The ROI of Onboarding

Genesis Co-Founder Michael Watkins was recently interviewed by Jeff Hyman on the Strong Suit Podcast. In the interview, Watkins points out the astonishing fact that most organizations still use an “onboarding by Darwinian evolution approach” when bringing in executive talent. This fact is supported by research Genesis jointly conducted with Egon Zehnder into executive onboarding effectiveness, published in their Harvard Business Review article, “Onboarding Isn’t Enough.”

The Cost of Recruiting

What makes this lack of investment at such a crucial point in a newly-hired executive’s career astonishing is its stark juxtaposition with the amount of money invested in finding and placing that executive in the first place. Take an executive-level vacancy in a global organization with a basic salary of $750K, for example. Now, double that figure to come up with a guaranteed first year earnings baseline and the investment in the executive search process — the equivalent of 30%-40% of the candidate’s guaranteed first year earnings — starts at $450K. Now, add 10% of that figure per month for the duration of the search (on average six months minimum), and you are looking at a $720K executive search fee. Looked at another way, $720K is the cost of that placement, regardless of whether the executive succeeds or fails.

Proving ROI

Based on the above (conservative) approximation of what it costs to find and place an executive at a global organization and given research shows that 40% of unsupported executive transitions end in derailment, one is left to wonder why it is that organizations on the whole continue to adopt a “sink or swim” approach to onboarding executive talent. The lack of investment in onboarding and integrating leaders is very often justified by the fact that the impact cannot be readily measured or quantified.

It’s true that the ROI of transition support is not easy to calculate. However, we know the cost of hiring to be approximately an executive’s basic salary, and we know that derailment in the first year means that salary, plus administrative “on costs” at 20% of basic, plus severance — amounting to more than the cost of hiring the candidate and then some. And these calculations do not take into account the very real and enormous opportunity costs related to the protracted “search-select-sink-or-swim” cycle in the form of wasted time and resources.

The Relative Cost of Transition Support

One final factor to consider in this onboarding paradox, is the fact that the search and selection process takes, on average, six months from retainer, to short list, to offer; whereas, by comparison, a fraction of the executive search investment can ensure the success of the chosen candidate and get them up to speed and delivering results in as little as half that time.

Of course, you can always continue to roll the dice and hope that your executive intuits his/her way through the first few months, but if they don’t, be prepared to embrace the prospect and cost of spending a further six to twelve months searching for a suitable replacement. Now weigh that against the cost of providing onboarding support for six to twelve months, and do you still think it makes sense to throw your newly-onboarded executives in at the proverbial deep end?

Two Useful Resources

Onboarding and integration expert Michael Watkins wrote a guide entitled, “How to Successfully Onboard and Integrate Executive Talent,” which you can download here. It’s a good place to start. And if you are serious about wanting to transform your organization’s approach to executive onboarding, take our Executive Onboarding Effectiveness Assessment. It will help you assess your current onboarding practices against a global sample used in the Harvard Business Review article “Onboarding Isn’t Enough,” so you can begin to take cost-effective steps to turn vicious onboarding cycles into virtuous ones.