Perhaps the oldest management cliché is that “people are our most important asset.”
If that were true, companies would rigorously assess their own hiring practices, and record, to ensure that they are indeed recruiting the best people.
Remarkably, many fail miserably at this task. Only a third of U.S. companies check whether their recruitment process produces good employees. That is one of the striking revelations in a survey of hiring by Peter Cappelli, professor of management at University of Pennsylvania’s Wharton School.
When companies are asked why they do not monitor the effectiveness of hiring, the most common response is that measuring employee performance is too difficult. Given that staff costs are the single biggest expense item at most companies, this is a startling admission. And, as Cappelli points out, there are some simple things that employers could do: check how long newly hired workers stay at the company, or ask a supervisor whether they regret the hiring decision.
This failure of monitoring is more odd given the effort that companies expend on recruiting outside their ranks. In the three decades after the World War II, U.S. companies tended to fill around 90% of annual vacancies from within the company. That proportion has since fallen to less than a third.
By definition, companies know more about the abilities of their own workers than they do about those of outsiders. But they still opt for the latter, even though research suggests that outside hires take three years longer to perform as well as internal candidates in the same job. They also pay outsiders more.
Companies often seem to be channeling Groucho Marx in their approach to applicants: They won’t hire someone who is actively looking for work. Instead they aim to lure “passive” candidates who have shown no sign of wanting to move — more time-consuming and expensive. Cappelli has not discovered any evidence that hiring outsiders is more cost-effective than hiring other workers, or that passive candidates make better employees.
Everyone should worry, though, that companies are less rigorous about evaluating the performance of their staff than about the quality of the raw materials they put in their products. Improving productivity is generally agreed to be the best way to achieve faster economic growth and higher living standards. Recent productivity improvements have been sluggish. Hiring the right people would be an important way to shift the trend.