During a high-level business meeting, the CFO of Kellogg Company based in Battle Creek, Mich., references the company's staffing department as a prime example of operating efficiently. The CFO asks other department heads to take a look at what they can do to trim expenses, yet maintain—even elevate—quality.

Conversations like this one are happening daily in companies of all sizes, in every industry. The discussions are about staying competitive, beating the competition, and being profitable and smart about the use of resources. The departments and divisions that will stand out are those adding value, showing their return on investment, which ultimately contributes to the corporate bottom line.

In 1999, Kellogg Co. revamped its recruiting function in a very unique way. All recruiting activity, except for hourly-position hires, is outsourced to a vendor that handles hiring for all U.S. locations. The vendor works directly with hiring managers in each phase of the process. The vendor also manages the company's online recruiting efforts and uses its own recruitment technology to track data and details. The staffing professionals employed at each location hire the hourly employees.

Cydney Kilduff, Kellogg's director of recruiting and staffing, says: "We were looking for a different solution for staffing services, one that would better align with the business."

Though the move to the outsourced recruiting relationship did reduce overall recruiting costs, Kilduff is quick to say the change was first considered so staffing could better work with the business needs. "Our industry has peaks and valleys in terms of staffing and we did not want to build up a large in-house recruiting department where at some point, we might have to trim it down," Kilduff explains. "The way recruiting is structured now gives us more flexibility and agility, as well as cost efficiency."

A good case is point is Kellogg's recent need to hire 200 people in a very quick time frame. "The vendor was able to fill those positions quickly and with the right talent." Kilduff says. "In the old model, we could have not done that hiring so quickly and efficiently."

In the past, if a request to hire 200 employees came through, an outside search firm would have been used—a service that typically elevates high recruiting costs quickly. According to Kilduff, from 2000 to 2001, Kellogg reduced agency fees by $1.3 million and the cost-per-hire average dropped from $6,000 to $3,800.

"Our vendor has a whole series of metrics to perform to," Kilduff says. "The value of the contract is built around metrics."

The main three categories the vendor is measured against is timeliness to fill, quality which reflects the quality of service to hiring managers as well as the diversity of candidates, and cost. In addition to these checks and balances, a Kellogg senior project manager works daily with the vendor, which enables close supervision.

At Lincoln Financial Group in Hartford, Conn., the employee referral program contributes significantly to the company's low staffing cost ratio of 10.9 percent. This figure, calculated by Staffing.org, a web-based nonprofit organization that helps businesses track, report and analyze staffing performance, is way below Staffing.org's national figure average of 16.04 percent. The staffing cost ratio national figure means that on average, the responding organizations spent 16 cents for every dollar of compensation recruited. (For more information on Staffing Cost Ratio figures, see metric four under the "How To Get Started" section below.)

Fifty-five percent of Lincoln Financial's external hires—at all levels—are recruited via the employee referral program. For example, during a six-month period last year, five senior-level positions were filled through the program.

Let's do the math: Five executives with $100,000 each in salary totals $500,000. If a search firm had been used charging the standard 30 percent in commissions, the cost to Lincoln would have been $150,000. Lincoln Financial paid out a mere $5,000—a $1,000 referral award to each employee who made the referral.

Primedica Corp. a Horsham, Pa.-based pharmaceutical research company (a division of Charles River Laboratories) has witnessed the power of tracking results in this same area of recruiting. In the first eleven months of Primedica's "Sea Green" employee referral program, 200 resumes surfaced. In fact, 60 percent of hires at one research site came from employee referrals, costing the company a fraction of what hiring would have cost using outside resources.

Knowing that referral programs can net great returns on investment—in terms of cost and quality—Johnson & Johnson reintroduced its referral program in January 2001 with the name Eferral. To date, 40 percent of employees are hired through the program. (For the full story, see "Turn Employees Into Recruiters")

"As employee referral programs—even the use of the Internet—rise as hiring sources, the use of agencies is coming down, which means we are not spending as much to get quality hires, " says Marjorie Geller, vice president of recruiting for Johnson & Johnson.

Initially, the sheer act of measuring seems like an overwhelming task. Figuring out what to measure and creating the processes or systems to capture data seem time-consuming. But according to Kilduff and other highly regarded recruiting professionals, what you can't measure you can't prove. So even starting small, measuring a portion of the staffing function, is a way to get started.

Asking the Right Questions

How many people sourced and hired in the past year are still at your company? Why did those who left leave? Who are the best performers of those hired? How is "best performance" defined at your company? Being able to answer these questions with confidence, and integrate this information with metrics pertinent to business operations-that's value.

Whether you're talking about college recruitment, executive hires or quality of those hired, there are ways to track activity and provide results that allow you and your staff to perform at a higher level.

For instance, many factors play into which schools provide the best return on investment when employers are hiring MBA graduates. In a 2001 Wall Street Journal/Harris Interactive MBA Recruiting Survey, the factors recruiters mentioned were overall retention rate for a specific school's graduates, how high they climb on the corporate ladder, students' willingness to relocate for their job, the degree of competition for graduates from other companies in the same industry, average salaries and bonuses paid to that school's MBA class, and the graduates' fit with the corporate culture.

Roger McCarty, staffing and development director for new business development at Dow Chemical Co. in Midland, Mich., has figured out through his own research—and asking the right questions—that second-tier business schools provide the best MBA buys for his employer.

"I think the education is just as good as at top business schools," McCarty told the Wall Street Journal, "and the students are more oriented to Corporate America than to investment banking and consulting. Top MBAs from the second-tier schools cost us significantly less, so it's a tremendous value package for us."

Based on his research, McCarty has put together a PowerPoint presentation to share with company executives that diagrams pay and talent levels of MBA hires. He presents "value destruction" for Dow Chemical at high-salary schools such as Harvard University, the University of Chicago and the University of Virginia; and presents "value creation" at such educational institutions as Michigan State and Brigham Young University.

"Companies are managed by business people who 'do it by the numbers,'" says Gary Cluff, a noted authority of staffing metrics. He says: "Telling them how many career fairs you attended, how many resumes were received, how many interviews were scheduled, or how many references you checked isn't likely to impress them [the CEO and CFO]."

Activity measurements by themselves will not provide the big picture perspective of how staffing activity is progressing and how it relates to the company's overall business operation. Recruiting and staffing information should be explained in terms of cost saving and revenue generation. Two questions to ponder are:

1. How are staffing and recruiting adding value?


2. How well do you use granted resources to generate profit or improve profitability?

At Motorola, a new position—director of operations, global talent supply—was created last year to look "more closely at the softer side of the business and how human capital is adding value, and meeting the needs of the shareholders," explains Dan Lombardi, who holds the position.

A former director of manufacturing for a Motorola plant, Lombardi brings just the right experience to the new job: He knows how to produce a quality product at a reasonable cost and timeframe to satisfy customers. And that's exactly what he plans to do in his new staffing role. From forecasting staffing needs, to hiring and retention, "it's an end-to-end process that is global in spectrum, and treated like a business," Lombardi explains.

"The human resource organization is very improvement oriented," says Lombardi. "This is just a natural step to have better measures and become more process streamlined."

How To Get Started

According to Staffing.org, there are four metrics that are the basics in tracking staffing performance:

1. New Hire Quality: refers to the average manager rating of new employees 90 and 180 days subsequent to employment.


2. Actual/Contracted Time-to-Fill: requires calculating the average actual time to start dvided by the average contracted time to start. "Actual" is the number of days between when recruiting is initiated, and when the new employee starts. The "contracted" time is the number of days between the date recruiting is initiated and the date the recruiter and hiring manager mutually agree that the position will be filled.


3. Customer Satisfaction: refers to the average hiring manager rating; post-hire based on pre-hire standards


4. Staffing Cost Ratio: requires figuring out the total staffing costs, and then dividing by the total compensation recruited. Total staffing costs are determined by adding up four cost areas:

   S1: fixed-overhead recruiting expenses
   S2: sourcing-advertising, recruiting fees, Internet posting expenses
   S3: signing bonuses
   S4: travel, relocation, visa expenses

The sum of these four areas equals total staffing costs. Total compensation recruited is the sum of the annual base starting compensation of all external positions filled by staffing. Once you've come up with these two figures, the Staffing Cost Ratio can be calculated by using the following equation:

Metric four replaces the more traditional and commonly used cost-per-hire metric. The Staffing Cost Ratio takes into account more factors that affect cost, such as geographic differences, industry differences, functional differences and differences in job level.

To illustrate how the Staffing Cost Ratio plays out, let's suppose you manage a hiring program in which the cost-per-hire averages $12,000. The previous year cost-per-hire was $15,000. If the reason to track costs is to measure performance, then from the surface, you might be doing well, but let's get more specific about who is being hired.

The cost-per-hire for a new vice president of sales and marketing was $4,000. But, hiring the new facilities manager cost $9,000. With a low-cost-per hire for the vice president of sales and marketing, did you hire the best possible person for the position that could make or break next year's financial outcomes? And were you wise to spend $9,000 to hire someone to maintain and keep the building clean? Another question to ask is: Can you translate the building maintenance job into a dollar value?

Every organization has to find the time to do some recruiting research to determine and track metrics and results suitable for its own business operation. "Putting bodies into seats without measuring the differences these individuals make to the success of your bottom line is a sure formula for failure in a competitive global economy," says Staffing Futurist Gerry Crispin, co-author of the bestseller, CareerXroads: A Guide to Online Recruiting.

Metrics not only take the mystery out of what many practitioners call the Black Hole of recruiting; metrics transforms recruiters into business partners.

Michelle Martinez is a writer and editor specializing in recruiting, career development, human resources, and workplace management issues.