The Hidden Costs of a Misaligned Hiring Process

According to the U.S. Department of Labor, the average cost of a bad hire is roughly 30% of the hire’s first-year earnings. For an employee making $80K a year, that’s $24K in losses. The Undercover Recruiter estimates an even higher figure: a bad hire can cost upwards of $840K when you consider both the direct and indirect costs involved in making a bad hire.

What’s more: misalignment in the hiring process is not only costly for the business making the hire. Employees that are not aligned to the business hiring are at-risk of underemployment, stagnation in their career, and even being laid off in the future when the company “finds that they are redundant.”

Therefore, organizational leaders must take care to manage alignment directly in the hiring process. One of the main causes is the lack of alignment between the role, the hire, and the business’ strategic needs. It’s not enough anymore to make a hire based solely on culture fit and technical skills. Leaders need to think holistically about how the people they hire align to the context they will be working in.

Why we hire

Before diving into the recruitment process, it’s critical to step back and ask yourself: is this hire actually strategically aligned? This isn’t always a question with an obvious yes-or-no answer.

The decision to hire is driven by a number of factors, including:

  • A need to grow (e.g. your company just received a large investment check and is expected to achieve certain growth milestones in the next 18 months).
  • Addressing a staffing shortage in a job that already exists (e.g. hiring another engineer).
  • Filling a role that appears to be obviously necessary (e.g. accounting, legal, HR, marketing, and sales).
  • Staffing for a new venture or project, especially when we need a new skillset.

While these are common reasons to hire, they do not inherently factor in the business’s strategy. None of the aforementioned reasons why companies grow their workforce answer the following questions: what is the strategic value of hiring for this role? What are the tangible benefits of hiring this role? How does hiring this role support the mission of the business?

Let’s dive into each of these common reasons and explore how they support or detract from a company’s success.

Growth related hires

Growth-related hires are common in venture-backed companies that have received a large influx of cash from investors. The company may have 18-24 months to hit a series of financial targets and milestones in order to receive the next round of funding. The company decides to hire people to accelerate the pace at which they’re already growing.

While hiring is a growth lever, it can be misused. Just adding people to your team will not necessarily cause your business to grow (but it will certainly grow in terms of complexity and cost).

More people means more management, less efficiency, and the amplification of communication silos. While software like Minsilo can help growing teams maintain sanity and effectiveness, growing your workforce always comes with growing pains.

Complex projects suffer from Brook’s Law, which states that adding resources to an existing project can delay the completion of that project. Sometimes you really need more people power to get the work done, but that’s not always the right solution. Ask yourself: instead of hiring another person for this project, how can we enable our existing team to get more done?

“A manager of one is someone who comes up with their own goals and executes them. They don’t need heavy direction. They don’t need daily check-ins. They do what a manager would — set the tone, assign items, determine what needs to get done, etc. — but they do it by themselves and for themselves.” — Basecamp (2008)

Instead of hiring more people with the hope of increasing revenue, some companies practice intentional growth. Basecamp is famous for hiring slowly, with recent employee counts totaling around 60 people. Not bad for a business with 3.3 million users (most are paid). They are also well known for their hiring “managers of one,” which are people that don’t need to be managed.

Hiring because there is too much work to do

Hiring because there’s too much to do is another driver of new hires. This is common as the requests of customers become more numerous and the expectations of these customers increase. It can also happen when the company is misaligned and investing too much time in low-priority and low-value activities.

At the core of Basecamp’s ability to remain small is its extreme focus on only a few high-priority product features and tasks. They don’t let themselves get distracted by the desire to make an ever more complex product or chase opportunities that don’t fit their business.

It’s not bad to hire because your people are feeling overwhelmed. But, managers should always step back and assess whether they’re constrained by a lack of time or a lack of focus. Managers should always default to increasing focus and the effectiveness of their existing people, before looking to grow.

I realize that this can be a difficult task to pull off under a time constraint, but getting it right spells the difference between retaining your team for the long haul and having to eventually go through a layoff. Restructurings are often caused by people who work on things that are not aligned to the business’ strategy (and they may never have).

Filling an “obvious” need

Filling an “obvious” need drives some hiring decisions, although this is mostly constrained to companies run by inexperienced operators. Notice I put the word “obvious” in quotes. Hiring for the sake of hiring is dangerous, but it’s a trap that some companies fall into.

I’ve seen this one happen a few times.

You’re a growing company and you realize that you are now selling into many tax jurisdictions. This means that you’re filing sales tax returns in a number of states (and cities). Do you now hire an accountant now to join you full-time?

Perhaps not.

You could continue to outsource this role to an external accounting firm. After all, you’re in the business of making a product, not filing tax returns. Or you could look at finding a reseller to partner with, who will take care of all of the logistics of selling your product.

It’s generally good advice to only hire roles that relate to your business’ core competencies and outsource functions that don’t give you a competitive edge. This shift in attitude in the hiring process has become commonplace with helpdesk IT jobs (like desktop computer support).

It’s also a good idea to wait on roles that don’t really present a full-time need. For instance, many startup tech companies can postpone hiring a designer until they’re really spending 8 hours per day doing design work. This rarely happens because most design work happens in bursts — there are 20-40 hours of design work all at once, followed by nothing for a while. In situations where there isn’t enough steady work to justify a full-time hire, working with a trusted consultant or freelancer is preferable.

Project-based hiring

Project-based hiring is most common when a new project requires more time than is available with current staff. It also happens when a new project requires skills that the existing workforce does not possess. In either case, managers need to step back and evaluate whether the project that they’re about to launch justifies the increase in hiring.

The Project Management Institute recently changed the definition of a successful project to be better aligned with the reality of today’s business climate. Instead of success being defined as staying within “time, cost, and scope” constraints, today’s project charters should address “benefits realization, value management, and strategic alignment.”

Successful projects deliver tangible value to the business sponsoring them. A project that doesn’t help a company achieve its goals is a failed project.

Hiring should always come second to analyzing whether a project is set up to help a company achieve its goals. Otherwise, you risk hiring a role that you later will need to cut when the project gets canceled. Hiring for a new project is inherently risky and the job of a savvy recruiter is to help their company de-risk the hiring decision.

Bonus: hiring top-1% talent without an open role

Hiring top-1% talent without a role open can be a smart move when done correctly, but you have to hire the right type of people. As far as I know, this type of hiring is only really common in early-stage Silicon Valley-type companies; I haven’t heard this happen in corporate America, for instance.

Not all top one-percenters are actually suitable for being hired into the company without a role for them. This really only works with self-motivated generalists that are willing to work on whatever they can provide the greatest value on.

They constantly change roles. They’re great at breaking down silos because they work with a large swath of your company (if you’re small). They teach themselves how to solve problems that your business faces, rather than just setting out to learn a skill.

That said, you still need them to get work done and you may not have enough specialized work for a specialist to join you in an undefined role. This type of hire may join your company as a software engineer, but end up running HR and operations. They view their role as “owner,” rather than “employee.”

This type of hire is by-definition an aligned hire because they exist only to progress your strategy and your strategic goals; they align themselves to the needs of the business. They grow and change with the business.

Social media photo: Photo by Clem Onojeghuo on Unsplash
Article photo: Photo by Jp Valery on Unsplash