Making Bad Hiring Decisions Can Be Costly

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I once compared Zappos to Marcia Brady, noting that all of the fawning press attention given to its customer service success probably had other companies feeling a lot like Jan, the middle Brady daughter, who no matter what she did couldn't compare to her beautiful and gifted older sibling.


We often read and hear about how its warm and somewhat weird corporate culture is the key to the company's success. So hiring the right people is of critical importance. Maybe it's the Jan in me, but it's somewhat refreshing to know that even Marcia (er, Zappos) makes some missteps in this area.


In a Business Insider video interview, Zappos CEO Tony Hsieh estimates hiring mistakes have cost his company more than $100 million since it was founded in 1999. There is a "domino effect" when bad hires make their own bad hiring decision, says Hsieh. While it's tempting for startups and other growing companies to staff up to accommodate that growth, Hsieh says it's a mistake managers will come to regret if hires aren't a good fit with the corporate culture. Zappos is "willing to sacrifice short-term benefits for long-term gains" by spending time vetting potential employees and hiring only folks that mesh well with the company's culture.


Hsieh describes a two-part interview process, in which a hiring manager and his or her team interview for fit within the team, relevant experience, technical ability and other job-related skills, and human resources conducts a second interview designed solely to examine broader cultural fit. The two interviews, with the final hiring call made by HR, provides some checks and balances, Hsieh says.


Hsieh isn't the only one who says poor hires have cost his company money. According to a recent CareerBuilder survey, 67 percent of companies acknowledge that a bad hire adversely affected their business in the last year. Twenty-four percent of hiring managers said a single bad hire cost their business more than $50,000 in the last year. Four-in-ten said a bad hire cost them more than $25,000. Lost sales, negative effects on client relations and lower productivity were among the factors contributing to the financial damage.


Of employers who made a bad hire, 36 percent said they think they made a mistake hiring someone because they needed to fill the job quickly, followed by lack of understanding of where their target talent is (20 percent) and unsuccessful sourcing techniques (9 percent).


Hiring the right folks is becoming increasingly important as hiring costs increase. Fifty-eight percent of employers have an average cost per hire of more than $1,000, up from 29 percent in 2008, according to the survey. It's even costlier for specialized areas that are experiencing a shortage of qualified talent. Eighty percent of IT employers said it costs them in excess of $1,000 to fill an open position. Those costs will likely rise even more if, as fellow IT Business Edge blogger Susan Hall wrote last week, still-sluggish IT hiring begins to pick up.

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Add Comment      Leave a comment on this blog post
Dec 15, 2010 8:57 PM paul alleyne paul alleyne  says:

I would agree that many companies make hiring error which cost them plenty over the long term. It is difficult to determine talent during the interview process, thu the probationary period. Some companies over interview, and then still make the wrong decision, because they are  so afraid to hire the wrong person, that they overlook, some important apects of the interview and end up with the opposite of what they want.

Another problem for some companies is entering the interview process with pre-concieved ideas about what the right employee should look like; this blinds them to finding that diamond in the rough. One of those preconceptions is that recent educational experience trumps work experience, and that younger hires will become long term employees, and older hire are less reliable over the long term. These are general assumptions, but influences many hiring decisions to some companies detriment.  I believe that it i vital that HR enter the interview process with an open mind about the interview, and explore the interviewee's qualifications, including how well they fit the culture. 


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