Why most of the recruiting industry is in deep sh** (and is never coming out)

Why?

“Why” the industry is in trouble is actually easily summarized in two points.

1. Neither clients nor candidates are getting good service on a consistent basis. Individual consultants do a great job. The industry doesn’t.
2. LinkedIn, Indeed.com, Google, or someone else is going to make a broad tech solution that does the job far better. And it’s going to happen soon.

That kinda sums it up.

But — there is more to it than that. Otherwise, since the internet isn’t exactly new, why hasn’t the recruiting industry died already? Why didn’t Monster.com kill recruiting 15 years ago? Why are agencies still entering the market?

Bear with me. There are a bunch of overlapping aspects.

And…at the bottom…there’s still hope if you’re brave!

Note that I’m gonna talk in fairly broad terms, so please remember that. There are firms and certainly individual consultants who disprove all of the general points I’m making. They are also the exception.

The Status Quo

As of today it’s fair to say that the recruitment industry is generally failing its clients. That’s what’s happening.

It’s also failing the candidates.

And because of these two failures and because of its own inability to operate professionally on any consistent basis, it’s an industry steadily shooting itself in the head.

Whether it’s LinkedIn, or Indeed, or Google, or (far less likely) a European company like Stepstone/TotalJobs, someone will soon get a broad tech-based solution right. A solution that either eliminates the need for all the human intervention or (far more likely) one that enables the human intervention to be done efficiently and to be needed far less — and then it’s all over for almost everyone in the traditional industry.

There’ll be an Exec Search industry and an RPO industry, but the large agency market in the middle will be almost entirely wiped out.

This is where the contingent recruiting industry is headed. Image: Wikipedia.

Facing two ways

First, let’s start with the fact that recruiting — as a professional services industry — is fairly odd.

It has customers in two directions. On one side is the hiring company or manager. They’re the actual client. They pay the bill. They may or may not be the most important person in this game (depending on the market), but they do pay the bill.

On the other side is the candidate or the candidates. They’re the product.

The candidate is also critical to the success of the recruiter. Depending on the market the candidate may be more important than the client.

But mess up with either side and the recruiter doesn’t get their fee and they may even ruin a relationship that could have been valuable for years.

And therein lies one of the problems.

It’s a relationship (no, it’s really not…or not primarily)

Many in the recruitment business still think that it’s a “relationship” business. And in this context when they say “relationship” they mean the kind of comfy relationship that comes from having gone to the same school, or sharing an interest in the same sport, or spending some quality time at the bar.

Relationship types. None of it matters. Image: Wikipedia

While a relationship can get you in the door, it’s no use if you can’t deliver something valuable once you’re inside. And most companies in the contingent recruitment industry don’t consistently deliver value. Often, yes. Consistently enough to depend on it? Not so much. A real business relationship rests on trust and delivery.

The problem is mostly in the middle of the market. Executive recruiters have adapted, and so have the larger BPO/Staffing partner service providers. They each make promises to clients and (generally) fulfill the promises they make.

In the middle, the promise to both clients and candidates is often nothing more than;

“Ah listen, sure I’ll see what I can do.”

This often leaves clients wondering if the recruitment firm is going to do anything at all, let alone find good candidates. It also leaves candidates unsure whether the recruiter can find them a good job, or will find them a good job, or will even remember their names.

So most candidates and clients end up working with multiple recruiters because they don’t trust any one recruiter to do the job properly.

High and dry and waiting. Image: Geograph.ie

The Market Structure

Like Gaul, the recruitment market can be divided into three parts.

1. Executive Search
2. Contingent Recruitment Firms
3. BPO/Staffing Partners

Now this is a pretty crude division, but here’s how they line up.

There’s obviously some overlap at each end where mid-market companies do Exec Search at one end and where they get into the BPO game at the other, but the characterization is broadly right.

The Exec Market has changed over the last few decades, where the companies do more consulting and the pricing isn’t 100% “No foal no fee”. They agree what they’re gonna do (market surveys, introductions, etc) and they do it. Whether or not the client ever hires anyone is a concern, but they can often deliver what the client wanted and the end result can be no hire. And while it’s possible for a client to work with multiple exec search firms, it’s rare. There’s an expectation of delivery and that expectation is generally met.

Now this changed fairly long ago in some places, and the pricing of Exec Search clearly varies, but the point remains; they promise and they generally deliver.

On the other end of the chart, BPO and Staffing Partners are similarly hired one-at-a-time and they deliver what they commit to deliver.

That can be process-oriented or it can be delivery-based, but it’ll be defined in advance and consistently delivered…usually by one vendor. Often it’s larger scale and biased more toward the “lower-end” of the market, but RPO can include fairly high end project work. And it’s exclusive and it’s committed delivery.

In the middle, there’s a land of “maybe”.

The land of “Maybe”

It’s all maybes. Image: Royalty-Free.

• Maybe the recruiter has some good CVs.
• Maybe they’ll send them to the client.
• Maybe they’ll follow up with a second batch if the client doesn’t like the first batch.
• Maybe they didn’t really understand the brief in the first place.
• Maybe a client with an easier requirement will come along and the recruiter will drop the whole project.
• Maybe you’re dealing with one of the fantastic recruiters in the agency....or...
• Maybe you’re not.

Some companies in the middle are more efficient than others. Some less. Some are really good, but they’re usually good because there’s an individual that is good…not because the company is reliably good. And that’s a common theme in the industry…the dependence on individuals.

In delivering all these maybes, only a few firms in the contingent recruitment industry have operations that run efficiently. Even those are not that great, but they’re meaningfully better than the rest.

Everywhere else, what’s going on looks more like this;

1. Jobs are taken on to the company’s books where there is little or no chance that good candidates can actually be delivered. But the client isn’t told that.
2. CVs are filed and coded into the CV system by hand — often by junior staff that don’t really understand the content well — so the coding is terrible.
3. Few or no client KPIs are tracked. (flows are tracked, but not client specific KPIs)
4. Processes that should be automated or done in remote back-offices are often done by hand in pricey city-center locations.
5. Operations meetings and sales meetings are like scenes from Glengarry Glen Ross (it’s important to remember that this movie —still a staple of sales training — is from 1992 and was old fashioned then) rather than based on anything resembling decent management information or strategic insight.
6. Websites are catalogs and lists, with nary a client-facing web service in sight.
7. Candidates generally never hear anything back.
8. Everything is sent by email.
9. Follow up is inconsistent and erratic.
10. Closure rates are low.
11. The agencies are all running to stand still and margins are tight.
12. Clients feel they’re being charged a lot for pretty poor service.
13. High performing individual recruiters are caught up in endless pointless activity and (often accurately) feel that their talent is being under rewarded and mis-used.

An ops meeting in recruitment. Image: Glengarry Glen Ross

An industry providing bad, or at least inconsistent service, at a high cost, provided expensively. That’s a recipe for disaster.

So, what’s going to happen?

The future — it’s here already….almost

It’s not going to happen. It’s already happening.

Firms are already only giving their most difficult hires to recruiting companies. They’re posting all the easier or more standard jobs on job boards or hiring in-house recruiters to handle the mechanics of the hiring process and finding that — at even small scale — it’s cheaper than paying recruiter fees. This works financially really only because the recruiting agencies are not creating any efficiencies of scale.

Hiring organizations are getting LinkedIn licenses themselves and doing the job themselves. It’s no more expensive and they have control. They are, in effect, doing the same thing that recruiters do, just by themselves.

If they’re hiring volume or project they may go for a BPO contract. If they’re looking for an exec, they may go to an exec firm.

But in the middle, there’s no trust and no “relationship” beyond the superficial. Because delivery isn’t reliable. Clients often rotate around the industry, trying in vain to find a company worth sticking with. And often not finding one.

I mentioned a firm recently (one I know well and regard as among the best) to a CTO I know well in Dublin. The reaction was typical. “Yes, they were great for a while. Then the recruiter left.” Since then he’d been working with 6 different agencies in turn (not all at the same time) and hadn’t been happy with any of them.

Clients and hiring managers fall back on personal networks and connections, as if this was 1950. It’s not 1950.

So the middle of the market is in deep trouble.

And to top it all, technology is changing everything.

Technology

It’ll need a separate article to write about how the big tech companies (MS and Google) could compete and are likely to compete on the jobs market. The possible products and strategies are many and varied.

But for now let’s just notice that this is the news about recruitment that you’ll see in the press.

No-one in the EU cares about Hays or Robert Half. They care about Google. Image: Irish Times.

The recruitment industry is huge, but broken. Anecdotally, people are changing jobs more than ever. That means there’s more demand. And yet the professional services recruitment industry is not thriving.

New recruitment companies come and go (often quickly, and more on that later). Recruiters change companies all the time, or take advantage of the fact that there are no barriers to entry and almost no advantages to scale in the industry and just found their own agency.

So, margins are squeezed and service is bad. In many companies only the contract book is keeping things running and that’s also a revenue flow that won’t last.

Not a single traditional recruitment leader is likely to shake up the market.

Google or LinkedIn or Indeed are likely to completely reshape the market.

A liquid market

Let’s pause and take a look at what the recruitment industry is actually for. The industry does have a clear “societal purpose”. And it’s an important one. It’s one I believe in quite strongly.

It’s to create a liquid market for talent. Simple.

That should be a place where companies and candidates can see all the jobs and candidates. Where they can decide to apply for a job or solicit interest from a candidate based on reasonably transparent criteria. It’s a purpose that is no different to the purpose of a medieval town market or any market square today.

A market square like this is efficient in comparison with the recruitment industry. (image Wikipedia)

The industry is failing in that purpose and everyone knows it. Part of the reason it’s failing is because recruiting companies extract fees by making the market as illiquid and untransparent as possible. The candidates are hidden from the client and vice versa. It’s mad.

Meantime various companies, including the big dot coms, are working on ways of matching candidates to jobs more efficiently; on creating an easy process that both hiring manager and candidate can easily follow; on making sure that the needs of GDPR are fulfilled; and on increasing the hiring fill rate at an enormously lower cost.

This will progressively render traditional recruitment firms irrelevant.

And it’s important to note that being a jobs board is not enough.

That’s why Monster.com didn’t kill the recruiting industry. Monster.com was really not much more than a jobs board, which itself is not much more than a newspaper’s classified ads page. It didn’t reduce most of the work and pain involved in hiring for either client or candidate.

Searching and finding

Searching and finding is the first part of the challenge….letting candidates and jobs find each other. It’s a search that cuts both ways. And it’s easily addressed by technology.

AI is supposed to be one of the key drivers now, but even “basic” search technology — used regularly- would be enough for most cases. And, frankly, the use case for AI in recruiting is fairly complicated anyway.

Being slightly cruel, even LinkedIn (using Microsoft’s rather cruddy search technology) is able to match candidates to jobs fairly accurately. And you don’t have to scan through thousands of results because thousands of jobs really don’t exist in any discipline at any one time in any one place. They really don’t.

Then, for candidates, Glassdoor and others have already shown that there’s a way to understand what it’s really like inside a company….it’s not hard.

So, the first few steps are technologically easy. Simply put, while there are billions of web pages being searched by millions of people all the time, there are not billions of people in any city looking for billions of jobs.

Thousands, maybe.

While the “search” task in recruitment is theoretically a lot easier than a Google search, the problem for users at the moment is that the jobs are posted all over the place (though Indeed is gradually fixing this) and the CVs are similarly dispersed (and LinkedIn is gradually fixing this). Similarly Google could potentially fix both problems quite quickly, though the anti-trust concerns do seem real and Google probably has other priorities.

Part of the problem is that the recruitment firms’ databases are a disaster. Inconsistently used, badly populated, out of date. What should be one of the core assets of the company is often worse than irrelevant. It’s not unusual to find the company spending a fortune on its precious database and most of the candidates (even ones that are in the database) being found and contacted via LinkedIn.

In any case, it’s not a liquid market today and it should be. It’s a broken market and is crying out to be consolidated or at least made fully transparent, for everyone’s benefit.

A more modern liquid market (Image European CEO)

Additionally, much of the problem with recruiting is that most people in steady employment don’t put their profiles or CVs onto recruitment platforms. This means that they’re not seeing the opportunities open to them and hiring managers can’t see the full scope of potential candidates. Most people aren’t up to date on recruiting platforms for a few key reasons;

1. It’s a painful process
2. They’re likely to have to upload the same information in dozens of places
3. If they’ve got popular skills they’re likely to be harassed by multiple callers (try being a German-speaking salesperson on LinkedIn in Dublin!)
4. Their current employer is likely to find out
5. They don’t trust the recruiting industry to handle them properly

As soon as any of the big few dot coms figures out how to make their CV repository and their search tool easy to use and to work together well, recruitment’s role in this is all over. The market will attract all the hiring managers and all the candidates. It’ll work. It’ll have process and privacy controls so that a candidate can decide how much to share and with whom.

The EU is likely to freak out but that’s fixable. Being a regulated industry can still be mighty profitable. And then there’s the USA and the rest of the world.

Ka-Ching.

The rest of the process

Even after the search is done, the rest of the process is still there and still needs to be addressed.

1. Communicating with candidates (or hiring companies)
2. Screening or assessing candidates (or companies)
3. Interviewing candidates (interviews are a mutual process)
4. Following up on interviews and setting next interviews (again, mutual)
5. Negotiating (again, mutual)
6. Closing the deal (again, mutual….)
7. Onboarding

Communications

Items 1–4 are often where the recruiting experience is often most pointlessly broken. Companies don’t reply to candidates. Candidates don’t reply to companies. Recruiters don’t communicate in either direction consistently. Even basic screening interviews take ages to schedule. Interviews and assessments are badly and inconsistently done. None of this does any favours to hiring managers or to candidates.

These are communications and process-flow issues that are technologically trivial to solve. And again, individual good recruiters take great care in making sure the processes move along. But they’re too rare.

In terms of technology, while they’re pretty old and staid, the application tracking systems in use in many big companies already show that management of this process flow is technologically easy. It is just not that hard.

A single central system that allows companies to view and progress CVs is not rocket science. And a good system would even let candidates see what’s written down about them in the system and where they are in the process. Again, whether Indeed or LinkedIn or Google, this isn’t far away.

Closing the deal

It is true that there is often still a need for some human intervention at the end of the process, to close the deal.

Good consultants can manage a difficult hire through this stage where a less skilled practitioner would drop the ball, but these are still edge cases. And surely even this process is amenable to improved efficiency. Post an offer. Accept the offer or make a counter offer. Managed better than today.

Again, hardly rocket science.

Actual Rocket Science (image,NASA)

Possibilities?

So, can any of the existing “traditional” recruiting companies do anything? Yes. Of course they can. But they have to be prepared to rip their preconceptions apart. They also have to be prepared to think big. Most of them have neither the balance sheet nor the imagination.

Lack of imagination is the biggest problem.

There are a few possibilities.

Before I start with the possibilities, one important point. NONE of the possibilities will work for companies that operate without operational discipline. If you’re structurally a bunch of different people just randomly operating under one roof, you’re doomed one way or the other.

Processes

The terrible paradox in many recruiting companies is that recruiting staff (often correctly) feel overwhelmed by process and yet the organization is not actually running consistent processes. The best recruiters feel held back by processes they don’t need, and the weaker recruiters can’t operate the processes at all. And meantime neither clients nor candidates know what to expect.

And it’s important to remind ourselves that the task of being a recruiter is complex. Clients in two directions, in-house databases that need to be attended to but often don’t add much value to your job, governance requirements, administration, etc, etc. Software sales people have easy lives in comparison.

A widely discussed step is to break the role of “recruiter” up into more manageable chunks. Liberate people to be good at one part of the job instead of being bad at all of it.

And yet it’s a step often not taken. That can be for a variety of reasons.

At least one is that the best performers CAN do it all and are the ones making big chunks of the company’s revenue. Who wants to mess with your best performers?

Well, if you don’t change anything, nothing will change.

Sometimes Disney does the best business advice.

So, how you improve all your processes? Sadly, I can’t tell you that. My suggestion is to talk to your clients and your candidates and find out what they want. What they really want. You can work to make your internal processes efficient afterwards, but that ONLY matters if your process is serving the client.

Specialization

A few companies have already proven that there’s money in specialization.

They have tight deep communities of people on their books. SAP experts. Salesforce experts. AWS architects.

Some of these communities won’t scale and will remain mini-agency business (e.g. Irish tax accountants), but others can expand globally — even when they’re niches.

No, not all developers are the same. (Image, The Scientist)

These specialist agencies can turn their knowledge of their niche and of their candidate pool into a real competitive advantage.

Google’s search engine, or Indeed’s, will never know you. But if you’re in the right candidate niche these guys can actually know you. And if their branding and client value proposition is clear enough and concrete enough clients will know they’re the guys to go to.

Look for that to continue to work.

However, it’s important to note that lots of agencies say they are “specializing”, but they’re doing it without enough knowledge to make it actually work. Not all developers are the same.

Services and Service Levels

As any hiring manager will tell you, hiring is a pain. And as any salesman will tell you, promising to solve pain gets sales.

But you have to deliver on your promises and — as I’ve hammered on about- that’s not happening.

Even if there’s a fancy technology product, there’ll be room for people to help use it properly. Google and Facebook killed most of the old advertising market.

Mad Men, it was. It ain’t like this any more.

But…there are specialist agencies out there still, helping clients use AdWords and Facebook Ads. It’s a smaller industry than the agency model from the past, but it’s an industry. And some of those guys are making decent money. Some of them.

As with advertising agencies, the best ones will really help the hiring managers and companies understand the market and what type of candidate they really need to hire. That’s a service akin to those provided by the Exec Search market and is a kind of HR consulting. It’s hugely important and can be an important service. It’s tricky to charge for, but not impossible.

Technology

Technology is the path that can be taken to address BOTH of the above points. Specialization and Service Levels are possible at the same time — and economically — if you use technology well.

I’m not going to try to cover the products that the dot coms could create and — from looking at them — they are already surely creating. CV and job repositories. Process flow management tools. Privacy controls. Assessment tools. It’s not complicated.

Technology is cool. (Image Wikipedia)

And in the traditional industry? At the end of the day it’s the same. They have to make their job and CV repositories more open, even if that’s to tell a client “we’ve got nothing for you”. They have to manage the hiring process, that “dance” of introduction, in a way that it moves forward and under consistent control. They have to manage candidates about 1 million times better than they do today. They have to assess candidates with processes that don’t depend on inexperienced staff reading a CV they really don’t understand.

None of this needs fancy tech. It needs sensible tech, consistently used. (and, as an aside, AI is really only a detail in this picture)

Now, none of this will save the industry as a whole, but it could increase the size of an agency by factors, even a “big” one.

There’s still room to grow in a fading industry. As others get more and more squeezed, as their margins fade, as their offices stop looking like Madison Avenue and more like Swindon business park, there’s still room for good performers to grow.

Alliances, Mergers and Aquisitions

The easiest place to see where M&A has potential is in the companies coming from the tech sector.

LinkedIn could buy Xing and Stepstone. Or Indeed could buy Stepstone. Looking at it today it seems unlikely that Google will buy anyone. Glassdoor maybe.

In any of these cases the goal will be to access more market or expand service. More scale can increase profitability and can allow increased investment which can further improve product and service quality. Anyone who’s worked in the dot com world knows how that works.

In the traditional sector, it’s less obvious that there are opportunites.

M&A (Image by Top10 Website)

At a macro level, the fact that the return on scale in the traditional recruiting industry is either small or practically zero does strongly mitigate against mergers. But some of the bigger players either do have efficient operations or think they have efficient operations so I guess we may see the bigger players start looking at mergers.

Hays, Adecco, Page, etc, are all seen as big players in the industry. But this is only in the context of a hugely unconsolidated industry. None of them are actually big in terms of market share. There are no pre-eminent leaders.

So even if M&A is tempting, M&A is also extremely difficult in this industry. The narrative to the market needs to be solid. The narrative to the staff (particularly the good recruiters) needs to be solid. It’s also difficult for the leading players since they already have very overlapping geographical coverage. It’s a tough road to follow.

At the scale of the smaller companies, M&A really only makes sense in terms of getting in to markets without going to the trouble of opening new offices. It’s not going to change anything for their business model or the market.

Overall?? M&A is likely to be more relevant for the dot coms. Indeed and Stepstone, or LinkedIn and Xing and Stepstone. Something like that.

Hays and Adecco merging would be unlikely to change anything much. It might work out for Hays and Adecco, but it might not.

Conclusion?

For the traditional industry, the conclusion is simple. It’s brutally simple.

Change or Die (image from Candra.us)

Individual agencies can still grow, but they’ll have to work hard to change how they do business. Even the largest companies in the industry are still small in the context of the industry as a whole. Yes, growth is possible, but the secular shift is still clear. Sitting still is not an option.

Overall it’s hard to see how the traditional industry can consolidate and/or transform fast enough to save itself. Individual companies? Hell yes. The industry as a whole? Heck no.

And on the dot com side? Any of a number of players can grab and dominate the market. There are three that I see as most likely. Google, Indeed and Microsoft/LinkedIn.

Yes, they’ll have to look over their shoulder at the EU Commission, but with intelligence and openness that’s manageable.

And the prize is large.

And the benefit to society is even larger.