The Commercial Impacts of a Bad Hire: Mitigating Risks for Your Business
To hire or not to hire?
Getting your hiring decisions right is always a cause for celebration and relief! It means that you can keep pursuing your corporate goals with renewed enthusiasm. However, if you do happen to make the wrong choice, it can have catastrophic consequences for your business. So, it’s important to choose wisely and make informed decisions when it comes to hiring new talent.
Unfortunately, despite the many measures and policies organisations take to ensure they hire the best people, occasionally a new starter can become an unexpected problem. Despite having the right experience, credentials and breezing through the interview process, the ‘ideal’ candidate can for whatever reason, turns out not to be suitable for the position they’ve just filled. A Bad hire is more common than you might think. According to a Harvard Business Review article, only 19% of new hires are considered fully successful and by the 18-month point, 46% are actually deemed failures- for either resigning of their own accord or having their employment terminated.
A bad hire can cause a cascade of negative consequences that can affect the bottom line, damage the company’s reputation, and impact the morale of the team. The financial and legal costs of a bad hire can be substantial, and the impact on company culture can be long-lasting.
However, by being aware of the risks and taking proactive steps to mitigate them, businesses can ensure that they are making the best hiring decisions for their organisation. In this blog, we will explore the potential commercial impacts of a bad hire and provide strategies for mitigating these risks, including the use of pre-employment assessments, team involvement in the recruitment process, and investment in onboarding and training.
THE FINANCIAL IMPACT OF A BAD HIRE
One of the most significant and obvious commercial impacts of a bad hire is financial costs. The cost of hiring a new employee can be substantial, with recruitment costs, onboarding, and training. According to the AFR, depending on a candidate’s seniority, the mistake can cost a business between 15 per cent and 21 per cent more than the employee’s salary, based on lost revenue, lost productivity, and additional performance management and training resources.
This can be a significant cost, particularly if the business uses recruitment agencies or consultants to find suitable candidates. Furthermore, a bad hire can impact the company’s productivity and revenue. A new employee who is not suitable for the role may take longer to get up to speed, causing delays in projects or work. They may also make mistakes that cost the company money or lead to lost opportunities. These costs can add up quickly, particularly in industries where time is critical, such as manufacturing, construction, or technology.
Furthermore, when this happens, the organisation has to spend additional money to re-advertise the role and re-start the recruitment process, losing approximately 16 weeks/4 months to this process.
THE LEGAL RISKS
The legal ramifications of a bad hire cannot be ignored. If a new employee causes harm or injury to others, the company may face legal action and potential financial damages. This can lead to significant legal costs, as well as damage to the company’s reputation and brand image.
In addition, if the employee engages in discriminatory or harassing behaviour, it can not only result in expensive lawsuits but also have negative implications for the company’s culture and employee morale. Furthermore, bad hires may also result in breaches of confidentiality, intellectual property theft, or violation of data protection laws, all of which can result in significant legal and financial repercussions. It’s crucial for businesses to take proactive measures to mitigate these risks and ensure that they are hiring the best-fit candidates for their organisation.
THE IMPACT ON CULTURE
The impact of a bad hire is not limited to financial costs or legal risks. The negative impact of a bad hire on company culture can manifest in various ways. For instance, if the new employee is not a good fit for the company’s values and culture, it can cause resentment among existing team members. This can lead to decreased collaboration, communication breakdowns, and decreased productivity. Furthermore, a bad hire who is not open to feedback or unwilling to learn can frustrate colleagues and hinder the team’s progress.
In some cases, a bad hire may even try to undermine their colleagues or take credit for their work, leading to a toxic work environment that erodes trust and destroys morale. Ultimately, the impact of a bad hire can be felt across the organisation, affecting not only the immediate team but also the company’s overall reputation and ability to attract and retain top talent.
MITIGATING THE RISKS OF A BAD HIRE
The first step organisations need to take is having a closer look at their recruiting practices. Conducting a detailed audit of job ads, hiring, interviewing and assessment practices should highlight any areas for improvement. For example, are you providing a realistic description of your roles in your job advertisements? If you’re not sure, we have a job-ad template you can download here. Do you need to incorporate assessments into your selection processes? Do you under-evaluate personality traits?
Hiring the right person is crucial for the success of any business. It’s important to find someone who not only has the right skills and qualifications but also adds to your company culture.
Using pre-employment assessments, such as psychometric testing, can help identify the best candidates. These tests evaluate personality traits, cognitive abilities, and skills, giving businesses a comprehensive understanding of a candidate’s potential fit.
Behavioural assessments are equally important in determining the best hire. These tests evaluate how a candidate behaves in specific situations, giving businesses insight into how they may handle different scenarios on the job.
Additionally, skills assessments can provide a deeper understanding of a candidate’s specific skills related to a particular job function.
But assessments alone aren’t enough. Combining them with interviews and reference checks allows businesses to make informed hiring decisions. And investing in onboarding and training for new employees can help ensure they have the necessary skills and knowledge to succeed in the role. This can also help the new employee understand the company’s culture and values, reducing the risk of clashes and increasing their chances of long-term success with the company.
Ensure your next hire is your best hire yet
If you are looking for advice or more information on how to improve your recruitment processes, you can reach out to one of our experts or call 03 9040 1700 to learn more.