good, the company is profitable and nobody really complains about recruiting.  Hiring delays are fairly common at HM, but there’s usually a good reason for it, and the delays aren’t any worse than at any other firm he’s worked for.  The most common hiring delays are caused by the hiring managers, not Jim:

• Some managers are too rigid in how they look at resumes, overlooking potentially good people and adding weeks of delay to the hiring process. 
• Some managers are unclear about their hiring specifications until they start interviewing – when they suddenly become incredibly picky about what they are looking for in an “ideal” candidate.  This recalibration essentially starts the recruiting cycle all over again.
• Some managers are hard to schedule (adding weeks of delay) and then, when pressed for time, they make rash decisions out of desperation to speed things up.  This results in hiring candidates who are not a good cultural fit, or sometimes paying too much for someone.

You know, the usual stuff that happens at every firm.

Like most firms their size, HM does not track turnover specifically, nor are there any metrics in place to measure the speed and accuracy of the hiring effort (time-to-fill or quality-of-hire for example).   Turnover is not broken out by department, so managers with a bad track record are not identified or held accountable for their mistakes. Some managers have quite a bit of turnover, and some have very little, but in reality, the managers pay far more attention to their customer deliverables and billable hours than the cost of their turnover.   In fact, some of the managers with the worst turnover are the people most beloved by their customers.  The managers at HM are not trained in interviewing and are not accountable for hiring speed, so they do the best they can to squeeze in time for interviews around their billable work and client commitments.  Like I said, typical stuff you find everywhere.

From time to time, the senior leadership team at HM says they would like to be “more agile in meeting customer needs” but really, there is no compelling reason to change anything – after all, customers are not complaining, business is still coming in the door and Jim has been a careful steward of the resources he has been given – he stays within his budget.   Jim stays current with his profession, reading all the articles on ERE, but the cost and complexity of building a recruiting pipeline  for a company the size of HM just seems prohibitive, and besides, the managers cause most of the hiring delays anyway.

Except here’s the problem.  In my research, most firms about the size of HM lose over a million dollars in revenue and lose between $100,000 and $200,000 dollars in profit because of common, preventable inefficiencies and delays in their hiring process.  Yup, the  owners of these professional services firms unknowingly cut their own paycheck by $100,000 – $200,000 every year.  

How can this be happening?  It happens because an inefficient recruiting process loses money in ways that are often not counted, so the losses are literally invisible.  This lost profit can’t be found by accountants because it does not show up on the financial statements. 

But you can make invisible losses quite visible with a few simple metrics – literally a one page Excel spreadsheet.  (And yes, I can send it to you if you ask me nicely).

So here’s where the money disappears:  In a professional services firm, when a position is vacant for a month, that’s a month of billable time that did not get billed.  For most DC government contractors, working at normal 10-15% profit margins, that’s a couple of thousand dollars worth of profit that did not get booked every single month a position is vacant.  So, when you leave a senior level position vacant for 4 – 6 months - POOF!  – you’ve disappeared ten or twenty thousand dollars of pure profit on just that one position … and your accountant will never find it.

At HM, people will tell you that most open positions get filled in 45 – 60 days.  Except there is a lag from when it is filled until the new hire actually starts work and becomes billable – so the unbillable window is really more like 60 to 75 days.   And, well, OK, when you really look at the data closely, it’s not all that uncommon to leave a job vacant for 90 days.  So when you take a staff of 50, with a 20% annual turnover, you need to fill 10 positions every year just to maintain your current staff levels.  (Rest assured, if you don’t specifically track it, your turnover is higher than you think).  If normal vacancies are open an average of 60-75 days until someone becomes billable, you gave up $40,000 in profit every year just backfilling current positions.   But most firms are also trying to grow by 30% – which means hiring an additional 15 people.  If that goes as slowly as the replacement hiring, then it will potentially cost you another $75,000 in lost profit.  

And these losses don’t include your recruiting, advertising, training or onboarding costs, we’re just talking about unbilled hours right now.

So, if we take 3 or 4 hard-to-fill positions that go unbillable for 4-6 months, that adds up to $60,000 lost.  Add another $40,000 for all the billable time lost due to normal employee turnover.  Next add $75,000 for revenue you could not bill on new positions because of staffing delays.  Finally, add in $25,000 in unbillable time for the 3 hours a week that each of your ten managers must spend with new employees on interviewing, training, orientation and performance management.   And, for HM,  it all adds up to $200,000 in preventable costs – all hidden in plain sight within a stable, profitable professional services firm of just 50 people.   Just imagine how much more profit HM will lose when they have 100 employees.

The key to reclaiming this lost profit is in making these invisible costs visible, simply by tracking and reporting on them.  The management team can then direct attention and resources to the most costly inefficiencies and delays in the recruiting process.  

Once you have the data, solutions are not expensive and can take many forms: it might be management training to help reduce turnover for one manager, tighter interview scheduling for another, helping develop better job definitions for a third, interview training to make better hiring decisions for a fourth, or perhaps in making a strategic investment in building a recruiting pipeline for a certain hard-to-find type of candidate.  The good news is that all of the above can be accomplished for a tiny fraction of what was being lost.

Cash for Clunkers

You’ve probably seen the ads on TV.  The government has a very popular new program which encourages people to trade in less efficient vehicles for more efficient vehicles, it’s called cash for clunkers.   Well, the government incentives unleashed a huge wave of pent-up demand for new cars and might burn through $1 billion in funding for the program in a week.  So why would I talk about that on a staffing blog?

Well, although I don’t expect to see a government program for it, many employers still seem to need an incentive to trade in their mediocre performers.  You see, despite all the downsizing that has occurred, most employers still have a few clunkers for employees.  People who were perhaps well suited to their jobs a few years ago, but who are not well suited to doing their jobs in the current environment.   Like a gas guzzling SUV,  they start (projects), run (meetings), and do pretty much what is expected of them, but not very efficiently.  They are not bad, they are just not well suited to the current fast paced, turbulent, less predictable, more entrepreneurial environment. 

Harvard Business Review recently ran an article entitled “What Are CEOs Talking About Now?”  The author was a bit surprised how much CEOs felt that “the layoffs and cost cutting are behind them.”   Instead the leaders were interested in seizing the opportunities “while staying prudent with day-to-day operations.”     Similarly, in my consulting work with small and midsize employers, I see where the easy cuts have been made, where firms have eliminated the lowest rung of underperforming employees, but now are stymied as they launch aggressive growth initiatives.  The really bad employees are gone, but the mediocre ones remain, and what is becoming increasingly clear is that these “less energy efficient” people are just not driving change initiatives very effectively.

I’ve written before about how many of us avoid confronting poor performance,  about company culture can stymie change, but the problem of underperforming leaders often remains. 

So here’s the deal, if you have a clunker, come to me.  I’ll trade-in your current employee, and find you a shiny new, more energy efficient model AND save you $4,500 off of a traditional search fee … and we won’t use a dime of government money to do it.  (Limited time offer, while supplies last, some restrictions apply, tax, title and license fees are extra, batteries not included, offer not available in all states, offer void where prohibited by law, limit of 6 per customer, not available in all stores)

Why Do Change Agents Often Fail?

As the recovery begins to take shape, CEOs are increasingly optimistic and forward thinking.  As new initiatives are unleashed, it’s very tempting to want to bring in someone who will “shake things up” or be a catalyst for change.  It’s also very risky.  Studies show that up to 70% of change initiatives fail. 

So why does change take so long to unfold and why do so many change agents fail?  Because as researcher Jeremy Dean writes in Psyblog,  it’s hard to influence a group as a new person.   In fact, a recent research study showed that change agents “commonly face increased negativity and outright rejection” from groups they are attempting to change, no matter how diplomatically they introduce their ideas.   The research shows that jumping in and trying to make a splash with new ideas is a very poor strategy.

“Groups are hostile to criticism from newcomers and are likely to resist, dismiss or ignore it”  … until the newcomer first proves their loyalty to the group.

 Jeremy outlines the 10 Rules That Govern Groups.  Among the rules are these:

•  Group norms are very powerful, changing behavior in unexpected ways, and breeding conformity.
• People who do not “learn the ropes” are ostracized.
• Leaders gain trust by first conforming to group norms, and then introducing change that others would willingly follow.

That sounds pretty slow to me.  But if that approach is too slow, and jumping in with new ideas is even less effective, then what is a clever change agent to do?

If you are trying to change group behavior, research on the Neuroscience of Leadership suggests than instead of simply transmitting your own ideas to your employees, a far more effective approach is to focus team members on the desired results and then getting the team to focus on their own insights how to achieve the goals.  As author David Rock and Research Psychiatrist Jeffrey Schwartz recently wrote:

“Attention continually reshapes the patterns of the brain … People who practice a specialty every day literally think differently, through different sets of connections, than do people who don’t practice the specialty. In business, professionals in different functions — finance, operations, legal, research and development, marketing, design, and human resources — have physiological differences that prevent them from seeing the world the same way.”

That’s right.  Research shows that concentrating attention on a mental experience, over time, literally creates physical changes in brain structure. 

Therefore, an effective leader will concentrate attention using a solution-focused approach, introducing questions to help teams focus on identifying and creating new behaviors.  Over time, the continual focus on new ways of thinking will create an environment where people have their own insights, and with a bit of positive reinforcement, these insights will change not only how people think short term, but will also create lasting changes in their perceptions. 

Literally rewiring the brains of your team.  Powerful stuff – that’s clearly a power to be used for good or for evil.

Across-the-Board Decisions Are Often Company Killers

As executives continue to look for the smartest ways to cut costs and increase revenues, I’d like to offer a few suggestions.  Really one suggestion.  Manage performance.  Hard.  Set goals and hold people accountable to them.   Expect and demand performance.  Be fair, but drive out your low performers -  stop spending scarce payroll dollars on people who are not getting results in the current environment.  

And please stop with the across-the-board decisions.  Often those are not real decisions, they are just saying “We’ll keep doing whatever it was that got us into this mess, but now with less resources.”   Good people bolt when they see this kind of management behavior, but perhaps not for the reasons you think.   Auren Hoffman wrote an interesting post about “Why Hiring is Paradoxically Harder in a Downturn.”   He makes several excellent points, but here is the reason that across-the-board cost cutting can be such a company killer: 

When companies stop innovating, and just hunker down into survival/maintenance mode, the top performer feels stifled.  These people won’t trade boredom for a paycheck.   Top performers go where they can really develop their skills. Top performer’s NEED to innovate.

I have often said that top performers are MORE likely to leave faltering companies.  Studies show that their resignations are often due to a loss of confidence in their management – top performers often have the business acumen to “see the writing on the wall.” 

So how can you cut costs, and still retain your best people?   You need to put your scarce money into innovation, and unleash your top performers – innovate your way out of this recession.   You’ll challenge and keep your best people, and become more attractive to your future hires.  You’ll save money now and emerge from the downturn stronger and better prepared to compete later.

If you don’t have top performers you trust, that is a different problem  Now is a great time to trade-in poor performers for better people.   But sadly, even that may not be as easy as you think.  A recent Wall Street Journal article noted the complexity of hiring right now.

“…hiring in a downturn can be tricky. Job seekers are not only more numerous but more desperate, hiring managers say. Weeding through hundreds of resumes is time consuming, and mistakes can be costly. Some employers are trying to screen out applicants who are merely seeking a paycheck until the economy recovers.”

It seems that nothing in a recession comes easily.

Why Innovation Matters

Do more with less – recessionary words to live by.  Of course, that’s nothing new for small and midsize organizations.  When times are good, costs tend to creep up a bit, in lean times you cut back a bit.   So what is the smart money doing right now?  The really smart organizations are cutting costs through innovation, and not simply cutting costs.  And while those phrases may sound similar, they are the difference between lightning and lightning bug. 

I work with a lot of entrepreneurs, so you might notice that I reference innovation frequently in my posts.  So what are some innovative ways to cut costs?   For one, I’m seeing a renewed interest in outsourced services as companies work to turn fixed costs into variable costs.   Where it once made sense to hire an IT manager to support your growing staff, it might make more sense now to outsource IT support to an external vendor.  Where you once might hire an HR Manager, today you consider outsourcing HR instead.  Companies everywhere are reexamining old assumptions, revisiting old ways of doing things – open to new ideas.  They are innovating.

Business to Business (B2B) purchasers “want it fast, right, cheap and easy” (which is on the path toward the mantra of our age – “perfect, free and now”).  Innovation expert Stephen Shapiro calls this the Innovation Bell Curve.  Value Brands with good quality are displacing mid-market brands. 

In recessions, lower cost competitors often earn greater profits.  Wal-mart grows, but luxury brands are hurting – even discounter Target is taking a hit as consumers pull back on unnecessary spending.    McDonalds is doing just fine as people trade down from more expensive restaurants.  Wal-mart and McDonalds are not slashing costs and staff to survive, they are already designed to make a profit at a lower price point.

To speak from my own experience, Staffing Advisors is an innovative low cost alternative to traditional search firms – the Southwest Airlines of Staffing – we are built to make a profit at about a third the cost of a traditional search firm.  Consequently we are very busy right now, as busy as we were last year.   Similar to Southwest, our competitive advantage is “fast, right, cheap and easy.”   Even in a downturn there is still an enormous need for third party recruiters  – staffing is a multibillion dollar industry.

By innovating – literally inventing a new way to deliver search services – we have been able to keep costs low, serving clients who want an alternative to using a full-fee agency (and today that’s almost everyone) but more importantly, we are also able to serve companies who would never consider using a full-fee search firm – a massive and untapped market for search services.    In fact, more than half of our clients have never used a full-fee search firm, even in good times.

Our more expensive competitors  – because they did not innovate  - cannot compete in our markets and cannot cut their prices to our levels and still survive – their process is simply not designed to work that way.  

So yeah, innovation matters.  As Steve Shapiro says:  

“Exercise grows muscle while burning fat.  Innovation is exercise for business.  It helps grow the organization while also enabling cost efficiencies.”

So tell me, what are you doing in your job and in your organization to innovate your way out of this recession?

A Golden Moment for HR

This is a golden moment for HR.  But I don’t see HR leaders taking an active role in it.  It’s like HR leaders don’t have a speaking part in the unfolding drama being played out on the national stage.

HR issues dominate the national news like never before.  But it’s not just national news –  in my conversations with small company CEOs, HR issues also dominate the minds of executives who are working on their own “economic recovery efforts.”

At a national level:

Treasury Secretary Timothy Geithner is woefully understaffed, with his top 17 deputies not even named, and over 30 Senate-confirmable positions unfilled.  Want to know who is working on the recovery effort?  Just take a glance at the list of Treasury Officials on the official website – it lists only Mr. Geithner.    Yikes!  Who is staffing this guy?

AIG sparked national outrage with their “retention bonus” debacle, particularly when it was found that many of those employees have already left the firm.  Where was HR in this?

The proposed Employee Free Choice Act (EFCA) or “Check Card” Legislation has serious implications for employers.  Where is the voice of The Society for Human Resource Management (SHRM) in the debate?  Many say it’s far too quiet.

Beyond the national headlines, small companies everywhere are innovating, trading in poor performers and managing productivity like never before.  And many are “winging it” without strategic HR support.

In this blog, I’ve posted articles on managing in a time of turbulence, the why old-school management fails in a recession, and why ideals are the new business models.  In a post on McKinsey’s website, Gary Hamel adds more fuel to the fire.  It seems that thought leaders everywhere are proposing radical new models of management and leadership.  But why don’t I see HR leading that conversation?   

Every CEO I talk with is trimming poor performers and “trading up” to better people who will drive results.  Yet a recent Accenture survey says that almost half of employees feel insufficiently challenged in their current jobs.  A disturbing Corporate Executive Board study showed that disengaged employees are 24% more likely to remain at their current employer due to the recession.  So why isn’t HR taking a bigger role in resolving these problems?

This is no time to be silent.  No time to play it safe.  This is the time for HR to move from tactical to strategic, or the latest round of HR bashing will continue.  I’ve spoken with several CEOs who empowered HR to take a more strategic role, and they are already reaping the rewards of that decision.

Rethinking Capitalism – Why Ideals are the New Business Models

In previous posts (Why Won’t Your People Step Up?) we’ve looked back at the failure of old-school management strategies to keep pace with the nature of work today.   We’ve also looked at what Jim Collins has to say about managing in a time of turbulence.  Now it’s time to look far forward, and for that we turn to Umar Haque, who provocatively suggests that Ideals are the New Business Models.

So what will replace the current management philosophies that mostly evolved during the industrial revolution?  What will put us back on the path to prosperity?  What organizing principle will usher in the next era of global growth?  What business models will create real, sustainable value in our interactive era?  

What organizing principles are Google, Apple, Nintendo, Wikipedia, Threadless, Etsy, and Fair Trade using?  What are the new ways of organizing people and work?  

Mr. Haque suggests that today’s radical innovators are not competing by industrial era rules.  Instead they are driven by ideals, and these ideals disrupt and reshape industries.  If you want a glimpse of the future, set aside some time to watch his presentation.   Most presentations bore me, but this one is worth it.   And while not perfect, his model suggests some principles we can all use to challenge our thinking.   He certainly offers some fresh insight into how we organize our work.  I applaud the effort. Umair Haque @ Daytona Sessions vol. 2 – Constructive Capitalism from Daytona Sessions on Vimeo.

No time to watch the video?  Then you can click the link below for a quick read about Omar’s four pillars for smart growth. 

R U Digital or Do you Live in the “Real World?”

I’ve heard that it only takes about 40% of your productive capacity to keep the boss off your back.  So, if you are an employer and you want the REST of your employees’  productivity, you have to be more inspiring…like a Yahoo Community. 

A couple days ago, I mentioned an HBR article that discussed the need for management theory to evolve.   HBR threw down the gauntlet and made a good argument for why our concept of management needs to change, but they stopped short of suggesting exactly what to do.

Yesterday, Kris Dunn moved the ball forward a bit with a great post about “Why Your Company Needs to Think Like a Yahoo Community.”   Kris suggests that we employers use less command and control management and instead think more like an online community.  (Those communities get really smart people to engage and work for FREE after all).  Kris advocates a more modern approach to management, a “secret sauce” of “part praise, part visible scorecard, and part future career promise” for people who make a difference.  It’s a good start, a place to look for inspiration…and sadly, wholly divorced from the reality of many HR professionals and executives.  A recent study by the Human Capital Institute found that “hardly any” HR professionals (2%) have a deep understanding of how social networks, you know, actually work.

What fascinates me is the wide gulf between the social media adopters and the people who are still living in “the real world.”  Many “real world” people think Twitter is a waste of time, and perhaps it is.  But like it or not, social media will have an increasingly powerful impact on how work gets done.  Although some managers believe social interaction at work is a time waster, some studies show that social people are actually MORE productive.  In fairness, the study looked at people with both digital networks and face-to-face networks (and face-to-face networkers were more productive than digital, but BOTH outperformed the anti-social hermits).

As someone who built a pretty decent network of old-school, face-to-face connections (formerly called a rolodex) I really marvel at how many digerati are not well regarded in the “real world” and how many dinosaur “real world” people are (virtually) ignored by the digital folk.   Hmmm, it sounds like that (r)evolution in management theory might take a while.

Why Won’t Your People Step Up?

With increasing regularity, CEOs ask me the question “Why won’t my people step up to the plate?”  In troubled times, many executives feel suddenly alone and disappointed by the lackluster response of their key subordinates.  

So why is it that so many companies are filled with anxious people who are hesitant to take initiative or trust their own judgment? 

A provocative article in the February 2009 Harvard Business Review argues that the problem might not just be about your people.  Maybe your management strategies have not evolved to keep pace with the rapid pace of change and the increasing volatility in the world around us.  Frankly, I think HBR got it exactly right in this article.

Why do so many work environments stifle creativity, emphasizing continuity and past experience over change and new ways of thinking?  Why do many work environments lead to group-think and so few work environments encourage information sharing, risk taking and challenging of the status quo?   

Every day I see the powerful impact of culture and work environment on your ability to attract, retain and inspire your most talented employees.  As W. Edwards Deming observed “A bad system will beat a good person every time.”

 ”Modern” management theory was primarily developed by people born about the time of the Civil War ( Frederick Taylor and Henry Ford come to mind)  These management strategies were designed to get maximum productivity from semiskilled labor.   The focus was on control, efficiency and scale, and they worked well for an industrial economy.  But these command and control systems are wholly unsuited for the kind of work that is probably occurring in your office today. 

Your management structure, how you organize people and work, how you allocate resources, how you share information, how you give power to a limited group of people on the org chart - all those things you “grew up with” and learned from your previous managers –  may be precisely what is making your employees give up, shut down and wait for direction from above.  As enlightened as you think you are, your current management practices (and the people it attracted) may be threatening your ability to adapt to the turbulence in the market today. 

Today’s challenges are how to build a resilient organization that can adapt to dramatic changes, and how to inspire initiative, imagination and passion in workers.  The newer models of management will be unfamiliar, uncomfortable and might make you feel “out of control” so YOU must evolve in order to thrive.

So what are you doing to give power to your natural leaders – the people who mobilize others without formal authority?  How do you reduce fear and de-emphasize compliance -  encouraging people to voice their dissenting opinions?  How do you ensure that power and resources flow to the most competent people and don’t just become the domain of a box on the org chart?  How can you rely less on top-down supervision and give front line employees more ability to serve customers? 

Obviously there are no easy answers, but HBR argues it’s time to move past Management 1.0 into the next era of management.  I wholeheartedly agree.  

See these related posts for additional perspective:

 How to Hire People who Thrive in Turbulence

How to “Trade-in” Poor Performers for Top Performers

How Companies Turn Crisis into Opportunity

Yikes, I’m Mired in the Past! Are You?

A Wall Street analyst recently contacted me to ask about Constant Contact, my email service.  I am listed on their site as one of their raving fan success stories, but until the stock analyst called I hadn’t really thought about them much.  They do a good job - exactly what I “hired them for” - but now that I think about it, their future does not look so bright.  (Hmmm, does that sound like some of your current employees?  But I digress . . .) 

About 1700 people receive my (witty and insightful) email newsletters, but I’ve watched that number level off while traffic on this blog is doubling every month.  Constant Contact is fighting an uphill battle to get reader attention in a crowded email inbox.  They also struggle to get through corporate spam filters  (Some 96% of email is now spam).  Ok, so we can agree that none of this bodes well for Constant Contact, but that’s not my point.   I was just using them without thinking about it – mired in the past.  Now I’m starting to wonder how many other routine processes I do, and do well - where the task is quietly, gradually, becoming obsolete. 

When I write a new blog post, it appears on my LinkedIn profile, so my colleagues can see it.  Similarly, when I  tweet on Twitter it shows up right here on my blog (in the right hand column).  Even my why-did-I-sign-up-for-it Plaxo account shows me tweets from people I follow.  I did not build any of that functionality, it was just there for me, and I like it.   Now, in comparison, my (still witty and insightful) email newsletters just look so . . . obsolete.  Many suggest that social media tools will soon be as ubiquitous as Outlook.  Are you ready to take advantage of that? 

 The Wall Street Journal recently ran this fun quiz – How Well Do You Know Web 2.0?  (I only scored a 6 out of 10). 

So, because we are all on this journey together, here are a few interesting social media factoids to share:

Where the Jobs Are . . .and Other Fallacies

I’m looking forward to an onslaught of news articles about how the stimulus package will create jobs in different industries.  And I will dutifully devour that material and breathlessly report back to you on how it will affect the DC region.  And I will be wrong in ways I cannot even imagine.  As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”   (He’s a national treasure, that guy).

So Yogi’s comment is my first disclaimer as I share with you a snazzy state by state interactive map of economic forecasts, but before you have fun with the interactive forecasts, let’s first review the forecasts made LAST year by BusinessWeek’s impressive panel of notable economists.  In December of 2007:

“The economy won’t sink into a recession next year. That’s the overwhelming view among the 54 economists in BusinessWeek’s annual economic outlook survey.”

OK, so 14 months ago, literally 2 of 54 economists actually predicted this recession we are in.   And these are the guys who are telling us how long it will last?

If you still believe in economic forecasts, just slog through Black Swan, and your misplaced trust in economic forecasts will be forever put to rest.  

This is not to say I am pessimistic, far from it.  I just have no confidence that anyone can accurately forecast the future. So we all need to be ready for an unpredictable future, which very few firms are doing.  Being ready does not just mean cutting costs, it means challenging old ways of thinking and reallocating resources to support your future growth.  It means asking new questions about the business.  “Where are our strongest growth prospects?  Do we have the right team in place to capitalize on those opportunities?  What costs can we eliminate if we try a different approach?  Who is effectively driving results for me right now, and who is just lost in the turbulence?”  (Are you a CEO?  Click here.  Are you a recruiter? Click here) 

Recessions Spur Innovation

Adversity often brings out the best in people.  Our current recession holds the potential for sparking both innovation and collective action for social change.  Many people do not realize that the Great Depression sparked enormous management innovation (see  ”Recession: The Mother of Invention?”). 

Many successful organizations started during an economic slump. Why?   Market upheavals provide rich opportunities for innovation.   Wary buyers begin looking for more cost-effective ways to meet their needs so new business models gain traction in the market.  (For that very reason, I’ve argued that search firms must innovate their way out of this recession).

Some people say a lack of venture capital money is really not a constraint to innovation.  Tim O’Reilly in an article in Forbes, sees it this way “many of the great waves of creative destruction . . . didn’t even start with the profit motive.  Rather they started with interesting problems and people who wanted to solve them . . . because exploring new ideas was fun.”   He suggests that venture capital follows innovation, not the other way around.  “The people inventing the future are doing so just because it’s fun.”

In this economy, fear of change might be the biggest danger facing your business.  So, here’s the question: are you innovating?   Are your employees showing resilience and really swinging for the fences, or just playing it safe?

Topgrading for Small Companies? Still No

 Brad Smart, the author of Topgrading, wrote a very thoughtful reply to my recent post called “What Exactly is a Top Performer?”   I was pretty hard on Topgrading in my post and Brad intelligently rebutted my arguments in several areas, suggesting I read his free 50 page e-book “Avoiding Costly Mis-Hires.”  

I did read the e-book, and I will get to that, but first I have to say… this is great!  We’re having a conversation about my favorite topic, in a public forum, with a renowned expert on hiring.   And when I say “we” – that includes you – so post a comment, send me an email if you are shy, share your experiences!  

• First a bit of context.  I consult with, and write this blog for, small to midsize employers. 
• Brad Smart consults with employers of all sizes.  He is best known for his work with GE and the global 100, but he has plenty of raving fans among smaller employers.  One big fan is the very well-respected Verne Harnish -  founder of Entrepreneurs’ Organization (EO) – who calls Topgrading the “Best Approach to Interviewing.”   Verne also says Topgrading is “not for amateurs” and warns that it takes time and focus to make sure you are getting it right.

And there is the rub.

I read Brad’s free 50 page e-book (pdf).  It does indeed make a strong case for Topgrading, with lots of links to other resources.  (One link that grabbed my attention was ”Most Personality Tests are Shams“).  Naturally you cannot learn Topgrading in 50 pages, because, as Verne notes, it’s not easy to learn.  

The e-book’s primary objective is apparently to rebut the (common?) argument that Topgrading is hard to learn, by proving that it’s worth it.   He makes the case well, and I really enjoyed reading it, and loved seeing my favorite quotes from Jim Collins and Peter Drucker about the competitive advantage of hiring great people – Brad and I definitely agree that hiring high performers makes a huge impact on your ability to get results.   

But in reading it, I found nothing that would help my clients make better hires, short of implementing a massive, formal, top heavy initiative to learn how to conduct a Topgrading interview.  And that is simply not practical when you are hiring only one or two of each kind of person, and not 50 or 100 like they do at GE.  Smaller organizations need to think hard, move fast, and make the best decisions possible with imperfect information – jobs are not static, they change rapidly.  You can’t look back at the last 50 people hired in a job or look forward to tracking their results a year from now, because you hired ONE.  As someone who runs a search firm, I am also cognizant of the candidate perspective, which is generally not favorable toward Topgrading.  

So I’m sorry Brad, I sincerely appreciate your comments, but I still think Topgrading is too top heavy for 99% of small and midsize companies – and I just don’t think it’s necessary – there are better ways to achieve the same results.  Maybe Verne will prove me wrong, but I just can’t recommend it.  We’ll continue putting all our energy into developing faster, less expensive, less cumbersome ways to help our clients consistently hire people who will drive business results.

Now, that said, here is where I absolutely, positively agree with Mr. Smart:

What Exactly is a Top Performer?

I cringe every time a hiring executive tells me they use Topgrading.  My reaction is visceral when people mention “Hiring A Players.”  (So naturally I cheered when Harvard Business Review published the far more sensible “Let’s Hear it for B Players.”)

I acknowledge that Brad Smart is a very credentialed guy and he has built quite a dynasty on the Topgrading concept -  I just never see it applied intelligently in small and midsize enterprises.   Never.  (Remember,  I work hard to avoid using absolutes in sentences, so I must be adamant about this).   

OK, so I also freely admit that I gave up and only made it halfway through the book (worst beach read ever).  I just find Topgrading too rigid and impractical.  And no way will most managers first learn the interview techniques and then spend 3 hours in a CIDS interrogation, I mean interview. . . no, I mean interrogation.

What I object to most about Top Grading is the vague definition of an “A Player” -  “the top 10% of available talent for the compensation level” -  like anyone could possibly determine who exactly qualifies.  But this is what really irks me; even if you did figure it out, it would NOT help you hire correctly.

One thing I know for certain:  top performance in one environment does not necessarily predict top performance in another.  Simply hiring Olympic athletes or poaching your competitor’s top person guarantees you nothing.  Nothing.

So rather than filling your company with mythical “A Players”  here is strategy that will dramatically improve both your results and the quality of your life: 

The Misplaced Loyalty of the CEO

There is a consistent theme emerging from my conversations with CEO’s lately.  Loyalty.  While many people enjoy bashing Fortune 500 CEO’s for showing no loyalty to employees – and for dumbsizing, the bigger issue for smaller organizations is too much loyalty.   I see too much loyalty to long-time employees who are not performing, and too little loyalty to everyone else who is.   Truth be told, I’m not really a fan of Jack Welch, but he did have an interesting column about misplaced loyalty in BusinessWeek.

Most business leaders really struggle with their loyalty to long-time employees who are no longer effective, and while I think loyalty in general is both admirable and good business . . . blind loyalty is not.  It is dangerous.   The context matters. 

Sometimes the person’s performance just waned over time – they “got comfortable”,  sometimes the person was simply over-promoted (Think: Peter Principle), sometimes the person took on a job that appeared similar but required different skills (Think: salesman promoted to sales manager), perhaps the most common is when a growing company simply “outgrew” one of the original employees.  

Increasingly in this recession, the problem person was a good steward of a function during normal times, but simply cannot adapt to the chaos of the current environment.   They resist change, ignore market signals and get in the way of new initiatives – doing what is comfortable and familiar, instead of what is right.

My conversations with CEO’s generally go something like this: