Marina Gorbis's Blog, page 1497

Leaky Tax Systems Plague European Recovery

European policy makers who are considering raising tax rates as a way to increase revenue in the aftermath of the financial crisis should put greater emphasis on enforcing existing tax laws, says Zoë Kuehn of the Universidad Autonoma de Madrid in Spain. If countries such as Greece, Italy, Portugal, and Spain were to adopt Finland’s vigorous level of enforcement, their tax revenues would increase by an average of 12%, Kuehn says. In Greece alone, $49 billion worth of legal goods and services, about $4,380 per capita, escaped taxation in 2001–2002.

The Best Way for New Leaders to Build Trust

When I took over as CEO of Intralinks,  a company that provides secure web based electronic deal rooms, the company was hemorrhaging so much cash that its survival was at stake. The service was going down three times per week; we were in violation of the contract with our largest client; our chief administrative officer had just been demoted, and so on.

So, what I do on my first day? I spent more than four hours  listening in to client support calls at the call center.  I shared headsets with many of the team, moving from desk to desk to speak to the reps. To say they were surprised is an understatement: Many CEOs never visit the call center, and virtually none do it their first afternoon on the job.

I made this my priority partly because I wanted to know what customers were saying—but also to make an internal statement. I knew there had to be some radical changes to behaviors, expectations, and attitudes.  There was no time to be subtle.  I needed to show I was different, that things were going to be different, and I needed to establish trust as quickly as possible.

In leading various companies over the years, one of the most valuable lessons I’ve learned is that establishing trust is the top priority. Whether you are taking over a small department, an entire division, a company, or even a Boy Scout troop, the first thing you must get is the trust of the members of that entity.  When asked, most leaders will agree to this notion, but few do anything to act on it.

Without trust, it is very unlikely you will learn the truth on what is really going on in that organization and in the market place.  Without trust, employees won’t level with you—at best, you’ll learn either non-truths or part truths. I see this all too frequently. Sometimes employees will go out of their way to hoard and distort the truth.

The best way to start building trust to take the time and meet as many individual contributors as you can as soon as you can. In addition to meeting customers, meeting rank-and-file employees should be your top priority.

This is not a common approach. Many leaders see their role as directing and giving information, rather than gathering.  There is pressure to “come up with the answer” quickly or risk looking weak.  Too many new leaders believe they’re expected to know the answer without input or guidance. Nothing could be further from the truth.

Doing this correctly takes time—but less than you might think. The meetings can be on one on one or small groups.  The sessions can’t be rushed.  In the first few weeks I’d suggest you spend up to half your time in these meetings. Take a pad and take notes.  Listen intently.  A simple but effective open-ended question is: “If you were put into my role tomorrow, what would be the first three things you’d do and why?”  Or: “What are the three biggest barriers to our success, and what are our three biggest opportunities we have?” Really great ideas can emerge from these meetings—along with some really mediocre ones—but it’s your job to filter and prioritize them. First, gather the information.

Later on my first day at Intralinks, I began arranging meetings with individual contributors. That’s where my learning really began. Over the next few weeks I met with over 60 individual contributors. Not only did I learn a lot, but I convinced them that I cared what they thought and could be trusted with the truth.

In the middle of my first week as CEO, one of the company’s original VCs called. “So, what’s your plan?” he asked. I said I have to spend a few weeks learning. He was incredulous that I did not have a pre-baked plan. I was incredulous he thought that I should.

Over those weeks I learned how unhappy clients were with our complex bills, why service went down so often, why our pricing gave our clients headaches, that 80% of the customer calls could be eliminated with a simple fix to our service, and that clients wanted predictability of expenditures with us.

After six weeks, I had enough information to return to the management team with specific recommendations on what I thought we should do. Instead of just laying this out in an all-hands meeting, I began laying out the plan in one-on-one meetings in which I talked about how each individual’s feedback had helped guide my thinking. This created a tremendous buy in among all levels of the team.

By mid March, after only 10 weeks on the job, we rolled out the new plan. By the end of the year we’d signed 150 new long-term contracts (up from zero), revenue was up by almost 600%, our burn rate was cut by 75%, and we’d positioned ourselves to raise a $50 million round of financing a few months later in the heart of the dot.com winter.

None of this could have happened without building the trust of the team. New leaders must remember that many of the best insights on how to fix a company lie with employees further down the org chart. Creating a trusting, honest dialogue with these key personnel should be every new leader’s top priority.

Getting Beyond the Narcissism/Advertising Complex

The picture surprised me. It was a week before a big innovation conference in Australia in which I was set to debate the negative side of the question: “Would innovation make the world a better or worse place in 2050?” We’d been asked to wear clothes that represented artifacts from the future. A quick wardrobe check confirmed that wasn’t going to happen. So instead I asked my kids to help out.

I asked them each to draw a picture of what they thought the world would be like in 2050. My 2-year-old son, Harry, valiantly contributed a range of squiggles, which I suppose represented waves of karmic energy. Since I couldn’t tell if it was good energy or bad energy, I turned next to the submission from my soon-to-be-6-year-old daughter, Holly. She had drawn an arrow with flowers on it. A positive view, for sure.  My 8-year-old boy, Charlie, had drawn two pictures. The first, it did not surprise me, was of a man in armor that was a bit of a mashup of Iron Man and Spiderman.

His second picture gave me pause, however.  It showed a house surrounded by a high-security fence. Planes buzzed overhead, and a bomb was exploding in the sky. One of the planes looked suspiciously like the kind of drones that are dropping bombs across the Middle East and Asia. This was innovation all right – an innovation-induced wasteland.

It was a darker view of the future than I had ever hoped my son would have, and it certainly got me thinking about how to make the negative case during the debate. Certainly, innovation has the potential to run amok, and enable governments, other institutions, and individuals that want to do bad things to do worse things.  But as I kept thinking about the less obvious harm technology could do, the one possibility that really got me worried was the unstoppable rise of what I will call the “advertising/narcissism complex.”

The world suffers from big problems: How can we feed the 10 billion people who will inhabit the Earth in 2050? How will we deal with the impact of climate change? Will we address rising income inequality? Can we make health care more accessible and affordable? Large-scale problems require large-scale solutions, and large companies have the capacity to make meaningful progress on these challenges. But they need highly skilled innovators to lead those kinds of innovation efforts.

The high salaries investment banks offer draw talented scientists and engineers to figure out ever more complex financial instruments that don’t advance any particular social purpose. There is a similar risk that the entrepreneurial energy surging through big companies will not be marshaled toward finding better solutions to important problems but rather will get sidetracked into finding ever more inventive ways for people to merely tell the world what they are doing and thinking by the second, and into finding more sophisticated ways to sift through data to hyper-target advertisements to would-be customers.

The rewards of doing that are clear. Consider the praise heaped on David Karp, who sold his six-year-old start-up, Tumblr, to Yahoo! for $1 billion. Or look at the combined $150 billion valuation placed on Facebook and Twitter. While those companies surely have significantly utility, and are credited with playing vital roles in the Arab Spring, what about the next wave of sharing sites like Pinterest, Snap Chat, and Instagram? And the waves that will inevitably come after that?

Without access to top entrepreneurial talent, struggles with innovation could lead increasing numbers of  companies with the capacity to make a huge impact to give up. How much less risky does it feel to embattled executives charged with innovating to instead follow along with the prevailing trends? The thought gives me chills.

But what can be done?  Getting beyond the obvious isn’t easy (that is, that corporate leaders should make their organizations hospitable to high-impact innovation, and pundits should balance breathless praise of quick flips with equal, if not more, attention paid to the long-term impact that innovations have). What if we thought bigger?

Here are my two suggestions. First, what if we created something that had the prestige of the Nobel Prize for innovation, and award it to an entrepreneur who commercializes a world-changing idea? There are a variety of “most innovative” company awards that are fairly well publicized, but not a high-profile one that celebrates the important role of the individual. Perhaps the Bill and Melinda Gates Foundation or the Clinton Global Initiative could fund the award, with support from world-leading academics like Clayton Christensen and Rita McGrath.

Even more radical, what if investors demanded that companies report how much they are investing in innovation and the risk-adjusted value of their innovation portfolio? Right now, the best measure of investors’ views of a company’s innovation capacity is Forbes’ “innovation premium,” which estimates “the premium the stock market gives a company because investors expect it to launch new offerings and enter new markets that will generate even bigger income streams.”

Since what gets measured gets managed, and we know that innovation is key to a company’s long-term success, why shouldn’t investors get a better view into the innovation efforts of the firms they back? Not only would this force leaders to focus on innovation, but it would show top talent where to go to have the greatest impact.

Realistic assessments of what can go wrong are helpful tools to highlight seemingly invisible mines standing in the way of success. What else can we do to avoid Charlie’s Innovation Wasteland?

Why You Should Treat Laughter as a Metric

I was following the same yoga video I had followed more than 30 times in the past. Because I know the routine well, I usually have little trouble breathing rhythmically through the postures, feeling the subtleties of each movement, and sliding gently into a mind-body meditation.

This time, though, was drastically off. Not only did my mind wander, I was clumsy and confused. I did “Warrior 1” twice on the same side instead of switching legs. I lost my balance in eagle pose. And, at one point, looking up at the video from my standing split, I found myself two postures behind the leader.

The worst part wasn’t my poor performance though; it was my attitude and mood. I felt stressed, annoyed, and anxious – hardly the outcome I was looking for from yoga.

The problem? I wasn’t only doing yoga. I was watching the TV show Revolution on my iPad mini — perched next to my TV screen – at the same time.

It was an experiment that I started after a conversation with my mother. She and I were talking about her dinner plans and she mentioned she was going out with a couple she really enjoys. I asked what she enjoyed about them.

“They laugh a lot,” she answered, “and I love that. People don’t laugh so much anymore.”

Her comment stuck with me. She’s right: We don’t laugh as much as we used to.

I thought a lot about it and arrived at a hypothesis I chose to test: It’s not that we’re depressed, it’s that we’re distracted. And laughter, it turns out, is not something that happens when we’re distracted.

I’ve written about the productivity downside to multitasking in the past. As my yoga experience and countless studies show, we pay a steep price in efficiency for spreading our attention so thinly.

But my mother’s observation points to a more nefarious consequence of multitasking: its emotional impact.

It’s impossible to feel joy or pleasure when our attention is fractured. Anger, frustration, annoyance – sure. Those emotions rise to the surface easily. In fact, multitasking encourages them. But laughter? It’s nearly impossible.

Why is this important? Does it really matter whether we’re laughing more or less? What does this have to do with leadership?

Everything, it turns out. My yoga experiment wasn’t the first I’d tried. Before that, I watched television while processing my credit card bill on an Excel spreadsheet — a seemingly mindless task that involves nothing more than dragging numbers from one cell to another. Not only did it take four times as long as when I did it undistracted, but I grew increasingly irritated as I worked. When someone walked into my office with a question, I growled.

That’s a leadership issue.

Not laughing is a symptom — a lagging indicator — of an ill that’s creating havoc in our lives and our organizations.

We aren’t laughing anymore because we aren’t fully present anymore. Physically we’re in one place but mentally, we’re all over the place. Think about some recent phone conversations you’ve had — and then consider what else you were doing at the same time. Were you surfing the web? Reading and deleting emails? Shooting off a text? Sorting through mail? Or maybe you were thinking about any number of problems — a renovation, a recent argument, a never-ending to-do list — unrelated to the topic at hand.

Unfortunately, being fully present in the moment has become a casualty of our too full and harried lives.

“But don’t some people get intense pleasure from the challenge of focusing on more than one thing at a time?” a friend asked me when I shared this notion with her. “What about complex multi-dimensional activities, like doing a presentation?”

She’s right. I love doing presentations. And when I do a presentation, I’m thinking about innumerable things at once — the content, my delivery, the energy in the room, my timing for a joke, that person in the front row who seems disgruntled, the amount of minutes I have left, etc.

But the reason I love the excitement of all those variables is precisely because they keep me laser-focused. I’m battle-ready, all my senses alert, prepared for anything. Yes, I’m holding a lot of things at once, but they’re all related.

Complex multi-dimensional activities hold so much pleasure precisely because they require singular focus. Everything we’re dealing with is connected. It’s when we’re focused simultaneously on things that are disconnected — like a conversation and an email — that we struggle.

Here’s the good news: The solution is fun.

As an achievement-driven guy, I’d like to suggest a personal challenge: Try to increase the number of times you laugh in a day. I don’t mean chuckle — that’s not a high enough bar — I mean really laugh. Choose a number: 3? 8? 20? Then try to achieve it.

On the surface, this seems a little nuts. But think about it: We measure all sorts of things in organizations that supposedly drive results – why not laughter? At least until we get the hang of it again.

The interesting thing about laughter is that you can’t force it. It just happens when the conditions are right. And the conditions are right when you’re focused on what you’re doing in the moment.

So how do we get our laughter numbers up? Create the conditions that make laughter more likely: Do one thing at a time. Focus on it entirely. If a distracting thought enters your mind and you’re afraid of forgetting it, write it down for later when you can focus on it exclusively. Don’t spread your attention beyond what’s right in front of you right now.

We already know those things will make us more productive. It’s nice to know they’ll bring us joy and laughter too.

The Economics of Online Dating

Paul Oyer, Stanford economist and the author of Everything I Ever Needed to Know About Economics I Learned from Online Dating, explains the marketplace of online love.

Download this podcast

Executives Ignore Valuable Employee Actions that They Can’t Measure

Does better data mean better employee performance and organizational outcomes? That’s the implication of the current emphasis on big data and the use of metrics in HR, but the answer isn’t an easy “yes.”

To see what I mean, consider your local schools. When teachers are evaluated and paid on the basis of students’ test scores, performance on tests typically improves. The moral: Data works. Long live data!

But research also shows that higher test scores don’t necessarily translate to greater student mastery of the material. In other words, teaching methods that are effective in improving test scores may not be the best for increasing students’ knowledge. The moral: Data doesn’t work. Down with data!

Teaching is a great example of the strengths and shortcomings of data-based performance assessments because, in a sense, teachers are both frontline workers (when actively teaching in the classroom) and executives (when they write lesson plans and develop teaching and classroom strategies). In their role as line workers, teachers can be expected to respond to whatever metrics are applied to them. But simple metrics such as test scores may not detect the difference between teaching strategies that increase students’ knowledge and those that don’t.

A lot of us have jobs like that—some of our work leads to easily measured outcomes (sales volume), while some is much harder to quantify (solving a complex technical issue while easing customer frustration). With the rise of eHRM—electronic human-resource management—it becomes easier than ever for organizations to automate the collection and analysis of employee data. But this also means that it becomes easier to rely on data that organizations can conveniently collect and analyze. Behaviors and aspects of performance that aren’t easily quantified and captured in eHRM can become neglected.

For example, an organization that measures only the number of cases a customer-service rep handles per day may overlook the value of an employee who is capable of winning over an agitated customer. Consider also the use of workload-scheduling software for maintenance employees or physicians. These systems can increase overall operational efficiency and employee performance (measured as number of service calls completed or patients seen), but what happens if the system doesn’t account for the complexity inherent in different jobs? High-performing experts can be penalized for taking on complex assignments.

When you over-objectify or oversimplify the measurement of performance, you risk missing the richness of what makes that job special—or complex—or what makes each person’s contribution unique. Yet, for many managers, this duality is not apparent. Managerial knowledge and skill in applying metrics has not kept up with organizations’ ability to create them. Managers often don’t have the time or knowledge to understand the limitations of the metrics they apply. Instead they rely on easily obtained “objective” data from the system and ignore the less quantifiable and more complex aspects of performance.

Employees will engage in the behaviors easily captured through the system and ignore those aspects of performance that aren’t considered. That’s why organizations need to continually assess whether the data they’re collecting is truly relevant to the broader organizational objectives.

My hunch is that HR is moving toward an era of better data. What do I mean by better data? Take, for example, Sabermetrics and its use in Major League Baseball. Before Sabermetrics came along, few people imagined that the conventional thinking about baseball could be upended by arcane statistics such as wins above replacement.

Before we can develop a metric similar to wins above replacement for employees, we have to define key organizational and employee performance outcomes and determine how they relate to employee behaviors. The challenge is that we still don’t know what these metrics will look like or whether they will fully reflect performance.

Along with better data, we need to develop a more nuanced view of human qualities and human potential. Can we not only accept, but embrace, that some behaviors may not be reducible to easily quantifiable metrics, and that no amount of data can fully capture all of your, or my, best performance qualities? In a world that is increasingly driven by quantitative analyses of employees and performance, we need to find ways to efficiently incorporate both the quantitative and qualitative aspects of performance.

From Data to Action An HBR Insight Center




Is There Hope for Small Firms, the Have-Nots in the World of Big Data?
Big Data’s Biggest Challenge? Convincing People NOT to Trust Their Judgment
Small Businesses Need Big Data, Too
How to Get More Value Out of Your Data Analysts

Increase the Odds of Your Start-Up’s Success

While traveling between India and the U.S. these past few months, I spent some of the long hours in the air looking back at my professional life and the lessons I learned along the way.  Each phase of my career offered different challenges, successes, and lessons, but my most exhilarating moments were undoubtedly during the start-up phases.

As some of you will remember, I headed a start-up called HCL Comnet in 1993, which incubated the idea of remote infrastructure management services.  It’s a $1.4 billion business today, with 20,000 employees, and boasts some of the best people I’ve ever worked with.

People often ask me why HCL Comnet has been successful while so many new ventures are not, and what leaders can do to increase the probability of success in a start-up.  I don’t have all the answers, but there are five essentials to remember when leading a start-up:

Create a sense of purpose. More than an idea or a vision, a start-up must be driven by purpose.  People like working for start-ups not because of the salaries or designations they offer, but because of the excitement involved in pursuing a purpose — one that challenges the status quo and promises to change the world.  That often creates the feeling that a start-up will succeed irrespective of what it does; it will survive because of the way  it does things.

Put people first, always. Start-ups make for terrific training grounds because they provide the most important management lesson: People make companies, not the other way around, and only start-ups that realize that will be left standing.  That’s why implementation of ideas such as employee first, customer second increase the probability of success.

Jog fleetfootedly. The most important demand on the leaders of a start-up is flexibility — a flexible hierarchy, flexible markets, flexible solutions…  Many start-ups begin with one idea, shift to a second, and then, move to a third or fourth before they succeed.  For instance, PayPal started in encryption and Flickr in gaming.  HCL Comnet began with building communications networks but moved on to IT infrastructure management.  If it had been married to the idea of building networks, it might never have succeeded.

What’s important is the willingness to evolve by learning more about customers.  The evolution takes place in small steps, with the organization pivoting from one plan to another, leaving one foot firmly planted in what it knows.  If you’re climbing Mount Everest, which is pretty much what you’re doing when you launch a start-up, you won’t be able to see the peak from base camp.  You navigate your way one step at a time, focusing on how to climb the mountain facing you, thinking and rethinking your strategy at each cliff along the way.

Develop a sense of timing.  Waiting for the right moment to take a decision, and holding off until then, often makes the difference between success and failure.  A farmer knows when to sow and when to harvest.  When he plants rice, he doesn’t think about the price he may get, but when the crop is ripening, he will negotiate the price.

Be patient; try not to maximize your gains at every step.  The longer you wait, the higher the value you will create.  It can be frustrating but patience is sometimes your best friend; at other times, speed is important.  Knowing the difference is critical for success.

Create governance mechanisms. It isn’t necessary to define roles and responsibilities in a start-up; everyone must be prepared to do anything for success.  People usually get excited by that. It’s like the adrenalin that pumps when you go white river rafting; you don’t know what challenges you’re going to be hit with.  You certainly don’t know who would need to do what in advance.

To navigate through the turbulence, governance mechanisms are necessary.  They don’t create rigidity, but maintain financial discipline, with quarterly and monthly reporting.  It’s akin to laying down the railway tracks to channelize the momentum of speeding trains.  They may seem superfluous when revenues are hard to come by, but it’s imperative to have them in place in order to get funding and to stay capital efficient.

These five fundamentals can provide the fuel for any start-up, but I’d love to hear your ideas on what leaders can do to make start-ups succeed. Let me know.

New Research: Rituals Make Us Value Things More

Rituals in the workplace can reinforce the behaviors we want, create focus and a sense of belonging, and make change stick.  I have gone on and on in the past about the benefits of established rituals and routines for personal productivity – how they capitalize on our brains’ ability to direct our behavior on autopilot, allowing us to reach our goals even when we are distracted or preoccupied with other things. And there are plenty of companies who’ve been smart enough to harness this power. At Google, for example, new employees have a ritual now made famous by the Vince Vaughn/ Owen Wilson film The Internship­ – they wear beanie hats in the Google logo colors with propellers on top that say “Noogler.”  Far from feeling ridiculous, Google employees feel that the ritual of the Noogler hat marks them as part of an exclusive group.

But new research demonstrates that the power of rituals goes even further – they can increase our perception of value, too.  In other words, if employees perform rituals as part of their jobs, they are likely to find their jobs more rewarding.  And if consumers use a ritual to experience your product, they are likely to enjoy it more and be willing to pay more for it.

Kathleen Vohs and Yajin Wang of the Carlson School of Management at University of Minnesota, along with Francesa Gino and Michael Norton of Harvard Business School, conducted a series of studies looking at how ritual changed the experience of consuming a variety of foods.

In one study, participants tasted chocolate, either ritualistically (i.e., with the instruction to break the bar in half without unwrapping it, unwrap half the bar and eat it, and then unwrap the other half and eat it), or as they normally would.

Those who performed the ritual reported finding the chocolate more flavorful and enjoying it more.  They also took more time to savor it, and were willing to pay nearly twice as much for more of it.

In another study, the researchers found the same pattern of results for a decidedly less glamorous food: the carrot.  This time, participants used their knuckles to rap on the table, took deep breaths, and then closed their eyes before eating the carrot.  And yes, that is weird.  But it still made them like the carrots more.

How does ritual increase value?  Vohs and her colleagues found evidence to suggest that personal involvement is the real driver of these effects. In other words, rituals help people to feel more deeply involved in their consumption experience, which in turn heightens its perceived value.

This makes a lot of intuitive sense when you consider the success of some iconic brands.  Oreos, for instance, aren’t just two chocolate cookies with some vanilla cream inside – the way you eat an Oreo matters, too.  As everyone knows, you twist it, lick it, and dunk it.

The Oreo ritual is as famous as the cookie itself  – and no small part of why it is the world’s best selling-cookie.

Then there’s Guinness – the best-selling drink in Ireland and a global powerhouse available in 100 countries, with nearly two billion Guinness pints consumed annually.  And it all starts with the proper Guinness pour – at an angle, allowing it to settle for two minutes when only three-quarters of the way full, then gently topping off.  Guinness fans will fervently swear that a proper pour elevates the stout to heavenly heights and will riot when the pour is botched.

So when you’re thinking about how to market a product, consider how you might add a bit of ritual to the experience.  For instance, if you’re selling a state-of-the-art tablet or smartphone with a new high-resolution display, try packaging it with some screen-wipes and make giving the screen “a nightly rubdown to maintain the dazzling display” part of your ad campaign.  Customers who are ritually cleaning and caring for your tablet will value it more, and are more likely to become loyal fans of your brand.

Or think about how this might change the way you use incentives, since these results should also apply to how employees value rewards. For instance, if you’re giving them a bonus, don’t just leave the check in their mailbox — find a way to give it to them that involves some formality. The ritual doesn’t even have to make sense – after all, what does knuckle-rapping have to do with carrots?  So when doling out rewards or celebrating milestones, get creative.  Bang a gong, do an end-zone dance, hand out your own version of the green “Masters” jacket that the employee wears for a week.

Simple rituals like these will make whatever you have to offer – to your customers or to your team – look and feel like more.  Wrap it in a ritual, and you will have created added value right out of thin air.

Civil War Boundary in U.S. Affects Trade to This Day

The line separating what used to be the Union and the Confederacy in America reduces trade between states of the former North and South by 13% to 14%, an effect that is strongest in food, manufacturing, and chemicals, say Gabriel Felbermayr and Jasmin Gröschl of the University of Munich in Germany. Possible reasons: The South’s secession 150 years ago may have had long-term effects on business-to-business trust and consumer preferences for goods, the researchers say. By comparison, the former border between East and West Germany restricts trade by about 26% to 30%.

We Can Now Automate Hiring. Is that Good?

One of the things that is different since the recession is the approach that most companies are taking to hiring—where virtually everything about the process is automated or outsourced.  As with all major trends, this one has been underway for a while, but it has been given a push by five years of relentless cost-cutting. Unfortunately, the emphasis on cost-cutting has shifted managers’ attention away from the value they should be creating from these new latest hiring practices—and this is where the future of hiring lies.

Ironically, these approaches did not start out as cost-cutting measures. Recruiting—the gathering of candidates—was long ago turned over to websites and software to simplify the process for finding good candidates in a tight labor market. Starting in the late 1990s, employers facing what was then a shortfall in candidates tried to make it easy for candidates to apply by putting simplified applications online and then managing them with applicant tracking software.  Then, as the labor market changed, automation was simply the most efficient way of dealing with a deluge of candidates.  When the economy turned down first in the recession of 2001 and then massively so in the Great Recession starting in 2008, unemployed candidates flooded employers with applications, and companies had no choice but to use software to process and screen them.

The idea behind applicant tracking software was to provide a simple first cut of applicants to see if they had the basic attributes the jobs required.  The pool that survived that cut would then be turned over to recruiters who would then consider them carefully for hiring.  But during the Great Recession those recruiters themselves lost their jobs—why keep them when there was no hiring? As hiring starts to come back, companies are trying to do it without hiring back recruiters and, as a cost-savings effort, in some cases trying to do it with no recruiters at all.

How is that possible?  One bad way has been to screw down the requirements on the existing applicant tracking system to screen out all but a few candidates.  It’s almost impossible to do that with any precision, and a likely consequence is overreliance on credentials or experience that are not all that relevant to the job.

An obvious way to get by without recruiters is to outsource the entire recruiting and selection process to a third party.  The growth of these Recruitment Process Outsourcers (RPO’s) has been spectacular.

Another reasonable approach is to automate even more and to use technology to handle some of the more standardized tasks associated with selecting the best candidates.  Think of every time you’ve been hired for a job and all the steps you went through involved after you submitted your application.  Every one of those can now be done by computers.

Consider, for example, the process of checking references.  That can be done now online by companies like SkillSurvey.com, who standardize the process and push it to the referees to do on their own schedule.  Bringing candidates in for interviews can also be eliminated with tools like Hirevue.com, who conduct standardized, video interviews that are scored and that employers can then review on their own time.  HireIQ.com moves the interview process to automated telephone interviews that are taped and assessed for personality and other attributes. What’s the appropriate salary to pay? Vendors like salary.com or payscale.com can tell you what market wages are for jobs like yours in your community and what benefits competitors are offering.

Is this automated approach a good thing?  One scenario the automated approaches eliminate is where the unusual but plucky candidate who doesn’t fit the mold has the opportunity to persuade the recruiter to give them a chance. No doubt there are many nice examples where that scenario plays out well for all sides, but there are far, far more stories where the candidate who doesn’t meet the requirements is going to cost the business a lot of time and money if they are hired only to prove in the end that they were not a good choice.  The alternative to standardized, data-driven practices is unfortunately not a wise, experienced, recruiter with an open mind.  It is more likely to be a hiring manager who has no training in selection who “goes with their gut,” which means they hire someone who looks like them.  It is hard to argue with approaches that rely on data and standard practices to bring rigor to the hiring process.  But whether that is actually what’s going on is not so obvious.

Beyond the potential cost-savings and rigor of these new hiring processes, lie a host of reasons why companies need to think more deeply about their potential costs (are you just transferring the costs from hiring and recruiting to the costs of managing a poor employee, for example) and the potential benefits (such as getting better talent).  Yes, this automated approach is a good thing; but only if companies are actually creating value with it.

It’s difficult to think of any decision that is more important to an organization than determining who it hires.  One reason why hiring is even more important now than in the past is because employers do it so frequently: High turnover means continual hiring, and most companies now look outside to fill vacancies for all jobs, not just for those we used to call “entry-level.” Using vendors who have expertise in hiring to aid the process could make perfect sense as a way to get better candidates —and create value.

But companies aren’t there yet.  When one talks to these vendors and to the RPO’s, the story they tell overwhelmingly is that clients are interested in their services to cut hiring costs.  That’s not a bad thing per se.  What is bad is when hiring costs become the only objective.

Evidence that cutting costs is the main objective comes where we see these hiring vendors being managed not by the client’s HR department but by the vendor management department.   A cheap approach to hiring that leads to poor hires is one of the worst decisions one could possibly make given all the possible costs associated with making a bad hire and the benefits of good hires.

Why would an employer possibly take such risks just to save a few bucks up front?  It happens when the people in charge see data on the costs of hiring but no data on the outcomes of hiring.  We manage what we can measure, and without evidence that hiring practices matter, we just squeeze the costs down.  It can be difficult to generate such evidence, and few companies these days still have the capability in the HR departments to do so.

So, the answer is to press the vendors for evidence that what they are doing pays off by giving you better hires.  If they don’t have it, ask them to get it.  More important, when you engage them, ask them to help you asses the value they are creating for you so that you can sell the case for better hires to company leaders.   If they can’t do that, get another vendor.

Talent and the New World of Hiring

An HBR Insight Center




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