Running a successful enterprise is a balancing act. You must evaluate the needs and wants of staff and customers alike, and meet them while providing each maximum value, which goes far beyond price or salary. One issue that causes considerable headaches for owners and entire organizations is overhiring.
While it sounds like a numbers game, it can devastate workers and damage your company, sometimes beyond repair. Here’s how overhiring happens and how you can avoid it.
Common Reasons for Overhiring
Overhiring is problematic because it leads to layoffs, which shake up entire lives and create an economic ripple effect as those with less buying power shift their spending habits. The resulting impact on operations and morale can lead to lost productivity, attrition, toxic environments, and a damaged reputation. Knowing why overhiring happens can help you recognize and avoid it.
1. Pressure to Meet Goals
Pressure can be external or internal. Market forces may temporarily increase demand for a niche product or service. Conversely, leadership may feel pressed to take advantage of what they see as limited-time opportunities that don’t deliver — or stop doing so after a brief flash. For example, you could pour tons of resources into wowing a big client who goes on to contract with another firm.
2. Undefined Roles and Responsibilities
Does the stock room remain unorganized because you don’t have enough people to do the job? Or does no one on staff know it’s “their” duty? Even the best employees lack crystal balls, and clearly defining each role’s responsibilities reduces idleness and waste.
3. Misinterpreting the Labor Market
Business leaders respond to the same internal biological cues as other human beings. Market reports of labor shortages can lead to impulsive, fear-driven hiring decisions.
4. Operational Challenges
Toxic internal situations can lead to high turnover. If you’re a revolving door, investigate why people leave and address these issues. This situation disrupts work continuity — it takes approximately 42 days to find a replacement and costs an average of $4,219 per hire.
5. Managerial Miscommunication
Large companies might have managers from multiple departments hiring simultaneously. Failure to communicate across teams can result in overhiring. Unfortunately, some teams ran into this issue amid the pandemic as they received an influx of stimulus funds at the same time their staff underwent shifts such as remote work, disrupting communications.
It’s natural to envision a positive future when earning high profits. Looking on the bright side benefits mental health. However, acting impulsively — even out of an altruistic desire to create jobs — can backfire if you fail to consider the potential consequences of doing so before you are fully ready.
The Adverse Effects of Overhiring on Your Business
Overhiring harms your business in multiple ways, the most glaring of which is it creates the need for layoffs and cutbacks. Losing a job is among life’s most traumatic, stressful events and causes enormous suffering, especially in the American economy. Work is often more than a paycheck — it’s a link to health care.
Expect decreased morale and performance issues to accompany layoffs. Those who fear they are next on the chopping block may devote much of their energy to job searching, slacking off on their duties. Stress isn’t good for anyone’s cognitive abilities and those hoping to stay may make mistakes under such pressure. Even teams unaffected by layoffs can suffer in productivity as negative energy affects the entire enterprise.
Overhiring results in overspending on payroll, as does recruiting new talent. Once you lay off an employee, they’re unlikely to return no matter how appealing you make it sound. Training someone new can cost up to two times the original worker’s salary.
Finally, overhiring followed by layoffs creates a negative impression of your management style. Customers may suspect you cut corners elsewhere and top talent will hesitate to apply to firms that seem like revolving doors.
How to Avoid Overhiring
Fortunately, you can take the following steps to avoid overhiring.
Review Your Hiring Processes
Who has hiring and firing authority? Do you have too many cooks in the kitchen? Review your procedures and hone them to suit your organization. For example, larger firms may have a dedicated hiring team, but smaller crews can still require secondary oversight from another supervisor or partner.
Audit Your Operations Before a New Round of Hiring
What’s missing from your team? Survey existing staff, inquiring about what they see as urgent. It’s easy for larger organizations to lose track of what multiple departments require.
Furthermore, evaluate what you can do internally before looking outside of your current pool. For example, some firms maintain a skills library on existing employees to identify team members who can fill new roles as they arise. Such practices increase retention. A long-term worker with the requisite know-how may covet an open position — why spur resentment and increase costs by unnecessarily bringing in an outsider?
Consider Using Contractors
Contractors remain self-employed individuals for legal and tax purposes. You maintain less control over the individual’s daily work — your contract irons out the specifics of the exchange. Many companies bring these workers on for short-term tasks or projects of uncertain duration.
Contract positions sometimes morph into employee roles, but use caution. Be transparent about future possibilities instead of making false promises that people who desperately need full-time work may rely upon.
Remain Transparent With Team Members
Even if your firm is well-prepared to handle an economic downturn, take extra care to communicate with your team, especially during rough times. Assure them of the steps taken to remain viable and let them know their jobs are secure — assuming they are.
If You Must Cut Costs
Your team worked remotely during the pandemic. Now, you announce mandatory RTO to a shiny, new office complex simultaneously with a round of layoffs. Expect morale and productivity among existing team members to plummet.
Layoffs should be a last resort. They’re the equivalent of amputating a limb to save the rest of the body and every bit as risky to the life of your organization. No matter how advanced technology becomes, it can never replace those who created it and human needs must take precedence when making business decisions. Otherwise, you risk creating resentment, which is as toxic in professional environments as it is in personal relationships.
If overhiring led to layoffs, mitigate the damage. Electronic messages make you seem heartless and perpetuate the negative impression of your business. Instead, handle each one in a one-on-one where you offer references and negotiate severance packages.
Doing so might save relationships — for example, some staff may accept part time or contract work rather than a full separation. Afterwards, evaluate where you went wrong to avoid future painful mistakes.
Avoiding Overhiring and the Associated Headaches
Overhiring might seem minor, but it has devastating consequences. Avoiding layoffs is crucial to maintaining morale and productivity.
Follow the above steps to avoid overhiring. Understanding why it occurs and taking proactive steps to prevent it ensures your organization and everyone within it thrive as you grow.
Jack Shaw, editor of Modded and author of numerous articles on business success and self-improvement, seeks to inspire readers with his practical tips and strategies for growth. His writings can be found on HellaWealth, USCCG and more.