Asia Pacific
HR Connect Asia Pacific: Measuring the Business Impact of Employee Selection Systems

 

In this article

Many, if not all, business leaders readily agree that employees are often a significant source of competitive edge in the marketplace. However, few are able to really quantify the impact of "better" employees on business performance. Only recently have business leaders begun to understand how to deploy human capital analytics to monetize the competitive edge that is gained by high-quality human capital practices.

Employee selection is a human capital discipline that supplies rich data, and demonstrating its business impact can be relatively straightforward. In this white paper, we describe different ways to demonstrate the impact of employee selection systems on the business, based on our experience with clients. In addition, we provide guidance on how to put these methods into practice.

Demonstrating Business Impact

Measuring Business Impact of Employee Selection Systems: Demonstrating ImpactIntuitively, we believe that hiring better employees--those who are an appropriate fit for both the job and organization--will benefit the business. Exactly how much they impact the organization can be measured in terms of individual and team performance, with both financial (e.g., cost savings, additional revenue) and nonfinancial metrics (e.g., more satisfied customers, high engagement scores). In the table below, we examine each type of metric to show how to capture and communicate its business impact to organizational stakeholders.

Figure 1: Financial and Non-Financial Performance Metrics

 

Financial  Non-Financial Quantitative  Qualitative 
Individual
  • Sales per hour
  • Average sales per week
  • Percent of quota
  • Sales of high-margin products
  • Add-on sales
  • Shrinkage/theft
  • Customer service
  • Turnover
  • Engagement
  • On-the-job accidents
  • Error rates
  • Quality scores
  • Client retention
  • Attendance
  • Willingness to rehire
  • Manager performance ratings
  • Training performance
  • Promotion potential
Team
  • Team sales
  • Unit controllable profit
  • Year-over-year store sales
  • Unit shrinkage/theft 
  • Engagement scores of direct reports
  • Unit/team turnover
  • Team awards, accomplishments, or rankings
  • Team bench strength
Case Studies

Source: Aon Hewitt

Financial Metrics

Measuring Business Impact of Employee Asessment Systems: Financial MetricsA grounded understanding of financial impact is of primary importance to leaders who must report business financial growth to shareholders, analysts, or boards on a quarterly basis. To demonstrate financial impact, HR must have access to key financial data. If the organization's leaders must review and report on financial business metrics, this data can often be provided by finance, sales, or operations functions. Sometimes, such data is readily available in organizations that boast a data-driven culture, but that’s often not the case. Usually, HR must partner with colleagues in the business functions to gather the data needed to conduct analyses to demonstrate financial impact. Following is an example of the types of analyses and results that can be demonstrated with financial metrics.

 

Case Study 1: Hiring Highly Qualified Candidates Results in Multimillion-Dollar Increase in Revenue
Measuring Business Impact of Employee Selection Systems: Employee Sales per HourMost retailers can track sales per hour for cashiers and sales people by noting which employee is logged into the point-of-sale system for each sale. One organization we worked with wanted to review the relationship between sales per hour and applicant quality. The company was able to pull sales-per-hour metrics by employee for all current employees and match these to employees' assessment scores (their assessment practice had been in place for several years already).

Just by using a simple comparison, the company was able to see that highly qualified candidates sold USD24 more per hour than marginally qualified candidates. While this may appear to be a small difference, its aggregate financial impact for 5,000 part-time employees working an average of 20 hours a week for 50 weeks a year is USD6 million. This company was able to demonstrate a multimillion-dollar increase in revenues based on hiring highly qualified candidates over marginally qualified candidates.


Measuring Business Impact of Employee Assessment Systems: Business Unit AnalysesTeam or business unit financial metrics can be another great source of data to evaluate the impact of employee selection systems. While not as specific as individual impact, these measures are as valuable as most other analyses conducted on customer or market data. Two conditions must be met for business unit analyses to be reliable and valid:

  1. Assessment data must be available for a vast majority of the business unit (i.e., approximately 75% or more of the target population).
  2. Data must be able to distinguish between "highly qualified" and "less qualified" teams.

The second condition forces the analyst to make a judgment call in categorizing the business unit. For example, if a majority of the team members in the business unit scored high on the assessment, then we can say that the business unit is a highly qualified team. If a majority of the team members scored lower on the assessment, then we can surmise that the business unit is a marginally qualified team.

Having sufficient data (i.e., a high enough percentage of team members with assessment scores) for enough business units is the main limiting factor with this type of analysis. However, if enough data exists for the individuals within each business unit (location, team, or store), companies can easily evaluate the financial impact of an assessment. Below is a case study that illustrates the financial impact of a business unit analysis.

 

Case Study 2: Hiring Highly Rated Manager Applicants Equates to 50% Higher Sales, Lower Labor Costs
An organization we worked with in the retail industry wanted to evaluate the effectiveness of its employee selection system for manager and team member hiring. They tracked revenue and expense metrics only at the store level. We were able to evaluate the effectiveness of hiring strong management teams (specifically, assistant and general managers) by evaluating assessment scores for the entire management team. Based on this categorization, the organization was able to show that, compared to marginally strong management teams, units with strong management teams:

  • Had 50% higher sales
  • Were much more likely to beat their controllable profit plans by a greater margin
  • Had a cost of labor that was over USD5,000 less per year.

Measuring Business Impact of Employee Assessment Selection Systems - Case Study 2


Non-Financial Quantitative Metrics

Measuring Business Impact of Employee Assessment Systems: Non-Financial MetricsSome of the most interesting and informative results are seen when evaluating the impact of an employee selection system on non-financial quantitative metrics. These analyses clearly demonstrate how assessments and subsequent hiring of better-fit employees impact business outcomes. These metrics are often leading indicators of financial returns like sales and profitability. In addition, these metrics can usually be translated into financial impact, with some understanding of how the business works. Presented here is a case study that illustrates the value of this type of analysis.

 

 

Case Study 3: High-Scoring Applicants Twice as Productive

A warehouse and distribution company was grappling with low productivity. We worked with the organization to create a tailored assessment fitting the business. Post the implementation of this assessment process, in two different team situations, it was seen that highly qualified applicants (who had high scores on the assessment) were almost 100% better than the unqualified applicants (who had low scores on the assessments).

Measuring Business Impact of Employee Selection Systems: Employee Productivity 

 

 

Case Study 4: Low-Scoring Applicants Twice as Likely to Have On-the-Job Accidents
Measuring Business Impact of Employee Selection Systems: Employee Accident RatesA company in a light industrial setting observed that new employees were more prone to accidents. We worked with this organization to create an assessment suited to their operation. The analysis of data from the assessment revealed that employees who failed an assessment and yet were hired, were twice as likely to have a workplace accident as compared to the ones who passed the test.

 

 

 

Case Study 5: Highly Qualified Applicants Create More Satisfied Customers

A retailer was able to link pre-employment assessment scores to customer satisfaction surveys and found that highly qualified employees were rated friendlier and more efficient by customers—leading to higher overall customer satisfaction scores.
Measuring Business Impact of Employee Selection Systems 

 

A common non-financial metric that can be linked to pre-employment assessment usage is reduced turnover. While this is an easy analysis to conduct, reduced turnover is not a convincing indicator of business impact unless the cost of turnover can be clearly and reliably quantified. For example, one organization was able to detail a savings of over USD9 million in reduced recruiting and training costs due to lower turnover. Other metrics that HR can easily calculate are training program performance, promotions, and transfers. While these metrics are more difficult to quantify, they are objective metrics that may speak volumes to other business leaders.

Just as with financial metrics, companies can evaluate business impact for non-financial quantitative metrics at the business unit level. It is important to have enough data for each business unit to reliably classify each metric into highly qualified and marginally qualified groupings. Below is a case study that demonstrates the value of considering non-financial metrics at the business unit level.

 

Case Study 6 : Highly Qualified Managers Inspire Engaged Teams
A quick-service restaurant company compared engagement scores and manager tenure at restaurants run by highly qualified managers versus marginally qualified managers. One of the questions in the employee engagement survey was "would you recommend others to come and work here?" To this question, highly qualified managers responded 5% more favorably. This showed a higher level of satisfaction in employees reporting to highly qualified managers, which meant that highly qualifying managers were more likely to recommend others to join the organization. Clearly this shows that highly qualifying managers have a higher level of satisfaction with their organization.

For this quick-service restaurant, six-months retention is an important metric. Analysis found that among the marginally qualified manager's teams, only 22% had "team tenure" greater than six months. However, among highly qualified managers' teams, 29% had team tenure greater than six months. Thus, a highly qualified manager's team was 30% more likely to have a greater than six-month team tenure.
Measuring Business Impact of Employee Selection Systems


Many organizations have done extensive market research looking at the linkages among employee engagement, customer satisfaction, and sales or profitability. Similarly, many articles have been written in support of the "service-profit chain," showing that more committed and better engaged employees take better care of customers, which results in more loyal customers, who spend more money, more often. Thus, HR may be able to place a financial value on non-financial metrics by partnering with the organization's marketing analytics professionals.

Qualitative Metrics

Measuring Business Impact of Employee Assessment Systems: Qualitative MetricsOrganizations often turn to qualitative metrics when they don't believe they will be able to tie an employee selection assessment to objective metrics. (That said, it is our hope that this white paper will stimulate organizations to take a broader look at new quantitative metrics as well as analyses that allow them to show the impact of employee selection systems.) Qualitative metrics can help organizations understand early indicators of employee behaviors that support business strategy and financial results (e.g., suggestive selling, following procedures, turnover intentions). Organizations may also evaluate data on team awards or rankings. These are not commonly included as they can be more difficult to use in business impact research. Following is a case study that illustrates the value of considering such qualitative metrics.

 

Case Study 7: High-Scoring Candidates Have More Overall Potential
A distribution company asked supervisors to rate how long it took for newly hired employees to "get up to speed" and contribute to the organization. To measure this, managers evaluated attendance and safety records. They rated their willingness to rehire if the employee left voluntarily as well as the probability of the employee getting promoted in the future. Those who scored higher on the assessment were overall seen to be much better workers, who would be rehired if they left voluntarily. They were rated by their supervisors as having better attendance and also were seen as "much safer" workers. Moreover, a much higher percentage of high scorers were seen to be promotable in future.
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Conclusions and Recommendations

As demonstrated through our case examples, there are strong returns to be realized by investing in selecting higher-quality talent. These can be quantified with relative ease with the right data. Selecting the right employee, however, is only one of many ways to drive greater results through talent. A strong pipeline of applicants is a prerequisite for being able to select the best talent. Candidate communications, employee engagement, pay, and benefits are all integral to ensuring an attractive employee value proposition. In addition, those candidates who are hired will need to be trained, directed with proper goals, given performance feedback, and coached to attain higher levels of performance. These and other talent strategies, when aligned with the organization's business strategy, will ensure results that are equal to, or even better than, those examples presented here.

About Aon Hewitt’s Assessment Solutions

To drive business results through the recruitment process, it is imperative that the assessments are customized to the organization as well as to the job requirements. A frontline sales job requires different skills and traits as compared to an entry-level manufacturing or customer-service role.  Therefore, the assessment needs to be different for distinctly different jobs.

At Aon Hewitt, we believe in the custom creation of assessments for key jobs for our clients. These assessments are validated with existing people in the organization. Implementation of these tests is monitored by keeping an eye on business metrics such as productivity, customer service, attrition, etc. Based on ROI analysis, the assessments are refined to drive the desired business results.

Measuring Business Impact of Employee Selection Systems: Aon Hewitt Methodology

Contact

For more information about Aon Hewitt’s Assessment solutions, please contact Pat Caputo, Talent Assessment Lead, Asia Pacific (pat.caputo@aonhewitt.com) or Ajay Soni, Leadership Consulting Practice Leader, Asia Pacific (ajay.soni@aonhewitt.com).

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