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New problems require new thinking

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Ford & Stanley chairman Peter Schofield asks whether talent policies are costing rail companies more than they save

The UK rail sector is currently in the midst of a conflicting way of thinking that we have not experienced since the automotive boom in the 1990s. It is one that sees operational managers crying out for additional staff to meet performance targets or take advantage of growth opportunities, pitched against purchasing or HR departments that are charged with reducing the cost of recruitment.

For want of a nail

Back in 2007, the Daily Telegraph ran a front page lead on its business section on some ‘whistleblower’ research we had compiled from submissions made to us by employees of UK companies. Those case studies showed the real cost of recruitment and revealed hidden losses to UK businesses of such eye-watering proportions that the famous ‘For want of a nail’ poem by Benjamin Franklin represented a perfect analogy. 

Example one

There was the case of the first-tier parts supplier whose faulty products halted the production line of an automotive manufacturer for so long that, along with the cost of the vehicle recalls, the company was fined the equivalent of two years’ worth of net operating profit. Whilst the incident was apparently reported in the company accounts as a quality problem, the truth was that its recruitment policy prevented it from using external recruitment suppliers. In a skills-short market this led to the failure to recruit four quality engineers, which in turn led to a serious product fault being overlooked until it was too late.

Example two

A civil construction company was reportedly prevented from tendering for around £22 million per quarter because they were unable to recruit the site agents essential for the environmental, health and safety elements of the bids. Whilst HR blamed skills shortages, the reality was that the policy of paying no more than 10 per cent agency fees meant that the capable agencies chose instead to supply to this company’s competitors at a more realistic market rate. The ‘saving’ was apparently in the region of £230,000 per annum, but the conservative estimate from the operations director who blew the whistle was that the company was losing at least £7 million worth of work over the same period.

“We have a target of 95 per cent direct sourcing”

This is a statement we are hearing again now, this time in the rail sector. Given the headline cost of recruiting, such bold initiatives sure are alluring and noble; particularly where high volumes of agency recruitment are involved, and that headline cost becomes a significant number on the balance sheet.

And that lack of ‘accountability’ is the real issue. There is no section in any company’s accounting procedures called ‘cost of poor recruitment practice’. The benefits of recruiting well are never compared against either the cost of recruiting or, more relevantly, the cost of recruiting the wrong person or the business impact of waiting too long for candidates to be directly sourced.

Whilst purchasing departments hypothetically receive bonuses for hitting their recruitment cost reduction target, there’s every likelihood that operational managers are left having to explain why their performance targets are being missed or why the company is paying late delivery or quality penalties. Meanwhile, HR is looking for ways to reduce unwanted staff churn, as over-worked staff walk to competitors who are better resourced and have more realistic talent attraction and retention strategies.

Are you compromised?

There are three points you should consider when evaluating the true cost of direct sourcing. The first is that, in a skills-short environment that currently shows some 800,000 unfilled vacancies in the UK, are your direct sourcing teams compromised or prevented from proactively approaching employees of certain competitors for skills due to non-solicitation agreements?

Secondly, does your in-house team have the skills to proactively approach target individuals with a compelling and detailed opportunity pitch, rather than mailing people with “We’re recruiting” messages? If not, considering that skilled people are now consumers of employment opportunities with multiple choices of where to ply their trade, it is unlikely that you are going to be interviewing the cream of the crop; rather, just the best of a bunch that happen to respond.

Finally, as a statement of fact rather than a question, as the employer you ARE compromised in the eyes of the prospective employee. They know that your resourcing team are not in any way neutral, because they have recruitment quotas to hit and cannot represent them with any other employer. 

Ford & Stanley recruiters are trusted for being very honest with employers and candidates, but ultimately, we know we are compromised because, unless the employer and the candidate says yes, we do not get paid. The new employer is compromised because it wants the person to join, just as the current employer is compromised because they want them to stay. Who does this person go to – their partner, their friends? 

New problems require new thinking

One of the fastest growing areas of the Ford & Stanley Group is our neutral SoundingBoard service. Launched several years ago as a bridge between our recruitment brands and GENIUS performance consultancy, it was designed specifically to support employers and individuals with this new conundrum brought about by skills shortages and demands for keeping costs down. One client in particular with a strong direct sourcing platform saw its offer-to-acceptance ratio shift from 70 per cent rejection to 70 per cent acceptance as a result of introducing SoundingBoard.

If you are saving money by direct sourcing, then of course it is the correct thing to do. Giving you the benefit of some 30 years’ experience of improving business performance through people, I would urge you to consider the bigger picture and sense-check that it is not a false economy. Whilst easiest to legislate and administrate, it is rare that the ‘one size fits all’ approach is the right one.