40 EXERCISE
Evaluating the Recruiting Function
I. OBJECTIVES
A To make you aware of the necessity of evaluating the efficiency and effectiveness of
various recruitment sources.
B. To provide you with practice analyzing data, drawing conclusions, and planning a
strategy to remedy identified problems or deficiencies.
C. To make you aware of the linkages among staff turnover, recruitment sources,
recruitment methods, and adequate staffmg.
II. OUT-OF-CLASS PREPARATION TIME: 2 hours
Ill. IN-CLASS TIME SUGGESTED: 45 minutes
IV. PROCEDURES
Read the entire exercise, including the background on St. Vincent’s Hospital. Then, using
the data provided in Exhibit 2.9, do the calculations on Form 2.5. Ayield ratio is the number
of applicants necessary to fill vacancies with qualified people. It is the relationship of
applicant inputs to outputs at various decision points. For example, the yield ratio for all
recruitment sources in Exhibit 2.9 shows that 273 nurse applicants were generated over the
three-year period from 2007 to 2009. Since only 221 were classified as potentially qualified,
the yield ratio is 273/221 or 1.24 to 1. The yield ratio for “potentially qualified” among
“walk-ins” is 1.26 (53 + 42). The average cost per nurse hired among “walk-ins” is $119.2
3
($1,550 + 13). Students should form groups of two to four students each and calculate
the yield ratios for each recruitment source at each stage of the recruitment process on
Form 2.5. These data show that the hospital needs to start with more than five times as
many applicants as it needs to fill job openings and more than 13 times as many applicants
as it hopes to have as above-average performers.
Do the calculations for Form 2.5 on your own prior to class. Think about the implications of
these data for future recruitment at the hospital. Then, look at Exhibit 2.10 in conjunction
with the background description and think about the implications for the recruiting process.
During the class period, form groups of three to five, which will act as a consulting team for
the hospital. With your group, discuss and answer the questions at the end of this exercise. At
the end of the class period, have a spokesperson for each group discuss the group’s answers
and rationale with the entire class.
BACKGROUND
St. Vincent’s Hospital is a 260-bed hospital in a northeastern city affiliated with the Roman
Catholic Church. The administrator is Sister Oaire, a 56-year-old member of the Daughters of
Charity religious order. During the last decade, the hospital operated with a nursing staff of
approximately 450 registered nurses and experienced a nursing turnover rate of about 2
5
percent per year. The turnover rate was average for the city during this time period. However,
it has accelerated to an average of 35 percent over the past three years.
These higher turnover rates have put additional pressure on the recruiting process to
provide larger numbers of qualified candidates. However, Sam Barnett, director of human
Exercise 40 • Evaluating the Recruiting Function 123
EXHIBIT 2.9
resources, has reported more difficulty locating qualified nurse candidates over the last three
years. Barnett’s office has prepared the recruitment data shown in Exhibit 2.9. The data show
that 273 applicants (from all sources) had to be screened to produce 52 qualified candidates
who accepted a job offer. One year later, 19 of these 52 had left the hospital. The last column
shows the direct and indirect costs of recruitment by source, including clerical time, super
visor time, and direct costs, such as travel and postage. The human resource department has
also conducted a telephone survey of all the nurses they could locate who did not accept a job
offer from the hospital during the most recent three-year period. Reasons for such rejections
are shown in Exhibit 2.10.
Sister Mary Louise, the 62-year-old director of nursing service, has conducted all off-site
recruitment for many years. This includes attending both the local Nursing Job Fair and the
State Nursing Association Annual Meeting. She has begun to feel burned out as a result of all
her external recruiting and internal evaluation of candidates over the years.
At a recent meeting, she suggested that an outside group (your group) be brought in to
analyze the recruiting process, identify problems and opportunities, and suggest improve
ments. Sister Mary Louise and Barnett readily agreed to an outside consultant because they
are aware of current nursing shortages due to declining nursing school enrolhnents. St.
Vincent’s Hospital itself contributed to this enrollment decline by dosing its own School of
Nursing due to fewer applications and the high cost of operation.
Data on Recruitment Sources for Registered Nurses at St. Vincent’s Hospital, 2007-2009
Invitation Qualified One- Above- Total
Number of Potentially for and Offered Accepted Year Average Recruitment
Recruitment Source Applicants Qualified Interview Job Job Survival Rating Costs
1. Internet applications 83 72 60 38 21 12 5 $1,145
2. Walk-ins 34 17 8 6 3 1 1 90
0
3. Employee referrals 13 12 7 5 4 3 2 400
4. Newspaper ads 24 16 8 4 2 1 0 750
5. Journal ads 19 18 10 8 4 2 2 450
6. Educational
institutions
Junior colleges 16 13 11 6 2 2 1 1,200
Hospital-based 8 8 3 2 1 0 0 800
schools
University 24 24 16 14 10 8 7 1,300
programs
7. Private employment 9 9 8 5 2 2 1 4,000
agency
8. Public employment 8 4 2 1 1 0 0 600
agency
9. Direct mail 15 14 4 3 1 0 0 450
10. Job fair 13 7 5 3 1 1 1 900
11. State Nursing 7 7 4 3 0 0 0 1,150
Association meeting
Totals 273 221 146 98 52 33 20 $14,045
Part 2 • Meeting Human Resource Requirements 124
~
~ FORM 2.5 Yield Ratios at Each Step in the Recruitment Process and Recruitment Cost per Nurse Hired, St. Vincent’s Hospital, 2007-2009
C,
Yield Rates
Recruitment Sources Potentially
Qualified
Accepted
Interview
Offered
Job
Accepted
Job
One-Year
Survival
Above-Average
Rating
Average Cost
Per Nurse
Hired
l. Internet applications
2. Walk-ins
3. Employee referrals
4. Newspaper ads
5. Journal ads
6. Educational institutions
Junior colleges
Hospital-based schools
University programs
7. Private employment
agency
8. Public employment agency
9. Direct mail
10. Job fair
11. State Nursing Association
meeting
Averages for all sources 1.24 1.87 2.79 5.25 8.27 13.65
(JI “‘
EXHIBIT 2.10 Reasons J Reason Number Percent Job attributes not communicated
Negative perception of recruiter
Negative perception of hospital
Lack of timely follow-up
Perceived lack of honesty in recruitment process
Negative information from recruiter
Job Attributes
Location of hospital
Salary offer
Hours of work
Promotional opportunities
Fringe benefits
Working conditions
Perceived poor job “match”
Totals
2
12
2 13
3 46
4.3
26.1
4.3 28.3
2.2
2.2 6.5
4.3
4.3 0.0
0.0 10.9
100.0
Since recruitment of new nurses has begun to fall behind turnover of nurses employed at QUESTIONS
1. How would you evaluate the nurse recruiting strategy currently being used by St. 2. If you feel that the hospital is using too many recruitment sources, which ones would you 3. What stage or stages in the recruitment process seem to be most amenable to improve Part 2 • Meeting Human Resource Requirements 126 >Sheet Data on s for Registered Burses at St. Vincent Hospital, 2 1 – 1 (Recreated by Walden University)
4
4 45
8 4 1 1 10 9 8 5 4 3 2 9 3 2 1 0 10 8 6 4 2 2 14 9 4 2 2 1 9 9 6 4 1 0 0 26 26 20 10 8 7 12 12 9 4 2 2 1 9 3 2 1 1 0 0 20 18 5 3 1 0 0 16 9 6 3 1 1 1 8 8 5 3 0 0 0 50 30 19 To sit at the table, you have to know the Chad Albrecht, Tim Gardner, Scott Allred, Brad Winn and Adam Condie
Chad Albrecht is Abstract Keywords Balance sheet, HR Department%2C Strategic Human Resource Management, Paper type Technical paper
Introduction
Over the past 100 years, professionals responsible for managing a firm’s human capital In today’s fast-paced, global and chaotic work environment, the director of HR should DOI 10.1108/SHR-02-2016-0021 VOL. 15 NO. 3 2016, pp. 123-128, © Emerald Group Publishing Limited, ISSN 1475-4398 STRATEGIC HR REVIEW PAGE 123 http://dx.doi.org/10.1108/SHR-02-2016-0021 implications of decisions before they are made, rather than just implement policies after Transitioning to a strategic HR perspective involves understanding the flow of money, Elevating the discussion in the executive suite
The main thrust behind strategic HR includes strengthening the impact of HR on the Creating a target for the income statement
When looking at the income statement, most people immediately go straight to net income. � Gross margin and gross margin percentage: Gross margin percentage is calculated by � Operating income and operating income percentage: Operating income percentage is ‘‘HR professionals who understand both operational PAGE 124 STRATEGIC HR REVIEW VOL. 15 NO. 3 2016 within each of these groupings. For example, a company might have a model of 50 per � Pre-tax income: Pre-tax income is calculated by taking operating income minus � Net income: Net income is calculated by subtracting income taxes from pre-tax income. For many organizations, human capital costs are the single largest item on the income Along this same line of reasoning, having an HR department that has contacts with the right Even when the HR department is strategic, there will always be an administrative ‘‘Having an HR director that understands the financial VOL. 15 NO. 3 2016 STRATEGIC HR REVIEW PAGE 125 administrative costs (G&A) of the organization. As such, it is very important that the HR Too often, HR professionals do not consider or even understand the costs that are The balance sheet
In addition to the income statement, HR professionals must also understand the Understanding financial data reported within the financial statements, including the One key ratio, for example, is the number of days in accounts receivable or the Another key ratio that HR professionals must understand is days in inventory or the ‘‘An HR professional that understand revenues, costs, key PAGE 126 STRATEGIC HR REVIEW VOL. 15 NO. 3 2016 low inventory turnover ratio might indicate slowing sales and thus the potential of being Another reason why the inventory turnover ratio might be low is because of ineffective sales At the end of the day, the most important asset for any business is money, i.e. cash. Similar Nearly every company has cash balance targets. The cash balance must be adequate to In reality, there are two cash situations that businesses must manage – having excess cash Similarly, having too little cash is also problematic and can lead to dysfunctional An HR professional that understands revenues, costs, key ratios and cash balances and Conclusion
We have seen a significant shift in the role of HR over the past several decades. The HR A competent, strategically minded HR professional who understands not only VOL. 15 NO. 3 2016 STRATEGIC HR REVIEW PAGE 127 executive suite and boardroom. Just as financial statements serve to direct attention to Corresponding author
Chad Albrecht can be contacted at: chad.albrecht@usu.edu
For instructions on how to order reprints of this article, please visit our website: PAGE 128 STRATEGIC HR REVIEW VOL. 15 NO. 3 2016 mailto:chad.albrecht@usu.edu mailto:permissions@emeraldinsight.com Introduction
Recruitment Processes
2
2
0
0
3
5
6.5
St. Vincent’s Hospital, the vacancy rate has begun to increase. Five years ago, only ll percent
of staff nursing positions were unfilled. This percentage has now increased to 23 percent. One
result has been an exhausting workload on the existing nursing staff In addition to increased
turnover, the symptoms of staff burnout (i.e., stress, conflict, absenteeism) are becoming
more evident.
Vincent’s Hospital? ls the hospital using too few or too many recruiting sources? Why?
eliminate and why?
ments? What specific improvements would you suggest to decrease the yield ratios? Why?
2
1
Exhibit 2.
9
Recruitment Source
0
5
20
6
Above Average Rating
Total Recruitment Costs
Number of Applicants
Potentially Qualified
Invitation for Interview
Qualified and Offered Job
Accepted Job
One-Year Survival
Recruitment Source
1. Internet Applications
9
4
7
5
8
26
18
10
$1,
3
2. Walk Ins
40
19
14
$975
3. Employee Referrals
$3
50
4. Newspaper Ads
22
15
$850
5. Journal Ads
12
$550
6. Educational Institutions
Junior colleges
11
$1,600
Hospital-based schools
$1,000
University programs
16
$1,100
7. Private Employment Agency
$3,750
8. Public Employment Agency
$515
9. Direct Mail
$4
30
10. Job Fair
$750
11. State Nursing Assoc. Meeting
$1,152
Totals
292
223
159
86
$ 14,367.00
language: important financial metrics for
HR directors
Associate Professor at
the Huntsman School of
Business, Utah State
University, Logan, Utah,
USA. Tim Gardner,
Scott Allred, Brad Winn
and Adam Condie are all
based at Utah State
University, Logan, Utah,
USA.
Purpose – The main thrust behind strategic human resources (HR) includes strengthening the impact
of HR on the organization. In other words, strategic HR attempts to place the HR department on equal
footing with other functional areas of business. HR professionals who understand both operational
indicators and their decisions on various financial metrics have greater focus and clarity when making
decisions. HR professionals with such knowledge are also more likely to be viewed favorably by their
counterparts in other departments and have a greater voice in the executive suite and boardroom.
Design/methodology/approach – Interviews with board of director(s).
Findings – There has been a significant shift in the role of HR over the past several decades. The HR
department has evolved from a role focused primarily on dealing with administrative issues, litigation
and unions, to a department that drives strategy and adds value throughout the company. To continue
this transition, HR professionals should have a solid knowledge of critical financial information, including
financial and operational metrics and ratios. By combining this information with a strategic mindset, HR
professionals are better prepared to add value to the firm, and they participate more fully with other
members of management in determining the strategic direction of a firm.
Originality/value – A competent, strategically minded HR professional who understands not only
people-related issues but also financial issues can “elevate strategic discussions” in the executive suite
and boardroom. Just as financial statements serve to direct attention to operational issues and to spur
responsive management decisions among line managers, so too can financial statements direct the
attention of HR professionals to line items specifically impacted by HR policies and processes. When
HR professionals consider the impact of their decisions on the financial statements and financial
metrics, they become key players in helping the firm achieve organizational goals.
Income statement
have been called employment managers, corporate welfare managers, personnel
managers, human resource managers, talent managers and even human capital
managers. Often, the contribution of human resources (HR) professionals to firm value has
ebbed and flowed depending on the strength of unions and the roll-out of new laws
affecting the employment relationship. When unions have been weak and the government
less involved in the employment relationship, HR professionals have had fewer
contributions, less to do and less status. At times when unions have strengthened or new
government regulations dramatically changed the employment relationship, the pay, status
and the value of HR managers has increased.
provide an insight and value to the management group and even to the board of directors
who make decisions for the firm. The HR director and those who work within the HR
department should help management understand the people, cost, morale and other
they are made.
tangibles and intangibles across the balance sheets. In other words, to be strategic, HR
managers need to understand financial statements and ratios and have a solid
understanding of the ways in which HR and people impact financial statement line items.
In the process, HR professionals must utilize financial statements to direct attention toward
necessary functional improvements in policies and procedures.
organization. In other words, strategic HR attempts to place the HR department on equal
footing with other functional areas of business. HR professionals who understand both
operational indicators and their decisions on various financial metrics have greater focus
and clarity when making decisions. HR professionals with such knowledge are also more
likely to be viewed favorably by their counterparts in other departments and have a greater
voice in the executive suite and boardroom.
Although net income is an extremely important number, it is equally important for HR
professionals to understand the revenues and costs that contribute to net income because
there are various people and other related costs within each subsection that influence the
income statement. These costs can only be managed by specifically examining each costs
and direct relationship to net income. Furthermore, nearly every company has targets for
each subsection of the income statement, and without understanding the various targets
and how they are influenced, an HR manager can add little, if any, value. There are several
key calculations to determining net income, which are as follows:
dividing cost of goods sold by net income. The gross margin percentage is a number
that every member of the management must know and understand. To increase
efficiency, nearly every company has a target gross margin percentage that they are
continually trying to reach. For a software company, for example, it might be above 90
per cent. For a manufacturing company, it could be 40-60 per cent. For a retail
company, it is may be even less. However, understanding gross margin percentages
and how it can be managed and reduced is a frequent discussion in most boardrooms.
And, although the gross margin percentage does not directly impact the HR
department, unless the HR manager understands the financial elements of the gross
margin percentage, the HR manager’s contribution will be limited.
calculated by deducting selling (sales and marketing) expenses, research and
development costs and general and administrative costs from the gross margin. Again,
most organizations have target numbers for each of these categories. As such,
executives and board members will typically focus on the percentage of revenues
indicators and their decisions on various financial metrics
have greater focus and clarity when making decisions.’’
cent gross margin, 15 per cent research and development, 10 per cent selling costs
and 4 per cent general and administrative costs, leaving an operating income
percentage of 21 per cent. This target income statement is also conveyed to analysts
and institutional investors and managed and discussed in every operations and board
meeting of the company.
non-recurring charges, such as discontinuance of an operating unit or factory and other
unusual costs. In calculating pre-tax income, it is important to understand each of the
costs included and all non-recurring charges. Often, firms will use non-GAAP (GAAP:
generally accepted accounting principles) and exclude items such as stock option
costs, amortization of intangible assets and non-recurring costs. As such, it is extremely
important that HR professionals understand not only pre-tax income but also the metrics
used to determine pre-tax income.
Because of the importance of net income to investors, analysts and executives, HR
professionals must understand how income tax expense is calculated and how cash is
paid to taxing agencies, including the different amounts that are reported on the income
statement. Because HR professionals are often involved in outsourcing and insourcing
decisions, it becomes increasingly important that HR professionals consider the tax
implications and other employee cost when making key strategic decisions. Finally,
from a strategic viewpoint, HR professionals should consistently monitor and evaluate
the target numbers of the income statement. By understanding the constructs of income
statement, executives will have the insight to know if something needs to be changed
and if the current strategy is working.
statement. As a result, it becomes increasingly important for the HR professionals to ensure
that the right number of people, the right span of control, the right type of management, the
right kinds of benefits, appropriate retention incentives and other people-related costs and
issues are handled efficiently. Having an HR director that understands the financial
implications of his or her span of control is a key ingredient to controlling costs on the
income statement. Similarly, having a proactive HR department that thinks ahead and helps
develop people for future roles within the company is extremely important.
search firm experts, compensation consultants, professional coaches, development
consultants and other professionals is extremely important. For example, knowing what
type of development activities are best for key employees, including whether or not to retain
personal coaches and what kinds of experiences are needed, can make a huge difference
in the success of a company. Understanding the cost implications of various business
strategies and the impact that people costs have on these strategies catapults an HR
professional from being a mere staff member to being an indispensable member of a
company’s leadership team.
responsibility to the HR department. HR costs are included as part of the general and
implications of his or her span of control is a key ingredient
to controlling costs on the income statement.’’
director knows how much administrative burden his or her department is contributing to the
overall general and administrative costs of the organization. Appropriately managing G&A
costs can make the difference between a company that is highly profitable and a company
that is only marginally profitable. In fact, outside analysts will often compare the G&A
percentages of different companies when deciding which companies are efficient (or lean)
and which organizations have inefficient (or bloated) G&A costs.
associated with human capital within the organization. With a good knowledge of the
income statement, as well as the various income statement accounts, HR professionals will
be more aware of their spending and they will ensure that people-related spending is
efficient. A knowledgeable HR professional can be critical in helping reduce wasteful
spending and making the company more profitable.
balance sheet. While the income statement is a flow statement, the balance sheet
represents a snapshot of what the business owns (assets), what the business owes
(liabilities) and the value of the business to the stockholders (stockholders equity).
Liabilities and stockholder’s equity show the sources of how a company is funded –
whether by debt, by earnings or by selling stock. Just as the balance sheet helps
operational managers and other users of financial information to identify areas of
strength and potential problems, the balance sheet can also direct the attention of HR
professionals to line items that are directly impacted by the HR function. Such direction
can provide focus to areas that need improvement and can lead to changes in HR
policies and processes that support the overall strategy of the firm.
income statement and balance sheet, is often facilitated through the use of various
financial ratios. We have identified several financial ratios that have the capacity to
strengthen the position and operations of a firm and provide further direction for HR
professionals.
days-sales-outstanding ratio. Simply put, this ratio describes how long it takes a company
to collect payment after a sale has been made. The number of days in accounts receivable
will often vary greatly depending on industry and revenue cycle. However, the number of
days in accounts receivable is an important indicator that is calculated from various
balance sheet line items of which all HR managers must be aware.
inventory turnover ratio. Simply speaking, this ratio reflects the time it takes to sell an item,
from the time it was initially built or placed in inventory to when it is shipped to the customer.
As with other financial ratios, an acceptable value for the inventory turnover ratio depends
on the industry. A high inventory turnover might indicate strong sales, but it may also
indicate inadequate purchasing quantities and, therefore, employees in need of training. A
ratios and cash balances and needs can be a key advisor to a
CEO and board of directors.’’
overstaffed.
personnel. An HR professional viewing the inventory turnover ratio might realize the need
for improved hiring and training practices for the sales force. The HR manager might realize
weaknesses in current training protocols and materials and may make adjustments to train
employees to become more effective. Using the specialties that HR professionals possess
can help save the company time and money by strengthening the performance of existing
employees. As with uncollectable receivables, there have been many companies that have
gone bankrupt because they did not manage the receivables and inventory turnover ratios
effectively. HR professionals can use these ratios to alert them to all kinds of personnel
issues including hiring, training, retention, benefits, etc.
to the common phrase, “cash is king”. Even if a business has a worthy priority such as a
social mission or other initiative if cash is insufficient, the company is at risk. Obviously,
without sufficient cash, every business ultimately fails and is not able to accomplish its
goals and objectives. As a result, cash must always be managed and everyone within the
company, especially top managers and HR professionals, need to be aware of the
company’s cash situation.
deal with operating issues such as seasonality, bad quarters, operating hiccups, economic
slowdowns and disruptive technologies of other companies. It must also be adequate to
pay dividends, buy back company stock, make strategic acquisitions and pay vendors and
taxes. In international organizations, the importance of monitoring cash balances becomes
even more important as repatriating cash can be extremely expensive in terms of taxes.
Knowing when to use debt and what kinds of debt is also critical.
and having too little cash. When a company has excess cash, activist and institutional
investors will want companies to share that cash with shareholders in terms of dividends or
stock buybacks. Having cash amounts that investors think is too high is one of the
indicators that activist investors use to assess the performance of management.
Managements that are not using cash wisely – either to expand current operations, make
acquisitions or distribute to shareholders – are often criticized. Having large balances of
cash in foreign countries is also problematic because it makes the company look like it is
cash rich when, in fact, usable cash may be low.
management decisions and even bankruptcy and/or takeover by other companies.
needs can be a key advisor to a CEO and board of directors.
department has evolved from a role focused primarily on dealing with administrative issues,
litigation and unions, to a department that drives strategy and adds value throughout the
company. To continue this transition, HR professionals should have a solid knowledge of
critical financial information, including financial and operational metrics and ratios. By
combining this information, with a strategic mindset, HR professionals are better prepared
to add value to the firm, and they participate more fully with other members of management
in determining the strategic direction of a firm.
people-related issues but also financial issues can “elevate strategic discussions” in the
operational issues and to spur responsive management decisions among line managers,
so too can financial statements direct the attention of HR professionals to line items
specifically impacted by HR policies and processes. When HR professionals consider the
impact of their decisions on the financial statements and financial metrics, they become key
players in helping the firm achieve organizational goals.
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Elevating the discussion in the executive suite
Creating a target for the income statement
The balance sheet
Conclusion
