The Cost of Hiring: Why Firms Should Prioritize People Over Software

In the world of accounting and finance, firms often exhibit a paradoxical approach to their most significant investments. While they meticulously evaluate software solutions, spending months deciding on a $100,000 piece of equipment or a $3,000 monthly subscription, they tend to approach hiring with a much more casual attitude. This disparity raises an important question: why do firms invest so much effort in software procurement while being casual about hiring a $100,000-a-year employee?

The reality is that the cost of a bad hire can far exceed the expenses associated with a failed software implementation. When firms hire without due diligence, they risk not only the salary of the employee but also the productivity losses, team morale issues, client relationship damage, and the time spent on rehiring. A recent example illustrates this point: a firm hired a senior accountant with eight years of experience, only to discover that his skills were outdated and inadequate for the role. He was let go after just five months, costing the firm significantly more than they had anticipated.

The hiring process should mirror the structured diligence firms apply to software selection. Typically, the capital acquisition process involves four steps: defining the need, evaluating options, verifying claims, and implementing the solution. Unfortunately, many firms skip the critical step of verifying claims when it comes to hiring. They often rely on subjective impressions from interviews rather than thorough assessments of a candidate's actual capabilities.

In contrast, when firms select software, they conduct extensive evaluations. This includes demonstrations, stakeholder consultations, implementation planning, reference checks, and ROI analysis. They understand that software vendors present their products in the best light, which necessitates a verification process to ensure that the product performs as promised. However, hiring decisions often fall short of this standard, relying on gut feelings and superficial assessments instead of objective validation.

The implications of this flawed approach to hiring are significant. A failed tech implementation can be unwound or replaced, but a poor hiring decision can have lasting effects on a firm. The financial exposure associated with hiring decisions is substantial, often exceeding $100,000 when considering salary, productivity losses, and rehiring costs. Yet, many firms continue to approach hiring with a lack of structure and documentation, allowing biases and gut feelings to dictate their choices.

One of the most glaring gaps in the hiring process is the failure to verify candidates' claims. In procurement, firms would never accept a vendor's assurances at face value; they would seek evidence to support those claims. Similarly, candidates present polished resumes and rehearse interview answers, but firms often neglect to systematically verify these claims. Instead of asking how they know a candidate is suitable, they settle for subjective judgments like "they seem sharp" or "they fit our culture."

The need for a more rigorous hiring process is underscored by research showing that structured verification leads to better hiring outcomes. Tools for validating candidates, such as work-based assessments and structured testing, are more accessible than ever, yet they remain underutilized. By applying the same discipline to hiring that is applied to software procurement, firms can significantly improve their hiring outcomes.

Ultimately, the lesson for firms is clear: hiring should be treated as an operational investment decision rather than a gut-feel exercise. The greatest risk to a firm is not the software it chooses but the people it hires. By adopting a more structured and verification-driven approach to hiring, firms can mitigate the risks associated with bad hires and ensure they are investing in the right talent to drive their success.