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Referrals Don't Work II

(October 13, 2006) As you might expect, Hans Gieskes at H3 had something to say about our notion that Employee Referrals Don't Work.

Hi John,

I assume that you meant H3.com by "various other entrants have gone astonishingly quiet"?  Fair enough, right or wrong we do not believe in one press release per month, but such radio silence does not at all mean that we have abandoned the referral recruitment path. On the contrary. 

 We're still consciously and happily focused on just referrals, and unlike Fidel Castro, we have good reasons to stick to a model that the rest of the world has reportedly dropped!

 "Referrals don't work" = REFERRALS ARE WORK

 Traditionally there are two recruitment methods that are entirely based on referrals: the 3rd party recruitment industry and Employee Referral programs.  Together they fill 30% to 40% of the 50 million+ hiring situations that occur in the USA every year.

  • The reason 3rd party recruiters (an $8 billion profitable industry) are so successful leveraging their referral networks is neither luck nor serendipity. It's because of hard work, finely developed networking skills, carefully built referral networks, and the typical DNA of search pros.  Probably 80% of them are what Gladwell calls "connectors".  They cleverly suggest to their network the age old principle of "if you scratch my back now maybe some day I'll scratch yours…",
  • Employee Referrals reportedly yield 30%-40% of all external hires. So there is success out there.  But the reality is that most ERPs face numerous hurdles.  One of the biggest hurdles is that less than 4% of an employee population (hiring managers included) possess the DNA of recruiters. And the tools employees are provided are generally worthless, posters, slogans, and of course, the dreaded black hole where recommendations are deposited.  Most importantly, compared to 3rd party recruiters, employees have nothing to persuade their networks to help with the search.  But even with these hurdles, ERPs payout more than  $5 billion in referral rewards annually.  Imagine what this number would be if ERPs were properly structured, administered and employees were able to also motivate their network, just like the pros.

In view of the impending labor market deterioration, two things are obvious to us: the 3rd party recruiting industry couldn't scale up enough even if employers could afford to press this very effective but also very expensive "easy button" all the time. Companies that are not good at leveraging all networks (including employees) , i.e. have poor performing ERP programs  better get their act together or they will die on the field of talent acquisition.

"No input from candidates"

There has always been a remarkable discrepancy between percentage share (30% to 40% of external hires) referrals as reported by employers and what employees state as how they found their current job: 60% of people state "I found my job through a referral of sorts". (Prof. Granovetter of Stanford Univ.) Not even a million dollar ATS system can fix this direct marketing ROI analysis problem. Reasons are simple: employers have no choice but to deploy multiple recruitment methods simultaneously, and it's very likely that your neighbor's brother-in-law you met at a BBQ told you his company is hiring, so you went to their company website and submitted your resume. That's a referral hire.

Why is H3.com happily continuing to focus on referrals?

H3.com is a recruiting tool that converts your social network into motivated search parties.  Our methodology is simple: offer a cash reward to be shared across the referral path regardless if referrers are employees or not, and we'll handle tracking and disbursement.

Sourcers and 3rd party recruiters totally get this, and are excited by the notion of leveraging their social networks in the broadest sense.  They like the prospect of "making the request significantly more impactful and elevating the request for referrals from a unilateral favor into a bilateral business opportunity" (Shally Steckerl in his white paper on Power of Referral Hiring, available at h3.com site). Sourcers from as many as 300 organizations, including many Fortune 1,000 companies, have made H3.com another personal sourcing tool in their (dare I say it Web 2.0) tool box.

Their bosses, mostly HR generalists, often need more time to get their minds around the H3.com paradigm shift which is bigger in their eyes than in the eyes of recruiters. Comprehensive ERP programs in large companies (which in reality are recommendation rather than referral programs in today's world of LinkedIn, Myspace etc.)  will not change overnight into open social network based cash referral reward programs yet.

But H3.com has proven that referrals do work:

  • Forty percent of H3.com searches yield job-offer worthy candidates.
  • C-level searches with rewards of $7,000 to $10,000 offered to mainly external networks yield a 40% success rate, saving customers $60,000 compared to using professionals.  
  • A single Microsoft recruiter hired seven people for 30 searches, four of which came from a referral path beginning with an employee and three from a path consisting entirely of non-employees.

Needless to say we're happy to hear from you that others have abandoned this path…

John Sumser © TwoColorHat. All Rights Reserved.
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