Artificial intelligence (AI) has become a major part of several industries across the world, from healthcare to retail to financial markets, where its impact is often lauded and easily quantifiable. Yet, some industries have not fully embraced AI technologies. In the talent acquisition world, AI-powered solutions are often confused with automation tools.
Despite the confusion, artificial intelligence is acknowledged as a next-generation trend that will revolutionalize the talent industry: An average of 35% of hiring managers and recruiters across the world say in a 2018 LinkedIn report that AI is the top trend that is changing how they hire. Artificial intelligence will inevitably play a bigger role in talent acquisition in the years to come. But what is the ROI of these AI-powered tools like Censia, also called talent intelligence? It is best to start with the individual cost drivers that talent intelligence can impact, both in the short and long term.
The Cost-Per-Hire Metric
The Society for Human Resource Management (SHRM) published survey results in 2016, stating that the average cost-per-hire is about $4,129. The cost-per-hire metric was developed to measure the costs linked to sourcing and recruiting activities performed by the employer in order to fill an open position. Though it cannot measure the productivity or economic value of an employee post-hire, it is a good way to measure the economic value of the recruiting effort. Simply put, the cost-per-hire is calculated as the mean average of the total costs of hiring divided by the number of hires.
The total costs of recruiting are driven by internal and external cost factors, where internal factors are related to the internal staff and organizational costs of recruiting, while external ones are accrued by external vendors or consultants.
Here are some examples of internal costs due to recruiting efforts:
- Salaries, benefits, and performance incentives of internal staff recruiters (full-time, part-time, or contract recruiters)
- Non-labor office expenses
- Recruiting learning and development
Here are some types of external costs that arise due to recruiting efforts:
- Advertising and marketing expenses associated with requisitions (including costs related to job boards, social media networks, marketing materials, etc.)
- Third-party agency fees
- Consulting services, such as EEO or outside legal counsel
It must be said that the cost-per-hire metric is an attempt to measure the cost-effectiveness of recruiting, but cannot account for other parts of the recruiting decision, such as the quality of hires.
The Impact of Artificial Intelligence on Internal and External Cost Factors
The examples of internal and external cost factors listed above stem from the various recruiting activities or services that must be performed to fill an open job listing. A large fraction of internal costs is the cost of a recruiter’s time in salaries/benefits. Many recruiters spend a large amount of time sourcing candidates, which they often report can consume almost 25-35 hours of their time.
With regard to sourcing, AI-powered talent solutions like Censia can give recruiters instant access to some of the largest candidate pools of white-collar workers in the world, and deliver to them a ranked shortlist of highly-qualified candidates. This means they no longer have to spend hours searching on professional social media networks, using the same keyword search strings that many other recruiters are using.
In the LinkedIn report mentioned near the beginning of the article, 67% of recruiters and hiring managers who agreed that AI is a bold disruptor confirmed it is saving them time, and 58% said that AI is most helpful when sourcing candidates.
Implementing talent intelligence can also reduce spend on external cost factors, such as marketing and advertising expenses or external agencies. AI platforms like Censia help enable the search for top talent in a different way, through modeling ideal candidates, unlike the old paradigm of keyword search on social media platforms. Advertising costs on social media networks can be reduced or even eliminated in some cases.
In an ideal world, the cost-effectiveness of recruiting would mean hiring the best candidates for your organization, in the shortest amount of time, at the least cost. AI-powered talent solutions can help you get there, especially when your team must hire qualified candidates as quickly as possible and retain them for decades to come.