Trust me – I understand. Outside of many self-flagellating Quants bent on analytical misery, financial metrics cause most Recruiters and Sourcers to run for the hills. But have no fear – what we’re about to talk about is not nearly as dreadful as CAPM, and if you are even familiar with the term, I feel your pain! Consider for a moment the concept of EBITDA (“Earnings before Interest, Taxes, Depreciation, and Amortization”). Keeping it simple, EBITDA is Revenue (the “Top Line”) minus Expenses, excluding the ITDA pieces.
As we begin to break EBITDA down from business unit (SBU) to business unit, product line to product line, or even customer segment to customer segment, we begin to see significant deviations. Let’s say a company has 5 products or services they sell – well, it stands to reason that there will be a most profitable product or service, and of course, a least profitable. In the same light, consider that a company may have several target markets as well, with some being Angel-segments (value-creating) and others being Demon-segments (value-destroying). The point is this — EBITDA forces us to look beyond just Revenue because we must account for costs and expenses. Consider the following chart:
EBITDA per Employee
[Notes: If we only took into account Revenue, ‘Product C’ would win out by a landslide. However, when viewing EBITDA and ‘EBITDA per Employee’, we see that the same Product C is the weakest performer of the company, notwithstanding the negative growth rate. Needless to say, this likely represents a product line that the company is divesting (a “Dog”; no pun intended.) Now consider ‘Service D’ – based on Revenue figures alone, this service only accounts for the 4th highest figure. However, upon viewing the EBITDA and ‘EBITDA per Employee’, it is easy to see that this service is a “Cash Cow” to be milked and harvested. Also consider ‘Service E’ – a growth rate of 40% isn’t too shabby, and despite lowest total EBITDA, the ‘EBITDA per Employee’ is relatively strong. As you can see, a deeper dive of the data (in this case, financial figures) is often necessary if we want to see the whole picture.]
So why should EBITDA be an extremely important metric to a Recruiting/Sourcing Strategist or Leader? The answer to this question is relatively straightforward: Because it’s your responsibility to allocate your resources where there is going to be the greatest impact given your organization’s short and long-term objectives. Could you establish Sourcing and Talent Acquisition initiatives focus on these areas that create the most value for your organization? Sure, you could . . . and if you are audacious enough to view each investment in mutually exclusive fashion, you’ll be one step closer to speaking the Klingon-like language of Finance.
I would be willing to wager that from an organizational strategy standpoint, your firm likely understands which products, services, business units, and customer segments create the most value. This is the essence of Product Portfolio Theory, the BCG Matrix, and/or the GE-McKinsey Matrix (likely common concepts to those competing with you for internal capital). In addition, it is relatively simple to break down which roles support each of the most value-creating entities. However, what I often run into are Sourcing Leaders that are supporting roles and job families of lesser strategic value (and when I mean ‘lesser’, I literally mean lower EBITDA or ‘EBITDA per employee’). As you can imagine, reactively supporting those requisitions and roles which historically generate the most ‘noise’ from hiring managers is only strategic in terms of one thing — stress reduction!
As you break down your Sourcing and Talent Acquisition initiatives into a language that those with budgeting authority can understand, you significantly increase the probability that they will not only grasp where you are coming from, but you’ll reinforce your seat at the table as a true strategic partner . . . and in the meanwhile, you’ll be that much closer to “getting your money” despite intense internal competition for the same scarce resource. After all, what could be more strategically important to your organization’s future success than ensuring you have the best talent in and around where you create the most value in the market?
Josh Letourneau is the owner of Knight & Bishop, an Executive Search and Human Capital Intelligence firm, with an emerging focus on Social Network Analysis (SNA). Nope, not like MySpace, but more like who is connected to whom in organizations and how does that impact their influence on decision making and P.O.V.s. And you can learn more about all of this on his new blog .