Executive Research Series 1.

HIRING RISK
HOW COMPANIES MANAGE RISK
TO CREATE COMPETIVE ADVANTAGE
AND HIGHER PRODUCTVITY

2009
Ranjan Sinha, MBA
Dr. Cabot Jaffee, PhD
Reimara Valk, MSc
“ Peopleare NOT your
most important assets ”

The
RIGHT
people are
Introduction
Companies invest significant time and money to acquire talent. Every time a company extends an offer; it needs to
answer a few critical questions such as:

[ + ] “If we hire this person will the person be able to perform the job and to what level of excellence?”
[ + ] “If I hire this person will the person stay in the job long enough to justify the costs that are associated
with hiring and training the person” i.e Does my company offer what this person is looking for in terms
of his psychological, sociological and demographics needs.?

Most of these decisions are taken typically through a nebulous process of unstructured interview utilizing information
about the candidate that is confined to a resume (not necessarily an unbiased or accurate representation of the
individual) and the recruiters or managers interpretation of “right” talent, with scope for bias exposing the organization
to significant hiring risks.

While companies constantly manage business risks like extending credit, underwriting insurance, selling mortgage,
investing their cash utilizing tools and models to set guidelines for their managers. We all know hiring decisions are
not perfect and have the most significant impact on the short and long term value of the company; however most
companies do not systematically manage their hiring risk.

A larger part of the “wrongs” in managing talent begins in the early phases when talent is being acquired due to

[a] Limited guidelines on how many “wrong” hires is acceptable

[b] Absence of processes that monitor how many of these decisions ended being: “Right” vs. “wrong”

[c] The absence of a hiring risk management tool to help make better hiring decisions.

This marks the beginning of an unproductive employee (asset) life cycle for the organization, resulting in poor
employee performance, reduced managerial productivity, constant hiring and firing; resulting in high training costs,
unplanned attrition, low employee morale, poor job person match that eats into a company’s profitability and
organizational productivity and ultimately the loss of revenue.

Hiring Risk Management Systems tie business outcomes to

hiring decisions.

Case Study: Our client a large financial institution in India hires a few
thousand sales people every year and has to process over 100,000 resumes.
More than 45% of the decisions were failing after the first six months. Employees
either failed to meet performance goals or after training left within the first year
resulting in revenue loss of over 8 crores, increased cost per hire and training
costs.

The company had used various personality assessment and aptitude test. The
tests were expensive, not developed for the Indian market, and proved to be
inadequate in terms of predicting hiring outcomes.

The bank decided to implement a Hiring Risk Management System to better guide
its managers on an individual candidates risk for performance and retention.

The system saved the bank over 4 crores annually in lower assessment costs,
lower attrition and improved recruiter productivity.

01
Hiring Risk
Management System
What is a Hiring Risk Management System?
Hiring Risk Management Systems are similar to any other risk management systems in approach.

For example, Banks before extending a loan(mortgage) request the applicant for certain information as determi-
nant factors to ascertain the risk the company undertakes when giving someone a mortgage. They input the informa-
tion into a system that utilizes sophisticated algorithms and in-turn compares them with historic outcomes to decided
whether to give someone a loan, how much and at what interest rates.

Similarly, Hiring Risk Management Systems through proven, validated and relevant methods collect data about a
person (typically using psychometric tools), his/her historical “performance” data (if it exists) and combines it with
organizational and job related factors using predictive analytics to provide an easy to use decision making tool as an
interview guide for recruiters and managers. These systems take complex analytics and data analysis and present
them as simple ready to use decision making tools.

Hiring Risk Management System ties business outcomes to hiring decisions and gives your organization the ability to
develop QUANTIFIABLE metrics around:

[+] Hiring process efficiency

[+] Cost per hire
[+] Workforce performance
[+] Talent measurement

Successful CEO’s have always understood that the recruiting selection process must be systematized and linked to
revenues and profits. A Hiring Risk Management System can provide the information platform and data that business
leaders need to make decisions about human resource, cost allocation, process improvement, staff performance
and ultimately future direction of the company, to significantly improve the quality of hire.

PR
E Distribution
of Individuals
ST
PO

QUALITY OF HIRE (Measured six months post hire)

Employee Performance Measurements
Engagement Measurements – Retention

02
Evolution
Evolution of Hiring Risk Management Systems
and its Efficacy
Psychometrics is the field of study concerned with the theory and technique of educational
and psychological measurement, which includes the measurement of knowledge, abilities,
attitudes, and personality traits. Over the years psychometrics has been adopted by the
corporate world to hire and manage its talent. Organizations use a combination of assess-
ment tools such as Aptitude tests, Skill tests, Domain or Technical Tests and Psychometric
Assessments to filter their talent pool. Psychometric assessments tools were never
designed for hiring and selection but to understand people’s personalities and traits. While
these tests describe/capture a person's personality or behavior comprehensively they are
limited and inadequate in predicting business outcomes like performance and retention.
Hiring Risk Management Systems effectively combine psychometric, job related knowledge,
work simulation, personal need/ motivator information with performance data to deliver a
comprehensive hiring decision making tool. The graph below shows the cost of deploying
such tools and their correlation to business outcomes i.e effectiveness vs. a comprehensive
hiring risk.

Random
HIGH / EASY Selection

Hiring Risk Systems

Combine Personality, Job
Simulation and Need
Motivator assessments
Ease of Deployment

with predictive algorithm

MEDIUM
Job Specific
Assessment
Knowledge /
Personality Test, Aptitude Test
Cognitive Ability,
DISC 16PF

Structured
Unstructured Behavioral
Interview Interview
LOW / COSTLY

LOW HIGH

VALUE - Predictive correlation to Business Outcome

03
Measure
What do Hiring Risk Management
Systems Measure and How does it work
Hiring risks are manageable like any business risk. Center for Talent Research and HR
Analytics identifies three critical risk areas that through systematic monitoring and
management can lead to better hiring effectiveness and business outcome.

[a] Performance Risk – Can the person do the job and how well?

[b] Engagement Risk – What does the person want and will the person stay with
the company?

[c] Knowledge and Aptitude risk – Does the person have the necessary skills and does he
have the aptitude to do a particular job?

There are various instruments that can measure past accomplishments, personality and
behavioral characteristics that is associated with a candidate. The performance, sociological
pressures, demographic constraints and psychological needs of a candidate will also need to
be matched with the company’s ability to meet them.

What does the person

WANT/NEED
from an Employer
STAR™ Select Employer
Dimensional Attribute
Measurement

What can the person Do? What has the person Done?
[+] Ability Test [+] Knowledge and Skills Test
[+] Personality Measures [+] Behavioral Interviews
[+] Job Simulation [+] Background Checks

Hiring
Effectiveness
future job
performance

Combining measurements from these assessments with historic performance using predic-
tive algorithms is at the heart of a Hiring Risk Management platform. Significant advances in
predictive algorithms, India relevant and normed assessment tools; leveraging technology
(internet) to rapidly, cost effectively and continuously collect data on individuals and organiza-
tions makes such systems practical today.

04
Future
Future Trends in Hiring
We expect each of these trends to continue over the next few years.

The Financial Impact of Screening: Organizations are demanding more from

their employment screening programs. They want to see the direct impact of assess-
ment scores on business outcomes and the ROI of using employment assessments.
Showing financial impact is particularly critical in the current economic downturn, as
organizations try to identify which programs are mission-critical and which ones are
merely costly digressions.

Leveraging Technology in Employee screening: With the recent economic

slowdown, companies will have to process higher numbers of resumes while keeping
cost of recruiters and hiring infrastructure down. Technology can filter candidates more
consistently than individuals while reducing recruitment operating cost between 35-69%.

Job Simulation through Multimedia: Test development efforts are moving

increasingly toward high-tech, multi-media simulations that model “a day in the life” for a
given job role. In addition to being more engaging for candidates, these assessments
can serve as a “realistic job preview” by simulating actual job activities, and may particu-
larly appeal for positions that are high impact and require technology interaction like bank
tellers, check-out clerks, customer support reps.

From piece-meal assessments and tests to Comprehensive Hiring

Risk Management Systems: As CEO’s demand from HR to impact business
outcomes intensifies through more accurate employment testing, organizations will
increasingly adopt a “whole-person” risk assessment approach. These systems employ
a variety of different assessment methods that specifically target those characteristics of
the candidate (behavior, ability, skills, needs and traits) that are most relevant for achiev-
ing critical business outcomes. Furthermore, whole-person assessments have been
determined to be more predictive than tests that isolate a single competency. More
details about Hiring Risk Management Systems can be found in a follow-on white paper
devoted to this topic.

In summary, organisations can benefit from a Hiring Risk Management System so that
deployment decisions around both external and internal candidates are efficient and
effective.

05
Authors
Mr. Ranjan Sinha
Chairman and CEO, Summit HR
Ranjan Sinha has founded and directed number of service and technology companies and
in the area of human resources, email and marketing services in India and the USA. Ranjan
founded Summit HR with the vision of helping CEOs and their teams win the war for talent.
Summit HR is recognized as the Top HR Outsourcing Company by The Wall Street Journal®,
International Association of Outsourcing Professionals, The Gartner Group and Fortune®
magazine.

Ranjan has been selected as the “HR Outsourcing Superstar’ numerous times by HR
Outsourcing Today magazine for his contributions to the HR Industry in the US and India.
He is a frequent speaker on various industry panels on Talent Management, Hiring Risk
Management and HR Outsourcing. He currently writes a column for The Financial Express and
has written numerous articles on Six Sigma applications in HR and Talent Supply Chain
Management. Ranjan serves on the board of Summit HR Worldwide Inc., Global Talent
Management Inc. and Greenwich Capital Venture Corporation.

Ranjan lives in California and is active in his community and is a member of the Young
Presidents Organization (YPO) Northern California Chapter.

Ranjan has a Masters Degree from The Wharton School of Business and a MBA from the
Indian Institute of Management, Bangalore. He has a B. Tech from the Indian Institute of
Technology, Roorkee.

Dr. Cabot L. Jaffee, Sr., Ph.D.

Chairman, Global Talent Metrics
Dr. Jaffee is a recognized authority in the area of personnel evaluation and development.
He has been a nominee for the Training Magazine Hall of Fame. He started his career with AT&T
and was responsible for assessment center activities for the Bell System. For over 30 years,
he has consulted with a large variety of organizations in the U.S. and abroad, both in the private
and public sectors.

Dr. Jaffee's areas of expertise include testing, electronic selection, assessment centers,
job analysis, career development, managerial development, performance appraisal and legal
concerns associated with personnel evaluation. As one of the world's leading experts in the
area of personnel evaluation, Dr. Jaffee has been an expert witness in a variety of court cases.

Dr. Jaffee has published extensively in the field, and has authored several books, chapters
and numerous articles. He has been a frequent presenter at major conferences including the
American Society for Training and Development's National Conference, Training, American
Society of Personnel Administration's National Conference, etc.

Dr. Jaffee holds a B.A. degree in Psychology from New York University, an M.A. degree
from Columbia University and a Ph.D. degree in Psychology from Florida State University.Dr.
Jaffee has been on the faculties of the University of Tennessee and the University of Central
Florida. He has given guest seminars on personnel practices at such institutions as the University
of Michigan, etc.

06
Reimara Valk
Senior Research Analyst,
Global Talent Metrics / IIMB
Reimara Valk (MSc, BA Honors, BA) is a Senior Research Analyst for Global Talent Metrics
based at the Indian Institute of Management Bangalore (IIMB), India. In collaboration with
professor Vasanthi Srinivasan, (IIMB) Reimara has worked on various studies in the field
of human resources (HR), including work-family balance of women and men IT professionals
in India; Global staffing strategies of expatriates involving companies like Sun Microsystems,
Google, Volvo, Honeywell, Alcatel-Lucent, Philips, Bosch, Hyatt Hotels; Employee attrition in
India, a collaborative endeavor between IIMB, Summit HR Worldwide and Alignmark Inc.

Reimara has gained prior work experiences in the area of HR and business process analyses,
customer services and facilities management within industries such as IT, chemical
manufacturing, healthcare, hospitality and municipality government across the Netherlands,
UK and India.

Academic
Snippets
1. Sackett, P. R., Schmitt, N., Ellingson, J. E., & Kabin, M. B. (2001) suggested
that the item content of a psychometric test should not be unfamiliar to those
of a particular culture and should not be more verbally complex than warranted
by job requirements.

2. Ryan, A.M. & Tippins, N.T. (2004) believes that the usefulness of a selection tool
in any given situation will require evaluating context-specific information such as
the selection ratio (number of candidates hired relative to the number of candidates
who applied), hiring cycle time, costs of a selection error (e.g., cost of replacement,
error, lost opportunities), marketability (getting people in the organization to use the
tools), timeliness (feedback to applicants and hiring managers), and management
of the process (selection system administrator ability and credibility)—are all context-
specific and may be more challenging for some HR managers than others.

3. Tippins, N. T. (2002), argues that putting a selection system into use involves a host
of implementation issues—decisions about the ordering of process elements,
the ways in which information will be combined, the use of technology in delivery
of tools, the training of tool users, policies (e.g., waivers), the database structure
and access, and communications about the system—all of which contribute to the
success or failure of a selection system.

4. Mattone, J.S., Jaffee, C.L. & Struth, M.R. (2009), believes that technology should
be leveraged to help organizations source and screen talent more effectively

07
 References
[+] Ryan, A.M. & Tippins, N.T. (2004). Attracting and
selecting: what psychological research tells us.
Human Resource Management, 43 (4), 305–318.

[+] IT People (2002).

www.itpeopleindia.com/20030120/cover.shtml

[+] Furnham, A. (2008). HR Professionals’ Beliefs About,

and Knowledge of, Assessment Techniques and
Psychometric Tests. International Journal of Selection
and Assessment, 16 (3) September.

[+] Mattone, J.S., Jaffee, C.L. & Struth, M.R. (2009).

Sales Results are Predictable! A Sales

[+] Leader’s Guide to Measuring & Managing Leading

Indicators. White paper series AlignMark Inc., 1-28.

[+] Anderson, N. & Cunningham-Snell, N. (2000).

Personnel Selection. In: N. Chmiel (ed.),

[+] Introduction to Work and Organizational Psychology.

Oxford: Blackwell, pp. 69–99.

[+] Cook, M. (2004). Personnel Selection: Adding value

through people. Chichester: Wiley.

[+] Hunt, S.T. (2007). Hiring Success: The art and science
of staffing assessment and employee

[+] selection. San Francisco, CA: John Wiley & Sons Inc.

[+] Sackett, P. R., Schmitt, N., Ellingson, J. E., & Kabin,

M. B. (2001). High stakes testing in employment,
credentialing, and higher education: Prospects in
a post-affirmative action world. American Psychologist,
56, 302–318.

[+] Tippins, N. T. (2002). Issues in implementing large

scale selection programs. In J. W. Hedge
& E. D. Pulakos (Eds.), Implementing organization
interventions: Steps, processes, and best practices
(pp. 232–269). San Francisco: Jossey- Bass.

[+] Van Hoye, G. and Lievens, F. (2007). Investigating

Web-Based Recruitment Sources: Employee testimonials
vs word-of-mouth. International Journal of Selection
and Assessment, 15 (4). 372-382.

08
Global Talent
Metrics
Global Talent Metrics is a human resource information
services company, dedicated to helping organizations
and individuals make better hiring and selection deci-
sions with greater confidence and control.

Global Talent Metrics is a part of Alignmark.Inc, a lead-

ing provider of innovative solutions that help organiza-
tions optimize their investment in human capital across
Europe, USA and Latin America for over 30 years.
Leveraging this global expertise in the design and
deployment of assessment and by combining dedicated
research on Indian organisations and individuals; we
offer a range of solutions in the areas of talent acquisi-
tion, management and retention.

At the core of innovation is a team of expert industrial

and clinical psychologists and technologists that make
up the research wing of the company. Over the last
three decades the team has developed HR solutions for
Fortune 1000 companies that have gained significant
competitive advantage by better talent management
practices.
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For more information on STAR™ – India’s pioneering Hiring Risk Management Systems from Global Talent Metrics

Contact : Pavan Sriram or visit www.stargtm.com

Email : pavans@stargtm.com