How Staffing Builds a Corporate Asset

A few months ago, I had a conversation with a VP of HR at a high-tech firm, who recounted a discussion he had had with his CFO: CFO: By the way, what is the value of having 350,000 candidates in our database? VP of HR: Those candidates represent a lot of value for us, and also we have to keep them for legal reasons. CFO: Oh, okay for legal reasons. VP of HR: Yes, but it is also very valuable for us. CFO: How valuable? I mean is it tens of thousands, hundreds of thousands? VP of HR: Well, I am not too sure… This article draws on a financial model outlined in iLogos’ report “Economics of Candidate Databases” to describe how the VP of HR may respond to the CFO’s question with precision instead of uncertainty. Staffing Budgets Staffing budgets are under intense cost-cutting pressure. Every line item is examined for possible savings. Sourcing typically is the largest single hard-dollar expense in the cost of hire, and so has come under much scrutiny. A greater focus on targeting media buys and attention to measuring sourcing yields and quality has been the result. Wringing better performance from sources is a positive step, and leads to incremental cost savings. Yet there is much more savings potential to be realized in sourcing, particularly if candidates sourced in the past are brought forward to fulfill future hiring needs. With candidate relationship databases in place, large corporations can gain competitive advantage and build a long-term asset for the company from the current high volume of candidates instead of suffering from the administrative burden. Maintaining Relationships Businesses appreciate that it is cheaper to maintain a relationship with an existing customer than it is to acquire a new customer. This principle is equally applicable to staffing. A new recruiting practice, candidate relationship management, applies this principle efficiently when supported by Internet and database technologies. Candidate relationship management consists of cultivating relationships with candidates over time, by delivering targeted, personalized communications, with a meaningful message, to pre-qualified candidates. Imagine two corporations of similar size, in similar industries, with similar employment brands. Each has identified a hiring need. The two companies spent the same amount of advertising dollars and generated the same amount of candidate applications. Company A treats requisitions as one-off events, and sources anew for each requisition as it arises. Paper resumes are stored in filing cabinets. Electronic resumes are stored in a keyword searchable database. There is such a high barrier to the retrieval of qualified candidates from past stored resumes that it is cheaper to source anew for each new requisition. Company B has a fully functional candidate database. Candidates maintain their own profiles in the system over the Web. They can opt to receive automated notification by email of new positions that match their profile. As each new requisition is created, Company B’s system (its candidate relationship database) acts as another source. It prompts the recruiter with a list of candidates from its proprietary corporate candidate database that match the requirements of the position. Cost Per Candidate Let’s look in financial terms. Both Company A and Company B spend $1.5 million per year on sourcing, and for that investment find 50,000 candidates each quarter. Company B is able to send four targeted job notifications per year to each candidate in the database through a permission-based job agent. Even accounting for data obsolescence in the database, Company B will be sourcing more candidates out of its internal talent pool than from external sources after two years of building relationships. The direct impact of the value creation from a candidate relationship database is to reduce the sourcing cost per candidate. After one year of candidate relationship management, the average sourcing cost per candidate for Company B is $6.20, compared to $7.50 for Company A. The cost is reduced by 30% to acquire new job applications in the fourth quarter compared to the first, and 44% after two years. Structured Data At the essence of the efficiency of candidate relationship databases is the ability to structure the data. A structured database built on candidate profiles is able to target pre-screened candidates far more efficiently and accurately than the traditional media. Candidate relationship management relies on the ability of the technology to segment information to provide an automated value-added communication with the candidate. Competency profiling is leveraged, and is truly the foundation for a successful candidate relationship database. Candidate Relationship Databases The value of candidate relationship management lies in the transformation of sourcing expenditures into inventory. When candidate relationship database functionality is utilized, the recruiting process is powered to move past a “one-off” activity in which each candidate is identified, screened, and assessed, and hired or discarded. Candidate relationship management eliminates waste brought on by sourcing repeatedly for the same candidates. Fully utilized candidate relationship management practices, with structured candidate information stored in a dynamic candidate relationship database, enables a process in which candidates touched by both past and present sourcing activities are automatically accessible to communicate with for a hiring need. The cost of acquiring each candidate is significantly reduced as the existing proprietary corporate candidate database is mined. By building the corporate asset that the database represents, the results of sourcing dollars spent on any and all corporate recruiting needs flow forward to be leveraged for all future hiring demands. In this time of intense budget scrutiny, implementing systems with candidate relationship databases that reduce staffing costs while improving quality are a welcome strategy. Now, the worth of this new asset can be calculated with precision.