This is Part 2 in my case study profiling the benchmark recruiting best practices and strategies of the Valero Energy Corporation. After a lengthy study that began in January of 2005, I have found it to be the most business-like recruiting functions I’ve come across and one of the best overall in the world. This part of the case study will cover their best practices in recruiting. Almost every area of business and management has undergone a dramatic transformation in the last few years. From supply chain management to six sigma to lean manufacturing to customer relationship management, areas of business that were traditionally run based on emotion and tradition have been transformed into business units run by logic and numbers. In essence, these functions transformed over the course of a few short years from being run like an art to being run like a science. HR in general ó and recruiting in particular ó are the last bastions of “run like an art” business functions. The primary difference between a function that is driven by science versus on driven by “art” is that the scientific approach allows a business or recruiting process to be repeated again and again with the exact same level of quality and results. As B.V. Cooper, the CEO of QVS International put it so well, “One of our most difficult tasks we face as retained executive search and management consulting professionals is getting our clients to understand that business is (or should be) a repeatable process!” In short, there is little room for the “free form” approach of an art inside a business structure that rewards repeatability of both costs and quality. Even research and development, the creative arm of business, uses more structure and process to sustain repeatability than most recruiting functions. I have found over the years that the reasons the recruiting function fails to become more disciplined, repeatable, and data driven include:
- Salespeople thrive in non-data based environments. Salespeople selling things that barely work can be successful because they claim that 1) most aspects of recruiting can’t be measured or 2) the fact that a lot of firms use something and have for years means that it is the best tool for producing results. Recruiting managers that buy products and services based on the fact that they sound good further exacerbate the problem..
- Tradition and experience wither rapidly in a scientific environment. Stating that a profession is really just an art allows experienced consultants and practitioners to appear as experts because there is no data collected to prove that their intuition or traditional ways of doing things just don’t work as well as modern statistics and management science.
- Business training makes you fact-based. Many professionals in recruiting and HR who lack business backgrounds and degrees in business still thrive because an art does not require business knowledge, profit and loss experience, or business tools. Some of the worst offenders here are academics and psychologists who, while trained in science and statistics, somehow fail to utilize them when they are pushing their personal agendas.
- Closed-minded people thrive in an emotion-driven field. In medieval times, when science was degraded and talked down, superstition and fear of the unknown thrived. Unfortunately for the profession, the same is currently true in much of HR and recruiting. I have found that those that are afraid of metrics and making data-based decisions are those with the most to lose when the “light” shines in on antiquated practices.
Yes, the same type of thinking that encouraged bloodletting, beliefs that the world was flat, of the idea that managers and leaders are “born not developed” has dominated recruiting for years. Unfortunately, not only is this way of thinking incorrect but it also leads to the underfunding and under-appreciation of recruiting. Valero Energy has led the way in showing what can be done. As a result, it is light-years ahead of running recruiting as a management science. One of the goals of this case study is to highlight some of the exceptional best practices that are being utilized at Valero. Through my research, I’ve been able to identify and list for you here the best practices of the Valero recruiting department. Best Practices Relating to Valero’s “Business of Recruiting” Strategy The approach taken by Valero recruiting is the approach that would be taken if an operating GM or a CFO were to run recruiting (in fact, a former CEO, Dan Hilbert, designed the system). They call their approach “the business of recruiting,” and that’s what makes it unique. Best practices of this approach include:
- Getting senior management’s attention by producing results worthy of the executive summary. As a result of an innovative talent pipeline system they developed, two pages related to advanced talent acquisition and development were included in the annual executive summary given to the Refinery Management Committee, the Executive Committee, and the Leadership Committee. Due to an overwhelmingly positive response, additional information on the plans and results of recruiting will likely be included in the annual shareholder report. Dan Hilbert’s response to that high level of exposure is, “It’s a thrill and an honor for me to be able to help my company in a significant fashion. In fact it’s a rare honor.” Only FirstMerit bank has exceeded their effort in getting recognition at the shareholders meeting. This high-level exposure of Valero’s recruiting efforts is a clear indication that they have made a world-class business case for excellence in recruiting. Once executive management clearly saw that the future of the company was directly linked to the steady supply of trained labor, they took the lead in increasing the emphasis on recruiting, retention, and workforce planning. As Dan Hilbert succinctly put it, “Because Valero has exceptional senior-level management that understands business, once they see an issue, they assess the situation, then they ask for your ‘business’ solutions and take fast action.”
- Utilizing familiar pipeline and supply chain language to gain credibility. Most HR managers have difficulty getting the attention of senior managers. However, when Dan Hilbert began using the phrase, “the cost of labor” everything changed. The word “labor” is something senior-level managers and the board responded to immediately. They also rapidly accepted and understood the use of the term “labor supply pipeline” because as an oil company, they understand the value of pipelines and how to manage them effectively. The department’s goal was to create the awareness with executive management that staffing was vital to the continued and growing future dominance of the company. Once communication and trust was created with executive management, executive management began to drive key staffing initiatives.
- The widest array of business tools used anywhere in recruiting. There is literally no other recruiting function in the world that utilizes as many business and management tools in recruiting as Valero. Not only are they the leader, but they are so far ahead in applying such scientific management tools that it is difficult to identify who would be number two. Some of those tools include:
- Process mapping
- Process element time studies
- Process reengineering
- Root cause analysis
- Statistical trend analysis
- Supply/demand forecasting models
- Indexed performance metrics (a dependability index)
- Process diagnostic metrics
- Contingency planning and if-then models
- Management “heads up” alerts and smoke detectors (management alerts for processes producing results outside of bounds)
- Web-based mining technology using web-crawling, relevancy search, and ranking algorithms
- Recruitment system modeling
- ROI and productivity analysis
- External and internal benchmarks comparisons
- A sourcing channel report. Perhaps the most useful tool to outsiders of all of the best practices at Valero is their staffing report, something which everyone should copy. While many companies produce a variety of reports, the clarity of Valero’s sourcing channel report makes it incredibly easy to identify which sources are having a major impact on recruiting success. In fact, it was seeing a copy of the sourcing report that caused me to begin the process of identifying Valero as a best practice firm. The sourcing channel report is an excellent management decision tool. It allows you to identify problems based on costs, time, and quality factors. Because it’s an electronic report, you can sort all fields by any of the combination of:
- Fixed and variable costs and percentage of the recruiting budget consumed by each source
- Time to fill
- Quality of hire
- Source of candidate by all channels and categories by division, department, manager, location, salary range and position type.
The report allows recruiting managers to identify problems with vendors, sources, and advertising. Because Valero is constantly trying to improve every process, it is designing a report so that results can be tracked and identified down to the individual recruiter. Here’s an actual sample of the high-level report used at Valero.
- Getting off to a fast start using modeling and time studies. Almost immediately upon taking charge, Dan Hilbert immediately took a series of steps designed to send a message to senior management and his team that recruiting was to become a business-like function. The process of transforming recruiting from the traditional relationship model to a business model based on the highly successful supply chain business process began by mapping out each and every recruiting process. Valero was able to identify best practices and bottlenecks as well as identify the cost in management time (that it tried not to waste) involved in each. This is a common step in lean manufacturing, business process reengineering, and Six Sigma, but it has been quite rare in recruiting since the hiring boom of the last century. The initial goal of recruiting management was to offer new value-added solutions to management in order to gain their backing for more advanced systems and processes. Some of the leading-edge things that were done within the first six months of this process include:
- A comprehensive mapping of every existing process, system, relationship, and interdependency in order to identify what was occurring and the interrelationships between the processes.
- Time studies of all recruiter and administrative processes as the first step in reducing time to fill.
- The modeling of optimal best processes and best practices to serve as a foundation for the “rapidly adaptable staffing department infrastructure.”
- The assessment and mapping of all technology investments and components to the labor supply chain (LSC) model, because technology is one of the primary foundations of the “business of recruiting” strategy.
- Rollout of the LSC model in a quiet, “Trojan Horse” fashion, piece-by-piece, based on manager requests over an 18-month period until the entire system was operational. This was done both to ensure that every component worked but also to avoid the resistance that often accompanies highly publicized change efforts in HR.
Workforce Planning Best Practices Workforce planning breaks new ground by integrating disparate elements like development program results, capital spending, and turnover projections. Even though Valero is #15 on the Fortune 500, it is still a rapidly growing company both in size and geographic scope. Because they utilize the supply chain “resource” model, they call their workforce plan a three-year labor map. The map is a major competitive weapon (yes, they talk in warlike terms). By planning ahead and tracking the market and what competitors might do, Valero recruiting maintains its role as a competitive advantage for the company. Valero uses a three-year forward-looking workforce planning model that includes these key elements.
- Capital projects and their projected hiring needs at least three years out
- Turnover and retention projections
- The output of employee and leadership development efforts
Valero calls workforce planning their “Mega Weapon” because it provides predictive, precision forecasting. This is in direct contrast to most workforce planning, which is simple straight line, historically based constant growth rate forecasting. Their precision forecasting model is used to provide a major talent competitive advantage over other energy firms. It enables Valero to uniquely know exact labor needs and develop labor supply chains, training programs, and succession plans for at least three years in advance. The most interesting of components their workforce planning process include:
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- Predictive “needs” analysis. This analysis proactively maps precise labor needs by location, department, position, and skill set yearly, for up to seven years in advance, and up to three years for which they claim near “pinpoint” accuracy.
- Labor supply chain model to instantly scale recruiting supply channels. Valero’s LSC system provides the technology and departmental business infrastructure to rapidly adapt and scale recruiting supply channels and targets to meet changing business conditions, objectives, and competitive threats.
- Utilizing trend line analysis for aging workforce issues and projecting employee retirements. One important element of the workforce planning effort is projecting employee retirements in order to help the operating officers of refineries and other business units identify the potential impact of upcoming high-volume retirements. A trend analysis (statistical regression) was conducted by location and by skill set. This analysis and the resulting report produced a trend line, which allows managers to identify future vacancies for both replacement purposes and knowledge capture before retirement. The analysis covered over 25,000 records. The importance of this analysis can be highlighted by this quote from the manager for employment: “If the retirement event occurs at a fraction of the magnitude that it has the potential to do, it is going to mandate a significant change. We have lived through 1% to 5% rates of retirement, but we’re now looking at 20% for an entire industry. When our executives saw the impact, they were stunned. They don’t care what it is called, they just want you to have a system in place to mitigate it. Our people understood pipelines, so we put everything in those terms.” The analysis was so impactful that it almost overnight removed staffing from “the basement.”
An additional paradigm shift will occur when the integration of these three systems is complete in the next 12 months. When fully operational, managers will be able to feed the predictive front-end information from the predictive needs analysis system directly into the labor supply chain process. The result will be a system that will be able to deliver global labor on demand. Such a predictive program will allow HR to design decision and succession plans and their related development programs years in advance of their actual need. Technology Best Practices The technology that is utilized at Valero is both exciting and frightening, depending on your ability to produce results. For example, if you are the best third-party vendor on the planet and your results are clearly demonstrated in the quality of hire, a fast reaction time, and a high rate of dependability, you will view Valero’s vendor dependability index and the vendor management system as a godsend. However, if you are one of the large mass of vendors that depends almost exclusively on building relationships to attract and retain clients, you’re in for a hell of a shock. Although using metrics systems to assess suppliers is a decade old practice in supply chain management, Valero is one of the first to apply it to the talent supply chain. Under this system, only cold hard performance, assessed strictly by the numbers, will have any impact on whether a vendor or source gets repeat business. What makes the system even more amazing is that it treats both internal and external sources of labor as essentially the same, in that one source is only favored over the other if it routinely produces better results. This equal treatment of the different sources of labor is also used by Microsoft to ensure that knowledge is transferred from vendors and other temporary sources of labor. Incidentally, the equal treatment process acts as a double-edged sword. Not only does it demand that outside sources of labor meet extremely high objective standards, but it also has the net effect of putting pressure on the managers of internal sources of labor (promotions, referrals, and hires as a result of centralized recruiting) to continually improve and maintain superior results over external sources. Theoretically, the recruiting department could essentially outsource itself completely if it continuously over time failed to exceed the performance of external vendors. Some of the best technology practices at Valero include:
- A Vendor Dependability Index that breaks new ground in metrics. Because there is little margin for error in recruiting, Valero developed a vendor dependability index in order to insure a consistent, high quality product. Each new recruiting or sourcing project is given a risk factor and every supplier or vendor is ranked using a dependability index. When critical high-risk projects come in, only vendors with high dependability index scores are allowed to work on the project.
- An automated vendor manager system and manager self service. This one-of-a-kind system automatically pushes positions and labor needs to the top performing suppliers of labor. The selection process is based on historical performance metrics (labor type, job characteristics, speed, cost, quality and dependability). Although the system is complex, it has produced excellent results. It is an integrated, user-definable, manager self-service system. It assures that top candidates are continuously being supplied, screened (twice weekly), and pushed to mangers immediately for review. Recruiting and the vendor management system guarantees an amazing 24-hour response time to every manager request that is related to applicant information, interview logistical arrangements, testing, job offers, and onboarding. In addition, the integrated VMS/MSS provides a continuous and immediate feedback loop from hiring managers to all suppliers of labor. This feedback loop helps enable all vendors and suppliers to continually improve.
- Online candidate assessment and candidate matching includes parsing, indexing, and fuzzy logic ranking. Valero is attempting to increase candidate quality and reduce the time that managers must spend on screening candidates. As a result, they have, in cooperation with the O.D. department, developed advanced pre-screening questionnaires that potential candidates complete online. This is an extremely advanced system that utilizes parsing, extraction, indexing, and fuzzy logic ranking technology combined with quantifiable skill level candidate mining. A lot of big words, but in essence they are utilizing technology to quickly and cheaply improve candidate quality as well as to assure that the top candidates that are selected are not just skilled but also best suited to the company and the individual department’s culture and needs. Other screening elements that are included in order to improve the quality of candidates include:
- Online behavioral and competency profiling
- Skills testing and hands-on simulations
- Behavioral profiling to assess the top candidates for most exempt-level positions
- Behavioral interviewing (their OD group built a powerful system that generates interview questions based on a recruiter’s or manager’s defined competency list, which by the way uses many of Lou Adler’s basic structured interviewing techniques)
- Post-interview assessment plans
Valero is obviously trying to transition pre-screening into a science. They have found that when pre-screens are fine tuned, it enables their recruiters to attract hundreds of candidates to a given job without having to physically review thousands of resumes. Utilizing an effective pre-screen means that technology does the work that normally required hours of recruiter reading time. Automation allows the cream-of-the-crop to rise to the top and the recruiters can maintain high recruiting efficiency. This case study on the incredible recruiting practices of Valero continues next week in Part 3.