Finding the right person for a job is evidently essential. But it isn’t always straightforward. Hiring someone unsuitable has implications that most organizations don’t even think about. The real cost of a bad hire goes far beyond financial aspects only.
What does bad hire mean? It might mean that the chemistry between the hiring manager and the hired person does not work as expected. It can also mean that the final cultural match, in general, is not as strong a match as anticipated in the recruitment process. Thinking midterm, it may also be that the expected results do not show, which leads to a lack of confidence and trust towards the hired newcomer.
Why do mismatches happen?
Hiring the wrong person can occur for various reasons.
It is not unusual for companies to feel pressured to fill a vacancy. Especially when it comes to a strategically crucial position with responsibility in a key project. Yet hasty decisions in personnel matters can resemble a gamble.
Additionally, a complex and non-transparent recruitment process can complicate the decision-making. Also, it may not be fully clear who or what is actually needed for a particular job or a challenge. The result: a mismatch.
Sometimes there is simply an honest misjudgment of the candidate. For example, when essential skills have not yet been acquired while the ability or willingness to learn is overestimated; but also when the focus is exclusively on the past experience in the CV and not at all on the attitude or other relevant skills that are not necessarily related to experience. Moreover, past experience is not always the best way to anticipate future success. Much more focus should be given to cultural and interpersonal analysis, understanding, and matching. The right people accelerate in a fitting culture and where one feels comfortable and trusted.
What – or rather: who – is a poor hire?
Not everyone who doesn’t meet the set expectations within their first week can be categorized as a bad hire. Nor should they be. A learning curve and adaption are part of the onboarding process and growth.
A truly bad hire, however, emerges as someone who has a negative impact on productivity, performance, culture, and people within the organization. At worst, they engage in harmful behavior and negatively affect their surroundings. In short: they become toxic and quick action is needed.
The true cost of a bad hire
An employee that does not fit in will perform poorer than usual or compared to others. This, in turn, will directly lead to decreased productivity, missed company goals or sales opportunities, and ultimately in lost revenue or increased cost.
Moreover, the team’s performance may begin to suffer as well – as a consequence of ongoing disruption and discord. An unsuitable employee can lastingly damage a company's, team's, or unit's culture. They can hurt an entire team’s or department’s morale, leading to the spread of negativity, demotivation, increased sick leave – and even resignations of high performers.
The same can be said about client relations, particularly in sales and other customer-facing roles. At worst, actual contract losses can follow. A bad hire can even harm the company's reputation, which can affect long-term customer acquisition negatively.
The tendency of being controlling, rude, or pessimistic is contagious. Research shows that "negative behaviors can spread like the flu and have significant consequences for people“. As Georgetown-Professor Christine Porath explained in the Harvard Business Review: „There’s a pattern of de-energizing, frustrating, or putting down teammates. It’s not just that Joe is rude; the whole team suffers because of it."
Logically, a demotivated team is less engaged and committed. According to research by Gallup, the German economy alone loses between 96.1 and 113.9 billion euros per year because one out of seven has already mentally resigned.
When employees are persistently unhappy, experience shows that sick leave increases. Eventually, people start to quit. A large number of dissatisfied ex-employees – this can also damage employer branding, making future hires harder. And more expensive.
All of these are indirect costs of a bad hire; often overlooked and notoriously difficult to quantify.
On top of all that, there are the obvious expenses: additional training, replacement, advertising, relocation as well as potential legal fees in case of litigation. The US Department of Labor has put the average cost for each bad hire at roughly 30 percent of this employee's annual salary. And this does not include the lost time and momentum because of this.
Money, time, and other valuable resources that organizations could avoid and put to better use.
But there are a few steps that can be taken to minimize the risk of bad hires. Here are some of them:
Take time to analyze/understand culture. This is especially important when working with consultants so that there is a common understanding of the company culture as well as desired profile. Well-reputed consultants take time for this and also have proper tools to pinpoint essential cultural elements to match with the short-listed candidates.
Look beyond the CV. Don’t forget to assess a candidate’s attitude as well as learning and leadership potential. This ensures that both behaviors and values are consistent with the hiring organization.
Keep the team in mind. Any new hire must be a cultural and personal fit. This is a good way to ensure that the performance and productivity of the team won’t deteriorate.
Don’t rush. It is better – and much more economical – to look a bit longer for a truly suitable candidate instead of hiring the wrong one. Lost 2 weeks in the process are nothing compared to losing up to 12 months when hiring the wrong person for the role.
Implement a solid onboarding process. Ideally longer than a day or a week, with regular communication, training, and support. Don’t forget to include social activities as well. This will greatly improve retention and productivity.
Be strategic and smart about hiring. Make sure the process is transparent and lean with a clear plan of involved stakeholders. Everyone involved must be aware exactly of who is being recruited for what; this includes clearly specified job qualifications and hiring criteria as well as a standardized interview procedure. Avoid making the hiring process political.
This will help to avoid the cost of a bad hire. Instead, you will much more likely identify a candidate who will be a great fit and take your firm to the next level.
You want to recruit new executive talent to your management team but have neither resources nor time at the moment? Reach out to Marcus or our other experts at Nordic Minds!.