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£5million and Counting

Thursday, August 23, 2007   

The Role : Managing Director x 2 - Consulting


The Hiring Circumstance –  This is a case that I was personally involved with and represents one of the most baffling I have come across in the past twenty years.

The company, an international consulting firm, treats each of its offices as a profit centre run by a managing director, reporting to a group board based in the UK.  I was asked to help by one of the group director / shareholders following two failed MD appointments.

Prior to meeting with the group MD and HR director, a discussion with the financial director revealed that the two failed appointments had physically cost the company over half a million pounds in fees, advertising, wasted salary and severance pay.

Although he had no data to back exact numbers, the technical director believed that this amount was relatively minor compared to the several million that had been lost in three missed tenders and the general drop in productivity due to the disruption of two important profit centers being leaderless. 

In addition to this, the loss of a key manager in one of the UK offices was causing the firm to hemorrhage top consultants, pointing to something of a resourcing crisis for the company.  As a consulting business, the company is 100% reliant on hiring and retaining good people and, considering the documented events, all the indications were that the company needed to take urgent action.

The Strategy – The company had used conventional hiring practices - advertising / search & selection agencies.  The candidates had matched against the selection criteria, shown well in the psychometric assessments, and also interviewed well.  However, both were ultimately found wanting when it came to running the two operations.  Within a year of appointment, one had resigned and the other was offered a settlement to leave.

Discussing the outline strategy and process, it appeared to be a case of an incorrect starting point in terms of the brief; another case of perfect HR process being used to hire people that should never have been hired in the first place

The Consequence –  Even without investigation, it was quite clear that the hiring approach, by definition of the consequences, was failing to support the needs of the business.

Taking just the tangible losses associated with the two failed MD hires, considering the company's 11% profit margin, it was going to take more that £5million of turnover, just for the company to get back to the point where the money was needlessly wasted in the first place.  Put another way, the consulting team in one of the international offices was going to work for an entire year for nothing in order for the group to recoup the losses.

Failure to address the basic approach to hiring meant that the company was wide open to these issues being perpetuated.  

Taking his lead from HR, the managing director concluded that no action was necessary and the company would continue doing what it had always done. 

Cost to date - £5million of turnover

Footnote - on checking some of the data prior to publishing I have just been informed that another hire at the same level has failed and another is off on long-term sick.  Group turnover is current £8million behind budget, despite the most buoyant  trading conditions since the company was formed.


© Copyright 2007 - please credit where shared or reproduced.


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Comments so far

Friday, January 11, 2008 by Peter Schofield

This is an interesting one, RS. You are right in that the haemorraging of staff suggests wider issues, of course. It's a management problem, in that the senior management have not recognised and / or acted upon the problem.

What would you say to the suggestion that the firm's management problem started with hiring the wrong senior managers?

In truth, the situation runs deeper than that, although I would argue that it still has its roots in recruitment, although this particular case is more about talent management re-recruiting the existing team.

When these managers were originally recruited into the business, it was a very different kind of business to the one they have today. It's bigger for a start, but it's also gone beyond the shoot-from-the-hip times of what we management consultant bores refer to as the Go-Go phase of the company's life cycle. The management skills that were needed back then, now need to be replaced with a more considered and strategic approach.

In truth, the attributes that the senior managers in question have are still very much needed by the company, but not in the positions that are currently employed.

This is where the re-recruiting part comes in; recognising what attributes these people brought to the organisation when they were first hired, which they've added since, now, where those attributes are most needed.

Closing on the irony, what goes around comes around. Since the orignal post, the main person responsible has been 'retired' and I was asked back in to organised the replacement.

This highlights perfectly the point made in the latest blog post; if leaders don't deal with the talent issue, they will find themselves being deposed and replaced by someone who will!

Wednesday, January 9, 2008 by RS

The issue with the key manager leaving also seems to have been overlooked as an unimportant one - without assuming too it would appear that if this person's departure has enough of an impact on the business to persuade people to follow him out the door it would imply to me that they have found their replacement MD.

An MD coming into any new company has a difficult job however a major difficulty is getting and maintaining the buy-in of the staff, where a business is purely run on the basis of the quality of people it has haemorraging staff due to one individual leaving suggests they have more than just issues with the hiring process in the firstplace.

The other nice piece of irony is a consulting company ignoring the advice of someone attempting to consult for them.

Thursday, September 13, 2007 by Peter Schofield

Yes, I very much agree about the cloak and dagger attitude; a symptom of the blame culture that can exist in many organisations - plus tacit agreement that, if it can't be measured, then it doesn't exist (so let's not measure it and we're all ok!).

My own approach is a process based entirely on identifying business need - what can or can't happen, with or without a particular hire. From there everything is driven by the business case; from job description, to behavioural profile, to hiring budget and strategy.

As the case alludes to, I didn't get close enough to the process detail with this particular company to be able to detail the specific gaps, just the impacts of the failures.

Do you have any similar experiences?

Thursday, September 13, 2007 by SG

Would be interested to know what the suggested best approach would be - at the senior level there appears to be a tendency to be rather cloak and dagger or a reluctance to discuss basic business issues that need to be addressed by the hired individual. How did the 2 failed candidates fall down or what gaps where in the original brief that lead to the disconnect?