"I Cut Our Exec Search Fees From $2.5M to $14K" - Look Out For Too Much of a Good Thing

I ran into a gentleman today that claimed to cut Exec Search spend from $2.5M to $14k. This is nothing short of staggering . . . so much so that it seems like potentially too much of a good thing.

Let me explain: My first job out of the Service was as a Buyer for a very large 3rd Party Logistics/Grocery Retailer (I think it was #9 in size at the time). As a buyer, one of my key KPIs’ was ‘Service Level’ (range 0% to 100%). If I always had enough stock in the distribution center, I wouldn’t have a ‘lost sale’ when one of our stores ordered that product. So, a “perfect” Service Level was 100%, meaning I always had product in stock when stores ordered it.

However, Service Level wasn’t the whole story. Anyone who ordered far beyond what was necessary could maintain a 100% service level - but this would later present problems meeting minimum order requirements from vendors down the line. In a nutshell, if you over-ordered, you could hit that 100%.

Now, there was another counter-balancing metric that was also very important: ‘Overstock Inventory’. If you had product sit in the distribution center beyond a given point, it would become ‘overstock’. These numbers counted against us as well, so the perfect ‘Overstock Inventory’ number was $0. As you can see, achieving a 100% Service Level with a $0 Overstock Inventory was virtually impossible. If you overbought and had product sitting, it would come back to haunt you.

Here’s another irony: If you over-ordered, there were extensive additional costs. For example, the truckload would cost more, the handling costs would be higher (to put the product ‘away’), and the carrying costs would be higher. So, in the end, you would be operating in the red (or your purchased categories would) for your organization despite meeting a 100% Service Level with $0 Overstock Inventory over the short-run.

This begs the question: Assuming you cut your Exec Search spend to $0, what else gives? Is this the key metric some Internal Recruiters are using? What are the ramifications on business performance down the line?

I ask this because I can think of 2 distinct ways to cut Exec Search spend down to $0 immediately:

A. Hire 10 More Internal Recruiters (yeah, you’ll cut fees . . . but look at overall cost).

B. Relax Specifications and Hire All Job-Board Applicants (sure, this will further cut spend . . . but is there a long-term cost to the organization’s performance here?)

Some things for us to think through and discuss . . . .

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Permalink Reply by Julia Stone on November 5, 2008 at 4:04pm

I have gotten in on a few of these debates lately and I find it a very interesting topic. Being a 3rd party agency owner, I have a vested interest in the subject. I agree with you Josh, they are either taking a very narrow approach to the solution which seems very complex.

I would love to see feedback in 1 year to see the quality & retention of the hires both before and after the cut.

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Permalink Reply by Joshua Letourneau on November 5, 2008 at 4:29pm

Julia, I hear ya. Exec Search Spend is only a very small factor of what makes a Talent Acquisition function 'successful'. Let's look at a hypothetical scenario - Internal Recruitment gets 5 resumes, 2 from Agency partners and 3 from Monster. One Agency candidate stinks, while so do 2 of the Monster candidates. So, we're left with 2 candidates: One super candidate from the agency (person comes right from the competition) and one pretty good one from the board (person is in a lateral industry, but has a track record of success). Throughout the interview, it becomes apparent that the Agency candidate can hit the ground running on day 1, yet the Monster candidate will not be at 100% capacity until day 90. The better decision may be to bite the bullet and hire the Agency candidate (we could quantify best case vs. worst case), yet the Internal Recruiter wants to "save Agency fees", so they turn away the Agency candidate in lieu of the Monster candidate. Yes, you've achieved Exec Search Spend Reduction . . . but at what long-term cost? Or better, what short-term cost? It could be a break-even proposition at day 60, yet the focus remains on the cost savings up front.

Ultimately, I believe that pushing the linking of financial metrics back to talent will help Exec Search firms (although this falls outside our domain). i say that because as this field matures, there may be decisions made to hand off assignments to us on day 1 (instead of day 120, when most positions are "handed off" to 3rd party firms.)

Between you and I, I typically walk from the debates/discussions you're referencing above because I know that by engaging, I am creating a 'non-fan'. Instead of mutual enlightenment, it's like the testosterone flows and the Klingon forcefield comes out. Good luck after that, right? If we were a 'Human Capital Consulting Firm', do you think the conversation would be different? Maybe. But I think 'not really' - sure, we can change our title from Exec Search Firm to Human Capital Consulting Firm, but I don't see that as the immediate solution.

P.S. For a funny, you have probably had the same situation: At 1 year, I see a survey go out on QOH. Well, guess what? Do we actually think the Hiring Manager will rate that candidate as anything but great? Not really - at least not if they want a friend in the recruiting department. My father says he rates everyone as great, despite not always giving shiny performance reviews. Ironically, Julia, the QOH could be automated to the performance mgmt system (instantly generated instead of having someone fill out a QOH survey) . . . which would eliminate the politics of isolating your dedicated recruiter :)

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Permalink Reply by Jeff Weidner on November 5, 2008 at 7:51pm

Josh,
You also forgot Time to Fill. Maybe there time to fill with Agency placements was say 90 days but now it's 180 days. In positions such as sales that could be critical to an organization. Most companies are unwilling to let any territory, let alone a top territory fall victim to a vacancy.

But I also have to toot the HTC horn hereby giving an example; at one of our clients, their recruiting fees were off the charts. 450 placements per year with an average cost per hire of $20,000 per hire they spent over $5Million a year in placement fees alone.
Basically, the Hiring Mgrs went hog wild. If they needed to fill a position the "first" thing they did was call up their buddy at an agency for a 25-30% fee.

The new VP Staffing/HR convinced the CFO to pull the budgets from the HM's and give it all to Staffing to control. In the first year he lowered agency fees to less than $1 million and reduced overall staffing costs by more than 50% and actually increased the number of hires made to approx 525 new placements not including backfills for attrition etc.

He took a very systematic approach;
A) First he set up a process where all projects would be approved for minimum qualifications thereby eliminating time wasting positions that were never going to be filled or were duplicated across departments.
B) he hired good recruiters not paper pushers, you know the kind that place ads and then push the resume to the HM and wait for feedback. All his recruiters were agency trained and were incentivized by commissions and bonuses on placements made.
C) He outsourced candidate pre-screening to HTC. We would first find all low hanging fruit, easy to find candidates and pre-screen and pass them to the recruiters. We screened all incoming resumes from job boards, internet postings etc
D) If the low hanging fruit didn't produce a viable candidate after 30 days he escalated project to a Candidate Sourcing project where we penetrated competitive target companies and did all name generation and candidate profiling and sent his recruiters all Qualified Interested candidates so they could be resolved asap. He demanded a 72 hour turn around on all candidates from his recruiters. We were in constant communication.
E) If after 60-90 days he still did not have viable candidates in process then he would keep our efforts going and pull in a contingency firm to assist. AND he gave all our research to the contingency firm so they did not duplicate our efforts. (this was brilliant) Most companies waste contingency recruiters time by not sharing this information as if it's Top Secret or something.
F) He required us to stay in constant communication with the recruiters with 4-5 different reports (target analysis, candidate dispo, daily and weekly project status reports.

What's amazing is how organized it all was. There was accountability, responsibility up and down the process and everyone knew their role.

But alas all good things come to an end, the VP had some health issues and was moved into an HR role and the new VP of Staffing brought all functions in house which increased costs by 10-20% but he felt like he had more control and didn't have to manage external vendors. And he decreased the $1M in agency fees to $500K BUT only had 400 placements that next year...

So the moral of the story is...In staffing if you do a bad job you usually get fired and if you do a great job and fill all the positions you also get fired... :-)

Bottom line is not every position can be filled by any one tactic or vendor solution so find the clients that match your style and do your best to keep them happy. There are tradeoffs to any solution.

Jeff Weidner
HTC Research Corp