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Cost of a Wrong Hire and Ways to Avoid It

Updated: Jul 3

” Nothing we do is more important than hiring and developing people. At the end of the day , you bet on people, not on strategies”. Lawerence Bossidy

In Silicon Valley, start-ups that succeed run lean. When Instagram was bought for $1 billion by Facebook in 2013, it had just 13 employees. Established companies also can’t afford the high price of poor performers. Zappos CEO Tony Hsieh once estimated bad hires had cost the company “well over $100 million.”

India is number 4 in the world when weighing companies that make wrong hiring decisions. And, according to a survey, three out of ten Indian companies, i.e., 29%, reported that even one bad hire cost companies and employers an average of over INR 20 lakhs.

Let’s us take a detailed look at the real cost of hiring wrong employee

Cost of hire

Choosing the right employees for your organization is not a piece of cake and it is certainly not economical. Apart from monthly salary outgoings, a bad hire also incurs further expenses in terms of resources, time and energy. Right from the human resources department posting the job advertisement, either on digital media, print media or by seeking the help of a recruitment agency, the hiring process comes with an extensive expenditure tag. At last, the action of hiring was only to end up letting them quit or firing because they did not meet the company’s expectations causing a crucial drain on finances.

Cost of training

It is a mere presumption that a fresher will not be as efficient as the one he/she is replacing and may or may not produce the profit expected. But in the actual scenario, The new employee may be just as good or better. However, with a new hire, comes the further expenditure of training, which would require investing manpower and resources in training the newbie.

Cost of motivation loss

A bad hire can have a negative impact on co-workers and the team as a whole.  If the bad hire is in a leadership position, the impact can be much worse.  Direct reports will start to resent the leader.  Eventually, those employees who have proven to be some of the best workers/high performers will start to disengage from the team and the organization.  Self-motivation often relies on environmental factors.  If the environment is negative, it can be very difficult to be motivated at work.

Cost of productivity loss

A wrong hire naturally resists and resents all or most employee engagement initiatives that the organisation pulls out. They usually don’t participate with full zest in things like upskilling, teamwork, performance alignment or other such activities, also causing much difficulty in the team participation and creating loose ends for other teams if they must interact daily. This affects the time and energy of the organization, resulting in productivity loss and incurring considerable expenses.

However, you can avoid bad hires by following few of the tips given below

Develop and articulate two sets of skills: prerequisites and trained

Prerequisites are the skills that a candidate should come to the interview prepared to demonstrate. These skills are required for the job and new employees will not be trained in them. The trained skills are ones that will be learned on the job; some prior proficiency is desirable, but not necessarily required.

Reduce the chatter in interviews

Make the interview more about asking the candidate to demonstrate their prerequisite skills than asking open-ended questions that ultimately give you little insight.

Make subjective ‘soft skills’ objective

Qualities like “cultural fit” and “team player” are somewhat subjective. Make a list of the parameters that qualify for cultural fit and then ask yourself if you see those traits in your candidate.

Figure out what went wrong last time

Chances are you’ve made a bad hire once or twice before. The mistakes you made with that individual can inform your current selection process. Make sure you do not repeat the same mistakes.

Ask for references – and contact them

Keep the cost of a bad hire at zero – by seeking recommendations. These reference checks can tell you the real deal behind a candidate’s story. The people you contact for reference check will often be candid with you.

There is no formula to ensure that every hire is a great one. However, if you invest the time and effort to conduct a rigorous and consistent hiring process, the chances of making a great hire improve drastically.


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