Topgrading

For those Human Resources professionals out there who want to implement Topgrading but are having a tough time convincing “the organization” it is worth the time and money, here is a suggestion that may help you significantly.  Figure out how much value a Topgrading Initiative will add to the bottom line and let the data help you persuade others. 

Here are the steps:

1. Spend 15-20 minutes with management team members working through a cost of mishire exercise.  Average those costs for each level of management.

2. Ask each of those managers you meet with in Step 1 their opinion of the organization’s hiring success (”When we hire from the outside, what percentage of the time do those people turn out to be A players, high performers that fit our culture?”)

3. Plug the numbers into this equation: (100% - Average hiring success rate) x number of hires per year x Average cost of mishire = Annual cost of mishire (at this level).  Do this for each level and you have the total annual cost of mishire to the organization.

4. Estimate how implementing Job Scorecards, the Career History Form, Tandem Topgrading Interview, and In-Depth Reference Checks will impact hiring success.  For instance, if you find that the current hiring success rate is about 30% and you plan to do the implementation without professional assistance, you could expect to improve to 60% success in the first year.

5. Calculate how the improvement in hiring success will reduce the cost of mishires, and from there you can calculate an ROI for a Topgrading implementation.

Here is an example of a company that has a 30% hiring success rate, hires 10 managers per year, and has an average cost of mishire of $500K

Total current annual cost of mishires = $3,500,000

The ROI will be astronomical.  Also, based on our research those are extremely conservative numbers and only address the effect Topgrading will have on external hiring.  The returns will increase exponentially if you implement Topgrading-based processes for promotions and developing incumbent managers!   

Figuring out how many A players are in your organization is a fantastic way to gauge the success of your Topgrading efforts.  However, without doing Topgrading assessments on all of your employees, accurately putting people into those categories can be challenging.

Aric Dershem, Vice President of People Development at National Heritage Academies, gives this advice about annual talent reviews.  Rather than getting hung up on whether someone is in the top 10% of talent available in the market, ask this question about all of your employees, “Would I enthusiastically re-hire this person?”  If the answer is yes and you have high performance standards, that person is probably an A player.  That will get people into categories; describing each person’s strengths, weaker areas, and potential for development will further refine your list.

A January 2008 article in McKinsey Quarterly shows how the image of HR, already pretty bad, has plummeted in the past decade. Among the issues is one central to Topgrading — HR advances so-called “best practices” that don’t work. Topgrading offers a unique opportunity for HR to gain credibility — to add the tandem Topgrading interview to hiring and promoting and literally double or triple the percent of high performers picked.

Recently, Topgrading got a half-page article in the Wall Street Journal — and it was not about my company, but my son Geoff’s!

Three University of Chicago professors used Geoff’s database of Topgrading assessments to identify the key traits of successful CEOs.

The key finding by the University professors?

“We found that ‘hard’ skills, which are all about getting things done, were paramount,” says lead author Steven Kaplan, a professor of finance and entrepreneurship. “Soft skills centering on teamwork weren’t as pivotal. That was a bit of a surprise to us.”