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This article was first published in the November/December 2018 UK edition of Accounting and Business magazine. 

If you manage a team, how much time and money do you put into training your people as opposed to selecting only the best candidates in the first place?

Most organisations offer training in emotional intelligence, leadership and other interpersonal skills, but research suggests that such training generates only a moderate return on investment (ROI) and that investment in selection methods tends to have a higher ROI. As one HR director once told me: ‘It’s better to keep trash out than have to train trash to do a good job.’

Recruitment selection methods include job interviews, assessment centres and psychometric tests as ways of measuring candidates’ likely job performance. They are also often used to gauge leadership potential. But what methods should you use – and why?

Predicting performance

To measure the effectiveness of different candidate selection methods, researchers calculate predictive validity, which is the ability of a selection method to predict subsequent job performance. A predictive validity of zero implies that a method is no better than tossing coins or rolling dice to choose candidates; a predictive validity of 1 indicates the method finds the best candidate 100% of the time.

Canadian researchers Willi Wiesner and Steven Cronshaw found that structured interviews – where interviewers ask predetermined questions of all candidates for the same role – have a predictive validity of 0.63. Unstructured interviews – involving conversations without predetermined questions – have a predictive validity of only 0.20.

Clearly, hiring managers should discuss the skills and behaviours they are looking for and decide on questions to ask before interviewing candidates. Knowing exactly what you are looking for is a prerequisite for finding it.

Another observation is that untrained interviewers are much more likely to make judgements based on first impressions than trained interviewers. As a result, they tend to be less able to identify good candidates.

Yet another finding: candidates interviewed via videoconferencing tend to receive lower ratings than those interviewed face to face. Interviewers should therefore interview all candidates either face to face or via video.

There is also a paradox in terms of using the more rigorous and time-consuming selection methods. It is not uncommon for graduate candidates to spend a day at an assessment centre completing multiple interviews, written tests, presentation exercises and role-playing scenarios. By contrast, many executives are hired after only a handful of face-to-face interviews, despite research suggesting that selection methods can have the most benefit at these senior levels.

Testing competencies

In one study, researcher Craig Russell tracked the performance of 98 divisional general managers within a Fortune 50 company. Each division had its own profit and loss account and revenues in excess of US$125m. The managers had been hired through a rigorous, competency-based selection process lasting at least six hours. Over a three-year period, Russell estimated that the competency-based process resulted in an additional US$3m in annual profit per candidate selected. His study confirms that selection methods have the greatest ROI at senior rather than junior levels.

Russell’s study also identified that the competencies or skills that help managers to succeed in the short term differ from those that help them to achieve longer term results. Within the first year, the managers’ skills at financial analysis and dealing with operational issues were the strongest predictors of their business units’ financial performance. After three years, their skills at managing and developing people, communication, and creating the right climate were better predictors of business unit performance.

It is likely that good general managers were able to exert strong controls over raw materials and other capital assets within the first 12 months. Efforts to improve the culture, skills and ways of working within their business units probably reaped benefits that were detectable only after more time.

Dr Rob Yeung is an organisational psychologist at leadership consulting firm Talentspace: