By Ian J. Cook, MBA, CHRP

One of the most significant changes that has occurred through the digitization of the economy is the change to how talent functions as a market.

In the times of Henry Ford, it was access to capital, machinery and markets that drove business success. In the 21st century, those traditional drivers have shifted gears, with significantly less capital and machinery required, and more reliance on the people who build the ideas into the business. This makes access to people with important skills and capabilities much more critical.

Absolute Targets Miss the Mark
This, of course, is nothing new to those in business. While many well-documented shifts have emerged from this fundamental change in how money is made, one in particular has been paid scant attention; despite an intuitive understanding, it is still not common practice for organizations to study the dynamics of the ‘labour’ market and adjust their responses appropriately.  For it to become so is essential.

For example, it has been common practice for organizations to set an absolute target number for the time it takes to fill a position. Recruiters would commonly be given the target of filling a vacancy within 35 days. Unfortunately, such absolute targets do not take into consideration any market dynamics.

From our work in the HR Metrics Service we know that ‘time to fill’ is influenced by vacancy rates and resignation rates. We also know that these vary seasonally, in addition to responding to economic factors.  (See below – The dark blue line indicates vacancies and the light blue accounts for resignations.)

Witness the steady peaks of Q2 and Q3 and troughs of Q1 and Q4 and recognize distinctive spikes in Q3 of 2010 and Q2 of 2011 when economic sentiment turned positive.

These are factors that will impact the achievability of absolute targets.  Whether or not you succeed within 35 days could be as much the effect of a slow market period, as good recruitment practice.  On the flip side, missing the target might have nothing to do with poor recruitment practice.

Setting an absolute target for hiring is like asking your procurement team to only buy oil at $80 a barrel; everyone knows this is not realistic, so why is recruitment, where you are sourcing people from a market, seen differently?

Labour Market Not a Supermarket
Another common misperception about the labour market is that the unemployment rate is a good indicator of the availability of talent. This assumes that the labour market functions like a supermarket where there is an availability of all types of products, all the time. It is based on the assumption that the unemployed make up a reasonable approximation of the employed; therefore the person you need for your role is available. This assumption is not only incorrect, it is dangerous.

In reality, the labour market functions differently for different segments. The more specialized and valuable the skills, the more it functions like a rare metals market, (where prices can fluctuate considerably based on small movements in supply and demand). The more common and simple the skills, the more it functions like a commodities market, (where prices only move substantially when supply is very constrained relative to demand). This happens in Canadian markets when the unemployment number hits approximately 4 per cent (not zero), as organizations in Saskatchewan and Alberta are currently experiencing.

An organization which tracks and understands these dynamics will vary its recruitment practices to respond the market, maximize their success rate  and optimize their use of resources.

Unemployment Figures Not Real-Time Reflection
During these economic times predominantly more labour market movement comes from employment to employment moves than it does from unemployment to employment moves. As a result, the unemployment number significantly lags the real-time dynamics of the labour market.

Between mid-2009 and mid-2012 the vacancy rate increased by 32 per cent (1.9 per cent to 2.5 per cent). During the same time the unemployment rate reduced by only 13 per cent (8.5 per cent to 7.4 per cent)1. In this instance the unemployment figure understates the size of the growing demand for the right type of employee and the pace at which certain segments of the labour market are tightening.

Putting Market-Oriented Recruitment Into Practice
Here are some options to consider that show how a market-oriented recruitment approach would work for an organization.

1. Reward Referrals According to Market
Allocating a payment for a successful referral from an existing employee has become a standard organizational practice. Many organizations also vary the payment based on the complexity of the role they are recruiting for. Applying an even more market-oriented approach would be to increase the referral fee through the Q2 and Q3 peaks and reduce it for the other quarters; this rewards success when the market is at its toughest, and avoids overpayment when the market is more active.  You could also apply the same variation by tracking vacancy and increasing the payment as vacancy increases, and approach signing bonuses in the same way.

2. Set a Competitive Standard
Instead of targeting efficiency metrics such as time and cost to fill, organizations should establish a baseline quality of hire that they will not move below and then look to be efficient relative to their market competitors. Hence time to fill targets become less about an absolute number and more linked to a variance to the market median; for example, the target could be 10 per cent lower than the median for our market. In a tight labour market it may make sense to spend more than your average to secure the best person quickly, as the productivity gained through this far outweighs an additional few thousand dollars spent on the recruitment process.

3. Differentiate Recruitment Efforts
The other market-oriented dynamic which makes sense for more organizations to pursue is the differentiation of recruitment processes to match the different market segments from which talent is sourced. For example, a great number of large organizations have started to outsource the “commodity” level recruitment to RPO’s (Recruitment Process Outsourcing businesses).
Traditionally the top end talent has been outsourced to executive search firms, and while this is likely to continue, some larger organizations are starting to build this capability internally: realizing they can get a better result, for less cost, by focusing their in-house recruitment team only on critical roles and leaving the volume hiring to others. The next time you negotiate with an executive search firm, ask them to set their pricing based not on the level of the role, but on the demonstrated scarcity of the talent.

Supply and Demand Analytics
Much as we intuitively understand that there are several different markets for talent, there is a need to study in more detail the dynamics of these markets and then build flexible and appropriate recruitment practices which generate the right results: the best hire possible – with the optimum resources – neither over or under investing to secure that talent.
Much as a stock trader, oil trader or any other individual who succeeds by “playing” the market, recruiters need to develop both the skills and the data sources to work less from intuition and more from good analytics to make sure they keep winning.

1 Source: http://www.tradingeconomics.com/canada/unemployment-rate

A global citizen, Ian J. Cook, MBA, CHRP (ijcook@bchrma.org) has chosen to make his home in Vancouver where he heads the growth of BC HRMA’s research and learning services.

(PeopleTalk: Winter 2012)