3 reasons why organizations make bad hiring decisions

A leading fast food chain had a problem. Customers were unhappy with the service they were receiving from frontline employees; service was slow and painful. Customers began taking their money elsewhere, resulting in declining revenue.

Fortunately, there is a happy ending to this story. McKinsey’s People Analytics team quickly identified that the crux of the problem laid with its people. By leveraging insights into what characteristics make for good employees, they were able to revamp their hiring process to be more targeted and efficient. After implementing this new hiring process (along with updated trainings and incentive systems), the results were drastic. Customers were getting their food 30 percent faster and revenue increased by 5 percent across stores. This example illustrates an important point: People are your organization’s most prized asset. Hiring better people, using a rigorous and formal process, leads to concrete improvements in your organization’s operations and financials.

People are your organization’s most prized asset.

Despite this fact, many organizations still hire in suboptimal ways. From sourcing to interviewing, organizations all too often underestimate the value created by a rigorous hiring process, where the characteristics being selected for have been determined in a scientific manner and are subsequently appraised using a formal data-driven process.

If improved hiring and better employees create so much value, then why do organizations consistently approach this in an unscientific, informal manner? We have identified three distinct reasons we believe that talent decisions are often handled with less care than other decisions of similar value:

  1. Employee performance is inherently difficult to measure. It’s well understood what an ROI of 15 percent vs. 10 percent means. However, what is the difference between someone rated a 3.7 out of 5 versus a 3.2? The nebulous nature of performance ratings and difficulty in identifying objective metrics makes it tricky to determine the quality of a hiring decision.
  2. Conclusive hiring outcomes occur years after hiring decisions and, worse yet, success criteria often go undefined. It can take two months for someone to start working after they’ve been hired, another month for official onboarding and then at least a year to be up to speed with organizational norms and processes. That’s almost 18 months between the decision to hire and the time when the consequences of the decision are fully realized. Moreover, we find that organizations are not always clear on how they define a successful hire and the knowledge, skills, abilities, and experience needed. All of this makes it an uphill battle to track—much less experiment with—what hiring tools and processes work best.
  3. A sea of hiring assessments grows. The landscape of talent assessments is fragmented, characterized by a large and growing number of approaches, methodologies and vendors. Worse yet, the lack of enforced professional standards in this area means any fly-by-night operation can create an assessment and stamp it as valid. It is not surprising that clients find it difficult to identify the best assessment tools.

So, what can be done to address these challenges? Aside from recognizing the massive impact and investment that hiring decisions represent, the next two parts of this three-post blog series will provide meaningful frameworks and practical guidance on how to refine and optimize your hiring practices and decisions.

By clearly defining why hiring well is so difficult, and laying out concrete practices that can immediately move the needle on improving hiring decisions, organizations will be primed to unlock a goldmine of value that they may not have even known about.

Learn more about our People & Organizational Performance Practice