How to Build a Business Case for Your Recruitment Spending

What did your company spend on hiring last year? If you’re really not sure, you’ve got plenty of company. Given the decentralized talent acquisition model that many companies use, it’s nearly impossible to pinpoint the actual spending — and the true return on that investment. This is just one rather startling finding that we confirmed last year when we conducted our first annual Corporate Recruitment Benchmark Survey.

Survey participants included both executives and candidates, and they shared a number of eye-opening facts including:

• There are strong disconnects between hiring concerns and priorities
• Only 9 percent of the candidates were happy and not looking
• IT had an unemployment rate of 3.3 percent
• Most companies have fewer than two recruiters
• 36 percent of companies either do not know how they track hiring or do not track at all

To illustrate some of these key findings, and other common corporate talent acquisition challenges, we invite you to meet Eleanor. Her story is fictional, but the challenges she faces are anything but.

“Voltron’s Green Solutions Capture Investment Attention.” As she laced her running shoes, Eleanor Hurley, Voltron’s EVP of HR, kicked herself for reading the headlines before her run. Sure, Voltron, a high-tech manufacturer, was doing great and its success should have felt like payback for all the long hours Eleanor had clocked helping launch the company. Instead, it just added to the pit in her stomach — the one that had become as much a part of her morning as her five-mile run and her soy latte.

As Eleanor eased into a steady jog, she thought back to yesterday’s meeting with Maxine Stockwell, Voltron’s CFO. Her all-too-casual, “Got a minute?” had instantly set Eleanor’s heart racing. The conversation that followed was exactly what she’d feared. Voltron was about to be sold to a private equity firm and the investment meant the chance to double in size over the next three years. The PE firm’s due diligence presented some concerns.

“Frankly, they’re worried we can’t deal with the growth,” Maxine said. “Their team has been trying to get a handle on our investment in executive and technical recruiting. They’re anticipating 100 new hires in Engineering, Product Development, and IT over each of the next three years and they’re not sure we can manage it.”

Remembering how the company had struggled to add just 50 new employees in Engineering, Product Development, and IT last year, Eleanor couldn’t help but share their concern. But that certainly wasn’t what Maxine wanted to hear.

Eleanor had pushed for centralized talent acquisition for these mission-critical functions last year, but been secretly relieved when Maxine turned her down. Eleanor had known that centralization was vital to the talent supply chain but hadn’t known how to pull it off in Voltron’s decentralized environment.

Last year Eleanor’s HR generalist team tried to manage recruiting with job boards and search firms — retained search firms for senior roles and contingent recruiting firms for mid-level professionals. She knew that HR had spent $500,000 and the business units had hired many of the positions through firms and contractors, but she had no idea of the overall cost. Eleanor had just read a study saying that 52 percent of large companies didn’t know their true spend because of all these “shadow budgets” in the business units. Knowing she had plenty of company was hardly comforting. It was no surprise the PE firm was having a hard time figuring out the ROI on their model when Eleanor had no idea herself — and that calling what they had a “model” was generous.

Maxine said, “If the PE firm can’t determine our recruitment investment and what it gets us, it could hurt our evaluation. We need a plan to show them we can scale cost effectively.”

Eleanor knew she had options, but wasn’t sure which made sense. Should she hire internal recruiters? Eleanor had tried that at another company but when she didn’t get the budget she needed and her recruiters had been so overwhelmed that hiring managers still went out and paid fees. She was also worried about a Corporate Executive Board study she’d just read reporting that 50 percent of candidates were passive as of 2011 vs. 22 percent in 2006. These employed candidates weren’t looking for a job and Eleanor knew her current strategies did nothing to reach out to them.

As Eleanor headed into the last stretch of her run, she forced herself to pick up the pace. She had to get a plan in place. If she didn’t wrap her head around Voltron’s talent acquisition challenges — and find a way to solve them — she knew her own resume would be the next thing on her “to do” list.

What advice would you give to Eleanor?

Jennifer Boerst, my colleague and COO at The Novo Group, says: “Eleanor’s in a tough spot. She must convince her CFO, the PE firm, and the hiring managers that now is the time to centralize talent acquisition. She won’t have time to prove the concept works so she needs to provide a detailed plan — backed up by data and external benchmark information — that captures the benefits of her proposal.”

Step 1: Build a Business Case to Pool the Dollars

Given the number of positions, the level and complexity of the professional and technical roles, and the fact that so many candidates are passive — not actively looking for a job — Eleanor should ask for $1.25 million in operating budget. This will give her the critical mass she needs to do proactive outreach to the high number of passive candidates.

Here’s the math behind the recommendation:

First, let’s try to get a handle on what we think Voltron spent last year to hire 50 people. Because she doesn’t know what the business units spent, Eleanor will have to make some assumptions. According to Novo benchmark data, 59 percent of talent acquisition spend was with business units. Eleanor knows her department spent $500,000 last year, which means a potential overall budget of $1.25 million for 50 hires that includes the “shadow budget” in the business units of around $750,000. If Voltron ramped up to 100 hires a year, its budget could hit the $2.5 million mark if it used its current method of talent acquisition.

We could also estimate the hiring budget using assumptions about salary and contingent hiring fees. Because the hires were all highly skilled and technical, we could use the following to come up with an estimated budget for both last year and the next. This shows that Voltron likely spent more than a million dollars for 50 hires and should expect to double that if it continues to use firms.

Based on our experience in these types of talent acquisition projects, we know that Eleanor can double the impact of her budget—i.e., hire 100 people annually with a budget of $1.25 million. In order to do so she must gain commitment for the entire talent acquisition budget for the year, instead of trying to find the dollars as she goes along in other line items, and make the following critical change.

Step 2: Create a Talent Acquisition Team

With immediate access to this budget, Eleanor will have the freedom to move beyond the contingent hiring model. She should create a team that includes the following roles and it could be made up of internal staff, external resources, or a combination of the two. (Additional information on the qualifications and tasks for each role is shown below).

The Talent Acquisition Project Manager needs to be a highly skilled specialist– Eleanor should not assume that this function can be managed by an HR generalist. At this volume this is a part-time role and a logical place for Eleanor to explore outside assistance. If Eleanor considers creating this team internally, she needs to be able to make a business case that talent acquisition demands are likely to continue at this level for the foreseeable future. Otherwise she’ll be stuck with fixed costs. With this team in place Eleanor will be able to deliver metrics, processes, and scalability to validate the model.

Creating this team and proper work allocation are two of the most crucial steps that Eleanor will need to take to be able to deliver on recruitment. It’s also where most companies fall down. Having access to the breadth and depth of skills listed below will allow Voltron to be proactive in reaching candidates. Based on the assumption that 10 percent of roles will be executive level and the balance of the positions mid-management and technical, here is my recommendation for her staff, their responsibilities, and key competencies.

The financial portion of this should be an easy sell for two reasons: 1. Eleanor is asking for less money to make twice as many hires and 2. She will take accountability for the quality of hire.

The numbers, however, are just part of the story. The hardest part will be to gain the executives’ confidence that she can deliver. A recent Boston Consulting Group study showed recruitment is the biggest gap between how well non-HR executives think recruiting is executed vs. what HR thinks. To gain their confidence Eleanor will need to show a detailed strategic plan backed up with external and internal data and benchmarks on how HR can get this done.

Here are a few messages to convey in her business case:

• Voltron must connect with passive candidates (those who are not actively looking for a job, which, as per The Novo Group survey, make up 55 percent of the marketplace). Recruiting passive candidates requires proper resource allocation that gives recruiters a manageable workload (one that allows them to be proactive) and allows them the time to educate hiring managers about external market conditions. Because the percentage of passive candidates has been steadily on the uptick, Voltron needs a proactive and deliberate system to reach passive candidates. The Novo Group survey found that 70 percent of passive candidates stay on top of job openings (when they’re not actively looking) by using LinkedIn and 58 percent rely on referrals or personal recommendations. Only 35 percent choose the big job boards. This means work allocation needs to be at the right levels to allow the recruiters to be proactive vs. defaulting to the ineffective “post and pray” method.
• Voltron will achieve better results with centralized recruiting. This is true for a host of reasons. According to The Novo Group survey, companies with centralized recruiting had a better understanding of their talent acquisition spend. Pooling resources will allow Voltron to go after more passive candidates, without breaking the bank, while increasing the quality of candidate and the recruiting experience for both the hiring managers and candidates. It will also allow Voltron to handle talent acquisition based on function rather than department (see task information for the two recruiters listed above).
• Voltron must create success key performance indicators and metrics. The Novo Group survey showed that 36 percent of companies either spend no time tracking recruiting metrics or don’t know how they track them. And, of those who do, more than half focus on “time-to-hire,” which is widely recognized as having little connection to performance. The Novo Group survey showed a strong correlation between those who didn’t track metrics and those who didn’t proactively source passive candidates. This is likely true because there is more accountability and transparency when key performance indicators/metrics like submission-to-interview ratio and close ratio are tracked and better decisions are made on how to allocate time to reach quality candidates.
• Voltron must focus on quality. The most important metric to show ROI is quality of candidates and how recruiting experience ties to financial results.  If there is no analysis of these measures, talent acquisition will always be viewed as overhead instead of its rightful role as part of the revenue cycle. Unfortunately, Novo’s Survey showed that of the companies that track metrics only 25 percent of companies track quality, which means it’s no surprise that most talent acquisition departments can’t get the budget they need. Eleanor should conduct a benchmark survey with hiring managers immediately, and follow up annually, to show the improvement in talent acquisition efficiency and quality.

Although the PE firm’s analysis is creating stress for Voltron, it is also creating an opportunity for Eleanor to more quickly implement a scalable talent acquisition model. If she didn’t have this leverage, she could try a proof of concept approach: Eleanor could work with the budgets of a few hiring managers to gain confidence and track data to build a business case for the following year.

We would love to hear your advice for Eleanor too! (And who should play her in a major motion picture? Weigh in in the comments below).