By Oren Danieli, Andrew Hillis & Michael Luca
ALGORITHMS are an important decision aid for managers looking to make hiring and promotion decisions. The question is how to get the most out of them. What rules should be used to select the candidate most likely to succeed? We offer four principles for using algorithms in personnel selection:
- PICK THE RIGHT METRIC. Algorithms are ruthless in pursuing the objective you give them—they will optimize for that and nothing else. This means you need to clarify how you define success. Often the right metric will be a combination of characteristics. For example, a manager hiring a salesperson may wish to balance the prospect’s likelihood of turnover, projected close rate and impact on relationships with clients.
- COLLECT THE RIGHT VARIABLES. Organizations and applicants alike often use heuristics to determine what characteristics of a résumé matter most (college grade point average? Previous job title? Other interests?). Effective algorithms require human intuition, experimentation and iteration to decide what to measure to help predict the performance metric you care about.
- GATHER MANY DATA POINTS. Track new employees’ performance and keep records of their application data. Algorithms will use these data points to help guide future hiring. But algorithms are also data hungry: The more data points you keep, the better the prediction will be. Scale brings a competitive advantage here. Companies with more employees can learn more.
- COMPARE APPLES TO APPLES. A common mistake when measuring previous performance is to overlook differences in the difficulty of tasks assigned to different employees. For example, if the best salesperson took on the hardest clients, she might have the lowest closing rates. The right performance metric should adjust for the task.
Oren Danieli is a PhD candidate in the business economics program at Harvard Business School. Andrew Hillis is a PhD student in business economics, a joint program through Harvard’s department of economics and the business school. Michael Luca is an assistant professor of business administration at Harvard Business School.