So let's talk about another issue in managing people, and one that gets a lot of attention these days, that's the question of hiring. One of the reasons it gets so much attention is just a lot more hiring going on, partly because there is less internal developments, promotion from within, and much more filling positions from the outside. So, if you thought that management was really everything, then it wouldn't matter who you hired, is all about how you manage them. We don't think that's true. But we also don't think it's true, a theory that became popular a decade or two ago, that it's really about the quality of the players coming in. We'll talk more about this a little later. The idea that they're A players and really good players, B player's average performers, and C players lousy ones. And it's all about hiring. That's not true either. Right? So, hiring matters, is not the only thing that matters, management matters a lot as well. There are two steps in the hiring, and the first one is recruiting. That is the people you get to apply to work for you. And the second is selection. When you look at the applicant pool, who are you going to pick. We spend way too much time focused on selection, I think. That gets all the attention. And the problem with selection is it's, first of all, if you get the wrong applicant pool, you can't hire the right people if they're not in your pool to begin with, and selection is just really hard to do. And the reason it's hard to do is because candidates lie. They don't tell you the truth. Right? They want a job, they want you to hire them at that point they've applied to work for you. And if you ask them things like, "Does this company look like the kind of place you want to be?" They say, "Oh, yeah." You know. If you ask them what's your biggest problem, your biggest drawback to working with you, they say things like, "I work too hard." Right? They're trying to spin you a story. So, it's very difficult to get past that at the point of selection. Let's talk about recruitment. I think all employers ought to spend more time crafting an accurate description of what their job is like. One of the biggest reasons people quit, is they say, "I didn't know what I was getting into, this is not what I wanted." That's completely preventable. And I think frankly the reason it happens is employers are kind of afraid to show people what their job is really like. They want them to only see the good things when they're applying, but then the problem is, they got to live together afterwards, and they discover the reality and poof. They quit. This is kind of like if you're going to live together with somebody or get married, and you're hiding a whole bunch of stuff and you're hoping after you're married that they'll be okay with it. It typically doesn't work very well, it doesn't work very well in hiring either. So, what you want is a description of what your job is like, that is accurate. And also one that will probably scare away people who don't fit. Because you don't want those people applying, every person who applies cost you money, and every chance that somebody gets in and really doesn't fit, every time that happens, it increases the probability you're going to make a bad hire. So, you want a statement, some people call this the employee value proposition, about what's different working for us than other companies maybe that are in the same industry. Plus side and minus side. What's different about working for us? Right? And you want that to be accurate. Now, one way to do this is with internships, right? Now, you might think that the typical reason for internships is the candidate can scope you out and decide, or you can scope the candidate out rather, and decide whether this is the kind of person you want, but a lot of companies have figured out that the more important use of that is the candidate can scope you out. So, that if you offer them a job, and they say yes, they know what they're getting into. Or its kind of a retention device to make sure you're not going to lose people as soon as you hire them. Remember, you know, not hiring somebody is a problem. If you can't hire, that's certainly a problem, but hiring somebody who ends up quitting is arguably a worse problem because you've gone through all the costs of bringing them in, and if they're unhappy and quit, they're making the people around them unhappy and then you get to repeat the process anyway. Right? So, if we take that more seriously, we spend more time on recruitment. Now, on selection what we know is a huge literature on this, but let me summarize it briefly. The things that matter the most are things associated with past behavior, tends to be the best predictor of future behavior. If you could actually find out how they performed in a similar job before, that would be great. Right? There'd be maybe the best thing you could get. It's hard to get that in many countries, hard to get good references from people, if you could get that though that would be wonderful. That's partly why internal moves of people who already work for you are so good, much better than hiring from the outside typically because you know a lot about that person already, and the information's pretty accurate. So, that's really good. Other things that are really good, skill tests work. If it's important to know whether a person has the skills to program, give them a programming problem and see if they can solve it. The problem is, you can only do skills test generally for more of the simpler basic sorts of skills. Conscientiousness out of personality matters. That's the only thing that consistently matters out of personality. IQ seems to matter a bit. But when we talk about these things mattering, it's important to recognize how much are we talking about? And turns out, not very much. So, for some of these things, you might see a correlation between a personality test conscientiousness, and job performance of point three. And you might say, "Oh, well it looks pretty good." Right? But we need to remember from statistics that the amount of variation that explains is the square. R squared, right? Correlation is R, the amount of variation explained is R squared. So, that personality tests only explains nine percent of the variation in performance, that's point three times point three. And that's only the case if you don't have other things in there already that might be correlated or similar to personality. If you've got past job performance in there, the amount that you add by throwing in personality, or IQ, or something else, is even smaller than that. So, the punchline there is, we're not that great at being able to predict on average how well any particular candidate is going to do, which is why a recruitment is so important. Okay? And the last issue about hiring is the idea about how it drives organizational culture, and this is a theory people call attraction, selection, attrition, and the reason they call it that is, here's how it works. If you've got a company with a particular culture, candidates come, they see the culture or they know about what the company is like, people start to self-select. That's what you want. All right? So, the people who end up applying are already pretty similar to your standard. And then your company or your organization picks from that applicant pool of people it likes, thinks they're going to succeed, they tend to pick people who are like themselves. That's not crazy, those people have succeeded. And then the people who are the most different feel they don't fit are the ones that leave. What do you end up with at the end of the day? A group of people who are very similar in terms of norms and values. Maybe that's fine. It also reminds us why we don't get diversity in organizations though, because this process which happens more or less everywhere, tends to replicate the type of organization you've already got. So, one of the lessons from this is if you want diversity, you've got to build it in as a priority because the natural process like this which plays out at all hiring, tends to work against that. Okay? Now, unfortunately, the reality of hiring doesn't look much like textbook descriptions. There's a lot of textbooks that describe complicated models of hiring that begins with filling out descriptions of jobs, and then how they fit into the organizational hierarchies, and the competencies and all this kind of stuff. The posting positions, posting applications, all that stuff. The reality of technology is changing this a lot. So, this last year in the United States for example, the Federal Reserve calculated the majority of people who moved jobs were not looking for a job at all. Somebody came and got them. And this is because of technology like LinkedIn, and other sources where you can look at people, where they work, their record, and go ping them and say, "I think you would be a good fit for us." The applicant process is now driven by computers, technology called Applicant Tracking Systems, where computer screen resumes. So, to get through that process, your resume has to have the right words on it, which is another complication. It's also possible that you can outsource the whole hiring process. Firms called in an industry called Recruitment Process Outsourcing, will just do the whole thing for you. And of course it's also possible to not hire anybody at all, but to engage labor through staffing agencies. You lease the employees of a staffing company, you're not hiring them, you're not really managing them directly. There's all kinds of ways in which you can get labor now that doesn't involve hiring anybody at all. Right? So, there's a lot of choices now about how you might manage things, and it increases the complexity of all this. It requires a deeper dive into all these things, and unfortunately the standard sources, and the textbooks are not really up to speed as to the reality of how people get hired today.
