How A Bad Hire Can Cost You Your Company

Regardless of size, geography or industry, every organisation requires exceptional talent that is both motivated and focused to deliver on customer promises. Yet, it is getting harder to recruit and retain talented, high performing employees. The Harvard Business Review states that as much as 80% of employee turnover is due to bad hiring decisions. Do you know how much getting it wrong affects your bottom line?

When considering the costs associated with recruiting and on-boarding new employees, making the wrong decision will result in a massive impact for an organisation. The cost of hiring a new employee extends far beyond their monthly salary. Job advertisements, time associated with screening and shortlisting  potential hires, administration and placement fees all rack up the Rands, and that’s before the new recruit even enters the company.

“It’s very expensive to replace people.”

Jason Davies, the Africa Head of Leadership, Learning, Talent and Resourcing at Barclay’s Africa Group says in his experience, it costs an organisation 200% of a senior hires’ annual salary to on board them, this includes recruitment fees, renumeration, back office administration, training and team time. 

But bad hires extend beyond the monetary cost of bringing new people into your organisation. A survey among CFO’s suggests the biggest costs associated with a bad hire are not even financially related. Degraded staff morale, decrease in productivity and loss in revenue rank higher than fiscal expenses, and the worrying thingis  they are all contagious.

Davies believes that the impact to an organisation of making a bad hiring decision is 50% of an employee’s annual salary.

Bad hires can create a domino effect within your organisation and according to Davies, eradicating inadequate employees is a timely, therefore costly, undertaking. Realising you’ve made a bad hire takes time, he says, and in the months that lead up to the employees last day, your corporate culture could be severely disrupted.

Disengaged employees are likely to place strain on the rest of your workforce, while apathy and negativity may spread through your offices before the employee’s departure. This could result in the loss of more employees, creating a constant need to hire new people.

"Through science and technology, HR professionals can now make informed decisions."

Davies says this is why quality recruitment methods are imperative. “We live in a world where technological revolutions are constantly changing the way we do business, and advances in recruitment technologies are reducing the chances of making a bad hire. Through science and technology, HR professionals can now make informed decisions when making new hires, based on both culture and skillset”.

According to Dr Juan Swartz, his South African HR-tech company is the world’s first AI solution based on a multidisciplinary scientific approach for talent management.

Swartz, co-founder of Pivotal Talent, explains that their vision was to find a way to change the talent management landscape by reducing bad hires from the get-go. “We wanted to make the process of recruitment and people management more effective, helping companies find and manage the right people with the right skill-set and culture-fit; manage the career progression of employees; and ultimately lower the risk of attrition,” he says.

Using Swartz's technology, potential employees are scientifically profiled, screened, shortlisted and ranked against culture fit, attrition risk and performance requirements resulting in 95% accuracy in candidate recommendations.

The focus isn’t just on making good hires, it’s on retaining them too. Swartz states his solution scientifically measures the ‘gap’ between employee profiles and the qualities required for success in that role. "This enables HR professionals to individually tailor career development plans, address skill gaps and deploy targeted training to reach potential future requirements."

“While bad hires will always cost a company, a good hire does the opposite,” says Swartz. “Through AI recruitment solutions, candidate potential is ranked, thus forecasting the candidate’s growth opportunity within the organisation.” This decreases the need for future hires, especially in more senior roles, as current employees who are attuned with company culture move up the ranks.

Swartz's company focuses on multidisciplinary Artificial Intelligence (AI) solutions for talent management. Pivotal Talent is part of the Pivotal Group, a South African-based holding company for a range of innovative tech businesses.