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The "How of it" is simple. As we mentioned in our last article, all tools degrade in effectiveness in a shortage driven marketplace. A prudent manager (or recruiter) must constantly search for new weapons while polishing skills on the current set. As more customers discover a given tool, its ability to generate results declines.

To reiterate, it's an arms race.

The underlying reasons are simple and combine basic mathematics with first mover advantage.

When a new service or form of service opens its doors for business, it introduces novelty into a niche. In the early days of job boards, it was not unusual for a customer to receive 125 valid responses to a job opening. The ratio of jobs available to online candidates was skewed in favor of jobs.

As word of the successes of very early adopters spreads (that's what marketing and sales forces do), more customers join the fray. This increases the number of jobs in the mix and effectively reduces the likelihood that a given job will get a match. Three years into the job board business, the problem was too many non-qualified candidates. Quantity was declining, but quality declined at a faster rate.

Ultimately, the effectiveness of a given tool settles at a market rate. With 70,000,000 job 'postings', it's little surprise that current results are so low. A company that posts a single job to the internet risks receiving no valid responses. Targeted carpet bombing services (like those offered by RecruitUSA) offset the risk but are vulnerable to the same dynamics.

As each niche opens up, the same trend seems to take place. So, early users of the 'left handed astrophysicists career board' should expect better results than later users. Even the tiny niches will settle into a predictable delivery of a results stream, however.

This basic trend extends to every new addition of the arsenal. Today is a very good time to be using free agent sites. It's a great time for referral networks and placing computers in the homes of every employee. On the other hand, you can tell from the AIRS moves into diversification that the desktop based candidate acquisition programs (like our Seminar in a Box) are beginning to show the same declining effectiveness.

It doesn't mean that the tools don't work. It just means that there are very real limits to the ultimate utility of a given tool. Knowing that tools are subject to decreasing relative effectiveness should be the source of strategic inspiration. Having a function dedicated to the discovery of new tools as they emerge is critical to maintaining a competitive edge in the marketplace for candidates.

Not getting this simple principle is the reason that so many CDI employees are watching their stock holdings erode. It's at the root of the massive decline in staffing company valuations. It's the barrier that new entrants have to figure out.

It's also a platform for real marketing success. Imagine the success of the player who figures out how to reverse this trend for its customers.

- John Sumser © TwoColorHat. All Rights Reserved.

November is the time of year when budgets are drawn in all but the smallest and youngest companies. This year's budget discussions will feature some new possibilities. Alumni Networks, hybrid systems, referral programs, job board in a box, recruiting gateways, exchanges and other new categories are hitting the limelight this year.

Meanwhile, the number of candidate aggregators (job boards) continues to explode.

Pity the Recruiting manager who is stuck with a 10% increase over last year's budget. From a relatively fixed pie perspective, choice overwhelms the purchasing power of a lowly manager.

Here's the problem: Recruiting costs are rising rapidly. A budget doubling may well not be adequate to solve the problem of reaching out to scarce talent in a noisy market driven by shortage.

Retailers are giving away automobiles as signing bonuses for holiday help.

Recruiting budgets are heading towards 100% of the first year's salary.

And still, it may not be enough. After all, you simply can't buy what's not on the shelf. Shortages produce weird purchasing behavior and difficult customer expectations. Used to easy availability, customers are surprised and frustrated by rising prices. Vendors, trying to build market share, experience this as cheapness. Really, the market just hasn't been adequately educated about the way things work in a shortage.

Here's how it works.

All that a vendor can offer is a recruiting tool. There are no "solutions" available. (A 'solution' might include a cloning laboratory that produced trained adults at a rate that met recruiting requirements.) In this market, tools all share some interesting characteristics:

• They produce better results for early adopters. Period. The later adopters will get fewer, lower quality results. Period. This produces the odd effect that established vendors are more expensive while producing lower quality and quality.
• They take time to learn. All tools work better the longer you use them. Although the vendors don't say so, agreeing to use their tools means getting on a learning curve. Speed is the essence here since a customer is competing for results with other customers in an environment where each new customer decreases the effectiveness of the tool itself.
• What should be measured is increasing effectiveness against a baseline rather than pure results. These are tools, not answers. 'Here's how much better we are than yesterday' is the proper measurement for tool usage.
• Experimentation with new tools pays handsome dividends. Customers should be looking for market advantage, not ass covering.
• The ultimate goal of tool usage is to build a predictable flow of human capital that meets corporate growth requirements. The goal is not to produce these results as a function of last year's budget. That's a losing game in a shortage.

- John Sumser © TwoColorHat. All Rights Reserved.


We Went

(November 01, 2000) It was raining in Boston the day of the show. Rainy days are to Boston what they are to San Francisco: a reaffirmation of the fact that moodiness produces good culture. We were in town for a variety of reasons and wanted to see whether or not we were right about the Fast Company Talent Labs.

It's easy to forget that trench level recruiters get assigned to shows like the Talent Lab with no hope for reprieve. While the independent actors from small startups were pulling their booths down by lunch (hunters require huntable game), the young recruiters from big companies were stuck in the booths watching the empty aisles and preying for a target.

"How's it going?", we asked. "Miserable. We've seen no one today and two candidates yesterday", came the reply. "Why don't you pack up and see Boston, visit the colleges or just blow the day off?" "Lord knows when the boss will call. She's a real terror and is sure that this show isn't working because we aren't trying hard enough."

It would have been a good environment for recruiting recruiters.

We'd come to the Fast Company Talent Labs to see if our harsh assessments about success likelihood were on target. Originally, the event was positioned as a two day 'experience' in which recruiters, executives and careerists could get to know each other. By the time all was said and done, it was an ill attended job fair.

Our concerns were legit.

By turning the event into a free for all (just like Woodstock without the bands), the project managed to lose its identity without gaining an audience. There are a number of lessons to be learned from this particular failure:

• While the job fair does indeed need reinvention, it still requires fundamentals in execution (marketing, branding, positioning, a value proposition and so on).
• A magazine focused on business success (Fast Company) may not be the best brand to build a job fair around. It may, however, be a firm foundation for experimentation with a real vision.
• Real vision persists through initial failure. The best way to understand the depth of an idea is to witness managerial commitment during the first crisis. It became clear to us that the event was really about harvesting cash from the Fast Company brand the moment they gave up on the idea of two day attendance.
• The difference between harvesting a brand and building a business is significant. One requires persistent building. The other requires customers with money for a one shot deal.
• Recruiters recruit. Any event that proposes to deliver them to a stocked fishing pond needs to deliver fish.
• Events require clarity. As we asked attendees what they thought about the event, they weren't sure what it was. Clarity is the responsibility of marketing.
• Events require good facilities and solid planning. We visited both the San Francisco and Boston events. They were held in off-brand convention facilities making it hard for most careerists to find the event.

Frankly, these are beginners lessons.

- John Sumser © TwoColorHat. All Rights Reserved.


Typical Bonehead Thinking

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(October 31, 2000) Anyone reading this newsletter will be familiar with the ongoing debates about "cost per hire". Somehow, the unique history of the Human Resources function and the nearly complete absence of basic business education in the industry has conspired to create a narrow view of the relative importance of Recruiting.

• The sage Saratoga Institute, often seen as the ultimate source of HR thinking, typically describes "cost per hire" as the sum of administrative costs and expenses.
• Infomart-USA, a hiring practices auditing company, estimates the national average at about $4,400. They consider the following elements of cost per hire.
  • Advertising
  • Agency fees
  • Employment fairs
  • Employment office salary expense
  • Employment office facility expense
  • Estimate of time spent in training
  • Recruiter travel expense
  • Internal recruiter expenses
  • Internal recruiter labor expense
  • Referral Bonus
  • Recruiting & Training Expense
  • Uniforms
• HRLive (which isn't very) offers five year old data that suggests an average cost per hire nearer to $8,000.
• American Incite, an odd online Executive Search operation makes a lengthy argument that the base salaries used to calculate the administrative cost per hire is deeply understated. Yawn.

While these overly complex approaches may well capture the number of dollars spent on an average hire, they hardly begin to capture the cost of a hire. Hiring managers, insulated from the nonsense measurements of the HR folks, have a clearer picture. The cost of a hire is the money lost because the hire wasn't made. Well recognized in MBA programs and broadly understood throughout the rest of the organization, the simple concept is "opportunity costs".

At its most basic, the opportunity cost associated with a particular hire is the productive revenue lost because the hire wasn't made. Ask an IT manager with 20% of her desks unfilled whether she cares about the administrative costs in the Recruiting department. Of course she doesn't. She's working weekends and late evenings while continuing to miss deadlines. She is experiencing the real cost per hire: revenue lost from employees who weren't hired.

Here's an easy way to get your arms around the real cost per hire in your organization:

1. Take the annual sales of your company (or division) and divide it by the number of employees. This is the annual revenue per employee.
2. Divide that number by 250 to get the daily revenue per employee.
3. Multiply daily revenue per employee by the number of days it takes to hire an employee.
4. If you want, add the dollars spent by the Recruiting Department (it's a minor fraction).
5. This is the real cost per hire, generally it's 5 to 10 times the administrative costs.

This view of "cost per hire" points out the importance of reaching real global standards for reductions in the hiring cycle. Current "state of the art" approaches try to reduce the cycle to under a month. We believe that the real answer is to target a recruiting cycle time of minus 30 days.

- John Sumser © TwoColorHat. All Rights Reserved.


WOFM

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(October 30, 2000) Almost any working manager can mouth the words "failure is a part of learning". It's trite to reiterate the fact that "failure is an essential component of success". How many times have you heard someone say "Generals often fight the last war"? We all know the Thomas Edison story ("They're not failures, they're eliminated possibilities").

Still, failure (both as a word and as a reality) seems hard to pin down in our industry, our organizations and the customers we serve. It's too bad, really. All that failure and so little learned.

Before the domain name was purchased by Virtual Job Fair (now owned by Brass Ring), JobCenter was an interesting participant in our industry in the 1994 - 1995 time frame. The concept was unbelievable at the time: build a network of sites using a central database with revenue sharing as the core business model. The venture failed because it was ahead of its time, had no sales force and flunked the accounting test. Mostly, it was ahead of its time.

In those days (as it remains today), the underlying theory of candidate aggregation business development is that it is somehow a technical business. We can't begin to tell you how many of the small entrepreneurial operations in our space waste millions on the reinvention of the technology that Job Center used five years ago.

Why?

Because, for some strange reason, exclusively owned technology is the largest driver in company valuation. A staffing firm, whether or not it has lots of candidates, is worth $1 for each $1 of revenue. In spite of the market crash, dot com companies (usually without candidates) are worth huge multiples (20 to 50 times sales). The market, in other words, seems to be telling companies to invest in technology because the investors will benefit handsomely.

It's a WOFM (Waste Of F'ing Money)

There is little in the way of meaningful technology being developed in our industry. Seriously, how clever can you make a search engine as it matches badly written job descriptions with inflated self assessments? From our vantage point, we see no one who is able to really step up to the challenge of solving the industry problem: the guaranteed on-time delivery of labor supply.

How long will we have to endure the inflated claim that Company X provides 'solutions' when all they really provide are barely working specialty tools? The next time you hear a vendor calling itself a 'solutions provider', ask them if they'll guarantee the delivery of the right bodies when you need them. When they say "No", ask them "whose problem are you solving?".

To be fair, customers don't often appear to want solutions. Much of the industry's emphasis on efficiency and cost reduction is a dodge for the fact that customers don't want to pay the real freight. Vendors rightly perceive most customers as cheapskates.

It creates a fascinating environment in which no one learns from failure, money gets wasted on redundant technology and doublespeak rules the day.

- John Sumser © TwoColorHat. All Rights Reserved.

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