How harmful is half-baked hiring?

You may be strapped for time, but a poorly-chosen new recruit could set you back even further, writes Jeremy Wurm.

It has been said by many directors and CEOs that their human capital is their greatest asset. While there is a great deal of truth in this assertion, it is even more evident that organisations sometimes tend to devote far more due diligence effort towards business development opportunities than they do to the task of recruiting a new staff member. However, the true costs of getting hiring decisions wrong are far greater than they seem.

In the first instance, it would appear that the immediate costs of replacing a failed appointee amount to little more than the expense in readvertising their position, plus the cost of printing new business cards for their successor. Nothing could be further than the truth! In cases of unfair dismissal allegations, there can be substantial legal fees associated with fighting a claim from an embittered former employee, not to mention the time taken up by defending such cases. There are also hidden expenses such as the opportunity cost in diverting the time of senior management to the process of identifying replacement candidates. Since only a fortunate few biotech companies enjoy the luxury of a dedicated human resources team, the task of going through the process (for a second time) of assessing applications usually falls on the shoulders of managers who would prefer not to be distracted from their day-to-day responsibilities.

Irrespective of the manner by which new candidates are identified, the time taken in handling telephone response, assessing resumes and interviewing those who look best on paper, is considerable. Each hour spent in these tasks is of course at the expense of that manager's core activities. This can perhaps be exacerbated by the fact that most managers only recruit staff sporadically, and they cannot reasonably be expected to be as efficient in the screening process as those who are involved in human resources matters on a daily basis.

It's often said that 'time is money', and few organisations stop to tally up the cost of assembling a team of senior managers for the task of interviewing a shortlist of several aspirants to the newly created vacancy. The opportunity cost of the panel interview process alone is usually measured in thousands of dollars, given the seniority of those involved in the decision-making. These costs can multiply significantly if senior managers and/or directors are involved, or if travel costs or video conferencing expenses need to be factored in.

But it doesn't stop there, since the loss of productivity involved in a sub-optimal executive performing their tasks can have huge impacts on a small organisation in terms of on the job training and the lag time involved in bringing a new recruit up to their optimal performance level. In situations where a square peg has occupied a round hole for an extended period, the knock-on effect to fellow staff members is profound, not to mention the impact on other stakeholders, including business partners, suppliers, providers of consultancy services and last but not least, investors.

And then there are the imponderables, such as morale, team spirit and reputation, which are all highly susceptible to the negative influence of a poorly matched recruit. While it is difficult to quantify these consequences of a mismatch, it is probable that the damage is inversely proportional to the size of the organisation. Given the demographics of the Australian biosciences sector, it is all the more apparent that things going wrong in the team dynamic can have catastrophic repercussions in very many ways.

While opinions vary, the total cost to an organisation of appointing an executive who is unsuccessful in the short term is usually reckoned to be of the order of twice, or even three times, the annual salary of that individual. The figure can, of course, be much higher, if the departing staff member has demonstrated their incompetence by failing to capitalise on a major business development or investment opportunity, or if the firm's intellectual property has been compromised in some way. In such situations, the damage left in the wake of an exiting employee can remain undiscovered for an extended period, but the effects can be devastating.

With so many factors contributing to the impact of poor hiring decisions on the biotech sector, it is imperative that the same due diligence principles be applied to the acquisition of staff, as are devoted to any other commercial transaction.

Jeremy Wurm is managing director of recruitment firm Brooker Ruston Poole. This is an edited version of his talk at a BioMelbourne Breakfast held earlier this month.