Achieve Dramatic Cost Savings Recruiting With Referrals

In other words, even with rising unemployment, the talent shortage will not be going away any time soon.

This means that many organisations are going to see a situation where they will be announcing redundancies while still having troubles filling critical roles for a range of specialities.

The cost of filling some of these jobs is actually going up, because more active candidates looking on job-boards means more irrelevant applications that have to be filtered and assessed by the sourcing team. This slows down the hiring process as well as increasing cost.

There is a way to cut the cost and time to hire that will help you find the people you need - Referrals. Referrals are the best source of talent, and now extensive research on employee referral programs has backed up this view.

In fact, in some ways referrals are the oldest form of recruiting. Almost every professional has had a call saying, "Hey, do you know anyone for this job?". Many companies have formal Employee Referral Programs (ERPs), however, in most cases the activity is highly ad-hoc and referrers rarely get feedback on how their referral went. Moreover, there are numerous cases where the candidate was never contacted or was only contacted after a significant lag.

Using referrals in a systematic and measurable manner is a powerful way to cut costs and still source the people you need. Under a ERP program, employees who recommend someone who gets hired receive a reward. What is interesting is that many companies report that even in the absence of a formal program they still receive many referrals from staff. Basically, if people like their employer, they are happy to recommend people.

The business case for setting up an ERP is compelling in any economic environment. This is based on 3 factors:

1. Cost of hire - The cost element varies a little bit depending on external conditions. In boom times - or even for skilled and executive jobs in tougher times - with skills shortages it is often necessary to use expensive search consultants and extensive advertising. In a downturn, where there are more active candidates in the market, the key costs are internal; the administrative overhead of having to filter a large number of irrelevant, unqualified applications.
   
   A well run ERP reduces all of these costs by leveraging the networks of your staff to get to talented people. There are no agency or advertising fees and fewer applications lowers the administrative overhead. So, as long as the value of the reward is less than these costs, there is direct savings. There are also indirect savings that come out of the other 2 benefits.
   
   
2. Time to hire - The time savings from an ERP come from the immediacy of the action and direct path to the candidate. Staff generally respond to referral requests within the day they are received and, because the referrals are sent to people they know, the responses also tend to be fast.
   
   One of the commitments that a good ERP must make is to get back to candidates within 1 business day of an application being received. This means that the recruiting process can occur quickly, relative to other approaches (as long as the interview process is also efficient) and there is also less filtering time. All of this means that jobs stay vacant for shorter intervals, so there is less lost productivity. (We are making the assumption that, especially at the moment, you are only recruiting for jobs that are mission critical, so it is costing you while those positions are vacant.)
   
   
3. Quality of hire - The offer acceptance rate for candidates from an ERP is significantly higher than the general rate, which means you are less likely to have to waste time negotiating terms with someone who ultimately doesn't take the job.
   
   A number of studies suggest that employees sourced through an ERP are high performers. They have higher 1-year retention rates, longer tenure, quicker time to competence and higher performance management scores. So not only do you get great people, you don't have to spend time, effort and money replacing them as often.
   
   

These three factors show why best practice benchmarks for sources of hire are between 30-40% for referrals.

Of course, not all referral programs are created equal, so even if your business already has an ERP, it is worth looking at the program to see if it can be improved. Here are some tips to get you started:

• Executive buy-in 
  
  It's critical - as with any business initiative - that the program have strong executive buy-in. Staff must know that people they refer will experience a positive recruiting process, that there will be updates on that process and that rewards will be allocated promptly.
  
  
• Reward for referrals 
  
  The rewards don't have to be exorbitant, nor do they necessarily even have to be in cash. In fact it is important to tailor the reward to the culture of the organisation and the job.
  
  For example, professional services firms often pay $4,000 or more for a referral and this could be a $200,000 or higher job so that comparison is favourable compared to 15-20% for an executive search fee. On the other hand, a call centre we have worked with offers double passes for movies and dinner to operators who refer people, and they celebrate such referrals by recognising the referrers publicly and presenting the vouchers with some fanfare.
  
  
• Communication and processes
  
  Be creative and flexible with the incentive component - and vigilant on the process/communications part. It is critically important to ensure that follow-up with candidates and referrers is done in under 1 business day, that everyone is kept updated on status and progress and that when rewards are paid, it is widely communicated and recognised within the organisation.
  
  You need to ensure that you have processes, service level agreements and systems in place to run the ERP efficiently and ensure that it is effective.
  
  Alumni employees 
  
  Many organisations also include alumni in their ERP, which can widen the network considerably. Of course, you need to ensure that people left on good terms and have a positive view of your company. This is something you can ascertain during exit interviews.
  
  
• Staff engagement 
  
  The other, more subtle, benefit of a strong ERP is that it shows staff satisfaction (at least amongst referrers) is reasonably high. After all, if people are not engaged and hate their job, they are less likely to recommend your company to their friends and network. So creating the environment (and processes) for a successful ERP will improve overall staff performance, too.
  
  
• Social networking
  
  While internal referrals are the strongest - since your staff are best positioned to talk about the experience of working with you and are likely to have the best understanding of job requirements - external referrals are still powerful.
  
  With the advent of Web 2.0 technologies, there are now several tools that you can use to interact with your personal and professional networks. Chances are you already have a profile on some business and social networking sites too. (If you don't you need to!) You may have a company or personal blog - again something that's highly recommend.
  
  These tools can help you build a strong employer brand and also keep in touch with a broader network. This helps when you are trying to attract good people as it is cost effective to stay in touch with a lot of people. Smart companies have been very good at using these tools to stay in touch with their user community and potential employees, suppliers and customers.
  
  

We are a big wrap for referrals - both internal and external - because we have seen first-hand, time and again through different economic conditions, how quickly and efficiently they can source great talent. If referrals are not a key part of your sourcing strategy now, we urge you to give them a try.

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