Staff Overhaul Should you use the tight job market to replace mediocre employees?

Last year, Matt DeLine, founder and CEO of San Diego HotelReservations Inc., was hiring almost everyone who applied. Thescramble to fill jobs was insane: "There wasn't time evento do reference checks," he says. "It was a frustratingtime."

He wasn't alone: A Challenger, Gray & Christmas surveylast year found that three out of five small-business owners werehiring virtually anyone with a pulse-including underqualifiedworkers who affected the bottom line with poor customer service anddecreasing product quality. "[Employers] had to get theirorders out, so they hired people who weren't as productive andcouldn't do the job as well," says John Challenger, CEO ofChallenger, Gray & Christmas Inc., an international outsourcingand research firm in Chicago.

But as dotcoms continue to fail and larger companies restructurein a softer market, hot talent is suddenly pounding the pavement.For BIZ Experiencess in growth phases, it's like manna fromheaven. "Many employers now are breathing a sigh ofrelief," Challenger says. But temptation also forces a harddecision: Do I fire some employees to upgrade my work force whilethis hot talent is available?

You Are the Weakest Link

For DeLine, the decision was clear. Since last December, he hasalmost completely replaced his staff of 40. The effort to improvecustomer service, product development and sales paid off big in thefirst quarter of 2001: Phone volume was up 15 percent and Webreservations were up 450 percent over the prior year. Sales nowaverage $15 million. "No way is it too late to replacemediocrity [with] talented, smart people," says DeLine, 40."You can be a lot pickier now."

A year ago, Craig Schiff, 44, was more tolerant of lowperformers. But the founder and CEO of Stamford, Connecticut-basedtechnology company OutlookSoft is now receiving resumes from peoplecoming out of failed start-ups. Now he can be a "littleharsher" in evaluating the skills and productivity of his90-plus employees, and he's begun weeding outunderperformers.

"I can look around and say 'Are these the people whowill take us to the next level?' And if not, are some of theseresumes coming my way the ones that'll do it?" Schiffsays. The company is hiring aggressively in the sales and serviceareas, and annual sales are about $6 million.

The soft economy has left more quality people than positions insome cases, and applicants who would have been hired in a heartbeateven six months ago are going through multiple interviews andreference checks. "Placements that we used to flip in a coupleof days are taking weeks," says John Doffing, founder and CEOof StartUpAgent Inc., a San Francisco Internet talent search firm."Employers are waiting for the perfect person, rather than thealmost-perfect person."

When StartUpAgent recruited for a content manager position thisspring, it received nearly 500 resumes within a 72-hour period-allgreat applicants, says Doffing. "It epitomized to me howthings have come full circle. It's a great time for companiesto be hiring."

This pendulum shift has employees on edge. Where there was adegree of hubris, there's now "a new rationalism. Peopleare realizing how competitive it is," Doffing says. Employeeswho once knew that they were hard to replace are asking Schiffwhether he's happy with their job performance."They're very concerned with the market changes out there,and they want to stay here."

Goodbye!

Verne Harnish, CEO of Gazelles Inc., an executive and strategictraining consulting firm in Ashburn, Virginia, is advising hisclients to upgrade their work forces while they can and to get ridof their "just good enough" mentality toward employees."We hire too quick and let go too slow. A lot of BIZ Experiencessmake excuses for their people," he says. "But I'venever heard someone say they wished they'd moved slower onreplacing an average performer."

Take a close look at unproductive employees who may be damagingmorale. "Look at areas of your business where there are peoplewho are dragging your department down," Challenger says.

But before you upgrade, be realistic. Look at the hard forecastsand numbers, Harnish suggests, and don't make too many changesat once. Without some planning and strategy, you can damage yourcredibility with your remaining employees-or have people runningscared, which can also hurt morale.

Be aware that upgrading can decrease productivity in the shortterm when there are gaps between employees. DeLine's redesigntook six months, and sales dropped with fewer employees on staff."We lost a substantial amount of business in the first quarterbecause we weren't prepared to handle customers," he says."But our company will make more because we'veupgraded."

Finally, consider the biggest risk that comes with hiring a hottalent: mainly, whether that person will be willing to stick it outas your company grows. "When the economy heats back up, isyour sense that this person will jump ship to get back on a moreexciting bandwagon?" Harnish says. If you can live with therisks, go for it.