The Unexpected Cost of Hiring a Poor Culture Fit

The irony of this post is that companies hire people to help them make money, but with some hires, the the loss is exponentially greater. Before jumping into the economics behind this statement, let’s get on the same page about culture (fit).

Defining culture

Culture is the tangible outcome that results when values drive behavior and decisions. It’s the social behaviors, customs, traditions, and artifacts of a group of people. In business today, culture is widely discussed but often misunderstood. A culture results no matter what, but the best cultures happen when the entire group has a shared sense of values.

Culture fit is a term used in the business community uses to describe a person who values the same guiding principles as the company has established. Unfortunately, too often people misunderstand it as the person they ‘want to eat lunch with’ or the job candidate who reminds them of ‘Tom from Marketing’. In reality, culture fit should be a synonym to value add, a person who might look very different from Tom in Marketing both physically and on resume, but who brings something new and different to the table while sharing those same underlying values.

What culture has to do with business economics

If you talk to the finance team at most companies, you’ll learn about one thing they absolutely love: predictable revenue. Finance is driven by models and being able to know exactly what is going to happen 12 months down the line.

A bad hire is expensive regardless. The U.S. Department of Labor estimates that the average cost of a bad hiring decision can equal 30% of the individual’s first year potential earnings (U.S. Department of Labor, 2003). This is highly costly, but predictable. Your losses are the costs of employee compensation, training, and rehiring.

However, the cost of a bad hire due to culture fit is difficult to predict, as its costs primarily stem from other members of the organization.

• Low morale across the team — One major study by Robert Half found that low morale was the biggest cost associated with a bad hire. Low morale results in lost productivity, less customer-focused behavior, and the adoption of counterproductive behavior. In the case of a poor culture fit, the real impact is on the rest of the team. It’s hard to gauge exactly how many lost hours of productivity will result, but the more senior the hire, the bigger the reach they will have, and the greater loss to the company. Disengagement is contagious- beware of poor hires at all levels, but especially at the senior level. Unfortunately, in my experience, this is where many companies are more willing to overlook culture in favor of an impressive resume. The bigger the ship, the harder it is to turn it around in a storm.

Imagine one bad hire earning causes 10 colleagues earning $25/hour increased frustration and disengagement resulting in a 30% loss of productivity. In just one 40-hour workweek, the company loses $3000 in wages paid but unused, but the real loss are in the unknown additional costs of missed customer opportunities (could easily be 5x that). Each of the 10 newly disengaged employees over time impacts 10 of their colleagues (exponential disengagement). The result? The entire company loses.

• Costs to the People/Human Resources team — In this TED Talk, Jay Wilkinson discusses the impact of poor culture hires (he actually recommends prioritizing hiring for culture over skill). The whole talk is important, but scroll to the 15 minute mark and you’ll soon see a chart he provides where he explains that high performers who don’t live values cause 95% of the problems. Your HR department will spend time putting out fires which in turn reduces time spent developing strategic opportunities to help the company thrive.
• More bad hires — Someone who doesn’t get your company’s culture isn’t going to place a priority on hiring people who share the organizational values. The effect of this can spiral, and it’s not something we can pin down to one line item on a balance sheet.

The easiest way to keep costs predictable?

It’s simple: don’t hire someone who will cause the issues above. The decision is often difficult, turning down an exceptional talent, but it must be prioritized. Recruiting a single star player doesn’t result in a winning team. It’s time we rethink hiring people on skill alone. The economical cost of recovering a lost culture and mass disengagement is far greater than any revenue a single top data scientist or salesperson can bring to the table.