HIDDEN ROI OF TALENT ACQUISITION AND...

Analytics and Strategies for Global Workforces

A White Paper by Taleo Research

HIDDEN ROI OF TALENT ACQUISITION AND MOBILITY

Contact for Taleo Research:Yves Lermusiaux ([email protected]) 415.538.9068 ext. 3607Contact for Taleo:Lisa Hartley ([email protected]) 415.538.9068 ext. 3628

mailto:[email protected]



© 2005 Taleo Research

Table of ContentsExecutive Summary .....................................................................................1Introduction ..................................................................................................3I. How Does Talent Acquisition and Mobility Impact a Company’s Economics? ..................................................................................................4II. Corporate Spend on Talent Acquisition ..................................................5

1. Labor Costs ............................................................................................... 62. Expenses ................................................................................................... 73. Process Leaks ........................................................................................... 7

a. Inefficiencies linked to labor costs ...................................................... 8i. Inefficiencies in requisition management ....................................8ii. Inefficiencies in sourcing ............................................................9iii. Inefficiencies in screening and assessment ..............................9

b. Inefficiencies linked to expenses ....................................................... 10i. Search firms ................................................................................10ii. Advertising .................................................................................10iii. Relocation .................................................................................11iv. Additional Expenses / Missed Opportunities ..........................11

a. Internal mobility ......................................................................... 11b. Tax credits .................................................................................. 12

III. Full Scope of Economic Impactof Talent Acquisition ..........................141. Time to Contribution ............................................................................... 14

a. Time to Full Productivity ..................................................................... 14b. Quality of Workforce ........................................................................... 15c. Productivity Improvement Potentials................................................. 16

1. Faster time to start ....................................................................162. Faster ramp up time ..................................................................173. Greater productivity ..................................................................184. Cost of a bad hire ......................................................................18

2. Turnover ................................................................................................... 19a. Explicit Costs of Turnover .................................................................. 19

i. Separation ..................................................................................19ii. Replacement ..............................................................................19

b. Productivity Loss ................................................................................ 20c. Intellectual Property Loss ................................................................... 21d. Reduction in Costs Associated with Turnover .................................. 21

3. Risk of Non-compliance.......................................................................... 22a. Equal Employment Opportunity Reporting ....................................... 22

4. Contingent Workforce ............................................................................. 23a. Cost of Procurement of Contingent Workers .................................... 23b. Co-employment .................................................................................. 24

i. Co-employment risk reduction ..................................................25c. Contingent Workforce Management Programs ................................. 25

Summary of Value Wasted .........................................................................26How Taleo Optimizes the Talent Supply Chain .........................................28About Taleo Research ................................................................................30About Taleo ................................................................................................30Appendix A: Detail of Labor Costs of Talent Acquisition .........................31

1. Direct Talent Acquisition Costs .............................................................. 312. Indirect Talent Acquisition Costs ............................................................ 32

Appendix B: Turnover Calculation .............................................................33Appendix C: Key Financial Concepts........................................................34

Definitions of Common Financial Metrics .................................................. 34Limitation of a Purely Cost-driven View of ROI.......................................... 36

1



Executive SummaryThe economic impact of talent acquisition and mobility on an organization is enormous, yet not captured in most technology and process improvement ROI studies.

The Hidden ROI of Talent Acquisition and Mobility provides a full understanding of the costs related to talent acquisition—as validated by Taleo Research studies—and the opportunities for cost reduction and improved corporate performance.

The first, familiar category of corporate spend on talent acquisition includes internal labor costs and expenses. Opportunities for improvement include:

4Reduce HR staff and hiring managers’ time spent on activities such as requisition management, sourcing, and screening, and assessment.

4Reduce expenses through streamlined processes for search firms, advertising, relocation, and internal mobility.

4Capture all available tax credits through an integrated, efficient technology-supported process.

The second, less familiar category is the impact best practice talent acquisition has broadly throughout the enterprise. This paper provides evidence that talent acquisition and mobility can contribute both significant costs and substantial enterprise-wide returns. For example:

Time to contribution is impacted by both productivity and quality.

4Reduce the time to fill a vacant position to gain productivity faster.

4Improve the onboarding process to reduce the time to contribution for a new employee.

4Increase the quality of the workforce through an effective hiring process that leverages assessment tools, to reap more productivity in the short and long terms.

Turnover costs include separation and replacement costs as well as productivity loss.

4Reduce separation and replacement costs by increasing selective internal mobility and avoiding unnecessary severance payouts.

4Reduce productivity loss by having a faster time to fill to ensure knowledge transfer and reduce vacant positions.

4Reduce intellectual property (IP) loss by making sure full time employees (FTEs) are hired and retained for sensitive positions instead of contingent workers. Have non-compete agreements in place if employees leave.

In addition, substantial savings can be realized from mitigating risk of non-compliance with regulations.

2



Finally, this paper includes a discussion around the procurement and management of contingent workers. In addition to articulating hard and soft costs, Taleo Research finds:

4In many companies, the responsibility for contingent workforce management crosses departments—such as HR, procurement, finance, and legal—or does not reside in any one department, limiting the potential for accountability and savings.

4The contingent workforce is largely unregulated. Companies found to have misclassified independent contractors expose themselves to co-employment risk and are liable for huge fines and payments.

4A comprehensive vendor-neutral technology and services solution can leverage volume discounts and enforce rate agreements and similar tactics to reduce costs and create value.

Understanding and being able to calculate total corporate spend and opportunity costs of talent acquisition and mobility—clearly much greater than traditional cost per hire metrics—enables executives to articulate its significance to the overall corporate budget.

The Hidden ROI of Talent Acquisition and Mobility is the culmination of years of work and many ROI engagements. For additional information or consulting in this area, please contact us on our website at www.taleo.com.

http://www.taleo.com

3



Introduction

“The right people at the right time in the right job.”

Simple — to the point — but very hard to achieve. All organizations today are driven by people; 57 percent of the US GDP is spent on workforce related expenditures.1 Workforce related expenditures are the most significant portion of spend for most organizations, so understanding where the investments are made, what form the investments take, the economics of their impact, and how to best optimize these resources is key.

A multitude of activities, people, and resources contribute to new talent acquisition and the mobility of current employees. Each resource allotment has an associated expense and yield. Fundamental recruiting costs are obvious, such as the expenditure on job board advertising and the salaries paid to corporate recruiters. However, a more comprehensive analysis of the return on investment (ROI) of talent acquisition and mobility reveals hidden costs and broad economic impact as well as fresh opportunities for improvement and better returns from the corporate workforce.

Through its research division, Taleo Research, Taleo has categorized and validated the value achieved from implementing best practice talent acquisition and mobility processes in more than 200 enterprise talent management implementations. Drawing on that expertise, the Hidden ROI of Talent Acquisition and Mobility provides a guide for all executives interested in leveraging talent management as a competitive advantage.

The true costs and returns in the process to hire new employees, move employees within an organization, and procure contractors are dissected in this paper. For additional insight, case studies and real examples are included that show the direct effects of an optimized talent acquisition process on an organization’s bottom line.

� According to the US Department of Commerce’s Bureau of Economic Analysis, the amount spent on US labor in 2004 was approximately $6.6 trillion, or 57 percent of total gross domestic product.

“To put this in perspective: At Bank of America, we have $28 billion of non-interest expenses. Of that, $15 billion is related to personnel” – everything from salaries, incentive plans and fringe benefits to talent retention programs and risk management strategies. “If you can effectively manage those dollars, trying to get as high a return on investment as possible, then you approach the opportunity a lot differently.”

Source: Is Your HR Department Friend or Foe? Depends on Who’s Asking the Question, Knowledge@Wharton, August 10, 2005

4



I. How Does Talent Acquisition and Mobility Impact a Company’s Economics?Talent acquisition and mobility have a much broader impact than is often recognized. Hiring employees or bringing in new contractors involves more than the time and attention of the HR department and hiring managers. The influence and economic impact of talent acquisition and mobility has a rippling effect throughout an organization, which, when quantified, shows substantial value.

This paper begins by examining the typical acquisition cycle and the leaks inherent in the business process. Cost exposure—including risk—is specified at each step. The impact an optimized process can have on an organization in terms of better productivity, reduced turnover and higher quality of output is described as well.

Areas of impact in two major categories are discussed:

1. Corporate spend on talent acquisition, which includes labor costs and expenses customarily included in the HR budget. These costs are generally familiar and directly quantifiable.

2. The full scope of economic impact extends outside of the traditional HR budget to capture the impact talent acquisition activities produce enterprise-wide. Productivity and quality, turnover, risk, missed revenue or tax credit opportunities, and workforce management are all factors here.

The HR budget in large companies represents a very small percentage of the overall operating budget. Budget line items are usually straightforward. Yet, as is validated in this paper, the economic impact that talent acquisition and mobility has on an organization is enormous, and much larger than the HR operating budget.

A full understanding of the costs related to talent acquisition in the HR budget requires a detailed examination of the corporate spend, although that is limited in scope. Once that is clarified, a broad view of the full economic impact is meaningful.

5



II. Corporate Spend on Talent AcquisitionCorporate spend on acquiring talent is relatively easy to measure. This is primarily because the bulk of it comes directly from designated budgets with clearly identified accountability—either the HR budget, the hiring department budget, or even procurement if that department owns contingent labor procurement.2 Even so, while broad categories of spend for things such as recruiting agency fees or advertising costs can be measured, most companies are hard pressed to identify the total corporate spend on talent acquisition per new hire, especially for mobility of existing employees and procurement of external contractors.

Corporate spend on talent acquisition and mobility is defined to include the following two categories:

1. Labor costs (in terms of FTEs).

2. Expenses (costs directly associated with talent acquisition, other than internal labor costs).

2 Contingent labor: Temporary workers, professional contractors, and professional services workers are generally categorized as contingent workers.

1 2

Labor costs

TalentSpecialist

FTE

HiringManager

FTE

Search firm Referralbonuses

Backgroundcheck and

assessment

Expenses (internal and

external)

Corporation Spendon Talent

Acquisitionand Mobility

Online /offline

advertisingRelocationRecruiter

FTE

Corporate Spend on Talent Acquisition and Mobility(not a comprehensive list)

Source: Taleo Research

1 2

Labor costs

TalentSpecialist

FTE

HiringManager

FTE

Search firm Referralbonuses

Backgroundcheck and

assessment

Expenses (internal and

external)

Corporation Spendon Talent

Acquisitionand Mobility

Online /offline

advertisingRelocationRecruiter

FTE

Corporate Spend on Talent Acquisition and Mobility(not a comprehensive list)


6



1. Labor Costs

Talent acquisition costs come into play when a new position is being filled for the first time as well as when an existing position is refilled due to turnover or when employees are switching jobs within the organization. To avoid double counting, start by focusing specifically on hiring for new positions.3

Labor-related cost is further divided into direct and indirect talent acquisition costs.

4Direct talent acquisition costs are defined as those labor costs in terms of FTEs that are directly tied to the HR department (HR recruiters, HR specialists, share devoted of HR generalists, HR admin, etc.).

4Indirect talent acquisition costs are defined as those labor costs that are used in the talent acquisition process, but not directly through the HR Department (the hiring manager, procurement department, etc.).

Measuring the costs associated with both direct and indirect labor costs for talent acquisition requires a clear understanding of the time equivalency of internal resources expended on the effort. Typically, activity-based costing can make the most accurate estimations. A fully loaded FTE cost—inclusive of salary, bonus, and an appropriate burden amount—should be used for each resource involved. See Appendix A for Detail of Labor Costs of Talent Acquisition.

The chart below provides an overview of a typical staffing supply chain.

� See Turnover section for corporate spend on replacement positions and the economic impact of lost productivity of the departed employee, an element not included in this section.

7



2. Expenses

Talent acquisition expenses include the costs incurred in the talent acquisition process not related to internal labor costs. The list of discretionary spend items that companies incur in the talent acquisition process is extensive, and includes categories such as:

4Advertising (print, broadcast, Internet, events)

4Travel

4Agencies and search firms

4Relocation

4Assessment and test fees

4Signing bonuses

4Reference and background checks

4Opportunity cost of lost tax credits

4Referral fees

4Talent management software

Some of these costs are more transparent to the total cost of talent acquisition than others. Discretionary costs are rarely rolled up in total or as line items to meaningful levels that can be applied to actual staffing activities or outcomes.

3. Process Leaks

Process efficiency leaks can occur as a result of activities between departments, within the HR department or also in connection with external providers. A number of touch points, integration, and re-entry points in the talent acquisition process can be assessed for their contribution to the overall efficiency leakage.

In today’s organizations, no one person or department is generally held accountable for the total cost for talent acquisition and mobility. The leaks in the talent acquisition process are often not well minimized due to minimal motivation and lack of ownership to improve the effectiveness of investments spent on resources. Better processes, clear ownership, and integration can minimize efficiency leaks.

The leaks can be evaluated in terms of labor and unnecessary expenses. The total economic value of process efficiency leaks related to talent acquisition is arrived at by combining the cost associated with the inefficient application of internal labor with the inefficient use of discretionary spending (e.g., search firms, print, or online advertising) along with a cost measure for two significant areas of often under-leveraged opportunity: internal mobility and tax credits.

8



Response Management • Candidate data stored in different formats, locations, and storage types is cumbersome and costly

Sourcing • Significant sourcing costs can be wasted due to the lack of a formal sourcing strategy • Paper-based or email based employee referral programs add to the complexity of the most important sourcing tool

Inefficiencies in Labor-related Talent Acquisition Processes

Requisition Management • Collaboration and decisions are difficult to manage • Routing requisitions for approval in hard-copy or email is slow and not tracked • Documents may be lost in the inter-office paper shuffle


a. Inefficiencies linked to labor costs

i. Inefficiencies in requisition management

There are obvious sources of process inefficiency in the requisition management process. If hiring requests are made via ad hoc phone calls, face-to-face meetings, and paper or email forms, then requisition management is usually primarily paper-based or email-based, with manual verification of information and ad hoc application of business rules.

Consequently, there will be very little consistency across the organization concerning skills and competencies required for job positions. Unnecessary cost will be incurred through the time spent in this part of the process. A requisition approval process that lacks workflow automation will also be slow and unresponsive—and expensive.

Some organizations have as many as six approval levels needed for a job. In an environment where controls are not in place, hiring managers may use contractors that are not approved, pay unjustified premium rates, or simply not leverage preferential rates with preferred suppliers. Regardless of the level or number of approvals required, companies may incur a significant loss in terms of time if the approval process is not automated, with the appropriate proactive auto-notifiers or escalation options.

9



ii. Inefficiencies in sourcing

Inefficiencies can also be found in time consumed by HR personnel and hiring managers during the sourcing process. A lack of digital integration with media sources and a cumbersome identification process from an existing candidate pool will cause delays. For example, much time can be wasted by having to manually sift through paper or email resumes received in the past, or by ineffective key word searches of poorly architected electronic databases to find candidates who might match the requirements.

The ability of a company’s staffing supply chain to move job postings out to media suppliers quickly and efficiently is severely hampered if paper-based or manual steps are involved. Ideally, job postings to the desired audiences—whether it be through the company intranet site, the external corporate careers website, or public job posting boards—occur automatically out of the requisition database when the status of the requisition changes to approved. Similarly, the removal of job postings should occur automatically, and in real time, according to the status of the requisition in the requisition database.

System automation for tasks including job posting and unposting, along with database mining diminish the allocation of labor for non-value added steps and activities in the sourcing process.

iii. Inefficiencies in screening and assessment

Recruiters and hiring managers can spend a significant amount of time sifting through resumes without automated prescreening tools to help them quickly identify the initial short list of candidates. Historically, the largest block of time in the hiring cycle has been devoted to sorting and ranking of candidates based on reading and reviewing resumes.

Online pre-assessment tools accelerate the filtering process, by eliminating from consideration those candidates who do not pass a minimum threshold score in the pre-assessment screen. Unqualified candidates are automatically filtered out—not on the basis of their resumes—but on the basis of a self-administered online test or questionnaire. The short-list creation activities in the recruiting process are streamlined. Significant amounts of time can be saved on each job requisition, allowing the recruiter to focus time and attention on the more promising candidates.

Time can also be saved through integrated assessments, and integrated background checking. In addition to eliminating duplicate data entry, integrated offerings and efficient workflow provide needed data more rapidly, enabling recruiters and hiring managers to compress time associated with the process. Further efficiencies can be realized through the ongoing interview process if valuable information on candidates is captured in a central repository and made available to the appropriate audiences, along with a tailored interview guide.

10



b. Inefficiencies linked to expenses

i. Search firms

Many companies still have manual processes in place to source candidates, handle resumes, and track applicants. In such environments, it is nearly impossible for recruiters to share information about candidates or to access information about previous candidates. This lack of information visibility often causes companies to spend more on costly and time-consuming external sourcing activities such as external recruiting through third-party agencies.

Some organizations source nearly 100 percent of their new external hires through agencies while others use virtually no agencies for sourcing. Search firm fees typically come out of the budget of the hiring department, and therefore, can be transparent to an organization through its HR department’s accounting of talent acquisition costs.

Typical search firm fees cost an organization from 15 to 35 percent of a new employee’s base salary. Spending on agency fees can be controlled by automating agency management. Job requisitions viewed by agencies can be limited, and duplicate candidates who have already submitted a profile without agency affiliation can be automatically flagged. Efficient collaboration with agencies throughout the process, including clear identification of candidates referred by agencies, complete access to all candidate information and history by all approved parties, and automatic notification and correspondence throughout the process can optmize the value derived from fees paid to third-party agencies.

ii. Advertising

Advertising spend is a common source of maverick spend within a company. Offline/online advertising spend decisions are often times made on a blind basis with no idea of how much return on investment one is likely to get. Without the proper control over this type of spending, sourcing decisions are made at the moment of need based merely on previous advertising venues or on anecdotal results.

Today, the capabilities of online tracking provide insights on past channel performance. Systems can not only monitor the volume of resumes received but also the number of hires by source and the long-term performance of employees per source, ensuring the ability to strategize on high return sources.

Companies can also practice a cost-effective sourcing method by posting all job positions to the corporate website. The traffic to corporate sites provides a valuable source of candidates, and comes at a minimal cost compared to the exposure offered by job boards and other sourcing media.

UnitedHealth Group

Industry: Healthcare Revenue: $�7.2B Number of employees: 29,000

UnitedHealth Group, a Fortune �00 company and innovative leader in the health and well-being industry, provides healthcare related products and services. UnitedHealth Group undertook an initiative with Taleo to free HR from the burden of administrative transactions, improve productivity, and contribute to the bottom line.

Results include:

4Saved nearly $5 million in agency fees.

4Reduced advertising spending by $2 million.

4Increased volume of yearly new hires from ��0 to �85 per recruiter.

11



iii. Relocation

Relocation costs are incurred when a company has to extend its reach to identify qualified candidates. Relocation costs typically include the extensive cost of moving an individual, and possibly the family, including:

4Home sale or lease cancellation fees.

4House hunting and temporary living.

4Equity advances or bridge loans.

4Closing costs on destination residence.

4Transportation of household goods including vehicle shipment.

4Storage of household goods.

4En route or final move expenses.

4Spousal or elder care assistance.

Specific searches of corporate candidate databases may instead identify a local best fit candidate. Effective database searches can be designed to mine local candidates first by zip or postal code or commuting distance from the hiring site, alleviating the need to absorb relocation or transfer costs.

iv. Additional Expenses / Missed Opportunities

Two very important areas of opportunity related to the talent acquisition process—internal mobility and tax credits—are the final topic for inefficiencies linked to expenses. While not generally considered an expense, underutilization or poor application of an internal mobility program triggers the necessity to incur direct expenses related to sourcing and acquiring talent from outside the company. Likewise, underutilization or poor application of a tax credit program means the loss of potentially significant tax credits or offsets. Companies should evaluate their current effectiveness in managing both types of programs. After all, in a nominal sense, the economic value of a dollar of missed tax credit is equal to the value of a dollar spent on recruiting fees.

a. Internal mobility

All throughout the talent acquisition process, extra costs will mount without a streamlined and efficient workflow. Another example of waste is not leveraging a formal internal redeployment process for internal hires. In addition to the added costs of searching for candidates outside of the company, strong internal candidates may be precluded from the selection process, limiting a fair and objective competition for the position.

Paper still persists in the response channels of many corporate internal mobility programs. Paper processes are not scalable, difficult to share across the enterprise, and lack a common format for assessment. Poor visibility into internal opportunities makes it easier for employees to find jobs outside a company than inside. Uses of the corporate intranet for posting job opportunities and receiving applications from employees reduces discretionary spend related to external hiring.

An internal mobility initiative results in direct cost savings through lower sourcing costs with no third-party agency fees or advertising, and a reduction in staffing department labor. Time spent screening applicants is much lower with

12



internal candidates. Internal mobility initiatives also reduce peripheral staffing expenses, such as signing bonuses, relocation expenses, and onboarding costs. Severance payments as well may be avoided by employee redeployment rather than separation.

When the corporate internal mobility process is optimized, corporations can shift resources within the company to where they are most suited without the costs and delays of a conventional, external recruiting process. Internal mobility initiatives result in cost avoidance for corporations by increasing retention. Turnover is costly to an organization and has a negative impact on productivity. Productivity ramp up and time to contribution is faster for redeployed internal employees.

b. Tax credits

In most countries, nearly every company hires employees that qualify for some form of tax credit. Tax credits—generally available at the national, state, and local levels—range from hiring certain classes of disadvantaged people, to revitalization tax credits tied to geographies or industries. For example, in the US, more than 150 employment-related tax credits are available to encourage employers to hire certain qualified individuals.

Tax credit programs are generally divided into different groups, such as screening credits, which are primarily created to encourage and/or reward employers for hiring individuals from targeted groups. Zone-based tax credits are based on employee and/or employers physical location(s). The total benefit of these tax credits is significant, with companies earning an average of $1,500 per qualified employee per year. Generally, about 6 to 12 percent of a large employer’s new hires will appear to qualify for a tax credit. Therefore, on average, a company with 8,500 employees and a 25 percent turnover rate could gain nearly $300,000 in tax credits per year.

Broadly speaking, there are four general groups of tax credits: screening, zone-based, job creation, and training incentives-based tax credits. The familiar Work Opportunity Tax Credit (WOTC) is a good example of a screening tax credit.

WOTC is an incentive the government provides to businesses for hiring economically disadvantaged individuals or those with barriers to employment. Under WOTC, and the similarly structured Welfare-to-Work Tax Credit programs in the US, companies may claim up to $8,500 per employee in potential tax credits and can directly subtract the credit from any amounts owed to the IRS. Unused tax credits can be carried forward to future tax years.

Regrettably, many companies do not take full advantage of available tax credits. Historically, the processes to research, identify, and implement tax credit programs have been the domain of a company’s tax department, yet typically not at the top of its priority list. There are a myriad of tax credit programs. Understanding the availability and the intricacies of each program requires some effort. Consequently, a tax credit program that is not automated represents a daunting process for most companies.

13



There are a number of touch points in processing tax credits that—if not managed well—can have a negative economic impact on a company. Many can be more effectively managed with the help of the right automated tools. For example, by integrating the tax credit screening into the electronic job application process, a company is guaranteed that all employees hired through the automated system are screened for tax credits. For each applicant not screened on the front end, there is the risk that some tax credits may not be captured. It is not uncommon for new employees and/or employers to learn of the eligibility of a candidate for various tax credits on a post-hire basis. However, the law requires the screening to be completed on or before the day of job offer.

Specifically, the economic value at risk to a company from not having an effectively managed tax credit program in place includes:

4Increased paperwork and printing costs.

4Increased salaries paid for HR and operational personnel to oversee the tax credit process.

4Missed tax credits as a result of not complying with appropriate identification and tracking of qualified individuals.

4Missed tax credits as a result of not expanding the program to track all applicable tax credits.

4Increased tax and labor audit exposures by having weak or non-existent process controls.

By implementing a talent management system that includes an integrated tax credit screening solution—encompassing both pre-hire and post-hire automation—paperwork and printing costs can be reduced by as much as 94 percent.

When tax credit screening is delivered through a robust talent management system, HR executives have the opportunity to increase the positive economic impact to their companies by:

4Reducing the amount of time spent on tax credit processes.

4Expanding the number of tax credits claimed.

4Increasing the company’s employment-related tax credits.

These benefits can best be achieved when the tax screening functionality is seamlessly and deeply integrated into the system software. Today, with the development of automated talent management systems such as Taleo, companies can automate and streamline their hiring processes, including the tax credit process.

14



III. Full Scope of Economic Impact of Talent AcquisitionThe delineation of the corporate spend on talent acquisition deals primarily with hard costs and effectiveness leaks. Yet the full scope of how talent acquisition and mobility impacts a company’s economic value is a second, powerful major area that has both significant costs to the organization and can provide substantial returns.

1. Time to Contribution

Productivity of the workforce can be positively impacted through the following actions:

1) Shorten employee time to full contribution by reducing the time to start and onboard, or

2) Increase the quality of the overall workforce by hiring higher performing employees.

Average time to contribution of new employees combined with quality of workforce drives a company’s overall workforce productivity.

A shorter time to contribution and a faster rate of acquiring full productivity combine for a greater economic benefit to the company. A longer time to contribution and a slower rate of reaching full productivity combine to increase the economic cost to the company. An HR executive can have a significant impact on the economic value created or wasted by taking specific steps to improve the time to contribution and the overall quality of employees hired by a company.

a. Time to Full Productivity

Time to contribution for a given employee is influenced by several factors including job complexity and current/past employment with the company. By default, all new employees are only partially productive during the ramp-up period. However, as employees spend more time in their respective jobs, their levels of productivity may develop at different rates. A slower time to contribution can have a significant negative impact on the overall productivity of employees, and ultimately a negative impact to the economics of a company.

15



One study measured the differences associated with time to contribution by measuring the time to full productivity and the rate of acquiring full productivity. Lowered productivity is referred to as lost output, or the opportunity cost of the lost output that would have been generated if the employee were fully productive. Study results calculated lost productivity due to learning curves total between 1 and 2.5 percent of revenues.4

b. Quality of Workforce

Quality of workforce refers to the quality of an employee’s performance over the course of employment. Although seemingly an intangible, McKinsey’s acclaimed War for Talent study crystallized the impact of quality performers. It found that in the opinion of senior managers, high performers outperform average performers by a wide margin. According to the study, high performers in operations roles are able to increase productivity by 40 percent more than average performers; high performers in management roles increase profits by 49 percent; and in sales positions, high performers are responsible for 67 percent greater revenue. Even without metrics, intuitively it is clear that absolute productivity is different between individuals.

4 Source: Mellon Learning Curve Research Study Results, June 200�

Productivity Level

Fullproductivity

1st dayon the job

Time in Job

Time to contribution is determinedby several factors: - Aptitude- Prior experience- Job complexity- "Fit"Time to contribution

Time to Contribution


Productivity Level

Fullproductivity

1st dayon the job

Time in Job

Time to contribution is determinedby several factors: - Aptitude- Prior experience- Job complexity- "Fit"Time to contribution

Time to Contribution


Delta of Performance Between Employee A and Employee B

Productivity Difference Between Employees

Full Productivity of Employee A

Full Productivity of Employee B

Productivity Level

Time in Job Source: Taleo Research

Delta of Performance Between Employee A and Employee B

Productivity Difference Between Employees

Full Productivity of Employee A

Full Productivity of Employee B

Productivity Level


16



Good People are Great for Business

How much more does a high performer generateannually than an average performer?

40%49%

67%

Increasedproductivity inoperations roles

Increasedprofit in generalmanagement roles

Increased revenue in sales roles

Source: McKinsey’s War for Talent 2000 survey off 410 corporate officers at 35 large US companies

Mean of responses from 410 corporate officers

c. Productivity Improvement Potentials

1. Faster time to start

Assuming no capacity constraints, and equal employee quality, the output difference between two employees with different start dates is represented by the shaded area in the chart below.

As the graphic illustrates, a productivity gain may be achieved by shortening the time to start—the benefits of which accrue over the course of an employee’s ramp up period. The graphic compares the differential in productive output between two employees of equal quality. The difference is the actual hire date, which is sooner for Employee A, hired in five days less time than Employee B. Taleo customers have achieved reductions in the time to hire process in the range of 19.7 percent – 71.4 percent. This verifies the great potential that resides in this simple approach to optimize productivity.

Full productivity

Hire Date forEmployee A

Hire Date forEmployee B

Faster Time to Startwith Equal Productivity

Productivity Level


Full productivity

Hire Date forEmployee A

Hire Date forEmployee B

Faster Time to Startwith Equal Productivity

Productivity Level


Dow

Industry: Science & Technology Revenue: $40B Number of employees: 4�,000

Dow reduced cycle time by 50% and centralized staffing processes globally.

As a Six-Sigma organization, Dow measured a 75% improvement in its staffing process Sigma through improved global staffing practices using Taleo, equating to approximately $9� million in value creation over five years, or $0.02 per share.

Staffing cost reductions are calculated at nearly $�0 million over five years, and productivity and retention increase values at more than $80 million over the same period.

17



Watson Wyatt’s Human Capital Index (HCI) study found that successful recruiting is a strong indicator of higher shareholder value. Recruiting and retention excellence is, in fact, one of the strongest human capital management (HCM) practices and had a total impact on shareholder value by 7.9 percent. Furthermore, they noted that companies that filled positions within two weeks provided total return to shareholders (TRS) of 59 percent between 2002 and 2004, versus 11 percent at companies that required at least seven weeks to fill positions.

2. Faster ramp up time

All new employees go through a learning curve during which they perform below the level of a fully productive employee. Employee learning curves represent the length of time required for employees in new positions to achieve full productivity, and the rate at which they progress towards full productivity throughout the course of the ramp up period. The following graphic shows the typical learning curve for a new employee.

It is fairly intuitive to recognize that productivity generated by filling a vacant position sooner will have a direct positive effect on the overall productivity of the company. It is somewhat more difficult to demonstrate the potential impact on an organization from hiring individuals that can achieve full productivity quicker. Several practices are available to impact faster time to productivity.

First, a more effective onboarding process enables new team members to gain access to information, tools, and materials needed to perform their function more quickly.

Second, the assessment and testing tools available today empower organizations to hire the best individual who will not only have the skills required to perform in the short term, but also have the behavioral and attitudinal traits that characterize the best performers in the position.

shaded region

represents the

gained productivity

Productivity Gains Tied to Quicker Onboarding Process

Time in Job

Productivity Level

Full productivity Time to Contribution ofOnboarding Process #1

Time to Contribution ofOnboarding Process #2


shaded region

represents the

gained productivity

Productivity Gains Tied to Quicker Onboarding Process

Time in Job

Productivity Level

Full productivity Time to Contribution ofOnboarding Process #1

Time to Contribution ofOnboarding Process #2


18



The combination of more effective onboarding processes with the use of appropriate assessment tools enables organizations to achieve a faster overall time to contribution rate for the employee base.

3. Greater productivity

What is the level of investment a company makes with each decision to hire an employee? Although most companies cannot provide for a full accounting, it is obvious that the economic investment is very significant. Regrettably, many companies do not approach the acquisition of human capital with the same degree of thoroughness used to acquire hard assets. Nonetheless, employee-related expenditures are often the most significant cost a company bears.

While talent acquisition processes can be more efficient, companies also need to focus on making the talent acquisition process more effective. Here, the quality issues are key – both in initial performance and during long-term performance of the employee.

Assessment tools are an effective way to improve the likelihood that hired employees have the required skills and talent, and that they will likely prove to be a good fit from a company cultural standpoint. In many markets, assessments are becoming increasingly important as a tool to help improve hiring decisions. Specialized assessments enable hiring managers to focus on best-fit candidates, streamlining the process and reducing the risk of making a bad hire decision.

The fusion of the right technology with new insights on assessment best practices empower companies to bring the best thinking and tools for hiring people to the workplace, along with the best technology for executing consistently and efficiently.

4. Cost of a bad hire

In the US, managers spent 13 percent of their overall time managing poor performers, which translates into 1.5 percent of the US GDP. In Hong Kong, it is even higher at 21 percent, equivalent to 3 percent of GDP.5 The cost of a bad hire for a software engineer or biotech researcher can exceed millions of dollars. For a CEO, it could cost more than $1 billion in market capitalization. The risks and potential losses from making a poor quality hire stem from poor productivity and a reduced quality of output. Poor quality hires may result in poor customer service, which leads to revenue loss and even loss of market share. A workforce with a lower overall quality of employee takes longer to bring products to market, resulting in lost competitive advantage. The cost of goods sold is also higher, as the company has to contend with lower productivity.

The costs of poor quality are sensitive to the position, increasing dramatically for key positions. In the retail industry, bad hires may result in excessive costs due to inventory shrinkage and loss of brand equity from poor customer service. The wrong hire may cost the company hundreds of dollars in employee theft, or millions of dollars in a liability suit from cases involving criminal actions.

Having made the wrong hiring decision, a company may seek to cut its ongoing losses by replacing the employee. Replacement costs, including sourcing costs,

5 Source: Getting the Edge in the New People Economy, Future Foundation

CFO’s View of Employee Quality

Industry: Manufacturing Number of employees: 60,000 Revenue: $9.8 B.

This multinational corporation generates about $5 dollars in revenue for every $� dollar invested in labor.

When the cost of materials for production is removed, every dollar invested generates close to $2 dollars in net contribution.

At a new hire rate of �0% per year (6,000 new employees), and using a conservative �% increase in output productivity by those new hires, the company realized an increase of approximately $�.0 million dollars in pre-tax profits, or 4% and a corresponding increase to earnings per share of 5%.

Cost of a bad hire can be more than sublevel productivity; it can directly affect brand equity.

A well publicized case of a financial service company subject to fraud found that it failed to properly check the background of some of its associates during the hiring process.

Similarly, a pizza delivery service incurred heavy business impact when a deliveryman who offended a customer was known to be a repeat offender, yet was not screened out during the hiring process.

19



administrative and processing costs, and lost productivity for the hiring manager all become part of the cost of a bad hire.

Bad hires produce damaging results that can be calculated as the sum of these direct and indirect costs:

4Productivity loss.

4Loss of customers.

4Loss of brand equity.

4Legal liability.

4Separation costs.

4Replacement costs.

2. Turnover

Another cost that is not often the explicit responsibility of HR and Recruiting is the cost of turnover. The overall impact of employee turnover on the corporate bottom line can be dramatic. The more easily identifiable costs are the explicit separation and replacement costs such as severance pay or recruiting fees. Equally important, if not more so, are the costs of lost productivity that a company experiences through the transition period from separating employee to replacement employee.

a. Explicit Costs of Turnover

i. Separation

Separation costs may include severance pay, costs associated with exit interviews, outplacement fees, and possibly litigation costs—particularly for involuntary separations.

Severance payments are a common form of separation costs for most companies and can represent a significant portion of overall separation costs—especially in Europe. In the US the traditional severance payment is one week per year of service. In Germany it is one month per year of service. Severance payouts for separations from a workforce with long tenure can be an expensive proposition. Similarly, the costs of benefits can vary greatly depending upon the circumstances of the termination.

Less variable separation costs are those related to the time spent conducting exit interviews and retrieving company assets. Other significant explicit separation costs include the fees associated with outplacement services.

ii. Replacement

Replacement costs are the well known costs of a hire, including sourcing expenses, HR processing costs for screening and assessing candidates, and time spent by hiring managers interviewing candidates. Another turnover cost component is the time of the hiring manager and any others in shadowing or training the replacement employee.

Depending on the difficulty of finding qualified candidates, replacement costs may also include travel and relocation expenses, referral and signing bonuses,

20



and orientation and training costs, as detailed in the Corporate Spend on Talent Acquisition section.

b. Productivity Loss

The graphic below depicts the ramp up period for a replacement employee—the time during which initial productivity is by default, ramping up and therefore, less than at 100 percent.6 The economic concepts of lost productivity here are focused on replacement hires due to turnover, rather than new hires due to company growth.

The loss of employee productivity due to turnover is significant at any level. One approach to calculating the economic impact links human capital to production. That study found that the cost to recoup the loss due to turnover when expressed in production terms is very significant. For instance, the loss from just one crew member in a fast food restaurant required the sales of an additional 7,613 children’s combo meals at $2.50 each. A clothing store must sell almost 3,000 pairs of khakis at $35 to recoup the loss of one sales clerk.7

For large companies, changes in turnover rates can make large differences in costs of lost productivity. For a firm with 40,000 full-time employees, the difference between a 15 percent turnover rate and a 25 percent turnover rate is more than $50 million annually. The difference between a 15 percent turnover rate and a 40 percent turnover rate is more than $130 million annually. These figures assume a very conservative cost of turnover of 25 percent of an employee’s annual salary.8

Other estimates in a Cornell University study of the total cost of losing a single position to turnover range from 30 percent of the yearly salary of the position for hourly employees to 150 percent, as estimated by the Saratoga Institute, and independently by Hewitt Associates. Often the most conservative estimates are underestimations, since they focus only on the cost side and not on the value that

6 The economic concepts of lost productivity are detailed in the section: Time to Contribution.7 Source: Jude T. Rich, Sitting on a gold mine: Reducing employee turnover at all costs. WorldatWork Journal 2002.8 Source: Employment Policy Foundation Factsheet – Turnover, October 22, 2004

Productivity

Employee leaves

Lost Productivity

Replacement employee starts

Time

Productivity Losses Tied to Turnover


Productivity

Employee leaves

Lost Productivity

Replacement employee starts

Time



21



an employee adds to the top line—expressly the productivity premium that a fully ramped up employee adds to the organization.

In the US, 24.9 million private sector employees voluntarily quit their jobs during the 12 months ending January 2005—fully 24 percent of all US private sector employees.9 Estimating full replacement staffing costs at one time an employee’s annual salary multiplied by a voluntary turnover rate of 24.9 million employees suggests that replacement staffing costs related to voluntary turnover costs the US economy nearly one trillion dollars annually.10

c. Intellectual Property Loss

Intense global competition is creating a turbulent employment market in which companies must compete to attract and retain the strongest employees. Given the competitive nature of product development and parity of technology availability, even greater emphasis is placed on one of a company’s true strategic weapons: employees. Voluntary turnover often results in departing employees migrating to competing firms, creating an even more critical situation since this knowledge can now be used against the company.

As economic growth rises and the jobs picture becomes brighter, the rate of voluntary turnover rises. In the twelve months ended January 2005, 24 percent of workers voluntarily quit their jobs, a 13 percent rise from a year earlier. Voluntary turnover rates are driven by a combination of demographic and organization-specific factors—such as dissatisfaction with supervisor/manager and poor fit with corporate culture. Generally, turnover rates are higher for industries with a younger than average workforce. Industries with higher-than-average voluntary quit rates include leisure and hospitality (44.9 percent), retail trade (32.6 percent), and construction (25.4 percent).11

The loss of high performance employees can be especially detrimental to a company, resulting in loss of business and relationships. In addition, employee turnover—especially of good employees—can lead to decreased innovation, delays in services, lethargic implementation of new programs, and degenerated productivity. Loss of good employees also has a negative moral impact to the organization, often influencing the departure of other good employees.

Although it is difficult to give an estimation of the impact that such a loss represents, in reality it is not an intangible. When felt, the impact of the loss of intellectual property to an organization is considerable.

d. Reduction in Costs Associated with Turnover

Employee turnover is a critical cost driver for business. However, not all turnover is bad. Turnover is usually divided into wanted or involuntary separation and unwanted or voluntary separation. The economic impact of both types of turnover is expensive. It is often argued that unwanted turnover of employees is more expensive than wanted turnover. But the cost of severance and the under performing employee’s impact on corporate performance is often as high as the

9 Source: Employment Policy Foundation, HR Benchmarks, December, 2004�0 Source: US Bureau of Labor Statistics reports the average annual wages in the US as $�6,764 for 2002.�� Source: Employment Policy Foundation Factsheet – Turnover Costs, March 22, 2005

“They’ll have to give the new CEO ample room to retrieve and rebuild the intellectual capital that, in our information age, can relocate itself almost as fast as the financial kind.”

- CEO Philip Purcell, dismissed at Morgan Stanley because he was unable to stem the brain drain to competitors that appeared to be accelerating during his tenure, as quoted in the Wall Street Journal.

22



intellectual property loss of the wanted turnover. The message is clear: to avoid turnover costs, hire well, and make sure there are strong retention policies in place, especially for top performers.

The costs of recruiting and filling vacancies, lost productivity from vacant jobs, and the costs of training new employees increase operating costs, reduce output, and cut into profits. Estimates of the costs of employee turnover vary widely and depend on whether all cost elements are recognized.12

Three example methods to reduce turnover costs are:

1. Reduce separation and replacement costs by increasing selective internal mobility and avoiding unnecessary severance payouts.

2. Reduce productivity loss by having a faster time to fill to ensure knowledge transfer, and reducing vacant positions.

3. Reduce IP loss by making sure FTEs are hired and retained for sensitive positions instead of contingent workers. Have non-compete agreements in place if employees leave.

3. Risk of Non-compliance

Every company is required to conform to certain federal, state, and local regulations such as in the US, IRS tax rules, Equal Employment Opportunity Commission reporting rules, Sarbanes-Oxley and others. Some companies find pursuing the compliance of these regulations not only keeps them compliant with the relevant authorities, but it also makes good business sense. Consistent, scalable, and legally defensible talent management processes can reduce exposure to lawsuits, protect government contracts, and reduce administrative costs. Workflows based on best practices can ensure the systematic and consistent capture of required regulatory data.

a. Equal Employment Opportunity Reporting

Consider, for instance, Affirmative Action Plans (AAP) reporting required by Equal Employment Opportunity (EEO) in the US. It is clearly in a company’s best interest to institute an EEO compliance policy to mitigate its exposure to complaints or fines by the Equal Employment Opportunity Commission or other parties. It can also be shown that companies achieve business benefits from having a diverse workforce.

The savings realized from mitigating risk that stems from non-compliance with regulations falls, for the most part, into cost avoidance strategies. The penalties for non-compliance far surpass the costs incurred to improve processes and controls.

Implementing a compliant talent management solution can help protect an organization from various negative implications, such as:

4Protect an organization from not receiving future contracts, modifications or extensions of existing contracts, or being subject to reinstatement.

4Prevent conciliation agreements.

4Prevent lawsuits.

4Prevent fines.

�2 Source: See Appendix B for a model calculating cost of turnover.

“The management of candidates across the multitude of countries and business units that we operate in has become consistent and easier for our recruiters, and thus increasing their productivity. The process consistency Taleo provides helps us to adhere to online regulatory and compliance requirements across the US and Europe. Since we are now live in North America, it is important that our online processes comply to EEO and OFCCP regulations.”

- Bas van Buijtenen Director of Executive Sourcing &

Corporate Recruitment DSM

23



4. Contingent Workforce

Today, contingent workers—temps, skilled consultants, and independent contractors—comprise an increasing proportion of the total workforce for many companies. Contingent staffing has been estimated to be a $300 billion industry worldwide. In many companies, fees for the contingent workforce are a significant part of the operating budget that is unregulated and often out of control. It is usually owned by procurement or hidden under line managers as discretionary spend.

a. Cost of Procurement of Contingent Workers

In analyzing the cost of the procurement of contingent workers, companies should evaluate:

4Hard costs like direct costs, negotiated fees and rates.

4Soft costs such as hidden costs and operational expenses.

4Cost avoidance in terms of risk mitigation.

In assessing potential soft costs, companies must consider the administrative time spent on manual or other processes, which can frequently be offloaded to suppliers in a well-designed program.

While management of the data and processes once seemed daunting, there are currently a handful of cost-effective tools that automate all facets of administration, acquisition workflows, metrics compilation, auditing, and reporting. The best of these tools can provide efficiency gains comparable to those recognized when corporations moved from hand-written account ledgers to computerized accounting systems.

A good cost-management strategy includes:

4An aggressive volume discount program.

4Establishment of vendor margin ranges and/or rate cards.

4Ongoing analysis of market rates.

4A software tool that audits vendor compliance with rate requirements.

4A software tool that insures 100% accuracy of invoicing and payments.

Gaining productivity through business process improvement, automation and migration of administrative responsibilities to suppliers or contingent workforce program management such as Taleo Contingent, can significantly reduce soft costs.

Specific ways to address hard costs include:

4Institute a formalized rate management strategy, which immediately reduces vendor margins (clients have achieved rates from 15 to 90 percent).

4Introduce an aggressive volume discount program that returns to the client the economies of scale realized by the vendors.

4Implement a proven “req-to-check” eProcurement tool that automates invoicing and reduces total spend by eliminating overpayments which auditors estimate at 6 percent of spend in the average company.

The Cost of Inconsistent Staffing Processes

4$47 million: Paid by a retail business to settle a sex discrimination suit.

4$�� million: Paid by a defense contractor to settle an age bias lawsuit.

4$9 million: Paid by a global logistics carrier in an employment discrimination case.

4$�.25 million: Paid by an automotive manufacturer to settle a harassment claim.

4$�.4 million: Paid by a major hotel and casino to settle a race discrimination lawsuit.

Source: The U.S. Equal Employment Opportunity Commission, EEOC Press Release, http://ww.eeoc.gov/pr.html

24



Overall savings are usually generated by:

4Enforcement of rate control.

4Eliminating maverick spend.

4Timesheet processing efficiencies.

4Volume-based discounts.

4Tenure-based discounts.

4Pay-on-time discounts.

4Overtime premium reduction-based discounts.

4Providing performance incentives.

4Eliminating redundancies and multiple touches.

4Minimizing the human error factor by automating more and providing self-service tools.

4Offloading administrative burden to the suppliers or a managed service provider for consolidated billing.

Typically companies, often unknown to them, will spend about 7 percent of revenue on contingent labor. If an average saving of 14 percent is achieved, 1 percent of revenue can be added to earnings. With a typical 5 percent margin, that represents a 20 percent increase on that margin.

From requisition creation to consolidated invoice generation, a comprehensive vendor neutral technology and services solution can eliminate costs and create value. Through a combination of contingent workforce management controls and administration, companies have achieved measured impacts between 4 and 22 percent.

b. Co-employment

Every company must comply with tax and labor laws, especially those related to contingent workers. In the US, companies found to have misclassified independent contractors are liable for huge fines and potentially for payment of employee income taxes, Social Security contributions and unemployment taxes. Companies have also faced civil suits from the misclassified workers who have sued for retroactive benefits packages including medical insurance, vacation pay, pension, and stock options. The well publicized case, Vizcaino vs. Microsoft, resulted in Microsoft agreeing to pay more than $97 million to as many as 12,000 former contractors who were found by the IRS to have been misclassified as employees.

Co-employment

When a company is found to be the “joint employer” with another company which is usually a staffing firm and it shares, retroactively, “employer responsibilities or liabilities” with that other firm.

Employee misclassification

Sometimes referred to as co-employment. A worker or group of workers whom a company has classified as a “non-FTE” temporary or contractor, who subsequently is found to be a “misclassified employee.” That company alone has retroactive “employer responsibilities or liabilities” for the worker(s).

25



Misclassification costs can include:

4Social Security Tax

4Federal Income Tax

4State Income Tax

4FUTA

4Failure-to-deposit penalty

4Failure-to-file return penalty

4Interest on deficiencies

4Defense and/or litigation expenses

i. Co-employment risk reduction

For co-employment, cost avoidance is again, inextricably linked to risk mitigation. Risk must be mitigated in all key areas in order to avoid:

4Potential penalties and fines, as well as retroactive payments imposed because of misclassification of employees and/or co-employment liabilities.

4Regulatory fines associated with contingent worker related issues.

4Theft of intellectual property by contingent workers.

4Security breaches by contingent workers.

4Non-compliance with Sarbanes-Oxley reporting requirements related to contingent worker expenses.

c. Contingent Workforce Management Programs

Contingent workforce management (CWM) practices vary greatly. It is a complex—and expensive—area to manage successfully. In many companies, the responsibility for contingent workforce management crosses departments—such as HR, procurement, finance, and legal—or does not reside in any department. Generally, there is shared responsibility with no one entity being held totally accountable for contingent workforce cost management, risk reduction, or business process control. Hiring managers may autonomously choose and contract for temporary worker services, at great, yet often unrealized, risk to the company.

A workforce management program offers a valuable opportunity to cut costs, reduce risk, and streamline processes, given these five important factors:

1. Employ a 100 percent vendor neutral strategy.

2. Deploy a SAS 70 certified solution.

3. Achieve control at the process level.

4. Connect HR, procurement, and hiring managers.

5. Find a partner with no conflicting interests.

The companies that successfully reduce their costs and lower their co-employment risk through comprehensive, well-designed contingent workforce management programs stand to gain significant benefits and competitive advantage.

Examples of Misclassification Actions

4Microsoft: >$97 million settlement

4Time Warner: $5.5 million settlement

4University of California System: ~ $500 million settlement

26



Summary of Value WastedAwareness of the total costs of talent acquisition and mobility drives home the advantages possible through improvement. Manufacturing, for example, is a discipline that underwent this type of scrutiny in the 1970s and 80s. Materials resource planning (MRP) and lean manufacturing have provided new practices and savings advantages to manufacturers throughout the world. To similarly evaluate the talent acquisition process, it is practical to view the components on a granular level.

As noted earlier, a useful analogy for identifying the areas of improvement is studying the process as a leaky pipe. The leaks, or sources of waste in the talent acquisition process, can occur in many ways. They are found in the activities and practices at each stage of the process and during handoffs that occur in the cycle of the process.

27



Calculating total corporate spend on talent acquisition and mobility reinforces its significance to the overall corporate budget and to the success of the enterprise. As illustrated in the graphic below, the impact is much larger than typical metrics such as cost per hire make it seem.

HR Budget

Revenue

Revenue - ear ning

Spend on FTE + Contingent labor

Spend on FTE

T u r n over cost

HR + Hiring Manager time

Expected r evenue pr oduced by new hir es

Actual r e venue pr oduced by new hir es

Scope of Economic Impact of T alent Acquisition on an Organization (in % of total company revenue)

Percentage of Budget

100%


A thorough financial analysis also highlights the numerous instances in the overall process in which costs are incurred. Certainly, if not optimized, these will have a negative impact on business performance.

Today, companies have the ability to leverage automated candidate processing tools, assessment techniques, and even performance tracking capabilities. HR departments now have the opportunity to integrate all of the capabilities and take more of a commanding lead in managing the overall economic impact to the organization. This paper is an invitation to understand in more detail the true impact that talent acquisition and mobility has on any organization. Now is the time for organizations to finally optimize this overlooked generator of corporate differentiation and positive financial impact.

28



How Taleo Optimizes the Talent Supply ChainFirst, a disclaimer: technology cannot stop all the leaks in the talent supply chain. All too often, staffing departments implement a traditional applicant tracking system (ATS) with the best intentions. And generally, some gains are made. Such systems provide the ability to track where applicants are in the process, and automate certain functions such as resume screening and online searching. However, they fail to generate value for the organization beyond immediate and non-repeatable savings.

In many cases, staffing departments automate current processes rather than take advantage of new processes in light of the availability of technology and the associated efficiency and effectiveness gains.

A simple yet profound expression of this is:

New Technology + Old Processes = Expensive Old Processes

Placing the right people in the right roles at the right time, consistently, has become increasingly important as organizations recognize the significant potential inherent in effective talent management.

The Hidden ROI of Talent Acquisition and Mobility helps you identify the presence and exact nature of factors impacting staffing. This is the first step in understanding the complex challenges of crafting effective staffing processes that drive efficiencies and productivity enhancements, enterprise-wide.

The next step is looking at the technology solutions available to help. Taleo has become the largest on demand provider of talent solutions primarily because we understand the staffing value chain and work with our clients to bring effective and efficient technology and processes to market. Through Taleo Research and our consulting services, we have been helping customers highlight their supply chain holes and plugging them since 1998.

In a nutshell, however, we find that two overriding factors seem to contribute most to our customer’s ability to pinpoint and sustain ROI. One is our supply chain management foundation that brings a structured data management approach to both the demand (jobs) and the supply (candidates) sides of the house. The second is our on demand software as a service delivery model that enables our customers to get up and running faster and at lower costs than other alternatives. Savings are sustained by bypassing costly upgrades and customizations.

Where do savings typically come from? Below is a breakdown of some of the process components and the improvement range once the Taleo solution is in place. This is the culmination of Taleo’s ROI research working with hundreds of customers.

29



Talent Supply Chain: Taleo Area of ImpactTaleo Research Verified Improvement Range

Recruiter process efficiency improvement 6.9% - 42.0%

Administrative process efficiency improvement 2.1% - 41.0%Hiring Manager process efficiency improvement – external

9.8% - 80.0%

Hiring Manager process efficiency improvement – internal

0.0% - 80.0%

Offline advertising expense reductions 46.4% - 87.0%Search firm fee reductions 28.5% - 85.0%Resume processing 0.0% - 35.0%Referral fee reductions 2.0% - 19.4%Signing bonus expense reductions 2.0% - 16.8%New hire travel and relocation expense reductions 22.0% - 92.9%Reduction in external hire Time To Fill 19.7% - 71.4%Reduction in Time To Onboarding for new External hires

9.8% - 58.1%

Reduction in Time To Onboarding required from Hiring Managers

10.0% - 83.3%

Internal mobility ratio improvement 2.0% - 27.0%

Staffing consistency absolute range target 80.0% - 96.0%

Non-Direct Sales productivity increase in first year 0.8% - 1.5%

Equal Employment Opportunity (EEO) expense reductions

9.5% - 25.0%

As you can see, the ranges are large, which means there is a lot of variability depending on the nature of the business and each client’s particular challenges. This is why, unlike some vendors, we don’t publish a simplistic online tool or make sweeping statements about savings.

Instead, Taleo offers—in many cases, at no charge—consulting services to help you determine your unique talent supply chain leaks and potential savings. Our tools incorporate an activity-based costing method and apply benchmarked process costs against your environment to baseline your current situation. We then overlay Taleo best practices to estimate the savings. This can typically be done in a matter of days and can be very helpful in being able to articulate the costs and benefits of new processes and solutions to executive management.

One recent example was described by Jenny Hawatt, Director of Global Recruiting at Starwood Resorts, when she wrote

…“it was a pleasure to work with you early on in the system selection process. I truly appreciate the analysis and expertise that you provided in helping us to define our current staffing model as well as identifying the essential data that I needed to assess Taleo and prove the benefits of implementing such a sophisticated eRecruitment tool into our organization.”

If you are interested in ROI consulting services or want to learn more about Taleo, please contact us at [email protected] or visit us at www.taleo.com.



30



About Taleo ResearchTaleo Research analyzes the best practices and economics of talent management for organizations of all sizes, worldwide. The specialty research practice focuses on business analytics that tie talent management technology and process improvements to financial results.

Taleo Research also conducts primary research on critical issues of talent management and maintains a valuable library of talent management resources. Published reports and studies include Quality of Hire, Internal Mobility, Economics of Candidate Relationship Databases, Corporate Careers Site Value Creation, and Jobseeker Surveys, among others.

Founded in 1997 as iLogos Internet Intelligence, Taleo Research is the talent management research division of Taleo.

Email: [email protected]

About TaleoTaleo delivers on demand talent management solutions to companies worldwide. Taleo enables organizations of all sizes to assess, acquire and manage their workforce for improved business performance. Taleo solutions are at work for the world’s most demanding businesses, comprising 475,000 registered users across 100 countries and 29 million candidates. For more information, visit www.taleo.com.

Email: [email protected]




31



Appendix A: Detail of Labor Costs of Talent Acquisition1. Direct Talent Acquisition Costs

The following is a review of the more common activities conducted by each of the HR participants in the talent acquisition process. These can be used as a foundation for an activity-based costing approach.

HR recruiter activities related to the talent acquisition function may include:

4Respond to requisition requests generated by hiring managers.

4Work with the hiring manager to develop an appropriate sourcing strategy.

4Assist or lead in developing the job description.

4Record and report on Equal Employment Opportunity data.

4Manage the posting of the job description to the relevant channels — company careers website, job boards, recruitment agencies, and advertising agents.

4Conduct telephone screen.

4Schedule interview.

4Conduct interview.

In addition, HR specialists may play the role of sourcing specialist, active sourcer, campus recruiter, succession and workforce planning specialist, or mobility specialist. The costs associated with these various roles should also be taken into account when measuring the total costs of talent acquisition, including:

4Mine database of candidates.

4Attend job fairs.

4Mine the Internet and conferences for qualified leads.

4Assess internal labor market supply and demand.

4Identify high potential candidates.

HR administrative support activities related to the talent acquisition function may include:

4Schedule interviews.

4Data entry into non-integrated systems.

4Support for recruiter.

Contingent labor procurement specialist activities include:

4Manage external suppliers.

4Negotiate bulk rate.

4Enforce policies.

4Prevent maverick spend.

32



2. Indirect Talent Acquisition Costs

Indirect talent acquisition costs are the time equivalent costs associated with the hiring manager and his/her support in conducting the talent acquisition activities. The following steps are typical to the standard talent acquisition process. Some of the following steps may be left out of the talent acquisition process, minimizing the associated indirect talent acquisition costs, but may negatively affect the overall quality of the talent acquisition process.

Hiring manager activities related to the talent acquisition function may include the following:

4Generate initial request for position.

4Work with the HR Recruiter to develop an appropriate sourcing strategy.

4Assist or lead in developing the job description.

4Manage relationship(s) with external recruiting parties.

4Approve the posting of the job description to the relevant channels — company careers site, job boards, recruitment agencies, and advertising agents.

4Conduct telephone screen.

4Schedule interview.

4Conduct interview.

Hiring manager administrative support activities related to the talent acquisition function may include:

4Schedule interviews.

4Data entry into non-integrated systems.

4Support communications to/with external recruiting parties.

4Support for hiring manager.

33



Appendix B: Turnover CalculationAs an example of turnover cost and its potential savings, the model in the table below uses a conservative estimate equating the loss of one person to one year of salary. If, for example, a company with 100,000 employees at an average salary of $40,000 has a turnover rate of ten percent, the cost of that turnover equals $400 million.

Average salary: $40,000

Turnover 5% 10% 15% 20% 25%

# of employees in Millions

10,000 $20 $40 $60 $80 $100

25,000 $50 $100 $150 $200 $250

50,000 $100 $200 $300 $400 $500

75,000 $150 $300 $450 $600 $750

100,000 $200 $400 $600 $800 $1,000

150,000 $300 $600 $900 $1,200 $1,500 Table 1: Cost of Turnover

How much would that same company save by reducing turnover? A one-half percent reduction in turnover—from ten percent down to nine and one half percent—would result in savings of $20 million.

Average salary: $40,000

Turnover reduction 0.25% 0.5% 1% 2.5% 5%

# of employees in Millions

10,000 $1 $2 $4 $10 $20

25,000 $3 $5 $10 $25 $50

50,000 $5 $10 $20 $50 $100

75,000 $8 $15 $30 $75 $150

100,000 $10 $20 $40 $100 $200

150,000 $15 $30 $60 $150 $300 Table 2: Value Creation Potential for Reduction in Turnover

The impact that employee turnover has on the profit margin can be expressed as follows:

ΔProfit Margin = ε x ΔEmployee Turnover

ε = ∑ Compensation

Revenue

∑ Cost per Turnover

Average Compensationx

The change in profit margin is a function of change in employee turnover. The factor represents the ratio of total compensation divided by revenue, multiplied by the unit cost of a turnover divided by average compensation. It will be below 0.5 for companies with low salary expenses and low cost of turnover.

34



Appendix C: Key Financial ConceptsDefinitions of Common Financial Metrics

The following are common financial metrics used to understand the relationships between the costs and benefits of an investment. They can be used to understand the absolute value of an investment and they can also be used to help compare investment alternatives. Financial metrics can be stated in terms of nominal dollars, in percentages, or in terms of Net Present Value, providing for an adequate consideration of the time value of money.

Return on Investment – Return on Investment (ROI) is a means to understand the costs and benefits associated with a particular project. The ROI of an investment is the actual or projected economic outcome—positive or negative.

ROI = total benefits – total cost of ownership.

Or it can be expressed in percent as:

ROI % = total benefits / total cost of ownership.

The following items are all either inputs to ROI or are ways to further qualify ROI.

ROI Total Benefits – Benefits are an input to the ROI calculation. Benefits can arise from either increases in revenues or reductions in costs/expenses. Example revenue benefits might include the additional revenue contribution from new customer facing hires due to improved Time to Contribution (TTC), or additional revenue contributions due to higher levels of employee performance—both are described in the Time to Contribution section.

Examples of benefits from a reduction in costs include direct and indirect staffing expenditures (see Corporate Spend on Talent Acquisition section), a reduction of costs of voluntary turnover productivity losses or a reduction in the cost of replacement hires (see Turnover section), or even reduced compliance costs (e.g., EEO fines in the US) as described in the Risk of Non-compliance section.

Total Cost of Ownership (TCO) – Total Cost of Ownership is an input to the ROI calculation. Total Cost of Ownership is the quantification of the total cost of a project over its entire lifetime, including initial costs and ongoing costs. Total Cost of Ownership can also be used as a standalone for purposes of budgeting, cost tracking, and comparing alternative projects. Typically, the costs of a talent acquisition and mobility improvement project include the cost of new technology, the cost of implementation and consulting as well as internal employee costs for implementation. While some vendors may offer a lower stated list price for the technology, it is important to understand the associated TCO, inclusive of any required customizations (either upfront or during subsequent upgrades), maintenance, or other ongoing costs. It is important not to overlook the total cost of ownership and not to be lured by seemingly lower upfront costs.

35



Net Present Value – Net Present Value (NPV) is a way to express the value of a project in today’s dollars. NPV is the present value of an investment. The discount rate is applied to bring the value of future benefits and/or costs in line with the value of the same benefits and/or costs in today’s (or, present value) economic terms. This allows for apples to apples comparisons of benefits/costs today versus those achieved or incurred in the future. For instance, is it worthwhile to invest $100 in a project that will bring $105 dollars next year? Not if you could have made more than 5 percent at the bank or had to borrow the $100 at more than 5 percent. Typically, any project with a positive NPV makes financial sense for an organization.

Discount Rate – Typically a company’s current cost of capital, adjusted for appropriate levels of risk. It is often referred to as the opportunity cost of capital.

Internal Rate of Return – Internal Rate of Return (IRR) is the discount rate that results in a net present value of zero for a series of future cash flows. IRR is the flip side of net present value (NPV) and is based on the same principles and the same math. NPV shows the value of a stream of future cash flows discounted back to the present by some percentage that represents the minimum desired rate of return, often your company’s cost of capital. A company’s IRR can be used as a benchmark against which ROI is compared for decision making. IRR represents the return that a company would earn if it expanded or invested in itself rather than investing that money externally. IRR often represents the minimum “hurdle rate” required by an organization before approval is given for the investment.

Payback Period – Payback period reflects the time period that lapses (typically months or years) before a customer achieves a positive cash flow from a project. Typically, projects monitored in the talent acquisition and mobility space have achieved positive cash flow within 12 months.

36



Limitation of a Purely Cost-driven View of ROI

ROI can be positively influenced by minimizing costs, maximizing returns (or benefits), and accelerating returns (or benefits). ROI and TCO have an inverse relationship with each other. Reductions in TCO can help drive higher ROI.

High

Low TCO Drives High ROI(Bottom curve)

Accelerate or increaserevenue impact to get higher ROI(Top curve)

LowTCO($)

ROI(%)



Be careful not to consider TCO as the only element impacting ROI, as new or accelerated benefits can drive higher ROI.

ROI can also be significantly impacted by including a broader range of benefits or by accelerating the achievement of benefits. The following categories represent the primary sources of realizable benefits that can be achieved. For instance, in the talent acquisition processes, all of the sections covered in this paper can be viewed as potential areas to help maximize benefits—either through increases in revenue or through reductions in costs.

37



Representation of an ROI Project:

The line represents the net cash flow the company is realizing from its investment over time, taking into account the technology and implementation costs up front. The point where the line crosses the x-axis represents the point in time at which payback is achieved. As the projects reviewed by Taleo Research have mostly been subscription-based (requiring a lower upfront investment), ROI is typically achieved within 12 months.

Benefits, as identified in the graph above, can come from the following revenue enhancements and cost reductions.

Benefit Category: Specific Example:Staffing Expenditures Savings from improved sourcing and selection processes.Productivity Reduced staffing levels required to support churn.Risk Reduction Improvements in compliance and reporting systems.Shrinkage Improved candidate selection yielding lower theft rates.Turnover Improved ability to identify best fit candidates.Onboarding Improved contingent labor sourcing and selection.Contingent Labor Reduced contract bill rates and improved

timesheet processing.Contingent Management Streamlined vendor management processes.Offboarding Streamlined processing and contract terminations.

High

BenefitCost

Low

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

ROI(%)

Typical Corporate ROI Project




NORTH AMERICASAN FRANCISCO — HEADQUARTERS575 Market Street, 8th floor San Francisco, CA 94105, United States Tel.: 415.538.9068 Fax: 415.538.9069

CHICAGOOne Energy Center 40 Shuman Boulevard Naperville, IL 60563, United States Tel.: 630.983.9609 Fax: 630.983.9509

NEW YORK1010, Northern Boulevard, Suite 328 Great Neck, NY 11021, United States Tel.: 516.301.2121

QUÉBEC330, rue St-Vallier Est, Bureau 400 Québec (Québec) G1K 9C5, Canada Tel.: 418.524.5665 Fax: 418.524.8899

TORONTO1235 Bay Street, Suite 1000 Toronto (Ontario) M5R 3K4, Canada Tel.: 416.646.1680 Fax: 416.646.1688

EUROPE, MIDDLE EAST, AND AFRICALONDON1 Ropemaker Street London EC2Y 9HT, England Tel.: +44 (0)207 153.1036 Fax: +44(0)207 153.1111

AMSTERDAMPoortgebouw Beech Avenue 54 - 80 1119 PW Schiphol – Rijk The Netherlands Tel.: +31 (0)20 658.6699 Fax: +31 (0)20 658.6111

PARIS19, boulevard Malesherbes 75008 Paris, France Tel.: +33(0)1 55.27.36.62 Fax: +33(0)1 55.27.37.00

ASIA PACIFICSYDNEYLevel 12 1 Pacific Highway North Sydney NSW 2059, Australia Tel.: +612.9959.1034 Fax: +612.9959.3003

MELBOURNELevel 3, IBM Towers 60 City Road Southbank VIC 3006, Australia Tel.: +613.9626.2413 Fax: +613.9626.2455

CONTACTwww.taleo.com – [email protected] �.888.8�6.�669 – U.S. �.888.922.5665 – International �.888.56�.5665 – Customer Service

ABOUT TALEOTaleo delivers on demand talent management solutions to leading companies worldwide. Taleo enables organizations of all sizes to assess, acquire, and manage their workforce for improved business performance.

Copyright © 2005 Taleo Corporation. All rights reserved. No portion of this document may be reproduced in any form without the prior written permission of Taleo Corporation.

Taleo and all Taleo product and service names mentioned herein are trademarks or registered trademarks of Taleo in the United States, France, Netherlands, U.K., Canada, Australia, and several other countries. All other product and company names mentioned herein may be the trademarks of their respective owners.

WORLDWIDE OFFICES

0139 1005$595


HIDDEN ROI OF TALENT ACQUISITION AND...

Documents

Transcript of HIDDEN ROI OF TALENT ACQUISITION AND...