Saudi Electronic University Human Resources Management Case Study Paper Word format only “ No matching ratio “Use Time New Roman font 12 , double-spaced for all your answers RECESSION
The Definitive Guide to Recruiting in
Good Times and Bad
by Boris Groysberg, Nitin Nohria, and Claudio Fernández-Aráoz
FROM THE MAY 2009 ISSUE
W
hen economic crisis hits and companies focus on cutting costs—or on their very survival—
they slash hiring. But if history is any guide, in the first few months after the upheaval
subsides, hiring quickly becomes a front-burner issue.
Consider the period following the terrorist attacks of September 11, 2001, when the economic outlook
appeared dire. In rapid succession, the U.S. initiated the war in Afghanistan, Enron’s house of cards fell,
other corporate scandals ensued, the SARS scare struck Asia, and the Iraq War began. The economy was in
recession, and struggling firms retained only their strongest people. But even before things turned a corner
in 2003, the smarter and abler companies—having cleaned house and discovered what was missing from
their talent pools—took advantage of the buyer’s market and began staffing for the future. By June 2003,
the war for talent was on again in full force, and companies hired aggressively until the economy went into
a tailspin in 2008.
History will again repeat itself. Even now, before the recession lifts, our research suggests that most global
companies are running into staffing problems in emerging markets, and they are also having a difficult
time finding talented younger managers to replace baby boom retirees. These problems will be made all the
worse because, we’ve found, current hiring practices are haphazard at best and ineffective at worst. And
even when companies find the right people, they have difficulty retaining them.
This article offers our best thinking about the most effective way to hire top-level managers, based on a
combination of our own and established research about the relationship between recruiting and long-term
corporate performance (see the research sidebar). The following is, to our knowledge, the first time that an
end-to-end set of best practices has been put forward in one place. Our compendium comprises seven
steps, which cover the full recruitment spectrum: anticipating the need for new hires, specifying the job,
developing a pool of candidates, assessing the candidates, closing the deal, integrating the newcomer, and
reviewing the effectiveness of the hiring process.
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Our Research
Our research is based on two major studies.
The first, conducted throughout 2007,
included interviews with 50 CEOs of major
global companies, followed by interviews
with their HR managers and a quantitative
survey of their current HR practices.
Participating companies collectively
employed about 3 million people, earned
more than $1 trillion in yearly revenues, and
had a market cap of about $2 trillion. All
major sectors were represented, including
industrial, high-technology, life sciences,
financial services, consumer products, and
service businesses. Likewise, all relevant
geographic regions were covered, including
North America; Latin America; the UK,
Germany, and France; the Middle East; India
and China; and Australia.
The focus of our research was on recruiting at the top
three levels of organizations—C-level executives,
their direct reports, and the layer below that. We call
this the “top-x group,” where x is the number of
senior executives constituting the critical leadership
pool in the company. The size of this pool can vary
from 20 to 50 people in a midsized organization to as
many as 1,000 in a large multinational. We are
primarily concerned with external recruiting,
although our findings can be applied to internal
hiring efforts as well.
Of course, any leader currently faced with the
unhappy prospect of downsizing may find it difficult
to think about staffing right now. But whatever the
future brings, firms that learn to hire talent and
The second study was a survey of executivesearch consultants, conducted in the summer
and fall of 2008. Respondents rated the
talent-management practices of about 500
companies. Sixty-seven percent of those who
responded had over 10 years of experience in
recruitment, and 59% had specialized in a
given industry for 10 years or more. The
survey was designed to create a broad-based
view of the state of the art in selection, hiring,
integration, and talent management
practices.
retain it successfully will have a distinct advantage in
The article is also built on the research
conducted by Claudio Fernández-Aráoz for
the book, Great People Decisions (Wiley
2007) and by Boris Groysberg, Andrew N.
McLean, and Nitin Nohria for the May 2006
HBR article “Are Leaders Portable?” Finally,
we conducted a major review of academic
articles about selection and hiring.
hiring practices to be disturbingly vague:
the years ahead.
Hiring Gets a Failing Grade
Most companies react to hiring situations as
emergencies; that might explain why so many do it
so poorly. When we surveyed 50 CEOs of global
companies, along with a pool of executive search
consultants who rated about 500 firms, we found
Respondents relied heavily on subjective personal
preferences or on largely unquestioned
organizational traditions, often based on false
assumptions.
The executives we surveyed held widely differing
views regarding the desirable attributes of new hires.
They emphatically disagreed on whether it was best
to hire insiders or outsiders, on who should be involved in the recruiting process, on what assessment tools
were most suitable, and on what the keys were to successful hiring and retention.
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Furthermore, 43% of the executive search consultants reported that their client companies considered the
number of years of relevant work experience to be one of the top reasons for hiring a particular candidate,
whereas only 24% gave similar weight to the ability to collaborate in teams—and an alarmingly small 11%
factored in a candidate’s readiness to learn new things. In today’s increasingly turbulent business and
economic landscape, in which, as one of us likes to put it, “even the past has become unpredictable,” we
find this neglect of a potential candidate’s adaptability mystifying.
Assessment practices were equally variable (even within the same company). On one end of the scale, in
32% of companies, candidates for senior positions went through only one to five interviews; at the other
end, 12% of firms subjected candidates to 21 or more. Shockingly, only half of the top-x managers
recruited were interviewed by anyone in the C-suite. Fully half the companies relied primarily on the
hiring manager’s gut feel, selecting a candidate believed to have “what it took” to be successful in any job.
What’s more, we found that companies based their hiring decisions mainly on interview performance,
paying relatively little attention to careful reference checks.
Given the ad hoc quality, lack of specified criteria, and inconsistency of practices among the companies we
studied, it’s no wonder that usually about a third of promising new hires depart within three years of being
recruited.
It’s one thing to take a poor approach to hiring. But what really stuns us is that many CEOs do not recognize
their recruiting situation for what it is; some are even ignorant of their company’s own demographic
projections mandating aggressive hiring to replace soon-to-be-retiring managers. Even those who
recognize the looming shortage of talent are ill-prepared to fill it.
So what it comes down to is this: Despite a universal acknowledgment that hiring good people is a key
source of competitive advantage, we could find only a few companies that excel at one or more aspects of
the hiring process and just a handful—most notably Southwest Airlines, McKinsey, Intuit, TCS, and
ServiceMaster—that come anywhere close to a hiring “gold standard.” On the whole, there is neither a
generally accepted code of best practices for hiring for senior-level positions nor a single company that
demonstrates true best practices along each step of the process.
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Hiring Top Executives: A
Comprehensive End-to-End Process
Clearly, organizations need to take a serious look at the challenges facing them. They need to stop treating
recruitment as a big surprise. They have to approach hiring from a rigorous, strategic, and objective point
of view. They must develop best practices, which in many cases will mean drastically revamping their
hiring processes. They need to educate their line managers so they can hire effectively. And they have to
ensure that their HR managers provide the right support. Let’s walk through each step of the process, with
challenges and best practices in mind.
Step 1: Anticipate the Need
When we asked the CEOs in the 50 major global companies to forecast their revenues for the next three
years, most had little trouble. Some even broke down projected revenues from as-yet-undeveloped
products and services by geographic region. But these same executives had difficulty making similar
predictions for the size and composition of their top-x groups, even with the help of their HR heads.
Although most reported that they’d like to see a broader diversity of nationality, gender, and
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entrepreneurial experience in their senior managers, few had translated these aspirations into a concrete
and proactive hiring plan. In fact, few had any strategic talent plan to complement their admirably detailed
business plan.
The first step in establishing a sound recruitment process is to recognize that your firm’s existing top-x pool
is probably inadequate. Despite your best efforts, some top talent will leave to pursue other opportunities.
And certain kinds of talent—like experienced executives in emerging markets—may not be available, so you
may need to hire and then develop promising people.
Organizations should, at the very least, review their high-level leadership requirements every two to three
years and develop a plan that can answer the following questions: How many people will we need, in what
positions, in the next few years? What qualities are we looking for in those people, and how will we know
when we find them? What will the organizational structure look like? What does our pipeline need to
contain today to ensure that we can find, develop, and support the leaders of tomorrow?
One firm that excels in this area is Intuit—the software company best known for products like QuickBooks
and TurboTax. Taking a page from the best analytics practices of Harrah’s (see “Diamonds in the Data
Mine,” HBR May 2003), Intuit has built a proprietary database that combines information from various
hiring pipelines (such as internal-mobility figures, employee-referral programs, and external-recruiting
yields) with additional data on anticipated attrition and business unit budgets to predict how many people,
including top executives, will be needed annually throughout the organization. In this way, Intuit has been
able to correctly predict more than 90% of its talent needs, which has greatly reduced its recruiting costs
and smoothed its employee transitions.
Step 2: Specify the Job
Most companies rely on a leadership competency model to help define the attributes they want in their
managers. These models typically emphasize generic leadership skills, such as strategic thinking and
articulating a vision, as well as abstract character traits like courage, humility, and drive. Combine these
ideals with industry experience and a proven track record, so the thinking goes, and you have a perfect
leader.
The problem, of course, is that there’s no such thing. If a new high-level executive is to be more than a flash
in the pan, a company must define the particular job skills it needs, and recruit and judge candidates
accordingly. The May 2006 HBR article “Are Leaders Portable?” laid out a systematic way to consider the
full range of skills that a high-level job would require, called the “portfolio model of human capital.” Our
research suggests that hiring is greatly improved if companies employ the model’s basic tenets as a
template:
Job-based competencies.
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What specific capabilities will this job require over the next few years? Will the focus be on growth or on
engineering a turnaround? Does it require someone who is fundamentally an entrepreneur, a manager, or a
leader? If this is a stretch opportunity, can the candidate grow into the job? What are the next jobs he or she
is likely to move into, and what capabilities may be required for those positions?
Team-based competencies.
Does the candidate have the skills to lead his or her prospective team, and how do they overlap with other
members’ skills? How will the applicant manage resistance or political dynamics? Will the individual need
to hire additional people to build out the team? If so, can he or she bring in other talented executives?
Firm-based competencies.
How well will the candidate fit into the organizational culture? Will this person flourish with the resources
(supporting talent, technology, organizational reputation, and so on) the organization can provide? If the
person comes from a more resource-rich environment, can equivalent support be provided, or at least can
the candidate be helped to adapt to less?
Step 3: Develop the Pool
You’d think it would be obvious that the wider you cast your net, the greater the likelihood of finding the
right person for the job. But in fact, research from the Center for Creative Leadership has shown, nearly a
quarter of the time (one in four cases!) the executive selected was the only candidate considered. That’s a
pity, for in talking to many prospects companies gain valuable information about ways different people
would tackle the job, and they benefit from thinking afresh in each case about which skills the job truly
calls for.
In casting that net, it’s important to include a group that Joseph Bower in a November 2007 HBR article
called “inside-outsiders.” These are internal candidates who are nevertheless not bound by corporate
tradition and ideology and so may have a more objective view of the organization. A likely prospect might
come from an international branch or may manage a line outside the company’s main field. The CEO of a
multinational bank told us that he was particularly proud of having promoted some expatriates who had
been “forgotten” by the organization.
By extension, another category of candidate to include is the “outside-insider”—that is, a former employee;
a customer, supplier, or adviser to the firm; or someone who has worked closely with a trusted insider. Any
top-x search, then, needs to contain a mix of insiders, inside-outsiders, outside-insiders, and true
outsiders.
The most effective strategy for sourcing is to think not only about candidates themselves but also about
people who may know the best ones. Rather than waste your time calling too many irrelevant prospects,
talk to individuals who are likely to suggest several high-quality candidates right off the bat. The best leads
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will come from suppliers, customers, board members, professional service providers, and the like. Amgen
CEO Kevin Sharer puts out an “all points bulletin” whenever he’s looking for senior talent—reaching out to
recruiting firms, consultants he has used, industry associates, and board members. This strategy helps him
identify great candidates and also find further contacts who can connect him with new prospects. As
effective as this approach is, we’ve found few CEOs and senior executives who get as systematically and
personally involved as Sharer does in the generation of candidates.
This network-sourcing strategy is equally powerful for internal candidates. Research studying the career
paths of middle-management executives at one Fortune 100 firm, for instance, found that 14% of the
people ranked by their peers as being in the top 30% (in terms of potential) rose to become corporate
officers. Conversely, only 2% of those ranked in the bottom 70% did so. In other words, those ranked as
high potentials by their peers were seven times more likely to make it to the top.
Additionally, we have observed that organizations are often extremely poor at promoting high-potential
candidates across divisions, so it’s important to make a special effort to break through silos to identify
promising inside-outsiders working in other units.
How do you know when to stop looking for candidates? Surprising as this may sound, it has been
demonstrated both empirically and theoretically—whether one is searching for CFO or a mate—that the
simple decision rule of “meeting a dozen” will work well, even when you are sampling candidates from a
very large population. Once you have 10 to 12 carefully generated, high-quality candidates, you should
move to the next step.
Step 4: Assess the Candidates
A few decades ago, a number of consumer goods companies applied mathematical models to quantify the
expected value of their advertising investments. These same models can be applied to assess the
effectiveness of the recruiting process. They allow you to quantify the expected profitability of investing in
generating more candidates, improving your assessments, reducing the compensation of hired candidates,
and reducing the operating costs of your recruiting practices.
The most important finding from the application of these models is that improving the quality of
assessments is three times more profitable than increasing the size of the candidate pool—and six times
more profitable than getting the chosen candidate to accept a lower compensation package. A good
assessment yields more than a good candidate—it can actually improve the company’s bottom line and
market value in a very significant way. Specifically, a company can increase its yearly profits and market
value by about a third through the disciplined generation and assessment of candidates for a CEO position.
The typical cost of a search (with or without professional external recruiters) is negligible when compared
with the expected return on investment in candidate assessment. Even for a small company—say, one with
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a market value of $100 million—a 10% improvement in the quality of candidate assessments would have
an expected return of almost $2 million in additional profits per year and mean an increase in market value
of $30 million to $40 million.
Of course, if judging people accurately were an easy task, there would be no need for executive search
consultants (or, perhaps, divorce lawyers). Assessing people for complex positions is inherently difficult for
several reasons, including the unique and changing characteristics of many jobs, the challenge of assessing
intangible traits, and the time constraints of many candidates.
To complicate things even further, what is usually called the “assessment process” is in reality three
separate practices, with three different objectives. One goal is to evaluate the candidates. A second is to sell
the position and the organization to highly attractive candidates, especially those who may be wary. A
third is to build organizational consensus on the suitability of the new candidate, particularly if he or she is
external.
Each of these objectives can conflict with the other two. Too stringent a focus on assessment can leave a
candidate feeling judged and unenthusiastic about the firm. Too great an emphasis on selling may make
candidates feel that you are desperate and that they are in a position to drive a tough bargain. Too hard a
push toward consensus by involving layers and layers of people and many interview stages invites internal
politicking—and may also drive away attractive candidates whose schedules, or need for confidentiality,
won’t allow for a lengthy decision process. Avoiding these pitfalls requires the following four elements:
The right interviewers.
A robust assessment process follows…
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