Human Resources is no longer about hiring, firing, and managing benefits. Top companies are realizing that a holistic approach to what has come to be called "talent management"—one that aligns a company's goals with succession planning and employee career objectives — can produce big cost savings.
Smart companies have long recognized the shortcomings of hiring based on automated keyword searches of electronically filed résumés, and have begun to have candidates fill out customized applications online. Forcing applicants to provide specific data to help guide a selection process gives employers more control than relying on information the applicant wants to share, says Fritz Drasgow, who teaches a graduate Planning and Staffing course in the School of Labor & Employment Relations at the University of Illinois.
With unemployment poised to top 10% by summer's end and pessimists projecting a rate even higher before the recession ends, this would seem to be a strange time for companies to bemoan ineffective recruitment and hiring practices. But a lot of companies have become more serious about finding the right people for open positions—or retaining their best performers — precisely because they don't want to lose them in the tighter labor market they foresee once the economy rebounds.
A Turnaround on Long Island Consider North Shore-Long Island Jewish Health System, which employs nearly 40,000 at 14 hospitals, a major medical research institute, and several long-term care facilities and trauma centers. The company has cut spending on recruitment advertising by $7.7 million a year with help from an aggressive focus on leadership development for existing employees, says Joseph Cabral, director of human resources for the Great Neck (N.Y.) system, the country's third-largest independent, not-for-profit healthcare organization. As part of its effort to align workers with company goals, North Shore-LIJ has built what Cabral says is the largest corporate university in health care. Its Center for Learning & Innovation is modeled after General Electric's (GE) John F. Welch Leadership Center for employees. That, plus the Critical Care Fellowship Program, which extends employees' education, has resulted in a low turnover rate, he says. While most hospitals struggle to stay fully staffed with nurses, "my CEO [Michael Dowling] loves to say, 'I don't have a nursing shortage,'" boasts Cabral. "A lot of that has to do with how you treat your workforce."
Golden Corral, a family-style restaurant chain based in Raleigh, N.C., with 480 franchises, reduced its manager turnover rate from 50% to 20% within three years by adopting a new screening system. At $25,000 to hire and train each manager, that translates to significant savings. The chain also trimmed its worker turnover rate from 148% to 90% after 18 months. Additionally, private equity firms are increasingly hiring HR professionals to assess the competency of the executives in the companies in which they are considering an investment. They understand that the closer the alignment between a new acquisition's leadership and the company's agenda, the better the chances of profit, according to a February 2009 article in Human Resource Executive magazine.
HR departments have generally been slow to invest in technology that can boost efficiency compared with the billions of dollars they spend on payroll, general ledger, and customer relationship management (CRM) systems, says Michael Gregoire, chief executive of Taleo (TLEO), a Dublin (Calif.) firm that supplies HR software to North Shore and other companies such as Honeywell International (HON), Hyatt Hotels, and Barclays (BCS). In the past, HR managers did not have tools "to understand where does talent come from and how to get talent into the organization, and once they're in, how to pay them and keep them motivated and [manage] succession planning," he says. Taleo's technology lets clients build a database of applicants that can be tapped when they need to fill a position. "Every time you're looking for a new candidate, you're not starting from scratch," Gregoire says.
Identifying Internal Talent North Shore-LIJ is still building its talent database. When Cabral became head of HR in 2006, he began to wonder why the company—which employs nearly 9,000 nurses —had to advertise whenever it needed a nursing manager instead of hiring from within. The main reason? "We didn't have a system in place to identify the talent we did have and therefore couldn't prepare them for their next role in the organization," he says.
Fitting the right people to the right jobs has become more precise as companies increasingly turn to software programs that assess temperament and character instead of just skill sets. The best candidate for a position may already be a company employee, but the company has no way to measure his performance or gauge his leadership potential. "As an HR professional, you should have your finger on the pulse of the organization, you should be the head cheerleader, you should be there to add value and input to setting objectives," Cabral says. "It's a very different environment than even five, seven, or ten years ago."
Many companies are now venturing far beyond rudimentary personality assessments with newer "psychometric" testing, which measures knowledge, abilities, attitudes, and personality traits as a way to determine a candidate's compatibility with a position. Studies by Gallup and other polling outfits consistently show less than 30% of employees are truly engaged in making a business successful, says Lloyd Gottman, chief executive of Denver-based Synergetic Systems, which helps companies improve employee engagement. "That means managers and business owners are making bad decisions [in hiring or promoting people] 70%-plus of the time," he says. Psychometric assessments aim to reveal information that leads to decisions that make the difference between a 30% and 75% success rate of employee engagement with company goals. Typical areas of inquiry include such topics as knowing whether an applicant prefers cognitive to physical work, working alone or with others, a harmonious or contentious environment, and being a follower or a leader.
Services Predict Performance Psychometric assessments are becoming increasingly popular among recruiters in spite of the added expense. Industrywide, they run from $35 per head for entry level positions to $500 per head for senior executive jobs. On average, the return on investment is $20 for every dollar spent on these tests, as measured by the resulting drop in worker turnover and how much less companies are losing, Gottman says. "It costs so much to recruit, interview, hire, onboard, train, and develop an employee who leaves 90 days later," he says. "When you think of training them, if it's a 30-day training time, you've wasted one month's salary to get them up to speed."
Kenexa (KNXA), a Wayne (Pa.)-based software and services company, is also expanding to this field. The company employs nearly 100 psychologists, researchers, and statisticians to design, validate, and link HR practices to business outcomes. Its services and materials are meant to predict performance rather than just outline prior experience, says Troy Kanter, Kenexa's president and chief operating officer.
The increasing focus among compensation committees on the idea of tying salaries and bonuses to performance is highlighting the need for performance data, says Gregoire at Taleo. "This is bopping HR back up to the true executive realm rather than an administrative realm buried under the CFO's organization," he says. "If 70% of your assets are based on people and you're treating that asset administratively as opposed to strategically, how do you expect to grow and prosper?"
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