Why a Talent Supply Chain Will Make Your CFO Salivate: Part 1
CFOs Targeting Revenue Growth and Talent
In our brave new world, odds are that your company’s finance team is no longer just focused on cutting costs and managing risk. In fact, according to the 2011 Deloitte CFO Signals survey, finance leaders listed (1) delivering top line revenue growth and (2) acquiring and developing talent as among the top challenges facing their organizations.
Throughout the recent economic downturn, companies have been tightening their belts—but now CFOs are positioning their businesses for growth and increasing market share. And despite high and persisting unemployment, almost half of the CFOs surveyed said their companies are finding it more difficult to acquire sufficiently skilled employees than they did five years ago. C-level executives in general are realizing more than ever before how talent and revenue growth are directly linked—which means that recruiting leadership has incredible opportunity to drive high impact organizational value in a quantifiable way.
Talking CFO Language – Talent Supply Chain Metrics Linked to Corporate Growth
In many organizations, the efforts of the talent acquisition team may not be fully understood and appreciated by financial executives, especially during recessionary times. And given how modest most recruiting budgets are to begin with, reducing the recruiting and media budget by 10% during lean years probably doesn’t materially impact the overall corporate bottom line.
There are a number of metrics you may use or are considering that can begin to quantify meaningful improvements in your recruiting process. As you optimize your recruitment budget with data driven media spending (rather than simply “post and pray”), it is critical to be able to track increased applicant volume for key areas as well as improved cost per applicant numbers.
CFOs realize that everyone is trying to do more with less—so tracking improved recruiter efficiency can be another important measure. Quantifying your progress in this area is important in supporting your strategy of source optimization (reducing your apply to hire ratios) as well as automated job marketing.
While tracking optimized media and improved recruiter efficiency are very important metrics, reducing time to fill for critical positions as a key foundation for fueling corporate growth can be the most important measure of all. . Quantifying this impact can prove helpful not only in terms of your own planning but also in creating a metric that your financial leadership can appreciate.
Linking Time To Fill with Revenue Growth
We have to work hard to educate other executives about our talent acquisition investments and strategy. It is very important to connect key recruiting metrics with the business goals of the organization. Let’s walk through an example using Time To Fill (TTF) and how it impacts revenue growth.
There are different ways to quantify the impact of unfilled key jobs. One common, simple approach is to calculate average revenue or gross margin per employee and extrapolate the cost of unfilled jobs based on that average. While this is a great starting point, it fails to (1) segment key hard to fill categories, assumes all jobs are the same and (2) it understates the significant hindrance to company growth that key unfilled positions really represents. A more sophisticated approach would be to first identify your critical job categories and estimate the annual growth contribution per employee in that category. For example, if you consider key sales positions, you could use those annual expected sales per person (rather than overall revenue per employee) as the key driver of your TTF analysis. Other areas are potentially more difficult to quantify, such as engineering or product development jobs. But use the same thought process and come up with estimates of the annual “growth contribution” from each of your critical areas. Remember that every organization will be different but the average annual growth contribution for these critical job categories tends to range anywhere from $200,000 to $1,000,000+ per employee/job category.
Once you have your annual growth contribution segmented by key job category, you will need to measure or estimate your current time to fill (in days) for your organization as a baseline, with estimated adjustments per critical job category. Next you will input the projected number of annual hires per job category into your model and calculate the estimated total growth contribution per day for each job category, which will allow us to begin to quantify the cost for the organization for every day a job requisition goes unfilled.
Now you have a baseline—from which you can quantify the impact of unfilled key positions and measure the impact of every day you can reduce your time to fill.
Here is an example of the analysis, with an assumed reduction in Time to Fill of fifteen days.
Stay tuned, in next week’s post, we’ll share why you definitely need a talent supply chain.