Firstly, thanks. Had an amazing response to my last post on innovation and it wasn’t the usual heavy handed legal letters (you know who you are). In fact my heart was warmed by the number of recruiters who clearly are thinking their world needs to change. Bring it on!

A lot of recruiters ask me, how do I deal with RPOs [recruitment process outsourcing firms]? I’ve got to say I am at a loss with this one. I’d love to be able to say that outsourcing is misunderstood and there are some amazing relationships to be had - but you know, I can’t. I personally refused to outsource the Nortel Networks in-house team and resisted the outsource of the Energis team until told to. When I did, I can tell you right now our cost per hire (CPH) went down - so why the regret? Simple: the quality of hire went South faster than the cost.

That was slightly unfair; the biggest issue was not caused by the RPO firm but by accountants and the simplicity of the key internal resourcing key performance indicator (KPI) - that of CPH.

I have not found one in-house or outsource team whose main KPI is quality of hire! Cost per hire, yes; time to hire, yes; interviews-to-offer, yes, but never quality of hire. The first three are absolutely no measures of quality.

We are frequently asked to review recruitment processes within organisations, and we are never, ever asked to reduce cost of hire; our remit is always to increase the quality. In the end, as with most things, people will pay more for quality.

A classic example is an organisation whose outsourced partner had managed to decrease the CPH to £1,500 for their 250+ sales people they hired every year. On the face of it, an astounding result. Actually, if you know anything about recruitment, it’s not astounding at all -; it’s unbelievable. No, really - totally unbelievable.

The simple fact is that hiring the right talent for your business cannot be measured in CPH; it has to be total employee cost. In this example more than 50% of the hires left in the first year, at a cost to the business of £1m in wasted training costs

The simple fact is that hiring the right talent for your business cannot be measured in CPH; it has to be total employee cost. In this example more than 50% of the hires left in the first year, at a cost to the business of £1m in wasted training costs and ultimately further millions of
pounds in lost revenue. Oh, plus you have to hire the positions all over again at £1,500 per hire.

In this example the CPH was driving the wrong behaviour, as it always does, and the business suffered.

So my recommendation? Do away with cost per hire as a KPI for an in-house or outsourced team; it’s irrelevant.

Still don’t believe me? When I took over resourcing at Nortel Networks my finance allocated budget was $10,000 per hire; with 3,500 hires to make, my total budget of $35m was a sight to behold.

However, it simply wasn’t true. My actual CPH (taking into account the negative impact of mis-hires) was $65,000. Let me say that another way: the total cost impact hiring for the business was $65,000 per hire, not $10,000.

CPH was the wrong metric to measure the effectiveness of Nortel’s recruitment.

So in-house or outsource, that’s one for your conscience, but whatever you do, don’t use CPH as your KPI; it’ll doom the whole thing to failure.
PS: I did, in nine months, get the total cost impact of hiring at Nortel down to $10,000 per hire but that’s another story… Cost per hire - the death knell of outsourcing

Roger Philby is the founder of Chemistry Recruitment

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