A service level agreement (SLA) between a provider and customer typically provides a partnership focus, drives underlying expectations, and defines dashboard metrics. A talent-acquisition SLA often includes a strategy to attract, engage, and hire competent individuals who not only demonstrate the skills to be effective but can achieve their performance targets. Simple enough, right? Well, the challenge comes when the success—or lack thereof—of an SLA is measured using the wrong data.
One of the most commonly used metrics in the industry is the cost per hire, which has nothing to do with how new hires perform once on the job. Focusing too much on cost per hire may be a distraction, if not an outright deterrent. While often the standard—and still a necessary measure to take into account—the problem with a cost-based metric is that it increases the probability of implementing initiatives to reduce costs. A cost item on a P&L statement only focuses a business on figuring out how to overcome it. Given that talent is the most critical asset to any company, trying to diminish the costs of procuring talent can be counterintuitive and contradictory to what you want to accomplish.
Instead of concentrating on cost per hire, companies should consider how new hires perform once on the job and how soon they come up to speed. Such an evaluation will help you determine a more meaningful metric: cost to proficiency. By measuring the cost of proficiency, companies have a more accurate indicator of the effectiveness of their hiring strategy and ability to select candidates who understand the job and can quickly become meaningful contributors.
Take a page from the manufacturing industry. The cost of raw goods is worthy of careful consideration. But a more important number is the cost of finished goods. In talent acquisition, the concept of finished goods is equivalent to proficient performance, measured by competent achievement of productivity targets. So, the cost to proficiency is a more relevant metric, focused on optimizing a process rather than completing a transaction. Focusing on cost per hire is a transaction-based orientation, which may have little to do with the actual quality of that hire.
When organizations strive to improve the quality of their finished goods, they tend to focus on optimizing the value-add, measuring things like variation in outcomes, and seeking data that reveal the causes of defects, waste, and rework. In talent acquisition, a focus on the cost of proficiency helps to create a systems-thinking mindset—the emphasis is placed on what’s delivered, what’s accomplished. This initiates a discovery process of identifying and documenting the underlying drivers of success on the job. The data from this discovery can lead to optimizing candidate evaluation methods that identify factors such as the ability to learn, achieve proficiency, and fit into the organization’s culture.
The complexity of this measurement demand requires talent evaluation that mirrors the complexity of the job. More than 100 years of research in the field of I-O psychology supports the importance of using multiple candidate evaluation methods to create a robust picture of candidate job fit. The use of technology that enables candidates to test drive a job through a realistic simulation not only helps candidates decide if the job is right for them but also allows employers to see how the candidate would perform. As a result, hiring managers and recruiters gain crucial insight into the skills and capabilities of their candidates, helping them select those who show the promise of better performance, faster.
What’s in Your SLA?
The journey to managing the cost of proficiency is complex and requires measurement rigor and discipline to capture the right data, conduct appropriate analysis, and create evidence-based hiring practices. And such routines don’t take shape overnight. Enormous investments of time and effort are required to develop accurate candidate evaluation methods. At the end of the day, though, predicting differences in how fast new hires adapt to and become proficient in their roles will be a much more valuable indicator of the success of your talent acquisition program—and a bottom-line-oriented performance factor for your SLA.