Out-smart and out-save: Overcoming the cost-efficiency recruitment bias

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As a people consultant and advisor specialising in HR strategy, analytics and organisational development, I’ve had the privilege of working with numerous tech companies, guiding them through the complexities of scaling and adapting to change. Throughout my career, I’ve observed a recurring pattern known as the “cost-efficiency recruitment bias”.

I’ve been in HR since 2011, starting my journey in Berlin before eventually moving to Barcelona in 2019. My story has led me to create two consulting firms, flowforgood and flowers. I’ve observed hiring trends and tendencies throughout my career. We currently find ourselves in a moment where the world of work is undergoing substantial transformation, making the cost-efficiency bias a particularly pertinent topic.

I had the privilege of discussing my take on the most recent Outvise Insights podcasts with Outvise’s very own Tora Karlborg. You can listen to the full episode on Spotify, Apple, and YouTube. Here, I’ll unpack what we discussed, define the cost-efficiency bias and explore its origins, impact on workforce management, and the often overlooked long-term consequences. I’ll also discuss how embracing open talent solutions, such as freelancers and independent contractors, can help organisations break free from this hiring bias and unlock sustainable growth. 

By understanding the limitations of traditional hiring models and fully recognising the value of a diversified workforce, businesses can position themselves for success in a rapidly evolving landscape. Let’s take a closer look.

What is cost-efficiency bias in hiring?

The cost-efficiency bias is the tendency for companies to prioritise immediate cost reduction over long-term value creation when making hiring decisions. While it might seem logical to opt for the most cost-effective solution in the short term, this approach often leads to hidden costs and missed opportunities down the line. 

This recruitment bias stems from a historical emphasis on optimising production costs, found mostly in manufacturing and the like, where the simplest metric to measure was often the cost of labour. The ease of measuring cost efficiency, usually calculated as the ratio of revenue per employee, has further reinforced this bias. Additionally, the perceived risks associated with non-traditional employment models, such as freelancers and independent contractors, have made companies hesitant to explore these options.

This recruitment bias is particularly prevalent in industries that rely on standardised processes and predictable production cycles, such as manufacturing. In these sectors, the need for agility and innovation is less pronounced, making the stability of a traditional workforce seem more appealing. However, in all industries led by creative efforts—such as tech—where rapid adaptation is crucial, the cost-efficiency bias can significantly hinder growth and competitiveness. But how exactly?

The hidden costs of the cost-efficiency recruitment bias

While the sole focus on cost efficiency may appear to offer short-term financial gains, it often leads to a cascade of hidden costs that can significantly impact a company’s bottom line and long-term success. When organisations cling to rigid workforce structures and shy away from flexible solutions, various red flags can emerge. In my experience as a consultant, some of the most common warning signs over a short and long-term basis.

In the short term, the consequences of this recruitment bias are readily apparent. Companies prioritising cost reduction in hiring often experience high employee turnover due to mass layoffs and rehiring cycles. This constant churn incurs substantial expenses related to recruitment, onboarding and training new employees, which also costs money. 

But what is the average cost of hiring an employee? According to the Society for Human Resource Management (SHRM), the average cost per hire was $4,129 in 2019 but rose to $4,700 in 2023, a 14% increase. It can also vary widely depending on the specific role and the level of competition. For example, hiring for positions experiencing significant talent shortages, such as cybersecurity or engineering, can be far more costly than the average. In fact, for executive positions, the same SHRM data found the average cost per hire can skyrocket to a staggering $28,329!

Moreover, the lack of a stable workforce can result in missed project deadlines and failure to achieve strategic goals as teams struggle to maintain momentum and adapt to changing circumstances. The disruption caused by constant turnover can lead to delays, decreased productivity, and a loss of focus on critical objectives. It’s like trying to build a house on shifting sands – without a solid foundation, progress is slow, and the risk of collapse is high.

The long-term consequences of the cost-efficiency bias are even more insidious. As experienced employees are let go, valuable institutional knowledge and expertise are lost, leaving the company with a less experienced and potentially less capable workforce. This instability can also make attracting and retaining top talent challenging, as potential employees may be wary of joining a company with a reputation for layoffs. Ultimately, this recruitment bias can erode a company’s capacity for innovation and ability to adapt to evolving market conditions, hindering its long-term growth and competitiveness.

These symptoms often suggest a deeper issue: a reliance on a fixed organisational blueprint that doesn’t allow for the flexibility needed to respond to changing market conditions. By adopting a more flexible model, such as incorporating open talent solutions, companies can better align their workforce with their strategic objectives, improve project completion rates, and create a more agile and responsive organisation.

Open talent as a solution

In a perfect world, we could all throw caution to the wind and spend whatever it took to get the best people we need. Alas, that’s not the life we’re living, and employers need realistic solutions. This is why I propose open talent – otherwise known as freelancers and independent contractors – as the solution to the cost-efficiency recruitment bias. 

While freelancers can offer significant cost savings compared to traditional employees, many companies still harbour misconceptions about the financial implications of engaging open talent. Some mistakenly believe that freelancers charge exorbitant rates, assuming that their fees automatically exceed the salary and benefits of a full-time employee. This misconception often stems from a need for more understanding about the diverse range of freelance rates and the value they bring to the table.

However, this couldn’t be further from the case; open talent can often be a more cost-effective solution than traditional hiring. While a freelancer’s hourly rate may seem high compared to a full-time employee, you must consider the additional costs associated with full-time staff. In Europe, the costs can vary significantly depending on the country, but all have one thing in common: they’re over the 50k mark. For instance, Eurodev estimates the total annual cost of a full-time employee in Ireland is around €66,630, while in France, it can reach a staggering €116,000. These variations are due to differences in labour laws, social security systems, and customary benefits packages across countries.

By leveraging open talent, companies can significantly reduce their labour costs by eliminating the expenses associated with recruitment, onboarding, and re-organisation hiccups. A further key advantage of open talent is its scalability. As projects need fluid growth, companies can easily adjust their workforce by bringing in freelancers when needed and scaling back when demand subsides. This flexibility allows for greater agility and adaptability to market changes, ensuring that resources are allocated efficiently.

But the benefits extend far beyond the immediate horizon. Companies can retain valuable intellectual capital by fostering a culture that embraces open talent, even as projects evolve and individual freelancers move on. This continuity, coupled with the flexibility to tap into specialised expertise as needed, creates a workforce capable of meeting strategic goals primed for long-term success.

Furthermore, integrating open talent sends a powerful signal to potential employees. It demonstrates a commitment to innovation and a willingness to embrace new ways of working – qualities that are highly attractive to today’s top talent. By fostering a more dynamic and inclusive work environment, companies can not only mitigate the risks of cost-efficiency recruitment bias but also position themselves as trailblazers for the future of work.

Implementing open talent strategies

So, how can companies shake off old prejudices and embrace the future of work? Drawing up an open talent plan begins with a strategic assessment. Start by identifying the areas within your organisation that would most benefit from fluid solutions vs. risky recruitment or HR development initiatives. These could be projects bound to organisational transformation and/or market impact, tasks requiring niche expertise, or initiatives that could benefit from a fresh perspective.

Once you’ve pinpointed these opportunities, it’s time to develop a sourcing and transformation strategy. This could involve partnering with platforms like Outvise, leveraging your professional network for recommendations, or attending industry events to connect with top talent.

Next, transparent processes should be established to ensure a smooth onboarding experience, effective collaboration and transparent performance evaluation. Finally, don’t underestimate the power of technology. Invest in platforms that facilitate communication, project management and payment processes for your open talent network. These tools can streamline workflows, enhance collaboration, and foster community among your team, regardless of location or employment status.

By leveraging open talent as a strategic asset and implementing these steps, your organisation can unlock a world of possibilities, achieving greater agility, cost-effectiveness, and access to a diverse pool of top-tier talent.

Invest in open talent

In the quest for sustainable growth and competitive advantage, businesses must transcend the confines of the cost-efficiency recruitment bias. The allure of short-term savings can be misleading, often overshadowing the long-term benefits of a dynamic and adaptable workforce.

By leveraging open talent, organisations can access a wealth of specialised skills on demand, scale their workforce to meet changing needs and cultivate a culture where creativity is a real growth driver. Freelancers and independent contractors bring fresh perspectives, diverse experiences, and a unique drive for success that can invigorate any team.

The cost-efficiency bias is not just a financial hurdle; it’s a mindset that can stifle innovation and limit your growth. By reimagining the workforce and embracing open talent’s possibilities, companies can build a more creative, responsive, and ultimately more successful organisation.

If you’re ready to explore the transformative potential of open talent, I invite you to learn more about Outvise’s platform. Outvise offers a curated network of top-tier freelancers and expert guidance to help you unlock the full potential of your workforce. Contact Outvise for a free consultation and discover how open talent can revolutionise your business.