Impact of hiring a high performer versus a low one
Across Africa, entrepreneurs and business leaders are increasingly aware that hiring top talent is critical to winning in the marketplace. In Kenya especially, technology-driven financial services companies (“fintechs”) struggle to recruit efficiently and effectively: when they post a job opening, they are often inundated with a high volume of applications and selecting candidates feels like a subjective process prone to bias and inconsistency.
As an example, in 2015 the Kenyan judiciary received 80,000 applications for its open positions, while over 3,000 candidates applied for just 28 posts in the Ports Authority. This volume of applicants can be even more overwhelming for small businesses that are more resource-constrained.
Why does this matter? In addition to affecting unemployed job-seekers, hiring effectiveness in Kenya will influence both enterprise-level and overall economic growth. A 2016 World Bank report found that by 2050, 62 percent of Kenya’s population will be of working-age (a 15 percent increase from 1990). But this increase only matters for GDP if the working age population is actually working.
Very few organisations are able to quantify the value of making a great hire or the time and money that goes into recruitment, and without doing so, may have a hard time justifying an investment in improving hiring infrastructure. New research conducted by Open Capital Advisors on behalf of FSD and Shortlist measures these processes for small and medium-sized enterprises in Kenya, half of which were fintechs.
What is the value of a top performer?
A potential incentive for Kenyan SMEs to reevaluate their recruiting practices is to consider the significant influence that top-performing employees have on an organisation’s bottom-line. However, very few organisations can even begin to approximate the financial advantage of hiring a high performer versus a low performer.
High performers deliver exponentially more financial value than low or average performers, especially in certain roles like sales people and loan officers. A high-performing sales agent can generate around two and a half times the margin of a low performer in the same organisation. For one of the companies consulted, the difference between high and low performers amounted to a difference of around US $30,000 per agent per year (over Ksh 3 million) – with the low performer barely generating enough to cover their salary and benefits.
For financial institutions working to help underbanked populations access affordable credit, the role of a loan officer is crucial. The research found that high performing loan officers can generate up to seven times the annual margin of low performers. More importantly, hiring strong performers in these roles means that organisations can deliver much more value to their low-income consumers.
How much time does inefficient hiring take for SMEs in Kenya?
When companies think about hiring costs, they often only consider direct expenses, such as job board fees. But the report found that time is in fact the key cost driver of recruiting, and 85% of that is time spent by non-HR teams. Companies spent around 20 hours per hire before candidates even reach the interview stage, and unfortunately, many reported feeling that most of this time is wasted.
What can companies do to improve?
With the business case for investing in better recruiting being so strong, what can Kenyan businesses do to improve their recruitment practices?Our research showed that the “CV screening and shortlisting” phase of recruiting is taking organisations approximately 18 hours per hire, almost as much time as the interview phase. To ease the burden of screening, organisations should consider more efficient screening methods driven by technology. Most candidate screening can now be done online and can provide a faster and, critically, a more objective assessment of a candidate’s key competencies.
We heard from many companies that their current screening and interviewing methods are not effective in identifying the best hire for the job. Using competency-based assessments and work samples to assess a candidate’s potential not only empowers applicants to demonstrate how well they would perform on the job, but it also increases the chance of identifying future high performers.
We’re often asked whether the challenge of recruiting is underpinned by a lack of talent or by ineffective hiring practices. In fact, the organisations we interviewed were confident that the talent they are looking for already exists in Kenya. Our hope is that by helping to quantify both the cost and value of hiring, companies will accelerate their adoption of improved hiring practices.
Tamara Cook is Head of Digital Innovations at FSD Kenya.
Simon Desjardins is Co-founder and Chief Customer Officer at Shortlist.