Article from www.DrMercer.com
WHAT PART OF HIRING RETURN-ON-INVESTMENT – R.O.I. – DO YOU NOT UNDERSTAND?
By Michael Mercer, Ph.D.
Mar 7, 2013, 15:14
MANY MANAGERS KNOW THE COST OF EVERYTHING – BUT THE ACTUAL Financial VALUE OF NOTHING
Some investors buy a cheap stock, rather than pay more to buy stock of a good company that will increase in financial value.
Similarly, some hiring managers are too cheap to use hiring tools that increase their likelihood of hiring applicants who become productive, profitable employees.
WHAT IS HIRING RETURN-ON-INVESTMENT (ROI)?
Hiring ROI simply is cost of hiring an employee compared to the ultimate, actual financial results that employee provides for your company. If you spend on expertise and hiring tools that result in you hiring highly productive, long-term employees, you achieve a huge ROI. But, when you hire a lousy, unproductive employee, you get negative ROI – (a) financial loss for your company, and (b) bad reputation for your management career.
WHAT IS FINANCIAL VALUE of YOUR FUTURE EMPLOYEE?
Imagine the ultimate financial value – in productivity and profits – that a terrific, long-term employee is worth at your company.
For example, the owner of a maid company phoned me to use my pre-employment tests to increase the odds his company hires highly productive maids. His company provides maid services to homeowners.
I asked how much a maid is worth to him. His first answer was the maid’s annual salary. So, I said, “No, the salary is not the ultimate financial value of a productive maid at your maid-service company.
When you hire a productive maid, how much is that worth in maid service sales and profit for your company?”
He calculated this while on-phone with me. It took 20 minutes. Lo-&-behold, a highly productive maid can produce $50,000/year profit for
With that financial value in mind, he commented that my pre-employment tests’ cost a “tiny percentage” of the financial value of hiring productive maids.
HORRIBLE TRUE STORY of FOCUSING on COST RATHER THAN RESULTING VALUE
My wife wanted eye surgery to improve her vision. The leading researcher who created this eye surgery was in Scottsdale, Arizona, 1,700 miles from our Chicagoland home.
I took her to that eye surgeon – because he was THE expert. He insisted on doing the surgery at four times. So, we traveled to Arizona four times for the surgery. That was a lot of travel plus hotel and food costs.
Good news = 18 years after the surgery, my wife’s vision still is 20/20.
Three of her friends decided to get the same vision correction surgery. We recommended they go to the expert in Arizona. But, her three friends said it would be too expensive to travel from Chicago to Arizona.
So, her three friends got their eye surgery from local, Chicago eye surgeons.
Good News = All three friends have 20/20 vision – in one eye.
Bad News = Two friends are blind in their second eye. The third friend has horrible astigmatism (wavery vision).
Yes, those three people saved a lot of expense. They focused on the cost – and not the ultimate result they needed. Their cheapness created horrible problems for them.
Interestingly, many hiring managers also focus on the cost of using an expert’s good hiring tools. They fail to consider how a tiny investment in expertise and good hiring tools immensely pays off when they hire terrific employees. Instead, their cheapness increases the likelihood they hire lousy employees who are unproductive and hurt profits.
QUESTION FOR YOU = WHAT’S COST of HIRING AVERAGE OR LOUSY EMPLOYEE?
Recently, a city government called about using my pre-employment tests when they select Firefighters. When they hire a Firefighter, it is a lifelong expense for that city with salary, benefits and retirement costs. They previously hired some Firefighters who were lazy, did horrible work, and after their probationary periods did just enough work to not get fired.
But, the city’s treasurer did not want to spend on pre-employment tests, because it was not something they previously paid for.
Translation = They would rather incur a huge expense over many decades of a Firefighter’s career and retirement, than spend a tiny percentage on pre-employment tests to help them hire good employees.
That illustrates the saying, “Some people are pennywise, but pound foolish.”
PHRASE FROM EXXONMOBIL
When I was a corporate manager at an ExxonMobil subsidiary, there was a saying for that sort of manager: “Some managers – when they see a dollar and a dime lying on the floor – will step over the dollar so they can pick up the dime!”
JOKE ABOUT STUPIDLY CHEAP MANAGERS
In my article, “7 Jokes about Employees You Wish You Didn’t Hire,” I told this joke: Some managers are so cheap that they run after a garbage truck with their shopping list!” [You can read this article by clicking here.]
EXAMPLES of “SAVING A DIME WHILE WASTING A DOLLAR”
1. Sales Rep
If you hire Sales Reps, how much is a productive Sales Rep worth to your company in terms of (a) sales and (b) profits?
You can use this financial value calculation easily to see how spending
on good hiring tools can help you hire highly productive Sales Reps.
2. “Blue-Collar” Employee
Entry-level employees are rather cheap on the payroll. But a good one can reap benefits for your company for a long time. In contrast, a lousy entry-level employee can be expensive – e.g., lazy, unproductive, impulsive, accident-causing, stealing, or substance abusing. Isn’t it worthwhile to invest a tiny percentage of an entry-level employees’ pay into pre-employment tests and other hiring tools that help you hire excellent ones?
3. “White-Collar” Employee
A productive “white-collar” employee – skilled or professional or managerial employee – absolutely must be financially worth a lot more than their annual salary. So, you readily can imagine the financial value when you spend a tiny percentage of their salary on professionally developed pre-employment tests and other good hiring tools that increase your chance that you hire the best.
FOCUS on RESULTING FINANCIAL VALUE WHEN YOU HIRE THE BEST
Many managers know the cost of everything – but the resulting financial value of nothing. My wife and I knew the ultimate value of paying the national expert to do her eye surgery. Her friends only looked at the cost – and they ‘pay’ for their horrible results from their cheap eye surgery until the day they die.
Likewise, hiring managers must focus on the potential bottom line, financial results of each employee they hire. When doing this, those wise managers realize the cost of good hiring tools – including pre-employment tests – is a tiny percentage of the actual financial results they achieve when they select productive, profitable employees.