The most costly recruiting error in recent history was revealed this month.
In mid February, Facebook announced its nearly $19 billion purchase of the instant-messaging firm WhatsApp. But the real news about the acquisition relates to the colossal recruiting failure that occurred a handful of years earlier (as reported by Forbes) when both WhatsApp founders Jan Koum and Brian Acton applied for a job at Facebook and were rejected (Acton was also rejected by Twitter).
As Brian Acton put it ,“We’re part of the Facebook reject club.” You could easily argue that this colossal “hiring miss” cost Facebook billions, and as a result, this hiring error has to rank near the top “not hired” errors, only rivaled by HP’s rejection of Steve Jobs for not having a college degree.
If you are a corporate talent manager, this and similar errors should now become a critical part of your business case for fully funding an effective recruiting team and flawless hiring process.
8 “billion-dollar” hiring lessons” for talent leaders
No one can of course be 100 percent sure that if Facebook had hired the two founders they would have developed this $19 billion app while at Facebook. However, the fact that co-founder Jan Koum was immediately placed on Facebook’s board of directors strongly builds a case that a top talent was clearly missed. Going from a “reject” to board member in little more than five years would have to be classified as more than a little embarrassing. Because of this very public mistake, corporate recruiting and talent managers everywhere can learn valuable lessons from Facebook’s hiring mistakes. Below you will find the top eight most important missed-hire lessons that corporations should learn and the action steps they should take to avoid them in the future.
1. Calculate the cost of missed hires
Executives simply will not fully fund recruiting processes that are designed specifically to minimize “hiring misses” until they see the economic losses that directly result from those “missed hires.” Begin by working with the CFO’s office to quantify the dollar impact on corporate revenue that each major hiring miss has on your firm . Also include in your calculations the added value that the missed hire will bring to your competitor that ends up hiring them. This “missed-hire problem” reaches tens of millions of dollars each year at nearly every major corporation. In the Facebook case, the amount was in the billions.
2. Estimate your percentage of “missed hires”
Google, which has the world’s only data-driven recruiting function, is the only firm that I have identified that has conducted research on the percentage of “missed hires.” Under their “Project Janus,” it developed an algorithm for each large job family that analyzed rejected resumes to identify any top candidates who it might have missed. It found that under its highly efficient recruiting process it had only a 1.5 percent miss rate. And as a result, it hired some of their revisited candidates. However, under the much weaker hiring processes that exist at most corporations, I would estimate that the “missed hire” rate could average as high as 5 percent. You can determine your own rate of missed hires by revisiting a sample of “not-hired” applicants using an approach similar to that used at Google. You should also periodically “identify industry names in the news” and run them through your applicant database to see how many of these industry heroes actually applied at your company.
3. Identify the specific recruiting problem areas
If you use either the “Janus” or the “industry names in the news” approach, you can identify individual applicants who were not hired. Then go back through your records and interview recruiters and hiring managers in order to find out at which point the recruiting process failed. Determine if recruiters or later on hiring managers rejected these top individuals early on, or did they simply drop out of the process due to frustration. When you identify the common error points or processes, you must take immediate action to shore them up.
4. Have a second party independently review rejects in key jobs
You can’t do it for every job, but for key positions you should set up a process that has a second party independently review all potential rejects. Focus on potential rejects who have 1) worked for key competitors; 2) have advanced degrees; or 3) have a minimum amount of industry experience. The same process should be used to ensure that the ATS system is not inadvertently rejecting or hiding top applicants. You should also note that at Google, all of its hiring decisions are made by a group in order to prevent individual hiring managers from rejecting top talent primarily because they don’t meet their own selfish short-term needs.
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5. Take extra time when reviewing innovators
The most valuable hiring misses are likely to be innovators, so take a second and even third look before you reject a candidate who appears to be an innovator. This group usually has the highest rate of rejection because they are often highly critical during interviews and they sometimes have a checkered employment history and resume full of job jumping. In fact the two co-founders of WhatsApp abruptly quit Yahoo for no business reason and took a year-long trip around South America playing Ultimate Frisbee. With such a checkered and even frivolous history, your firm might have mistakenly rejected them also.
6. Keep in touch with top talent who aren’t hired
If you’re serious about avoiding hiring misses, develop a process to keep in touch with top prospects who were not hired and especially those who dropped out of your process. Build this “someday you are going to work here” talent community online using a Facebook or LinkedIn page. Then use it to periodically send interesting company information and to “push” relevant job openings to its members.
7. Understand the dollar loss when top prospects fail to apply
Add to your list of “hiring failures” top talent in your industry who never applied to your firm. If you have a weak employer brand or as many do or a painful application process, you won’t have a chance to miss-hire top talent because they will never formally apply for a job at your firm. You can decrease the likelihood of “the best never applying” by using focus groups or interviews with top talent (usually at industry-wide conferences) or with Internet surveys. The goal is to find out and fix the specific factors that prevent or discourage top talent from applying at your firm. An alternative is to simply look for negative comments about your firm on the Internet or on glassdoor.com.
8. Understand the dollar loss when you hire weak candidates
There will also be a serious loss of revenue when firms make hiring errors at the other end of the spectrum. In fact, bad or weak hires may cost even more, because in addition to the “lost opportunity” of hiring top talent, weak hires can make serious and costly errors. If these weak hires slow down innovation and product development or damage customer relationships, the cost each year will likely be in the millions. Key action steps for recruiting leaders include working with the performance management function to identify the number of weak hires (i.e. bottom performers or those that must be terminated). Next work with the CFO’s office to estimate a dollar loss to the firm as a result of each weak hire. The final step requires recruiting leaders to re-examine the hiring process for each “missed individual” in order to identify at which point that their weaknesses should have been identified.
It’s a sad fact that at 99 percent of major corporations, there is no recruiting metric to calculate the percentage of top applicants that are missed because of hiring errors or because the hiring process was so frustrating. I recommended such a metric in my Measuring the Quality of those You Didn’t Hire article published in ERE in 2010. If you missed it, today is an ideal time to revisit the topic and to propose “missed hire” solutions to your executives. Recognize that Facebook has one of the most effective recruiting processes on the planet, so the odds are that this problem is much worse at your firm. But unfortunately, only one corporation (Google) has up to this point taken the time to proactively identify how common and costly the problem is to their firm. My guess is that Facebook will soon be the second corporation to join that formally exclusive club. Perhaps your firm should follow suit!