Staffing agencies: do they have a future?

I used to work for a staffing agency. A good one at that. One that tried hard to recruit good consultants, who, on the whole, tried hard to do a good job finding the right people for their clients. But I always had the feeling that I was nothing more than a middle man. I didn’t really add much value other than to do the donkey work the client could have done themselves if they had access to our database. My job was really a glorified cv sifter, searching through tons and tons of candidate profiles to find a good one to match to the job. Forget all the tosh of adding value by matching candidates to the right culture of the company or the speel about forensic screening of the candidate to ensure they’ve got the exact skill set requested by the client. The real value of all recruitment agencies is the database of resumes they have. A company will use an agency because it knows they’re likely to have relevant candidates tucked away somewhere on that precious database and more often than not these days, the agency is the option of last resort. Let’s face it, recruitment agencies have been a bit like funeral directors: you just know that at some stage you’re going to need one but you’d rather not. Well that’s been universally true in years gone by: almost all companies at some stage were likely to have to turn to an agency for some type of hire but is it true any more? I mean, do you really need them and do they have a future?

The reason agencies have survived for so long is not because they added huge amounts of value to the hiring process but there was a total lack of cost effective alternatives available to the client. Take for example a company that 15 years ago wanted to hire a Sales Manager on £30k. They basically had 2 options:

1. Advertise - risky, lots of responses = lots of work, all the money paid upfront and typically quite a lot.

2. Agency - usually a bit more expensive than advertising but they do the filtering, no hire = no fee. Probably a £5k fee.


So which did companies tend to choose? The agency route most of the time. The risk free proposition was usually the deciding factor. Who could refuse a no hire / no fee proposition.


So what’s changed? Well it’s one magic word: the internet. Actually that’s 2 words but you get the gist.

When job boards first started to appear in the late 1990s recruitment agencies got nervous. Very nervous. They didn’t know whether they were going to be a friend or a foe. As it turned out they have really been a friend (at least initially). Yes they tempted away some clients who preferred to try their luck (and no doubt some succeeded) by advertising for £50 rather than the £5k fee at an agency but……and it’s a big but, agencies suddenly had access to an incredibly cheap source of candidates. No need for vastly expensive trade magazine advertising just make up a load of iffy jobs and place them on multiple job boards, collate the cvs into the cv database so that when a real job gets sent to them….voila: ‘We have the perfect candidate’…. and the cost of sourcing was only a few quid per candidate. Alternatively it might actually be a real job the agency is working on but (without the client’s permission) it’s then advertised as….’Our client is….’  on a job board with suitable cvs simply mailed to the client. The expression money for old rope springs to mind. Agency profits can at least be maintained under that model with such a low cost base. 

So if all the big agency guns are still around and still making money (albeit without much growth over the last 10 years) why hasn’t the emergence of job boards hit agencies much harder? Many predicted this was the game changer all the clients had long hoped for. No more having to spend a fortune on agencies as at last there was a cheaper way to source your talent. Well the reason is that using a single job board in isolation just isn’t very effective for the vast majority of users. It wasn’t very effective 10 years ago and it still isn’t very effective. Why? Well firstly there are now too many job boards. The available pool of active job seekers is spread too thinly and employer jobs are simply not being spotted by such a diverse audience as they look on other job boards where the perfect job may not be listed. Secondly job boards are often saturated with too many jobs making the ones posted by direct employers difficult to find. Thirdly, at best job boards really only attract the very active job seeker not the vast majority who are gainfully employed and not proactively looking. From our own calculations, using 1 job board in isolation now has about a 10% success rate across the spectrum of roles a company might have. The figure is likely to be larger, the more well known the company is and vice versa.

So given that agencies were clearly making money before the recession and are still making money now it’s surely an open and shut case that agencies will always be with us. Well perhaps but now (as opposed to just 5 years ago) there are many different business models emerging that are more efficient than the traditional recruitment agency approach
and they might just make life very difficult for the average agency. 

If you think about how an agency/client relationship works you realise just how inefficient it is as a business model. The client sends the consultant a job and the consultant must then go away and search their database for candidates, typically stopping to ask for referrals from candidates on the way. They phone dozens of candidates with only a few going to be interested and then proceed to arrange all the interviews and offers themselves……and to cap it all off probably 80% of the jobs they work on they don’t fill and thus earn no fee for. Now that’s a very time consuming process, invariably done by hand that often results in no payment. Is it any wonder they have to charge so much?

Prior to the internet, agencies held a virtual monopoly in recruitment because there was no meaningful way for an employer and potential employee to be made aware of each other’s situation (1 looking for a job, the other looking to hire them) without spending significant sums of money up front. But now there are ways, and worryingly for agencies, there are lots of them. So let’s look at 5 new things that are likely to cause the agencies a few problems.


Applicant tracking systems:

One of the reasons that a direct employer used an agency was because advertising could be a headache with the sheer volume of cvs that were submitted (often in the post) causing an administrative nightmare. Each one had to be logged somewhere, acknowledged, sent to the line manager etc etc. Now an Applicant Tracking System can do that all for you.

10 years ago they barely existed. 5 years ago they were the preserve of only the biggest companies but now any employer can use a free applicant tracking system and not have to pay a penny for it.  Yup……completely free (but not many people know about that).

So why is an ATS bad news for an agency? Well 4 reasons, firstly it’s now possible for an employer to list their current vacancies on their careers site which is powered by the ATS and update it instantly. The result: direct hires. The candidate can simply visit the employers website, open up the careers section and apply direct. Secondly, potential candidates can register for job alerts and get vacancies emailed out the instant the employer starts to recruit. The result: direct hires. Thirdly, it’s a doddle for the employer to save cvs submitted to previous jobs who might be suitable for future vacancies building the talent banks that were the agencies usp. A quick search of their own talent bank/resume database and they can find matching candidates or ask for referrals. The result again…….direct hires. Finally, if they did want to advertise roles why do you now need an agency to do all the donkey work sifting and handling cvs? You don’t. The free recruitment software will do it for you.

 

Previously there was no way for a direct employer to do any of this much to the relief of the agencies. But not any more. Nestle managed to reduce their dependence on agencies between 2001 - 2006 from 80% of hires to jut 29% and this during a period of candidate shortages. I wouldn’t mind betting it’s even lower now.

‘Ah yes’

I hear you say, 

‘but Nestle and other major corporates have a huge brand awareness with candidates actively coming to their site. An advantage that SMEs don’t have so agencies will still be needed by SMEs.’

Well, maybe but I’m not so sure. So let’s look at what else is out there to help SMEs get their hires direct.


Social media

Everyone keeps talking about it, but the internet now makes it easy to connect with people and crucially get your vacancies published. You can get vacancies onto blogs, Twitter, Linkedin, Facebook, Google + and not have to spend a penny. Have a look at this e-book on recruiting for more ideas on how to do it. Once again, whereas previously an employer could only really use an agency to fill that £30k Sales Manager role, now they can get it published on multiple websites for nothing as well as proactively finding the right people who’ve put their profile out there on the internet via searches on Linkedin, Twitter and Facebook. All of this keeps chipping away at what used to be safe agency territory.

In addition the job seeker, once so reliant on an agency finding them the job, can search their own contacts on Linkedin or use tools like Branchout to connect to employers via their own friends on Facebook.


Job boards, free job boards and cv databases

When you think about it, a recruitment agency is really just a cv database searched on your behalf by a recruitment consultant. Before the internet there was no real way for the average company to be able to access a pool of job applicants - both active and passive. Now there is. Just about every job board now offers companies direct access to literally millions of cvs via their own database. The search mechanisms are pretty good and whilst it’s true to say that there is often a lot of dross on them, there are definitely some real nuggets to be found particularly if you’re prepared to look at candidates who logged a cv quite a while ago. This is worrying for recruitment agencies because whereas previously agencies could genuinely lay claim to being able to provide access to both passive and active candidates and job boards could only really attract active candidates (hence low success rates), now the employer can attract active candidates via an advert on a job board and search for less active job seekers via the job board’s cv database again lessening the need for turning to an agency.  So why would you pay £5k for that Sales Manager when more than likely the very same cv is sitting on a job board’s cv database somewhere which you can pick up for a lot less than £5k.

Pricing remains an issue with too many job boards making it very hard for the SME market to afford it but that will surely change as ‘pay for a day’s access’ becomes more standard. In the future more and more companies will be able to afford to get access to these huge repositories of cvs and inevitably more and more jobs will be filled directly.

Job boards were meant to kill off agencies but that hasn’t happened…..doesn’t mean it can’t happen though. An improved user experience, more realistic pricing via an increasing deployment of a cost per hire model, better understanding of how to attract candidates, all of this will mean they will only get cheaper and better at helping employers fill their jobs. Don’t forget the ever growing list of free job boards out there as well. We’ve given a few examples in this e-book but a quick Google search will bring up plenty. Why pay an agency when you can find someone for free? Sure, free job boards will never fill every vacancy and you’d be very lucky if you make more than a handful of hires from them but that could still be quite a bit of money saved in agency fees.

Before the recession, not everyone had easy access to the internet. Even now not everyone has a computer at home but year on year the availability of cheap and easy access the internet is increasing. Be it phone, tablet or computer the web is everywhere. Within 10 years all TVs will offer 1 click access to the web so when a TV advert appears promoting say Jobsite or Totaljobs, as they are doing now, a couple of clicks and you’ll be through to the job board without having to leave the comfort of your armchair where jobs can be applied for during the TV advert break crucially tapping into the curious but not necessarily active job seeking market. This internet ubiquity means more people viewing direct employer jobs on job boards, more people posting profiles to Linkedin and cvs onto cv databases, searching employers’ careers sites directly, picking up links to jobs via social media references…………all of this is getting easier and easier to do each year and will surely increase the number of direct hires made.


Job search engines

The likes of Indeed and Simply Hired and other job search engines have developed an interesting niche. Essentially you can post your jobs onto them free of charge and candidates can search and apply. If you want to make your jobs more visible, just sponsor certain key words such as ‘Sales Manager’ and more job seekers will see it. They work on the same principle as Google. So if you don’t hire someone for free you could hire someone for just a few $$$$ and then stop the advert as soon as you’ve found someone. 

At present very few SMEs synchronise their career pages to these sites which is a shame as they’re potentially missing out on free candidates. Over time, this process will become the norm where almost all companies send their jobs to these search engines free of charge the moment they are added to their own corporate careers page. Once again slowly chipping away at the need to use an agency.


New recruitment agency models:

Models have developed such as the so called fixed fee recruiters who guarantee to post your vacancy for you onto multiple job boards. True, the adverts don’t exactly look great because they rarely mention the client name but for a fee of £500 - £600, getting it posted onto all the big generalist boards does increases your chances of filling the job as opposed to just using 1. So suddenly using multiple job boards is an attractive proposition as well as financially viable. 

None of these 5 new approaches will in themselves, be the killer app that puts agencies out of business. But each one just chips away that little bit more at the pie the agencies used to feed on. The combination of all 5 factors means that fewer and fewer jobs will need to be sent to agencies and with a shrinking pool to drink from………..a lot of agencies could die of thirst. (1 too many dodgy mixed metaphors there).



I’ve painted a pretty depressing picture for the future of recruitment agencies. Unquestionably the number of employer jobs that need agency assistance will continue to go down but will agencies one day disappear?

In a word: no…….but (and it’s an elephant in the room sized but), the days of easy placements, fat fees and big bonuses are long gone.

It’s clear that in 2007, the last year of economic growth prior to the downturn, despite nearly 10 years of job boards, recruitment agencies were very busy indeed. A cursory glance at the accounts of any floated agency in that year (and preceding ones) will demonstrate that. It is obvious that in times of economic boom, the so called war for talent and competition for the best people means that almost all companies are going to need to use agencies to varying degrees to fill some jobs. Only agencies are likely to be able to do the unpaid (i.e. non retained) headhunting that is required to identify, tempt and then place a candidate who wasn’t actively looking  though it seems highly unlikely the industry will ever return to the buoyant times of just 4 years agowhere agencies had more jobs than candidates. In the future agency usage will closely correlate to the size of the company. The bigger and more well known the employer the more likely it will be that they can source candidates directly for the 5 reasons stated above and the fact that they will have the resources needed to do what recruitment agencies do i.e. search cv databases, Linkedin, Facebook etc as they develop their own in house agency function. Agencies will typically have to make do with working the SME market as they mainly do now. But in times of economic hardship (now) agency usage will drop to the point where many will go out of business with the pool of available candidates large enough to allow almost all employers, of whatever size, to hire without recourse to the traditional agency.

So here’s what’s likely to happen in the next 10 years:


1. The large, well known direct employer brands (see Nesle example above and also Panasonic) will recruit almost exclusively without needing to use traditional no hire = no fee agencies.

2. Even in prosperous times, there will be far fewer direct employer jobs available than say 4 years ago meaning that the agencies will have to fight it out almost exclusively in the SME market.

3. Margins via lower fees will be cut. Expect agencies to have to work at 5 - 10%, not 15 - 20% as they used to do.

4. As average placement fees drop, bonuses will be harder to come by making it far less attractive to talented consultants to stay in the industry. 

5. Agencies will diversify away from purely resume senders to adapt their service offering.

If you look at what some agencies are beginning to do you realise that they’re starting to see the trend as well. It’s adapt or (possibly) die and not just for those servicing the public sector. They must surely adapt to move away from merely senders of cvs which direct employers are often now able to access themselves (for much less or nothing at all) and move towards providing services that the client might struggle to do themselves. The agency of the future will likely earn little if anything from placing people and may use it as a loss leader to get into companies to sell in higher margin work with some morphing into a wider HR consulting firm providing payroll for temps (and not even necessarily supplying the candidates, just the payroll administration). Like Hays they might also move towards supplying redundancy and retraining services for companies laying people off as well. But the most obvious area for them to move towards will be a kind of dedicated RPO service. With companies increasingly streamlining headcount as much as possible and outsourcing non core activities like payroll, IT and facilities management, increasingly recruitment will be outsourced even for the smallest of companies. More and more RPO vendors will appear, typically developed from within the larger agencies. Instead of offering the traditional pay per hire model the agency will work exclusively for the employer trying to source candidates from anywhere, effectively operating on a retainer basis and like a typical RPO agreement, the more ‘direct hires’ they can make the more they’ll earn. 

In 10 years time the traditional recruitment agency as we know it now will still exist but will be smaller in size than the average agency now and typically the consultants will be much more niche focusing on the employment black spots that direct employers find hard to fill but with fees coming in at less than 10% it’s questionable if many of the agencies of today will still be operating in 2021.


Views: 12444

Comment by Jerry Albright on May 31, 2012 at 12:24pm

Nick - your suggestion that we need to "adapt" ie: "lower" our fees is ridiculous.  I have not and will not ever lower my fees under any but the most compelling circumstances.  Cutting/discounting fees is a quick way to going out of business.

From what I could gather in the blog - and I'll admit to simply scanning it once I realized it was a novella - it looks like your suggestions are mostly for the post and pray folks. 

That does not apply to me.

Comment by Nick Leigh-Morgan on May 31, 2012 at 12:36pm

It depends on the value you add Jerry. If your client thinks you're value for money then you can comfortably charge a decent fee but too many firms offer little value other than stick a few job ads up, collate cvs, send over to client.....invoice for large fee in the post.

Those type of staffing firms will really struggle to justify the typical fee levels that have historically been charged. They'll either go bust or have to cut their fees....and they might still go bust.

If you add a lot more to the process then good luck to you. I'm sure you'll both survive and prosper. Like I said......we rely on firms like yours doing just that so I am most definitely not anti staffing firm.

Comment by Daren J. Mongello on May 31, 2012 at 12:43pm

I lost interest after the 3rd or 4th sentence.

Sadly Nick does not understand his own (potential) VALUE, or how to CREATE it. Until he does, he will always have a poor image of the industry and of himself. Agency recruiters can do the impossible for their clients....and candidates. We can heal the pain / solve the problem. We sell opportunity while corporate "recruiters" waste time processing third rate candidates from Taleo. Seriously....it is night vs. day. Good hiring managers will cling to you if you provide them with VALUE. I promise you this.

Comment by Jerry Albright on May 31, 2012 at 12:45pm

Thanks Nick. 

Many "recruiters" are not recruiters at all.  They post jobs and send any close resumes to their client.  Many of these introductions are made without so much as a phone call between any of the parties. 

I don't care what happens to that particular segment of the industry frankly. 

Comment by Alan Fluhrer on May 31, 2012 at 1:14pm

Nick,

Wow, I will save your post anytime I want to be more depressed than listening to Pink Floyd. Also I looked at your place of work, if I am correct, you folks are a sourcing for hire firm. OK, so your firm has made some adaptations to the marketplace and is filling a niche. Congrats on your company owners for doing this. If you are an owner, congrats....

Now the But.........

1- the fax machine comes out and recruiters will be out of business- NOT- we adapted to the technology and did better

2- That little thing you call the internet- everyone says recruiters, real estate brokers, car sales, and all other brick/mortar businesses will go away--NOT- we adapted to the technology and did better

3- ATS's came out, everyone says recruiters will be out of business- NOT- we adapted to the technology and did better

4- Social Media-came out, everyone says recruiters will be out of business- NOT- we adapted to the technology and did better.

See a trend here. If I take your comments here and apply them to the global, high-end, strategy companies, (ie Mckinsey), they would be out of business long ago. they charge 40% more than their competition.

Also Nick, as I looked at your company's site, if I am right, you promote a cheaper solution.Not all together a bad thing.......BUT.....Good-fast-cheap......pick 2.  Your firm has already given away cheap..... and reading your 'services' page it looks like you imply fast. So what's left to go bad......good......I hope I am wrong.

This is an industry where the product is people, the process is people driven, and the people product, work with other......you guessed it....people.    Like any good service, we provide the best people.

Many clients companies are also wrestling with "what do we do to hire more-better-faster". 3rd party firms should be a part of that mix. The client companies that realize this, and do it correctly, have a great asset/partner that provides a great deal more than just the next hire. We advise our clients on the state of the economy, market trends, talent trends and looking ahead to the future of talent. These are additional services our clients appreciate and rely on.

As the economy in America recovers, and it is already there is many industries, the need for quality search & recruiting such as my firm provides, will become more and more needed as the war for talent really hits. As it has already in many places.

Great post Nick, all the best

Comment by Mike Hard on May 31, 2012 at 1:27pm

Nick - while it's true that you gave a vague qualifier that "agencies that adapt will survive", so many of your specific predictions are just not backed up by experience and evidence. Agencies needing to reduce fees in order to survive? Evidence shows the opposite. Average agency fee in the US has stayed very steady around 20% throughout the recession. Agencies losing all of thier large enterprise clients and only working with SME? Most sophisticated employers have a multi-prong strategy: they know which candidates are best recruited via website, which via job board, which via linkedin and...wait for it...which via agencies. Some large companies recruit only 2-3% of thier jobs thru search, some 10-15%, but they all use agencies from time to time and for various reasons.

 

Yes there is such a thing called a market rate for fees and agencies will need to be aware of it, because employers certainly have the tools to know it. But that's very different than discounting fees.

Nice post though. Got the comments cookin'

Comment by David Wells on May 31, 2012 at 2:05pm

Nick,

 

Its this comment that sums up your diatribe against contingent recruiting...


"5. Agencies will diversify away from purely resume senders to adapt their service offering."

 

That alone tells me the majority of what I need to know about your previous work experience and your understanding of a contingent recruiting model.  Most really good agencies or indepent recruiters have never been "resume senders."  Do you understand the true arts of developing hiring profiles, screening candidates, conditioning candidates to jobs and market conditions, conditioning clients to jobs and market conditions, coaching both sides during the interview process and closing both sides?  Based on your comment I am assuming you do not and that is why your missive garnered such a huge response.

As an aside our fees have been steadily climbing since the middle of last year and I have never done anything for below 20%.  Cheers.

Comment by Sandra McCartt on May 31, 2012 at 2:16pm

I got a flash for you Nick.  Most clients don't care where candidates came from.  If they get a resume that fits what they are looking for, the candidate is provided good information about the company, the company is provided good information about the candidate, the interview goes well.  They offer the job to the candidate.  They are not looking for a recruiter to hold their hand, talk about their golf game, take them to lunch.  The value is getting what they want and need.  There are cheap companies and they use cheap recruiters and they get cheap candidates.  Always has been that way and always will.  That is why God made discount stores selling less than quality stuff made in China.  They make money just like the high end stores who sell better quality products make money.

It all depends on which one wants to be.  When people start giving away stuff for free it's either a loss leader item or it's crap.  I find that a lot of companies will bite on discounted fees from automated resume shippers .  It normally doesn't last long.  When i run into to that i go a different direction.  Most of  the time they come back around asking what they need to do to get some quality candidates.  Get rid of "cybershippers" and let's try a real recruiting effort.

Most people who have been in business for any time at all and are not losing their butt know that you get what you pay for.  More savvy recruiters are joining the ranks daily, the only ones with one foot on a banana peel are the ones i have seen who out of desperation and lack of ability cut their fees or try offering what they can dig up out of their database and wouldn't know a company fit if thre were only one company in the world.  And they couldn't sell ice cubes in the middle of the desert.

Comment by Raphael Fang on May 31, 2012 at 3:09pm

 I have been in this business for many years, and this business is about relationship building with the clients and candidates.  My work is always for the employer and I want to match them with the best qualified candidates.  I don't feel good if I send average candidates to them.  I work hard to source the best people that I can find.  Many Average people are looking for work, because they are average.  The above average candidates are found and I get paid to do that.

My clients and I know that many people can fill the job for them, and they hire me because they want the best.  I need to look and build relationship with people before I can find out who is the best of the industry.  I do a complete analysis of the candidates based on the interview and background check. If I don't have a complete understanding of the person, and If I doubt the candidates' qualification, the client will not see the resume.

At the same time, I also have to sell the job opening and the company to the candidates.  I need to tell them why it is good to move company at the time.  I need to take all the doubt away and to understand all the concern they have.  I need to help them to find solutions to their concerns.

So before anyone say that a recruiter's job is to pass the resume to the resumes to the clients, they need to understand what are done before the clients see the resume.  

Comment by Marc Hughes on May 31, 2012 at 9:43pm

The doom in this means we should all give up NOW!!

Bow down to the mighty internet and grab a job at Maccas before all the other recruiters get there!!

I work in a highly organised small niche agency and although some of the the work is harder than 5 years ago (gaining roles and clients and keeping them through a lack of need) my emphasis is on candidate and the networking with them. They still like to have a good agency between them and a client for many reason as stated by Ami Ala. - the internet and all these sites have made it easier for me also - get savvy!!

Its like a long term relationship or marriage that need constant care an affection - i love my clients so take note and contact me anytime for love all you new ones!!

i can still hold my head up high and work hard for my clients and share my thoughts and vision about how to keep in their pocket when they need me and i can jump into action to perform when they are under the cosh.

I am liking your drama but if i was as happy as you and as depressed with the agency world i wouldnt be working in it any more either.

Long live the confident, strong, capable, intelligent, savvy, champions of the industry and their partners in the internal recruitment future!!!

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