In the last decade, recruitment systems have changed a great deal. The following are some of the key changes:
The success of India’s IT firms over the last decade has contributed to the upsurge in recruitment and outsourcing in a big way. HR managers at IT giants like Infosys, Wipro and Mahindra Satyam spend substantial amounts of their time in recruitment and induction. A high level of professionalism is being brought into the recruitment process. Assessment centres are likely to become even more central to recruitment as the need for competent managers increases.
Internationally, the emphasis is shifting to the recruitment of talented employees. Proactively searching out, identifying, hiring and retaining top-graders or A-class performers in every job, redeploying C-class players to internal positions where they can become A-class players, and coaching employees to improve their performance certainly makes a difference to organizational efficiency. The use of assessment centres for determining competency levels and the emphasis on new assessment methods is on the increase. Bradford Smart (1999) has suggested the following to improve the recruitment of A-class players, thus enhancing human capital and talent management in a competitive economy:
A number of assessment methods discussed in the subsequent chapters on assessment and development centres can be used for talent assessment. Psychometric tools have emerged as particularly popular. These are discussed in some detail in this chapter.
In this section, we will consider the following:
Any systematic procedure in which a person is presented with a uniform set of stimuli (tasks, questions or problems) intended to elicit particular responses, which are then scored and interpreted according to a specified criterion or performance standard, can be called a psychological test.
It is a standardized instrument to measure, objectively, one or more aspects of a total personality by means of samples of verbal or non-verbal responses, or by means of other behaviour.
The key words here are: standardized, objectively, samples, behaviour. The critical elements of a psychometric test are:
Measurement is defined as rules for assigning numbers to objects in such a way as to represent quantities of attributes (Stevens 1946). The key elements are:
There are four types of scales that are used to measure things: nominal, ordinal, interval and ratio scales. These scales have interesting properties that are briefly described here:
Nominal scales can measure anything that exists in a certain quantity. The moment you say some thing exists and have assigned a name to it and associate some property with it by virtue of the name assigned, you have scaled it. The naming of an individual, quality, process or phenomenon is the most primitive form of scaling. Examples of nominal scales are: licence plates, house numbers, security numbers, caste, groups, and so on.
An ordinal scale indicates the order or position of an object or variable in relation to other objects or variables. For example, first-born, second-born, third-born, and so on are ordinal scales, as are first-ranker, second-ranker, third-ranker, and so on. They indicate positions, but do not indicate the distance between the positions. The age difference between the first-and second-born may be three years and the difference between the second-and third-born may be 10 years. The first-ranker may score 97 per cent, the second-ranker 87 per cent and the third-ranker 86 per cent. These are just ordinal positions. This is a slightly better developed scale than the nominal scale.
An interval scale is a scale where the difference between any two consecutive numbers is equal to the difference between any other two numbers. The numbers are additive and subtractive, but not divisive or multiplicative. The difference between 70 kg and 69 kg is equal to the difference between 14 kg and 13 kg. Whenever you take two consecutive numbers, their difference is the same. This is the unique property of the interval scale. If this scaling is applied to recruitment, the difference between a candidate who gets a score of 78 points on a given test and one who scores 77 points should be equal to the difference between one scoring 45 and another who scores 44. We know that our recruitment tools are not accurate enough to be able to add and subtract. However, we pretend as if test scores are can be subjected to addition and subtraction.
The ratio scale is a highly sophisticated scale with an absolute zero, and may be used for addition, subtraction, multiplication and division. This scale is used in disciplines like space science and physics.
Most psychometric tests pretend to use the interval scale while, at best, they use nominal or ordinal scales. This property of the tests needs to be understood by anyone who intends to use psychometric testing. However, as is now explained, achievement tests and ability tests are a lot more objective than personality tests.
What is a construct? A construct is a particular type of concept, a product of informed imagination in a given field, which can be used for descriptive or explanatory purposes. When constructs are measured, they vary over a range of values and become variables. Constructs are developed on the basis of the systematic observation of similarities in (summarized and labelled) behaviour.
In psychometric testing, a construct should be clearly defined. The definition of a construct or variable is critical, as the definition may indicate the actual behaviour the candidate needs to exhibit on the job.
This definition of a construct is called operational definition. Standardized tests like 16 PF and MBTI have used their own operational definitions over time and across cultures. When customized tests are to be developed, research is required to understand the nature of the variable and to generate operational definitions. Test construction is a long-drawn-out process. The ROI on test construction is likely to be high only if it is meant for mass usage, and the developers have enough time, patience and resources to invest.
Once the construct is operationalized, a framework for measurement can be conceptualized.
Testing is domain sampling Measurement indicates the extent to which a variable is present in, or characterizes, the individual candidate. It is an indication of magnitude. The measurement of behaviour is not the same as the measurement of physical qualities. The former is based on responses to a sample of items, rather than a total population of items. For example, qualities like sociability or introversion–extroversion tendencies are measured on the basis of a sample of responses by the individual to items relating to the variable. The various components or areas of behaviour where the trait, quality or variable can be expressed by the individual are called domains.
For example, the verbal reasoning domain includes:
The response of an individual to a sample of items in each of the three parts of the domain gives an indication of the individual’s verbal reasoning ability.
The item domain includes all possible tasks that measure each of the behaviours included in the construct.
For example:
Tests can never measure all the aspects of behaviour in the entire domain.
Tests as predictors of future performance Some tests are virtually identical to the situations that employees will encounter in the course of their actual job: for example, how one edits the manuscript of a journal article will present a fair picture of one’s skills as an editor. But there are cases where the test and one’s work itself are less similar: for example, performing well in the Graduate Record Examination (GRE) or an analogy test can hardly predict one’s possible success as a medical doctor.
Psychometric tools or instruments can be classified on the basis of various dimensions. The most popularly used classifications are based on the following dimensions:
Types of instruments: content-based classification Instruments can be classified on the basis of their content in the following ways:
Types of instruments: based on nature of competence measured Based on the nature of competence measured, instruments can be classified in the following ways:
Other classifications Here are some other ways of classifying instruments:
Further, tests or instruments could be of the following kinds:
Instrumentation science: some basic requirements Instrumentation is a science. Thousands of psychologists are working across the world to discover new dimensions of personality and measure them. Organizations are laboratories where behaviour can be captured in the context of one’s work, and the tools to measure behaviour can be developed. As the cost of developing new tests is comparable to the cost of every patient manufacturing her/his own medicine for every ailment, it is recommended that standardized tests and variables relevant to the organization be used. Even selecting the appropriate test requires some basic knowledge of psychometric testing. Such knowledge should include:
Steps in preparing instruments The following are the steps followed in developing psychometric instruments:
Reliability Reliability gives an indication of the extent to which the test can be relied upon and the extent to which it gives accurate or consistent results or the same result. It also deals with the extent to which the test is internally consistent. Reliability is measured by:
Validity Validity is the extent to which the test measures what it purports to measure when compared with accepted criteria. Validity is measured by comparing the test performance of a group of individuals on actual performance in real-life situations, where the variable being measured is expected to play a significant role. Since it is difficult to always find situations where a single variable plays an important role, it becomes difficult to validate most of the instruments by this method. In some cases, the test is validated through the assessment of known people (like supervisors, colleagues, and so on). In other cases, test scores are validated with already standardized tests. The different forms of validity are as follows:
The following are some tips to improve the validity of the tools:
There are different forms of psychometric tools or instruments. They are:
Besides reliability and validity, good instruments should be simple, brief, economical and easy to administer.
Psychometric instruments can be used for the following purposes:
A discussion of two of the most frequently used instruments—MBT and 16 PF—follows.
Myers–Briggs type indicator (MBTI) MBT contains four separate indices dealing with attitudes and processes. Each index reflects one of four basic preferences: (a) extroversion-introversion (E–I); (b) sensing-intuition (S-N); (c) thinking-feeling (T–F); and (d) judgement-perception (J–P). These are grouped under attitudes and processes, the combination of which makes up a particular type of person. Attitudes refer to extroversion and introversion. Processes of perception are sensing and intuition. Processes of judgement are thinking and feeling. One deals with the outer world through judgement or perception. A lot of research has been done on this tool. Although its founders are against its use for selection and recruitment, most firms find it useful. MBT needs specialized training and there are special courses conducted for training potential users. Manasayan, an agency in New Delhi, conducts an annual certification course on the use of MBT and also supplies other tools.
The following are some further details about MBTI:
Attitudes refer to extroversion and introversion. Where does one focus one’s attention? Where does one get one’s energy from?
Extroverts have the following characteristics:
Introverts have the following characteristics:
The processes of perception are sensing and intuition.
The following are the elements of sensing perception:
Those with a high level of sensing perception tend to:
The following are the elements of intuitive perception:
Those with high level of intuitive perception tend to be:
The processes of judgement are thinking and feeling.
The following are the elements of thinking judgement:
Those with a high level of thinking tend to:
The following are the elements of feeling judgement:
Those with a high level of feeling tend to:
The outer world can be dealt with through judgement and perception.
The following are the elements of a judging attitude:
People who predominantly have this attitude tend to
The following are the elements of a perceptive attitude:
People who predominantly have this attitude tend to be:
One’s individual MBT score is presented as
The 16 personality factor questionnaire (16 PF) The second type of psychometric test, 16 PF, assesses the individual on 16 traits though a self-administered questionnaire: These include:
Inductions have traditionally focused on new recruits at the entry level. This is partly because newcomers fresh out of college often need to know a lot about the company, and make the transition from an institutional learning mode to an organizational action mode. Also, there are a large number of such graduates inducted into the company, and it is both feasible and economical to induct new batches in groups. The induction of employees recruited at senior levels has not attracted much attention in the past. It is still not considered an important issue in most companies. However, let us pause to consider the experiences from the West that show the significance of induction of new employees at senior levels. Studies have linked the retention capacity of a firm to the induction and assimilation process. The new economy and the need to be competitive require people to be inducted into a company even before they join it (Rao 2002). If a new employee joining at the top level enters the organization with a full understanding of its culture and her/his role, attrition rates can be checked.
According to studies in the USA, while firms go to great lengths to hire new employees, only 20 per cent of them stay for more than two years. Nearly 70 per cent of the newly hired seniors leave within two years. There is only a 50 per cent chance that when someone takes up a new job she/he will be with the company for more than two years. In a three-month period in 2000 alone, 350 CEOs in the USA left their jobs. According to a Harvard Business Review article (Peter Cappelli 2000), 80 per cent of a pool of executives changed their jobs within two years. Another study reported that 47 per cent of executives appointed as presidents left within four years. In a study of 359 résumés, it was found that 68 per cent of job-seekers had left their previous jobs within 12 months (Downey 2001).
Smart (1999) estimates that the cost of mis-hires is perhaps 40 times the base cost at top levels, when one considers the recruitment, actual compensation expenditures, severance, the additional cost of lost productivity, the time it takes for someone to become productive, business mistakes and missed opportunities. Research by Sibson & Co. in four high turnover industries has revealed that replacement costs have reduced the earnings and stock process by an average of 38 per cent. The estimated cost of replacement has to be multiplied at least threefold for every top leader who does not make it, fails or leaves the organization.
The effects of losing a leader have a ripple effect throughout the organization, as follows:
People don’t quit companies. They quit bosses. Numerous studies have indicated the correlation between job satisfaction, and direct supervisors and managers. According to a new study (Dobbs 2000), 41 per cent of high-value employees who intend to leave their jobs are dissatisfied with their managers or supervisors. A Gallup poll of 20 lakh employees from 700 companies has shown strong links between employee tenure and employee-supervisor relationship.
New leaders join three types of teams:
When leader turnover is high, the working alliances across the organization are not in place long enough to integrate any changes that are introduced. The purpose of induction and assimilation therefore is to ensure that leaders will adapt and become full contributors in the new organization faster and better, and with fewer destabilizing effects to the individual and the organization. A successful assimilation is one in which both the individual and the organization are transformed for the better, and are able to leverage each others’ strengths to achieve mutually beneficial goals. The individual and the organization need to work together for this purpose.
Assimilation of new leaders occurs in four stages. It begins at the point of hire and is completed when the individual becomes a full contributor and is no longer an outsider. The journey towards assimilation is a continuous negotiation between two extremes, and a balance needs to be struck (Downey 2001).
There needs to be a balance between:
The HR department as well as the top management and other line managers have a responsibility to ensure that managers inducted at the top levels assimilate the company’s culture, the competencies associated with the role and other aspects of the company fast, and manage the contradictions mentioned in the foregoing list. This alone will ensure that the retention is higher and top management personnel recruited into the firm give their best and yield a high ROI.
Assimilation is both fluid and dynamic. It can be influenced by different factors at different points of the organizational life cycle. New leaders are most likely to leave when they do not receive the support they need to work best. Attrition usually occurs when employees find that they cannot contribute what they were hired to contribute. People are most likely to stay if they feel a deep commitment and affiliation to an organization.
Briefly, an effective assimilation strategy:
Further, assimilation-savvy organizations should:
People may join an industry that is perceived as a business leader, but they stay only if it meets their intellectual and emotional needs.
The following inputs go into the calculation of recruitment costs. The R-COT for the time spent by various role holders in the firm should be taken into consideration, besides the direct costs incurred by the firm (including the fee paid to the recruitment agency, advertisement costs, and so on).
The time spent by line managers for each recruitment includes:
The HR time or time taken by the HR department staff includes:
When all this is put together, it is safe to estimate that about 40 hours to 100 hours of managerial time are spent on each candidate. At an average R-COT of 500 per hour, additional costs for recruitment include 20,000 to 50,000 of the firm’s managerial time, and O-COT of 80,000 to 5 lakh (80,000 if it is an IT firm with 25 per cent of its revenue as people costs and 5 lakh for a manufacturing company with 10 per cent of its revenue as people costs).
Assuming that the recruitment agency is paid 50,000 per candidate as fee, and adding advertisement costs, and so on, of another 50,000, a total of 1 lakh becomes the additional direct cost. The ROI expected will range between 1.8 lakh at the lowest end to 6 lakh at the highest.
The foregoing exercise is meant to give an overview. Each HR department should be able to calculate the costs and expected returns on their own, using their culture, processes and systems to arrive at a more accurate figure.
A good way to ensure ROI on recruitment costs is to include the recruitment cost as a part of CTC for the purpose of calculation. The results expected of a candidate in her/his first year should normally reflect the recruitment costs as a part of R-COT.
Thus, the point is this: If a person is being hired with a CTC of 20 lakh per annum, her/his real CTC is 21.2 lakh to 21.8 lakh (including 1.2 lakh as recruitment cost for an IT company and 1.8 lakh for a manufacturing company as already shown). This is a very conservative estimate as, for each candidate, around ten candidates get seen and the cost gets added ten times, making the recruitment cost of each candidate an additional 12 lakh (1.2 lakh × 10) for an IT firm and 18 lakh (1.8 lakh × 10) for a manufacturing firm.
A few years ago, Sri Lankan Airlines was finding it difficult to find cabin crew with the required skills. Whenever it advertised, it received hundreds of applications, but very few of the candidates actually had the necessary skills. It contacted the applicants rejected during the interviews and offered them a course that would prepare them to appear for tests and interview. The course (of a few weeks’ duration) was offered for a fee, to be paid by the participants. Hence, only serious candidates joined it. After the course the candidate would be permitted to reappear for an interview before the selection committee, like any other candidate. The course taught the basic competencies and additional skills needed by cabin crew members. The airlines soon found that the quality of cabin crew recruited from the rejects programme far surpassed its other recruits. Thus, the airlines partly solved its recruitment problem, while also earning an income from its course.
If recruitment is scientifically done, the ROI is high. Using recruitment agencies does not make recruitment scientific. Most agencies merely download and screen applicants’ biodata before passing it on to companies. This is merely the logistics being outsourced. The agencies rarely map competencies and assess applicants scientifically. It is, in fact, unrealistic to expect recruitment agencies to proceed scientifically. At best they might conduct a scientific screening, but not an assessment. The organization concerned should set up its own systems and methods of assessment. Without these, there cannot be any guaranteed ROI on recruitment. The following measures would ensure a good ROI:
A motivated and well-prepared candidate is likely to stay longer and contribute better than an ill-motivated and ill-prepared candidate. The loss due to mismatches often outweighs the gain from matches if an organization is not careful. A single mismatched employee can do much more damage than the recruitment of 10 well-matched ones. Look for soft data and do not delegate the final choice to a recruitment agency. Remember, research suggests that small agencies do a better job than big ones for large-scale recruitments.
Hitesh Lonawalla topped the 1986 batch at IIMA. He worked for an FMCG company for 20 years, and grew to be the SBU head in it. However, he began to feel that his portfolio had remained narrow and that he could contribute a lot more to a company with a larger portfolio. Finally, he was offered a position as vice-president of a profitable 20-year-old company that was into electronic durables. As marketing head, Hitesh was required to handle the marketing function of the company’s three SBUs. He was required to report to the president who was also the company’s CEO. His career path was well laid out: if he proved his mettle, he could become the next president.
Professor Manish had been Hitesh’s teacher at IIMA, and happened to be offering consultancy services to the company that Hitesh had joined. A month after Hitesh joined, Manish happened to run into him. Manish expressed his joy at seeing Hitesh on board, and said he expected Hitesh would be able to contribute a lot to the company; it was very important to establish efficient new systems for achieving business growth and positioning the company for the future. Hitesh said he was only just beginning to understand the business. Most people always seemed to be travelling, which was why he had not quite got the hang of things and what he was expected to do.
Six months later, when Manish met Hitesh again and enquired how he was doing, Hitesh replied, ‘Professor, it is only now that I have more or less found my feet. I now know what needs to be done and where. I am sure I can make some difference now.’
After another six months Manish learnt that Hitesh had resigned. He had been offered a position as the CEO of another company, for which he would be leaving shortly.
Hitesh, who was being paid 48 lakh a year (CTC), was leaving for almost double the salary as CEO of the new company. The consumer electronics company would have to again look for a new vice-president. It had already lost three months before Hitesh joined and four months after his joining. Hitesh’s actual contribution was just for six months. Was there any way the company could have got a good ROI on Hitesh? What had the company invested in Hitesh? What was expected and what did the company receive, assuming that in the year Hitesh worked there sales had grown by 20 per cent, of which 50 per cent of the growth occurred during the last two months of Hitesh’s tenure and was largely attributed to the payoff of the new marketing strategies he had evolved (the sales turnover went up from 600 crore to 720 crore in Hitesh’s time: Q1 = 150 crore, Q2 = 170 crore, Q3 = 190 crore and Q4 = 210 crore). On an annual turnover of 600 crore in the previous year, the people costs of the company amounted to 60 crore.
What would have been the projected income if Hitesh had been integrated into the company within his first month, and had begun contributing from the second month itself? What was the loss to the company for not inducting Hitesh into the company properly? What was the cost of replacing Hitesh? How much performance-linked pay might have helped retain Hitesh?
With a CTC of 48 lakh, Hitesh’s CTC for six months was 24 lakh. The six months had been a wasted period because of his improper induction. This wastage could have been reduced by 20 lakh if he had been properly inducted through the methods of integration and assimilation explained in this chapter. The opportunity cost of the five months lost due to the poor induction is 10 times the CTC: that is, on a conservative estimate the company could have gained benefits worth at least 2 crore more (20 lakh of R-COT multiplied 10 times). Assuming that the company had gained 20 crore in the third quarter and an additional 40 crore in the fourth quarter, Hitesh may have made a great deal of difference if he had continued. Even if one were to attribute a 10 per cent gain to Hitesh’s efforts and strategies, the company could easily have matched his new salary and retained him by giving him a 100 per cent performance-linked pay. The company should have invested another 48 lakh in order to gain a 20 crore advantage. Of course, other implications also need to be considered, such as, for example, the exact difference Hitesh made to the company in financial terms.
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