Capacity planning: a recruiting leader’s reframing
July 8, 2022
Recently, I wrote a letter to the industry about how it’s in recruiting’s best interest to remain a strategic function, even in the midst of a downturn. That letter advocated for seeing this moment in the market as an opportunity to do the things that will set recruiting up to be an even stronger partner to the business when hiring ramps up again. (And hiring will ramp up again.) One of those things was revisiting how teams think about recruiting headcount and creating a more accurate capacity model. I want to drill down on that a little here, because it’s one of the more important ways talent acquisition can be spending its time right now. After all, it could mark the end of a vicious cycle that, if you’re in talent acquisition, you probably know too well.
A typical headcount forecast starts in Q3, is finished in Q4, and is finalized in Q1. Which means that recruiting teams—who are sometimes the last to know when the final forecast is approved by the board—don’t start responding to that forecast until sometime in the middle of Q1. This puts them two months behind target—assuming they’re properly resourced. In many cases, however, recruiting needs to add hires in order to deliver on that forecast; and it takes on average 45 days to find and hire a new resource, and 90 days before they start adding incremental value. In other words, the team might not be fully ramped until the middle of Q2, leaving them 7 or 8 months to make a year’s worth of hires.
The majority of companies don’t take this cycle into consideration. And even if they are considering recruiting capacity, they’ll say: Oh, your capacity model says you can hire 100 people, but we need 150. So we’ll just give you the budget and resources to figure out how to hire those extra 50 folks. Nearly always, the intended forecast is the priority, and resourcing for recruiting is secondary. So recruiting is perpetually in a deficit because the business doesn’t account for the time it takes to ramp new resources. The double-whammy? Most companies frontload their hiring—go-to-market roles, for example, impact the annual revenue forecast; so the business needs those hires earlier in the year. And in the typical model I just described, recruiting doesn’t have full capacity until the second half of the year.
The lack of appreciation for capacity models that deliver real-world predictability around when those resources will come online (again, typically H2) has real consequences. Partway through the year, managers find they’re behind on projects that increase efficiency—automation, for example—because they don’t have the headcount. The “quick fix” is to make a hard pivot to supplement what they can’t deliver against efficiency or revenue goals. In a former organization we had an automation project that was under-resourced for over two years because every time we hired engineers, they got put onto projects otherthan the automation that would support our user base. The business supplemented by hiring 30, 40, 100 additional customer service representatives—headcount we wouldn’t have required had the automation work been done. The net result, ultimately, was redundant resources on the customer support side of the house. That’s a real-world example of the vicious cycle that happens without a predictive capacity model. You can probably imagine a similar example that would lead not only to layoffs but also to offer-rescinds.
At Gem, we’ve watched other companies spin through this cycle over and over again, and we want to offer another model in response. It’s a model we’re employing here; and it entails sophisticating your capacity models, being exceedingly thoughtful about headcount so that a “growth-at-all-costs” mentality never leads to layoffs or offer-rescinds, and having a direct partnership with Finance so you can respond to demand. Ultimately, what I want talent acquisition leaders to come away with is this: while you have the time and space in this downturn, make your recruiting capacity model so accurate that you know what your ceiling is for hiring. So when the business comes to you and says, We need you to hire 150, and you’re like, My model shows that I can only hire 100, you have the data and specificity to bolster you. This is turning the paradigm on its head: a capacity model comes first, and the headcount forecast follows.
Here’s how I recommend you go about it:
Building an accurate capacity model
Most recruiting organizations lack sophistication in their capacity models for two reasons: they’ve had insufficient or unreliable data, and they haven’t had enough time to get granular. At most, teams split roles into “tech” and “non-tech,” and that’s as granular as they get. That’s a directionally-correct model, but it isn’t accurate. That first obstacle—insufficient data—is solved for by Gem; though all teams have the data, they just need to aggregate and wield it. And in this period of economic slowdown, most teams have the time to do precisely that.
Before Gem, there was no tool that tracked hiring throughput by requisition. Gem tracks passthrough rates and forecasts how many hires you can make given historic throughput—data you can slice by everything from hiring manager, to recruiter, to department, to role. But even if you don’t have Gem, people in your organization have this data; you only need to sit down and put in the work to build a model that allows for more than directionally-correct capacity output. It requires getting all hands on deck—every recruiting leader creates their own model with their own percentages of deviation. All of that goes into a kind of algorithmic soup, and the org can ultimately present a number that gets more accurate over time.
At a high level, the formula is this: historic passthrough rates by recruiting resource by talent vertical gives you an average output of hiring by resource. Without Gem, it might be unreasonable to do output models by something as granular as role; but you can group them into talent verticals that give you more accurate predictability: engineering, product, design, accounting. Of course, the hiring velocity of early-career engineers is different than it is for senior engineers, directors, or VPs. Get granular without getting too mired in the details. You might realize that, while accounting is a different beast than FP&A, the output for the G&A org is similar: maybe one recruiter can effect 3-4 hires a month. So merge the roles that are similar in a given department or category in your capacity plan. From there, let the machine learn.
A capacity model is like a machine learning algorithm. The more we impute, the more we show output, the smarter it gets. Over time, you’ll get to a level of accuracy that’s within plus-or-minus 10%. Of course, a variety of factors will impact offer acceptance in any given quarter: regional strategy, announcing that you’re preparing for an IPO, negative PR. All of that goes into a machine that’s constantly evolving… but you have to start the machine somewhere.
Partnering with the business to prioritize roles
The second part of this reframing entails closely partnering with business leaders and Finance to make recruiting capacity an input into headcount forecasts, rather than a reaction to it. Finance should know what your capacity ceiling is. And if there are critical roles that exceed recruiting’s capacity, come to an agreed understanding that it could take upwards of 135 days before that incremental value gets delivered. That’s the new part of this formula: an agreement about when incremental value will play out. It will and should trigger a prioritization exercise that has real limits, not just hand-waved ones.
Until now, prioritization has been a thought exercise. At my previous employer, I’d sit in front of engineering leaders and tell them I couldn’t deliver against a number, and they’d say, What do you mean? I can get as many headcount as I want. And the reality is, they were right. We figured out how to deliver every time. But we’ve just come out of the longest bull market we’ve ever seen. And as a result, a lot of companies are now laying off where they have redundancies and rescinding offers-extended—a gut-wrenching betrayal of trust for recruiters who’ve spent their careers building and nurturing candidate relationships. Prioritization is no longer a thought exercise; businesses have to make real trade-offs around what projects they’re willing to put on pause, what revenue they decide not to pursue. Business leaders, this is a time to be very specific about how you plan to grow the organization. And prioritization is an essential part of that specificity.
Every leader is making commitments to the business about what they’re going to deliver, typically without any insight into recruiting capacity. Nobody has told them, Actually, recruiting can only deliver half of that, so how would you re-vision the other half? We all know what results: suddenly hiring managers don’t have the headcount they anticipated; they can’t deliver the critical projects or critical revenue. Recruiting is working double-time, and process efficiency and diversity models get thrown to the wayside. By the end of the year, the organization is burnt out. But they’re in a vicious circle, so it’s rinse-and-repeat all over again.
There’s a better way to do this, and it looks like this: before officially confirming headcount asks with Finance for the new year, the hiring manager shares their hiring plan with recruiting. Recruiting inputs that information and says, I hear that you want five more people on your team; my team is set up right now to deliver two. I’ll have additional capacity in three months, so which two heads do you want to prioritize for Q1? Then, work closely with the hiring manager to predict when the other three hires will land, and use that prediction model to update their project or revenue plans. This is a much more productive conversation than the hiring manager coming to you at the end of Q1 and saying, Hey, you’ve only delivered two heads this quarter. Where are the other three? Now we need additional headcount in these other areas to supplement our unfinished projects—headcount that will shortly be redundant, but that’s critical now.
Synchronizing workforce planning and recruiting capacity models
I’d also like to offer a new way for organizations to think about headcount and workforce planning. I’ve been suggesting that headcount planning should be directly aligned with the recruiting team’s output—not the other way around. I also realize that, in times of growth, it’s not always predictable which areas organizations will suddenly need to grow to take advantage of an unplanned opportunity to gain more market share or customers. So the challenge is: can TA and HR build sophisticated and symbiotic workforce planning and recruiting capacity systems that deliver against the needs of the business both in the short-term and the long-term? Specifically, can you balance hiring and org planning that delivers against the company’s ‘value creation’ initiatives while not diluting the output of the machine that’s delivering against ‘value preservation’ initiatives?
Here’s what I mean by “diluting.” Periods of high growth often result in hard pivots, resulting in a jostling effect for recruiting. At the beginning of the year, initiative A (let’s call it a value preservation project) may be the most important thing the business could be doing; by mid-year, initiative Y (value creation) has usurped its place. And because recruiting teams don’t have the resources to support both initiatives, they have to cannibalize A to deliver on Y. By Q3, when the business is wondering how initiative A is going, managers are like: I haven’t had recruiting resources; it’s not going well. In response, recruiting is told it needs more resources because it has to effectively support both—or suddenly A is “the most important initiative” again because it’s so far behind. And there’s another hard pivot—without an appreciation of what that scramble does to the recruiting team.
Add to this that what tends to get overlooked in high growth is span of control. When a team reaches a certain size it needs a manager, a director, a senior director. Otherwise it breaks down, since no one’s in place to think about overarching strategy, to keep an eye on the big picture. But in hypergrowth organizations, hiring managers are so busy plugging holes in the dam that they lose sight of the structure of the dam itself. Suddenly someone has 17 direct reports, and HR steps in and says, This is unreasonable. In response maybe the company over-pivots and starts creating redundant leadership roles. Or maybe they say, This doesn’t have to be a team of 17; it can be half of that. Either way, what happens sooner or later is layoffs due to redundancy or ‘bloated’ organizations.
Granted, many large organizations now have sophisticated workforce planning teams. They’re experienced practitioners in organizational design; they have access to tools that automate thinking around things like span of control. But most companies don’t have that resource in-house; they don’t have enough HR business partners to keep an eye on this. It’s why a lot of additional mid-year headcount tends to be for leadership roles.
A synchronized capacity planning and workforce planning model safeguards against both of these scenarios. If the leadership organization decides that initiative A is no longer paramount—or if it determines that both initiatives are indeed critical—that’s TA’s opportunity to work the model it’s created. Recruiting may say, Well, our capacity is only built to deliver 18 hires. All of them were going to initiative A. Let’s look and see what the common roles are between initiatives A and Y, and we’ll respond to you about how we can divvy up our current capacity. We’ll also respond to you about what date we think we can close the gap, so initiative Y can have a more confident project plan when it comes to timing of deliverables. And when HR says, Hey, this person will have a team of 17 direct reports with these incremental hires; we need to hire three more leaders, recruiting can respond with an accurate forecast on when those leaders could be hired by. This gives both the HRBP and the organization leader a way to prioritize specific leadership hires so the organization can grow in concert with the organizational design strategy.
Ultimately this leads to better organization planning, clear project timelines, and visibility into how each project is resourced, which allows for real-time tradeoff decisions on each initiative. It also avoids the inevitable cost-cutting measures that are almost always reactionary—leading to layoffs or rescinded offers.
Encouraging the business to reconsider its planning cycle
Finally, I’d like to address the question of timing when it comes to planning cycles. As I said earlier, a lot of roles are directly tied to revenue. Those are resources the business needs at the beginning of the year. So as much as I want to say please don’t frontload all your hiring, I understand the need to frontload because that’s a calculation into the revenue goal.
The question is: why not start that process in June, then? I ask this as a recruiting leader, not a go-to-market leader; so I don’t know what other triggers there are, how much is contingent upon deliverables for the remainder of this year, what sort of nimbleness a go-to-market team demands. But what I do know is that I don’t reduce my staff that supports go-to-market every year. We don’t hire and fire recruiters, because it’s always easier to slow down hiring than it is to ramp up from a deficit. They take up projects; they backfill for attrition; they’re improving processes. There are always plenty of projects that will keep a recruiting team engaged. Smart talent leaders leverage RPOs and agencies during ramp times, so you can always build downside protection into your contingent staff models.
The point is that I know what my average hiring output will be going into next year—and I know it right now, in June. Likely you do, too. So why not go to those leaders and say, Hey, it looks like our current hiring capacity can deliver X amount of hires next year. Will you need more than that to meet your projected revenue goals? If the answer is yes, let’s have a discussion now around how to increase recruiting resources toward the end of Q4, so we’re fully ramped by Q1 and can support your frontloading.
What I’m saying is: start using mid-year to think about next year, not to reengineer the remainder of this year. Over the last 12 years during the bull market, the mid-year conversation has gone: It looks like we’re hitting our targets for the year. Now how do we get recruiting to deliver even more? Mid-year used to be the moment businesses said: We didn’t plan well; we didn’t know recruiting was going to hit these targets; let’s increase those targets now.
Of course, that growth-at-all-costs era is subsiding. But what I’m suggesting is: mid-year, stop touching those targets. They’ve already been agreed upon; let’s think about next year instead. I say this realizing that talent acquisition can’t exactly tell the business how to grow, and teams will figure out how to hire that headcount if they need to. But this mid-year exercise may be a meaningful experiment for organizations that need to frontload their hiring. Begin the process in June. Have some conclusions by August. That gives the recruiting org 45 days to find and add resources, and 90 days to ramp and add incremental value. By January, the team is ready to roll, no one is playing catch up… and you’ve finally abandoned the vicious cycle.
Ultimately this is a considerably better strategy than asking people to work harder or faster, where diversity and quality-of-hire get pushed to the wayside. For many years, as the business increased its ask in H2, I sat with recruiters who were in tears because they’d had no time to focus on themselves—and they weren’t about to have the time the next year, either. This isn’t sustainable. Time for skills development, craft mastery, self-focus, and rest all enhance the recruiting profession, just as they do in any other profession. It simply makes better recruiters who deliver better results with stronger strategies. Any business should want to develop its recruiters into future leaders who understand how to run and operate a skillful TA organization. And ultimately, that’s one of the greatest consequences of getting capacity planning right.
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