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(Chart: What does it cost to find
management talent?)
Do you own or advise
the owner(s) of a privately held company? If you do, here is a two-question
quiz for you.
Question #1:
The last time a key executive
was hired, was it an act of inspiration or of desperation?
In an act of inspiration, the hiring is part of a thought out plan
and process to recruit an executive with the skills to upgrade the company's
management team. In an act of desperation, the problems or needs are so great,
that haste in a search is the key priority.
Question #2:
Was the right choice made the
first time and was the new team successful, or did lack of success lead to a
second round of recruiting?
If the hiring was an
inspiration the odds are greater for success, but still far from 100%. On the
other hand, if the hire was made in haste, this situation is probably part of
the unfortunate 75% who report that it didn't work out - at least on the first
try.
A few years ago I
surveyed business owners who hired executives. They were asked about their
successes and failures in recruiting. In this study a success meant (1)
business results improved dramatically after the person was hired and (2) the
owner felt positively about the relationship with the new executive. I found
that only 25% of the executives reported successful results on the first try.
(If you would like it, please request the study.)
Since then I have been
asking clients and audiences to guess the success rate. I have been surprised
to learn that their projections are often even worse than the results I
reported. Given that, I am amazed at the level of owner optimism when they
assess the recruiting challenge. Why do these business owners think that they
will conduct a successful search without setbacks and with minimal effort?
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This leads to two conclusions:
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Given the inherent difficulties of recruiting and
integrating senior talent into a privately held company, it should only be
attempted if the potential gains are worth working through what should be
anticipated might be a difficult process. (You may request an article that
summarizes the difficulties)
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Investing the time and money in doing it right the
first time has very clear financial and emotional advantages.
The chart at the end of this article, "What does it cost to find
management talent?", shows how the costs of finding and integrating a key
executive might be calculated.
The research showed
that it is possible to beat the odds. Here is how to increase your success rate
significantly.
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Take the time to think through the kind of person
who should be hired. Develop a Position Description that includes job duties
and, more importantly, the skills and experiences the needed to perform the job
well and contribute to the company. This document should give a clear picture
of the job, and your criteria for screening applicants. This is an important
document. It is the act of inspiration. It shows the advantages of getting the
right person and integrating that person into your team. And, if the going gets
tough, why it is worth doing!
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Do not rush the project. One of the big mistakes
is to hire because there is a crisis or to settle too quickly. The chances of
success are increased greatly when you use a systematic process to find, screen
and evaluate candidates.
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Spend time to get to know the candidates. This
means several personal meeting plus gathering additional insights from advisors
and key employees. The person you hire should meet the standards of your
specification and also be someone who you and your team will enjoy working
with.
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Be careful in the development of the compensation
program. The wrong program, for example, might increase sales when what you
really need is controlled growth and profits. Make sure that incentives are
linked to business goals and that payoff will be for things that you feel
comfortable will build your business.
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Evaluate and give feedback early. If there are
early problems, don't let things slide. Problems and misunderstandings are the
norm. Why let them escalate? You and your new executive need to talk things
through as you both adapt to new ideas. It is particularly important that the
new executive learns about your expectations and from your knowledge of the
business. An advisor or facilitator can help with this process.
The lessons I would
like you to draw are these.
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First, don't be penny wise and pound-foolish.
Understand that finding a person who will fit in your company and elevate it is
not easy, but the results can more than justify the costs and effort.
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Second, taking the advice given in this article
doesn't guarantee success - it just increases the odds. Sometimes the person or
the chemistry still isn't right. But, do not despair. Your commitment will take
you over the rough spots. And, our research show that the odds of success the
second time are greater because you become more sure handed because of your
initial experiences.
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What Does it Cost to Find Management Talent? |
 |
|
Initial Success |
|
| Recruiting
|
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$50,000 |
|
|
You have three
basic choices in conducting a search. You can
(1) hire an executive search
firm,
(2) use an agency, or
(3) do it yourself. |
|
On
the surface, an executive search firm is most expensive-approximately 1/3 of
the first years compensation of the executive you hire. Using an agency or
doing it yourself requires less cash but multiplies your effort. What is your
time worth? I am assuming that you spend the time to develop a sound hiring
specification and take the time to identify many potential candidates. A good
search will consult through the definition process, and help at all stages. The
$50,0000 is the cost you might pay to a search firm. Whether you use a search
firm or advisors, you must devote significant amounts of time on defining the
outcome and on evaluation. This $50,00 proposed doesn't reflect the value of
your time. |
|
|
The second round |
| Recruiting |
|
$50,000 |
Opportunities lost
because it takes so
much longer than expected to find the right person
|
|
$350,000 |
|
|
|
The
decision to hire an outside executive was made to achieve business and personal
goals. What have you lost (in sales, in cost cutting, etc.) because the
position was open longer than expected? If the position was significant, this
estimate of $350,000 is not unrealistic.
| Loss for Wasted
compensation |
|
$100,000 |
The
last hidden cost is compensation for the executive that didn't work out. We
assume that this person is employed for six months, although the decision to
start over should have been made earlier |
|
| |
TOTAL: |
|
$550,000 |
|
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