The case for learning versus hiring has long been a topic of discussion. With the recent job market as tight as ever the conversation continues. Just this week Josh Bersin (or as I call him, “JB”, not because I know him that well, just because it sounds cool) released the highlights of a study done with three firms that concluded,
“It can cost as much as 6-times more to hire from the outside than to build from within.” – JB
While I can take issue with the phrase, “as much as”, since I have a dog who can be obedient “as much as” half the time. Or perhaps the sample size, only three companies in different industries. Or maybe that the study used highly paid jobs +$150k salary to joust at. But none of that will stop the industry from using this stat widely. This may be fine at L&D conferences but try it with a CFO and you better be prepared with the math.
So that you know that I am not picking on JB (who I think is the Seth Godin of Human Capital) the issue that I have is with reports that don’t stay loyal to the kind of math that has credibility with finance folks. While for some, being able to simply cite a case study with a recognizable company may be enough. For me it is not. And for my own learning this blog is my attempt to take Jane Bozarth’s work out loud approach and show my work.
“And showing what we’re doing—narrating our work in a public way—helps make learning more explicit.” – the other JB
The Case for Upskilling
We start with the simple comparison of costs to determine value. If the result is positive then reskilling wins. If not, hire away.
The value of reskilling (V) = Cost of New Hire (CN) – Cost of Reskilling (CR)
Seems simple enough but the devil is in the details. So lets break it down further.
V= [Cjn+Chn+Cpn+Co+Cs] – [Cjx+Chx+Cpx+Cu]
The cost of new hire (CN) equals:
- Cost of job opening (Cjn) plus
- Cost of new hire (Chn) plus
- Cost of lost productivity (Cpn) plus
- Cost of onboarding (Co)
- Cost of redundancy/severance (Cs)
The cost of reskilling (CR) equals:
- Cost of job opening (Cjx) plus
- Cost of transfer hire (Chx) plus
- Cost of lost productivity (Cpx) plus
- Cost of upskilling (Cu)
This approach leaves some very real variables out:
- Calculation does not include fully loaded employee costs (benefits, occupancy, equipment, etc. This is assumed to be a wash between CR and CN.
- Does not include quantifiable costs associated with loss of investor confidence due to layoffs which would likely show up in stock price.
- Does not include quantifiable costs associated with loss of employee/candidate confidence due to layoffs such as; unplanned attrition, longer time to hire, reduction in candidate quality.
- Does not include the 2X-3X higher turnover rate for new hires used by JB for his calculation.
Please let me know what I have missed and how this calculation can be more valid and useful. In my next post I will further breakdown each of these costs, insert some assumptions (cost of onboarding/upskilling, recruiter fees, time to productivity, etc.) and share the excel spreadsheet plus the results it spits out.