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Referrals Don't Work

(October 12, 2006) Has anyone else noticed that the only people left beating the employment referral drum are John Sullivan and Airs. Jobster abandoned the referral moniker within moments of entering the business last year. The various other entrants have gone astonishingly quiet.

According to Chris Forman, CEO of Airs:

"ERP programs are typically a corporation's top source of great talent," according to Chris Forman, CEO of AIRS. "That said, most of these programs fail to deliver even 50% of their potential. The AIRS/DJS ERP Audit is a 'one of a kind' way for leading corporations to quickly benchmark their existing practices against the best and truly unlock the power of their programs." (Press Release)

But, do they really work? Even the most interesting studies on the subject are limited to self-reporting by one side of the equation. Certainly, the conventional wisdom is as Forman describes it -- that "ERP" is the best approach. But who says so? Only the recruiters who answered the surveys.

(Side note: Only HR vendors would use an acronym like ERP. The entire rest of the organization understands ERP to mean Enterprise Resource Planning. In short, ERP is the designation used to describe the services of software companies like Oracle, SAP and Lawson. Can you imagine how out of touch an HR executive would look giving a briefing on ERP? We can hear the eyes rolling and feel the credibility diminishing.)

This is the sort of data that is routinely quoted:

Source of Hire Exempt Non-Exempt Total
Employee Referral 21.70% 38.30% 30.00%
Print Advertising 12.20% 22.80% 24.50%
Job Fairs 2.00% 10.00% 9.50%
Internet 27.40% 2.00% 8.00%
Agencies 6.80% 3.80% 5.20%
College Recruiters 5.00% 0.50% 1.80%
Executive Search 1.60% N/A 0.40%
All Other Sources 23.30% 22.60% 20.60%

It's based on surveys of hiring managers and recruiters who are reporting anecdotal evidence. These sorts of commonly spewed statistics are rarely tied to something like the output of an applicant tracking system. (We found this table - from a 2000 survey -- at Vault.com).

The categories themselves are not defined in the surveys so it's anyone's bet what "Employee Referral" actually means. To make things worse, they have no input from candidates.

Hiring is a two sided transaction. Data that describes a candidate's view of how they got the job is at least half of the picture. No story on this subject is complete without verifiable data that describes the full transaction.

As a small example. Suppose a hiring manager runs a small ad on Craigslist (without authorization). Or, suppose that he gets a great resume through internal distribution somehow. Or suppose, that some one emails him an unsolicited resume. When he hands that to a recruiter, isn't that a referral? The candidate who proffered the resume certainly wouldn't see it that way.

When the babysitter's Resume comes over the transom in response to a job posting and the father of the babies chaperones it through the process, that's an internet submission, right?

Do you think that candidates and employers share a perspective on this question? It's very unlikely that candidates and employers see the same pictures. One sees heads, the other tails. That's how transactions work.

We think that it's unlikely that both sides agree on which methods are most effective.

What does seem clear is that referral program software is not taking off. That would indicate that they are not working. The software itself is easy to manage and use.

As we checked around the industry, we found widely disparate views of what a referral program was. We did find some consistency in the view that well executed referral programs are a rarity. While there is a large risk that a referral program will drive your company towards mediocrity (you can only get more of the same with employee referrals), well moderated programs do seem to reduce hiring costs.

So why isn't the toolset being adopted? Employee referral programs don't really work very well. That's why there's a profound opportunity for Sullivan and Airs.


PS. After penning this piece, we found the following Job Hunter Survey from Weddle's. We've marked the things that could be considered "referral" with a "+". The largest number you could impute is about 23%.

708 People were asked how they found their last job:

- 31.2% Answered an ad on a job board
- 10.6% Sent their resume to the company
- 9.3% Answered an ad in the newspaper
+ 8.5% Responded to a tip from a friend
+ 6.8% Were referred by an employee of the company
-  6.6% Received a call from a headhunter
- 5.1% Answered an ad posted on the company's Web-site
- 4.9% Attended a career fair
+ 4.8% Used networking at a business event
- 2.7% Received a call from a staffing firm
+ 2.7% Responded to a tip from a family member

John Sumser © TwoColorHat. All Rights Reserved.
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