For many U.S. companies, the most common approach to fill job openings is to recruit, interview, hire and train. In a highly competitive job market, most companies believe that higher than average pay alone results in acquiring the best talent.
No doubt this is a hold over from the old paradigm where employee loyalty was practically guaranteed and a worker's skills would take them from college graduation through retirement. The required knowledge to do most jobs was static, so it made sense to find a candidate that had the requisite qualifications for the job. For the past century, the rationale was "new position, new employee."
While this time-honored method can be successful in today's highly competitive recruiting market, it is also one of the riskiest and most expensive ways to fill a vacancy, especially when your best candidates are already working for you. Even if you beat the odds and hire the perfect fit for the job, the realities of emerging technology will make their skills obsolete long before their career ends. If you manage to land a superstar, retention becomes a real concern. Companies that rely on salary as a recruiting tool may find that golden handcuffs are not enough to keep top talent.
Calculating the cost of a new hire is complicated due to the number of variables such as the recruiting process, need for additional training, new equipment, etc., but there are some figures which give us a general idea of the expense.
Statistics from HR.com reveal that it costs $7,000 to replace a salaried employee, $10,000 to replace a mid-level employee, and $40,000 to replace a senior executive (http://www.hr.com/en/app/blog/2012/03/who-are-you-really-hiring-10-shocking-hr-statistic_h09y2ol0.html). Another study by the Society for Human Resources Management (SHRM), found that employee turnover carries direct costs of 50% to 60% of the worker's annual salary and total turnover costs can reach as high as 90% to 200%. (http://www.shrm.org/about/foundation/research/documents/retaining%20talent-%20final.pdf)
Based on these figures, replacing a manager making $70,000 a year is going to cost your company between $35,000 and $140,000.
That's not the worst part.
More sobering are the statistics that the interview process for most companies is about as successful as a coin toss (http://www.forbes.com/sites/work-in-progress/2015/05/21/why-job-interviews-are-like-flipping-a-coin/#5b0c4a416ef9). This means that half the time, the new hire isn't going to work out as intended and your company can expect to repeat the process, make due with a inferior situation, or restructure job duties to accommodate a bad decision. The process itself is time-consuming. SHRM reports that the average time to fill a staff-level position is five weeks, and 7.5 weeks to fill a management position. (https://www.shrm.org/ResourcesAndTools/hr-topics/talent-acquisition/Pages/Morale-Productivity-Bad-Hires.aspx)
Hiring failures aren't just about the financial costs, either. SHRM reports that managers are more concerned that bad hires degrade staff morale and reduce productivity. Good employees are left picking up the slack, which adds further stress to the working environment and ultimately lowers job satisfaction.
Imagine if you invested that $35,000 in the future of a promising, established worker in your company by offering them training to gain the necessary skill sets to perform in the vacant position. Right now, there may be dependable workers who would relish the chance to move into a new job and bring a fresh perspective to your organization's challenges. These are the candidates who have intimate knowledge of your business, and have already invested significant time in the company.
Not only does this make great fiscal sense, it also carries much less risk for failure. Don Moore, an associate professor at the Haas School of Business at the University of California, Berkeley, recommends businesses screen candidates for "identifiable skills" and "job-relevant abilities" in order to identify the best potential hires and make decisions based on something better than gut instinct. To Moore, this approach is more successful and preferable to the hit-or-miss interview process prevalent in corporate America today. (http://www.forbes.com/sites/forbesleadershipforum/2012/02/07/stop-being-deceived-by-interviews-when-youre-hiring/#1e9d771f63fe)
Why not take good employees and give them the knowledge and tools to be successful in the vacant position especially when this benefits everyone involved?
The advantages of hiring from within and training are many. Consider that the company is already familiar with the employee's work ethic, and management understands their strengths and in what areas that they need help. The worker's skills have been assessed on the job and it is relatively easy to evaluate their readiness to tackle added responsibility. While hiring from within doesn't automatically guarantee success, the odds are certainly better than a coin toss.
Another benefit is that while your staff member is going through training, they will still be contributing to the company. In their new position, they will be able to hit the ground running. No time will be wasted on learning the fundamentals such as the location of various departments, becoming familiar with established procedures, or adjusting to the office routines.
This approach also aligns with the best industry recommendations for retaining employees. SHRM reports that promotion and career development opportunities are more important for keeping employees than above market pay.
And it is not just good for business, but employees happiness as well. Training invests in the employee and demonstrates to the workforce that you care about their future. A 2013 report published in the European Journal of Business and Management (www.dcvmn.org/IMG/pdf/3947-5999-1-pb.pdf ) finds that companies that provide training and career development achieve higher worker satisfaction and lower turnover; foster a feeling in employees that their work has a purpose and is important to the organization; and positively affects performance. This enhances the corporate culture and makes your business a magnet for other top talent.
You can teach skills and help workers gain knowledge - but integrity, and a strong work ethic is innate. It is easier to train a good employee and give them the tools to do a new job than it is to make a bad hire into an "good fit" and someone who is strongly invested in the organization.
The easiest and least expensive way to avoid hiring failures is to educate and train your best workers. We need more collaboration between universities and companies, it is the best way forward for our new economy.