Quick, out of every 10 hires made by your company, how many turn out to be good? If you’re like most companies, your response to this question is probably half the time. Even the best companies still only turn out to be right about seven times out of 10.
While turnover may feel like an unavoidable cost, consider this: The cost of replacing a bad entry-level hire is commonly estimated to be 30% of first year compensation. For senior executives, it could be up to three times the first year’s compensation (Dice Insights estimates the multiplier to be as high as five in some situations).
If even excellent companies only have a 70% success rate, what more can companies do to ensure that they hire the right candidate?
The answer involves doing something that most hiring managers don’t do first, if at all: evaluate a candidate’s cultural fit even before his or her skills set.
What is Culture?
In a recent survey by Hunt Scanlon Media, 73% of respondents cited culture as the most important workplace consideration at their organization. However, culture remains elusive and hard to pin down, with many still mistaking a foosball table in the break room for good organizational culture. In truth, culture goes much deeper.
Simply put, culture is the collective of how people believe and act. This may sound inconsequential at first, but it is the core of what drives a business. What people believe–their values and assumptions–drives how they act, and the cumulative actions of all employees is what achieves an organization’s results.
In a simple example, if employees do not believe a goal set forth by management is worthwhile, they will have a hard time motivating themselves to take steps to achieve that goal. On the flip side, if employees are enthusiastic about the organization’s goals, then the company will enjoy a much higher rate of success.
Belief Versus Action
Organizations often evaluate candidates’ skills and experience to do the job often without considering whether the candidate’s beliefs and assumptions align with the company’s culture. Even when they do consider culture, it is often at the end of the hiring process, after they have assessed candidates with respect to experience and skill sets. After all the time and effort expended on winnowing down the candidate field, companies can form a strong bias towards a candidate even if he or she is not a good cultural fit.
Taking this approach leads to cultural friction. For instance, an experienced manager with a strict, top-down approach stifles a collaborative team. Or, a skilled technician who staunchly believes that “the old ways are the best ways” struggles in a culture of innovation.
In cases where the wrong hire is made, organizations may have to muscle it–pouring time, money, and energy into pushing their company in the right direction–or replace the hires that are out of alignment. Either option involves a great deal of unnecessary effort and expense.
The Competitive Advantage
Aligning for culture from the hiring stage not only reduces costs, but gives a decided competitive advantage in the marketplace. In 2015, Chili’s Restaurant Company hired 35,000 new people. At that time, the restaurant industry’s standard turnover rate was 100%: every twelve months, there was a completely new team. Chili’s developed a strong culture of feedback and valuing long-term commitment, and made sure that their new hires shared those values. As a result, Chili’s enjoyed a best-in-class employee turnover rate of only 70%. This not only meant lower training costs, but also higher employee satisfaction and better customer service, both essential to success in such a competitive industry.
Shaping Culture for Growth
Culture drives business, and people are at the heart of culture. It makes business sense for companies to seek new hires who share the company’s values. Hiring for culture allows companies to quickly bring new recruits up to speed, reach results faster, and obtain their highest organizational potential.