How to Reduce Cost Per Hire by 50%: A Strategy Inspired by Elon Musk

October 10, 2017

The other day, Elon Musk said the Tesla Model 3 is “'deep in production hell.”' He promised 1,500 cars for September 2017 but produced only a few hundred. If Musk was an HR guy he would have said, “Damn the costs. Keep on making as many cars as possible and we’ll sell only the good ones.”

Luckily, Musk is not an HR guy. He’s an engineer and manufacturing and operations guy. So he said something like, “Stop the production and supply chain lines until we figure out what’s wrong!”

Not making bad parts seems obvious and logical, but when it comes to recruiting and talent management the obvious is often not seen. For recruiting, the goal is to present as many candidates as needed as fast as possible until someone gets hired. For engineers and anyone involved in the process of making stuff, you stop everything when the stuff you’re making is out of specification.

Let me give you an example to put this difference into context. Typically, whenever a recruiter presents a slate of candidates to the hiring manager and the hiring manager asks, “Do you have any more candidates?” the recruiter puts his or her head down, complies and sends out more candidates. To put it in simple and frank terms, “This is dumb!”

Instead, using Musk-like process control advice, the recruiter should have said, “Stop the process. No more candidates! What’s wrong with the ones you’ve just seen?” Of course, this “Stop. No More Candidates!” mantra should have been invoked further upstream than after the first slate of candidates had been presented, but I’ll get to that in a moment.  

The big picture on how to reduce cost per hire by 50%

When I first became a recruiter many many years ago, I had just quit running a small automotive parts manufacturing business. I quit because I didn’t like my boss, and the recruiter I was using convinced me working with them had tremendous upside potential.

As I started presenting candidates, I realized the entire recruiting, sourcing, mixing and matching game was fundamentally flawed. I also knew that if I could present half as many candidates for every search, I could double my placement rate. It took me two years to figure out how to do this and a few more years to fine tune what eventually became the Performance-based Hiring process successful recruiters around the world are now using. So if you want to cut cost per hire by 50%, reduce by half the number of candidates you present to the hiring manager. It’s as simple as that.

Here are a few ideas on how to stop presenting candidates who won’t get hired:

Limit the number of candidates per hire to three

During the intake meeting, make the statement that your recruiting department is only budgeting resources for three candidates for every open search. Say it’s part of a new corporate initiative to apply lean thinking into the recruiting and hiring process. As part of this bold statement, mention it’s the primary responsibility of the hiring manager and recruiter to collaborate to meet this objective. If it’s missed, say you both need to appear in a tribunal-like setting with both your bosses and ask for more candidates and explain why the first three weren’t good enough.

You might want to stop reading for a moment and figure out what you would do if this operating guideline was actually implemented throughout your company. Then compare whatever you came up with to the following advice.  

Define success as outcomes, not inputs

Given the new “three strikes and you’re out” operating principle, you need to redefine on-the-job success. I’d suggest you start by asking the hiring manager this question: “What does the person need to do over the course of the first year to be considered highly successful?”

This will result in 4-5 performance objectives , each consisting of a specific task, some measureable result and some action the new hire needs to take. Here’s one example:, “Lead the launch of the new hiring process with a plan in place in three months.” During the interview you’ll ask candidates to describe something they’ve done that’s most comparable for each performance objective. These two steps will minimize good candidates being eliminated for bad reasons.

Benchmark the first candidate

Before you formally present any candidates ask the hiring manager to review a few LinkedIn profiles to make sure you’re on target. Then ask the hiring manager to conduct an exploratory phone call with a person you think is top-notch. If the hiring manager disagrees, stop and figure out where you’re both off-base. Do this again until you’re on -target.

Figure out what’s wrong if the second candidate is not hirable

If the hiring manager isn’t a strong performance-based interviewer, make sure you sit in on the first interview. This way you’ll uncover the truth if the person is rejected. But if rejected, you must rethink your entire sourcing and recruiting strategy and process. Don’t proceed until you uncover the problem because you only have one shot left.

Of course, I could write a series of books on this topic and combine it with a bunch of training programs, but I think you get the point. But as you ponder the point, consider the comment I made to start my talk at LinkedIn’s Talent Connect 2017: “Why do you need to process 150+ resumes to make one decent hire, but only 3-4 referred candidates to make one great hire?” If you don’t know the answer, ask Elon Musk.

*Image by OnInnovation

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