What is the difference between cost and value?

When preaching to salespeople I often use an example holding up a small plastic trophy with a salesperson's name on it which is awarded on a regular basis to the most improved salesperson or for best performance. The actual cost of the item was a few pounds but I posed the question, 'What is the value of the object?'.

I argued, in the hands of a canny individual, such a prominent award could feature heavily in a CV, citing that as a result of outstanding performance, the recipient had risen above his/her peers and been awarded the most prestigious prize in the company. I further argued, that such an award, sold in that way to prospective employers, could add at minimum £5,000 onto their next job's salary. This would in turn compound in their earnings in years to come and thus be worth potentially tens if not hundreds of thousands of pounds. The value of the item, far exceeded the cost.

In a more spectacular example, was the explosion of the Space Shuttle Challenger in 1986 when the failure of a comparatively minor part called an O-ring caused a flare to ignite flammable gases just 73 seconds after lift off. The cost of this small item was minuscule compared to the cost of the shuttle itself and it caused the loss of 7 lives and billions of dollars. The tragedy was magnified after a 32 month investigation which highlighted that NASA managers had known since 1977 that the design had a catastrophic flaw and that flying in such cold weather was strongly advised against by its own engineers. The cost of the small item was virtually nothing compared to its value for safe flying.

Assessing Cost vs Value

In a modern era where business looks to drive down costs in purchasing we have seen innovations such as 'Reverse Auctions' and Outsourcing which have strangled out the ability for suppliers to show value. Tick box point scoring system sometimes augment the processes but in the main it is a lowest cost wins scenario, even when it involves high human content such as recruitment.

Each new recruit has an intrinsic value to the company that bears little relation to their cost. Listening to James Caan's recent talk at the Executive Recruitment Show in London he talked of the 'cost of bad recruitment' being far greater than the cost of the fee. He was talking of value. So as companies look to reverse auction the cost of their recruitment and/or outsource it, particularly to foreign countries, they are focusing on the cost rather than the value of new recruits to an organisation.

Summary

Recruiting is all about investing in the future. Each new recruit has to be part of that future and will have some contribution to the future value of the organisation which will affect its profits. Driving down the cost and pushing away the screening process to a third party who has zero skin the game other than the unit cost of the recruit, no real feel for the culture and no experience of the concept of working for their client will contribute no more value than its cost to the company.

I would support James Caan's view that the cost of the recruitment fee is nothing compared to the value of the right candidate and that should be the priority.