This is a case study profiling the benchmark recruiting best practices and strategies of the Valero Energy Corporation. After a lengthy study, I have found it to be the most business-like recruiting function and one of the best overall in the world. Valero’s comprehensive utilization of a “talent pipeline” model, which was borrowed from a business supply chain approach, is truly revolutionary. This part of my case study covers their metrics and business results.
Valero’s Metrics and Measurement Systems Valero’s business of recruiting approach is revolutionary because it is almost 100% metrics driven. Valero utilizes the widest variety of recruiting-related metrics of any corporation I have encountered. The importance of metrics to Valero’s recruiting approach can be seen in the following quotation from its manager of recruiting, Dan Hilbert:
I’m a fanatic about constantly monitoring the performance and health of all systems and key processes. Metrics, analytics, and indices are the language of system monitoring. In the ’90s I worked for software companies that designed systems to monitor the speed, availability, and performance of computer operating systems and networks. I know the huge business advantage for companies that have high performance, highly available, fast, dependable and adaptable computer systems and networks. I am sure the same applies to staffing departments, and this needs to be applied at both the macro and micro levels.
Some of the key metrics utilized by Valero’s recruiting department include:
- Quality of hire measures. The newest version of Valero’s sourcing report includes quality of hire (“QoH”). At this time, they measure QoH as 12-month trailing turnover by sourcing channel and labor supplier. Next year, when their talent management software suite is integrated with their ATS, they expect to have a direct tie to employee performance appraisals, which will help in improving the quality of hire measures.
- Brand. Formulas measure the value of the employment brand by calculating the cost savings of positions filled via the corporate web page, community referrals, and TV ads (non-employment related). This is the benchmark “employment brand” data against which other divisions or company’s employment brand are compared. Valero uses the “Watson Wyatt Loyalty and Productivity Survey” to assess its internal brand.
- Service level agreements. The Valero team designed and implemented a service level agreement for hiring managers (a service level agreement at Valero is a written document that specifies promises made to hiring managers by recruiters to perform at a certain level in exchange for a specified level of cooperation). The goals of the SLA is to clarify a manager’s needs and to improve service to hiring managers.
- Real-time, system-wide performance monitoring of the entire labor supply chain at both macro and micro levels. Management-defined optimal parameters are used to monitor recruiting productivity, efficiency, quality, cost and speed. Macro-level metrics and indices are used to monitor system performance and to forecast and analyze trends. Micro-level metrics are used for root cause problem determination and optimal tuning of the labor supply chain.
- External labor supplier effectiveness. Valero measures cost, time, quality, efficiency, and dependability for every one of its labor suppliers and for every type of labor: full-time employees, temporary employees, contract labor, outsource labor and alternate labor types.
- Internal source effectiveness. Valero measures every internal sourcing channel by cost, time, quality, efficiency and dependability.
- Recruiter time effectiveness. Valero monitors each recruiter’s time spent on each of the six steps of the defined recruiting processes. A recruiter’s time is measured overall by time periods (i.e. week, month, quarter, year) as well as by individual job whenever a defined acceptable parameter is not being met. To ensure optimal performance of its own internal staffing department, Valero reports the time each recruiter and admin spends in accomplishing each of the modeled recruiting processes in a green (optimal), yellow (warning), red (outside of acceptable parameters) monitoring analogy.
- Process time. Valero is unique in that it makes an effort to measure the time that both recruiters and managers actually spend on each phase of recruiting. This micro-level metric times each stage of process and quantifies the cost of management time spent on recruiting-related activities.
- Recruiter requisition load. Valero’s average recruiter requisition load through Q2 of 2005 was 8.4 positions per recruiter at an average salary of $68,040. This is increasing as a result of organizational growth, resulting in a workload increase of nearly 400%. The average recruiter requisition load in Q3 was 14.1 positions per recruiter at an average salary of $70,128. Despite a dramatic uptick in workload, time to fill has been reduced by 55%. In addition to managing an assigned requisition load, each recruiter is also responsible for managing at least one major special project, such as acquisition support, refinery support, the college intern program, or the new hire orientation program.
- Recruiting efficiency. Valero utilizes the Staffing.org recruiting effectiveness measure (which is superior to the ubiquitous cost per hire). This metric is derived by dividing total recruiting costs by the total compensation of all positions filled.
- Color-coded alerts for managers. Valero produces world-class staffing reports. One of the most practical features is that they color code factors in their reports that allow managers to easily and quickly identify strengths and weaknesses. Green is used for optimal, yellow for a warning, and red for immediate root cause problem determination and repair.
- Requisition risk factor. Each requisition has a risk factor assigned to it. This risk factor is utilized to help determine what vendor or source to use.
- Measurement of sourcing channels. Valero refers to its sourcing channels as “labor suppliers,” and measures each according to the following criteria:
- Percentage of budget
- Percentage of applicants
- Percentage of positions filled
- Quality (trailing 12-month turnover)
- Labor supplier dependability index
- Average salary of position filled
A spreadsheet that Valero developed provides trend analysis of the individual sourcing channels. They also monitor each of their internal recruiters on the above metrics and break down their costs into fixed and variable.
- Reporting to senior management. At the request of senior-level leaders, including the VP of HR, Valero recruiting develops monthly, quarterly, yearly, and trend data reports on:
- Efficiency, both fixed and variable
- Trailing twelve month turnover
- All turnover, whether voluntary or term
- Average salary of positions filled
- Forecasted data. Valero now provides forecasted data in these areas:
- Predictive turnover by division, department, group, title, location, and salary
- Actual retirement eligibility by the same criteria
- Forecasted retirement eligibility by the same criteria each year for the next three years
Other metrics Valero uses include:
- Overall average cost per hire
- Overall average time to start
- Overall average closing percentage
- Overall average new-hire first-year turnover
- Effectiveness of any new advertising campaigns over time
- Core industry benchmarks
Results Produced by the Valero Recruiting Team
Having unique practices isn’t enough in recruiting; those practices must give you a competitive advantage and produce significant results as well as a positive ROI. Some of the quantitative and qualitative results produced at Valero include:
- Revenue generation: Valero does not make any direct profit for the firm by selling surplus candidates. Interestingly enough though, they do frequently and actively provide candidates to non-profit organizations.
- Brand value: The recruiting department estimates that the Valero brand for 2004 saved $4,309,005 in recruiting costs.
- Cost per hire: The variable cost-per-hire is $1,502.
- Third-party costs: Third-party labor supply firms filled only 12% of Valero’s positions. Unfortunately, this accounted for nearly 80% of the variable recruiting costs.
- Internal recognition: Although recruiting management would not comment on internal recognition they’ve received, it appears that they have received praise from HR leadership, senior refinery management, the CIO, and the president, among others. Initially, recruiting was driven by efficiency and cost, but now their emphasis is shifting toward quality measures. One indication of the quality of recruiting function’s staff and the value of its “business approach” is a 120% promotion rate in the recruiting group, 80% of whom have been promoted outside the recruiting group.
- Sources: Employee referrals are Valero’s leading source of successful new hires and the number one supplier of labor. Employee referrals now account for 32% of all FTE positions filled. Valero’s goal is to reach 50% by 2007. The least effective single sourcing channel is career fairs.
- Turnover: Turnover rates are generally below 4% for non-retail positions, and involuntary turnover is generally less than 1%.
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- Valero transformed a heavily administrative department during a period of 250% compound annual growth into one of the most advanced in the industry.
- They implemented a fully functional global labor-supply chain to address usage of new labor pools in India, China, Asia, South America, and former Soviet states that is agile, adaptable, rapidly scalable and cost effective.
- They implemented system-wide performance monitoring to elevate the usage of metrics to the level used by mission critical business systems and to provide management metrics enabling senior executives to direct staffing initiatives and monitor effectiveness of those initiatives. This also enables the entire staffing system to be a system built upon continuous improvement.
- Two pages related to advanced talent acquisition and development were included in the annual executive summary and will likely be included in the annual shareholder report.
Note: Internal staffing department brand is so strong that they achieved all of these staffing department results and business objectives while still experiencing 80% turnover in the recruiting department due to promotions.
Future Plans at Valero
“When people ask me what my goals are for our staffing department,” says Dan Hilbert, “the answer is, ‘It’s simply to be the best staffing department on earth.'” The above statement reflects a goal that Dan Hilbert has almost achieved. However, the Valero team is not resting on its laurels and has plans in mind to further “raise the bar.” Some of the things that they are now developing or proposing at the time of the conclusion of this case study (October 2005) include:
- Knowledge transfer from various external labor sources. Valero is attacking head on one of the largest drawbacks to using external contract, temporary, and vendor-derived labor sources: the capture and retention of the knowledge gained by these sources while working on Valero projects. Microsoft and TVA have made some major progress in these areas, and the Valero approach is right in line with their efforts. They are planning a full implementation of the knowledge expert transfer system because knowledge capture and transfer will be critical with the large volume of retirements that they will soon begin experiencing. Valero is also currently planning the development of centralized repositories of mapped best processes, best practices, and white papers, as well as increased capabilities for online compressed learning classes and simulations.
- Globalization. Valero’s current labor pipeline system works extremely well, but it needs to be expanded so that it works equally well throughout the wide range of Valero operations. Full virtual, international implementation of the labor supply chain model is next on the agenda for the Valero team.
- Integration with succession planning. Valero is currently working on integrating the workforce needs prediction system with the new succession planning system.
- Employee referrals. Valero has a good internal referral program that is strongly supported by both the president and the HR communications group, but they are not content with the output of the current model. Their goal is to increase employee referrals to over 50% (which is the minimum benchmark standard for world-class referral programs).
- Employment branding. Valero’s internal employment brand is extremely strong. The entire Valero culture, benefit, policy and compensation packages are designed to let employees know that they are truly the company’s most valuable asset. The company does an excellent job of constantly marketing this message to its employees. Employee loyalty and attitude at Valero are extremely high, while turnover is extremely low. In direct contrast, their external employment brand is, to be kind, below average. To help address that issue they have started an employment branding committee and hired a marketing specialist into the staffing group. They are currently planning a new PR and branding campaign. When their new employment branding campaign is launched, its effects will be tracked both by external channel and by user defined time period. The metrics for the branding program will include monitoring changes in positions filled, time to fill, costs, and quality of applicant (the latter will be an aged report). Branding, PR, and corporate image enhancement gains are also expected to be achieved as a result of the development of the following dedicated, yet integrated web portals: External applicant, college intern, employee, vendor management, internal knowledge expert, acquisition, key talent, and refinery management talent exchange.
- Targeted retention. Valero is currently developing a customized retention program for key employees, which, if successful, will allow them to focus their limited resources on retaining key people and individuals in key jobs.
- College relations. Valero is currently developing a dedicated portal for college interns. Valero is also developing scholarship and developmental program beginning at the high school level, as well as joint partnership academic development programs with major colleges throughout the Southwest.
- Future planning. Valero’s entire staffing team currently meets twice yearly to analyze and brainstorm new processes, systems, and technologies. But they’re never satisfied: once they complete their current goals, they are already planning an offsite with a select group of vendors and consultants to asses advanced technologies, processes and systems.
- Outsourcing and offshoring. Currently the recruitment function manages both temp labor and contract labor. But recruiting management has set as its goal to expand the capabilities of the labor supply chain by having the staffing department become experts in outsourcing and offshoring. The goal here is to create a “one-stop shop” for all labor needs.
- Centers of excellence. Valero is planning for the creation of virtual centers of excellence whose focus is to analyze, research, and develop best practices to be pushed out to the plants, departments, and employees.
- Execution. Even though the technology they utilize is world class, Valero’s recruiting manager is also planning to continually improve day-to-day execution of service levels, quality control, and responsiveness. This is necessary because strategic plans gain little praise when “the trains don’t run on time.” Valero is planning to excel in these service areas to make sure they create further distance between themselves and their competitors. The basic premise is that as the participants become experts, they will then take these systems and processes to the next level of execution and strategy.
- Vendor performance management. Although the current system is best in class, Valero is still planning improvements in its labor supply chain performance management system to better evaluate the best suppliers at providing the highest quality of candidate per labor type. Their target for next year is a 15% improvement in service level agreements.
Next week, in Part 5, we’ll look at forecasts, challenges, and the conclusion to this case.