Bad Hires are Costing Your Business More than You Think

You are overwhelmed. Understandably so, because a key member of your team just left. You are under intense pressure to fill this role as fast as possible. So, you run helter-skelter, and your top priority now is to get someone sitting on that empty desk and get things running again. This is a common mistake in SMEs – rushing to hire without a strategy. Don’t fall for this trap unless you want to be part of the statistics that have suffered bad hiring costs. Is it that bad? Yes! A bad hire isn’t just a mismatch – it’s a business risk.

What Is a Bad Hire?

Before we talk about the various costs of a bad hire, let us first establish what constitutes a bad hire. While the definition of a bad hire can vary from one company to another or industry to industry, here are the tell-tale signs.

• Departure within the first three, six, nine, or twelve months.

• Failure to meet the expected performance level after a reasonable adjustment period.

• Skills gaps despite the claimed experience level.

• Cultural misalignment, inability to take feedback, and lack of accountability.

• Negative team morale.

  
  

The list could get longer than this.

The Costs of a Bad Hire

Bad hire costs can be categorized into two.

1.      Tangible Costs

The exact financial cost of a bad hire, which is the most immediate and easy to quantify effect, varies based on elements such as industry type, recruiting resources, salary of the employee, and the money spent during onboarding and training. A bad hire can cost your SME about 30% of the employee’s first-year earnings, according to the U.S Department of Labor. Some human resources agencies claim that it can go higher.

We are talking about recruitment expenses such as creation of job description, job posting, recruiter fees, time spent interviewing candidates, onboarding and training costs, and the salary they earn every month while maintained in the company’s payroll. Then comes the offboarding process that comes with other financial costs such as severance pay, and in case of wrongful termination or having to deal with a disgruntled employee, your business is staring at possible legal fees and financial damages.

2.      Intangible Costs

While they do not have a quantifiable impact on the overall health of an SME, the intangible costs of a bad hire can significantly interfere with the normal running of your small or medium enterprise. One of the intangible bad hire consequences is loss of productivity. A survey conducted on CFOs by SHRM revealed that one in three chief financial officers were most concerned about a decline in productivity linked to bad hires.

The loss in productivity emanates from:

• Managers and team members are spending extra time rectifying mistakes (or redoing the work) or compensating for the shoddy work of underperforming employees.

• Missed deadlines or delayed projects. One weak link is enough to slow down an entire team or department.

• Opportunity costs since your organization might have missed out on exemplary candidates or business opportunities all along, spending company time and resources on a wrong hire.

Another possible intangible cost of SME hiring mistakes is the negative impact on team morale. In the SHRM survey conducted on CFOs, 39 percent of the participants confirmed that the only concern greater than loss of productivity was a decline in staff morale. The effect of SME hiring mistakes goes beyond the individual and, in many cases, results in a ripple effect throughout the team.

Look at it this way. A poor-performing worker can create tension and frustration among fellow team members, which ultimately disrupts team dynamics. The increased stress levels amongst team members as they involuntarily take on the responsibilities of the wrong hire, which in turn leads to burnout. If the situation drags on long enough, good employees become dissatisfied with the current work environment, pushing them to seek jobs elsewhere.

The situation is even dire if the bad hire is positioned in a customer-facing role. The bad hire consequences can extend behind the SME. Unmotivated or underqualified workers may offer poor service, which damages customer relations due to negative customer experiences. If things go south and word gets out about your company’s bad hiring practices, your SME may find it difficult to attract top talent in the future.

What Are the Causes of SME Hiring Mistakes?

• SMEs always operate lean, and every participant carries a significant weight.

• SME hiring mistakes have a bigger impact since the teams are smaller and have limited budgets.

• A good number of SMEs do not have internal HR or recruitment expertise, which leads to poor hiring decisions.

Keen On Improving Your SME Hiring Outcomes?

Hiring the right talent can either strengthen your team or set your business back, and more so when you are a growing small business. If you are determined to improve your current situation, avoid costly blunders and build a dependable team. Here are smart hiring tips for small and medium-sized business owners.

1. Clear definition of role – Do not begin the hiring process until you are certain of what you are hiring for. Understand the responsibilities, expectations, qualifications, and skills needed for the role. This level of clarity equips your SME to attract applicants who are genuinely aligned with the role.

   
   

2. Develop an accurate, compelling job description – instead of only listing tasks, use the JD to showcase the value of the position and your SME. Utilize engaging, yet honest language while highlighting what makes your small or medium enterprise unique, and what success looks like in that role.

   
   

3. Ask strategic and role-specific interview questions – stay clear of generic questions during the interview. Instead, focus on practical, scenario-based, and behavioural questions capable of testing how the candidate thinks, handles tasks relevant to the role, and their problem-solving skills.

   
   

4. Involve more than one person in the hiring decisions – it is said that two heads are better than one, and if we can have more than two, the better. Having different perspectives helps to eliminate or reduce bias. Additionally, it helps to reveal a fuller picture of how the candidate might fit into the team.

   
   

5. Run through background checks and reference calls – background checks are an invaluable tool for corroborating a candidate’s qualifications, skills, experience, and character. The process reveals what a resume and interview cannot, as the information obtained gives the hiring managers and other stakeholders a more holistic understanding of the strengths and weaknesses of a candidate, and potential red flags. It could help prevent the occurrence of an SME hiring mistake – you don’t get to invest in a bad hire, and on the positive side of things, you don’t get to lose a potentially great hire. A survey carried out by the Professional Background Screening Association (PBSA) revealed that 96% of employers conduct at least one type of background check on candidates they’ve interviewed and are considering hiring. 94% of those employers reported that background checks have significantly improved the quality of hires.

   
   

6. Pay attention to culture fit – do you know that someone may tick every box and still turn out to be a mismatch for your team? Beyond qualifications, study the candidates’ attitude, values, and communication style to ensure that they are a good cultural fit.

   
   

7. Plan for smooth onboarding – you are mistaken if you thought that hiring ends with an offer letter. To set your new hire up for success, have a structured onboarding process introducing them to the people, tools, and goals they will require to thrive.

   
   

8. Seek help – if you are operating with a lean team and feel inadequate to handle the hiring process, consider partnering with recruitment experts.

Hiring goes beyond filling a position. It is mostly about shaping the future of your small or medium enterprise. Bad hiring decisions can be disruptive, demoralizing, and costly. As a business owner, giving your hiring process deserved attention is an investment in long-term success.

At Essentive Virtual Solutions Hub, we partner with SMEs in Kenya and globally to get it right the first time. Let’s build your dream team together.