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The Economics of Talent Acquisition Dysfunction

April 30, 2013

Few hiring managers would argue that the public job market is effective in bringing buyers (companies and job-seekers) and sellers (job-seekers and companies) together. Job-seekers and companies alike are frustrated by it’s inefficiency, the cost, the time it takes for something to happen, and when a decision is finally made to buy and sell, we often discover the deal we made was not as good as we hoped. Bad information and bad economics are at the root cause according to Lou Adler, a best selling author.

Supply vs. Demand, Price and the Time Value of Money

In any market there is generally a buyer and seller. In the job market it’s sometimes hard to tell them apart. Obviously, if the demand for candidates is greater than the supply, the candidate has the stronger bargaining position and the price should rise. If there is an excess supply of strong talent the company can dictate the terms and the price will decline.

Adler states that “For talent acquisition purposes, supply and demand is fixed. Without some sort of flexible pricing built into the system (company compensation policies) the market can’t naturally come into balance. Unfortunately HR departments predetermine the price (a narrow range) before they even start bargaining, so equilibrium is not possible. This is what’s referred to as a frozen market.”

Graphic by Lou Adler, Hire Economics

Adler goes on to say that “compounding this inflexibility is the implicit assumption on the company side that the supply of “top” talent is greater than the demand.” The truth is that the amount of “top” talent is relative. A clear talent bell curve exists. The perception that there is an abundance of top talent is not only a false assumption but reinforces HR’s (the talent acquisition people in HR) belief that they are effective in their job. This creates a clean barrier to expanding their knowledge of talent evaluation and the tools that identify a job’s talent requirements and accurately measure an applicant’s talent relative to the position’s needs. People Performance Bell Curve

If talent acquisition professionals were to use state-of-the-art talent assessments, they’d find that there really is a bell curve to “talent” or what I call “job fit”. That bell curve has a top 16%, top 25%, top 50% and bottom 50%. They’d also find “time to fill” would extend out to an unacceptable period if they maintained their current talent sourcing strategies while hoping for a top 10 percenter to come along. Thus we have the real dilemma: Do hiring managers accept a pool of mediocre candidates in hopes of one being successful (“just get the opening filled with anyone”) or do hiring managers demand efforts be focused on strategies that will result in hiring “top” talent? Do hiring managers grow their own top talent or bring it in from outside? How do you know the candidate is a “top 10 percenter”?

While the inflexible nature of hiring for high volume positions may work, it’s flawed and fool-hardy to use in a talent-critical situation (key individual contributors or managerial level). Even if the excess supply assumption is true in the moment (fresh college graduates), it further assumes that a “top talent” is willing to accept the starting price offered, is a high-achiever and is a good match to the position’s talent requirements (critical soft skills needed for success). This is an unlikely scenario and why the job market is, at best, only useful for filling rank-and-file positions where average performance is acceptable. Few companies fully appreciate the implication of this.

It’s About Time

Time as a variable that must be managedIn the current market, too many long-term decisions are made based on short-term information. Companies box check skills and compensation, and job-seekers box check the title, location, the company name and the compensation. Yet 3-4 weeks later when all of the information about the candidate(s) and the job is on the table, compensation is of lesser importance in the final decision. Companies often modify their initial salary range and list of requirements to attract a stronger person, and stronger people may take less than their initial demand for a better long-term career opportunity. This is how time enters into the decision, but few players in the market are willing to invest the time necessary to fully understand what each party is buying and selling.

Despite these challenges there are ways to make the job market more efficient. Here are some starting points:

  1. Articulate the position’s key accountabilities and benchmark the job to identify the critical soft skills (talent demands).
  2. Ensure best-practice sourcing strategies are fully leveraged. Whether it is an internal talent acquisition staffer or a search firm contracted to source candidates, take the time to help them access the best talent in the market. If you aren’t connected on LinkedIn to your Talent Acquisition rep, and leveraging LinkedIn to maximize your number of industry/professional connections, you aren’t helping to find top talent.
  3. As you source candidates, consider the possibility of modifying the job to fit the candidate, don’t force the candidate to fit every part of the job. Start with flexibility on all fronts including compensation and the scope of the job. Under this scenario buyers and sellers would naturally engage in open discussions before defining their requirements.
  4. Advertise career opportunities that emphasize what the job-seeker will be doing (use the key accountabilities of the role) not what they need to have. This will attract more top performers who are more interested in the career growth opportunity. This alone will put compensation into the back seat.
  5. Slow down and force full disclosure. Increase the importance of the decision and how it’s made by treating the hiring decision as an investment rather than a fixed expense. This includes requiring all applicants to agree to completing a talent assessment prior to a significant investment in time and expense (such as flying the person in for face-to-face interviews).
  6. Re-engineer the transactional “Apply Now” button and auto-match skills process. This should be replaced by an “Explore Now” option. Ask those interested to submit a half-page write-up of their biggest accomplishment relative to the most significant key accountabilities.
  7. Don’t engage in box-checking conversations on day one. As part of the “Explore Now” conversation and before box-checking skills, recruiters should review the candidate’s “biggest relative accomplishment” to see if there’s an experience-fit. Job-seekers should ask the recruiter to describe the biggest challenges and potential impact of the job before asking about compensation. This simple shift will change the nature of the next discussion and add flexibility to the market.

According to Adler, the micro-economic cost of a bad hiring decision for the company is lower performance and increased turnover. The lost opportunity cost is far more reaching. The existing job market and it’s reliance on poorly designed job descriptions and inflexible pricing precludes the hiring of:

  • Diversity candidates
  • High-potential candidates who are light on experience
  • Fully qualified candidates who aren’t interested in lateral transfers
  • Older candidates who have a different mix of comparable experiences
  • Returning military veterans who have remarkable experiences that just don’t fit into some convenient skills-based box

About Carl Nielson
Carl Nielson is an organizational development consultant specializing in hiring for fit, executive and high-potential coaching and team development. The Nielson Group is in the business of creating breakthrough performance.

About Lou Adler
Lou Adler (@LouA) is the Amazon best-selling author of Hire With Your Head (Wiley, 2007) and the award-winning Nightingale-Conant audio program, Talent Rules! His latest book, The Essential Guide for Hiring & Getting Hired, is now available as an Amazon Kindle eBook. You might want to join Lou’s new LinkedIn group to discuss hiring related issues.

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