The Client Side - Is Agency Recruiting A Bubble Business?

Like everyone else, I've been thinking a lot about our industry lately and all the changes it is going through. There is no doubt that Agency Recruiting is going through permanent change. I came into this business on the heels of big change, in 2002. Internet, e-mail and job boards had all become much more mainstream and the IT bust had just occurred. From the beginning, for me, I had the view that this industry was evolving and getting better. I held a strong belief that this would continue and that the industry evolution would be positive going forward. The other day I had a thought that contradicts this to a degree and I believe warrants some serious consideration.

Is Agency Recruiting an industry built on an economic bubble?

I'm not saying that our industry disappears without the economic bubble, but I'm certain it's growth to this point was affected by the bubble and to what degree is an interesting question. Most of the most experienced recruiters I know have been in the business since the early to mid 80s. Prior to that I know there was agency recruiting but I believe it was a much different world and different industry then. I would love to hear some thoughts on that from those who have been in the business longer. Some people believe that our economic bubble began with the proliferation of debt beginning in the early 1900s and accelerating through the last 25 years or so. If the first part of that is not the case, at least the last 25 years of the baby boom generation purchasing power and excessive debt acceleration created a huge economic bubble. If our industry really came into form over that period, since the early 80s, was it all built on a bubble?

I don't believe that it has entirely been built on a bubble, but to some degree the growth has. To what degree, I'm not sure, but I do think it is important for us all to have a perspective on this as we move forward and the industry takes shape in a post bubble world.

Todd Kmiec
Todd Kmiec & Associates

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Views: 144

Comment by pam claughton on March 6, 2009 at 1:23pm
Everything is cyclical, recruiting is no different. I just read somewhere this morning that across the board, along all industries sales are down about 25%. Recruiting is likely in the same boat. We're feeling the economy same as every other industry. It's all cyclical. What goes up comes down and eventually comes back up again.

Every 7 to 10 years we have a market 'correction', some more severe than others. I'm in my 15th year of agency recruiting. The market was still very slow when I started, in 1994, and it was actually a good time to start, because you learn good habits, and nothing comes too easily. You have to work hard to do well, but it really pays off when the market kicks in. The internet boom years were a blast, but then that bubble burst and the market, especially my market, in tech, free-falled into a death spiral in 2001. The climb back up was slow and steady. Now, 8 years later, we've hit another big bump in the road. Many recruiters will leave the business because it's getting too hard. The ones who stick with it, will be positioned well when it kicks in again, which it will.
Comment by Todd Kmiec on March 6, 2009 at 1:39pm
Thanks Pam. Good perspective. My experience coming in right after the '01 bust was similar, I think it was an excellent point to start.
Comment by Todd Kmiec on March 6, 2009 at 6:32pm
Sandra, thanks that is very interesting. Do you see this as just another down cycle as Pam mentions or do you think it's much more because of the run up in the economy from the early 80s?
Comment by George LaRocque on March 7, 2009 at 12:08am
I got into this business in late 1988. It was boom time for 3 months - then it was a really scary market. A consultant/trainer came into the firm I was working at during that time and shared the following:

Going into every downturn over the last 40 years the number of 3d party staffing firms (all models) drops by a number larger than the downturn before it -- BUT -- with each recovery the number reaches an all-time high. This results in fairly aggressive net growth over a long - sustaining - period of time.

The companies that drop (on a % basis) are generally small, under 10 employee, firms. This size firm also fuels much of the growth in good times.

We know the economy goes through cycles. The firms that truly understand this know not to manage their business reacting to the cycle - you manage through it - and you are poised for growth on the other side.
Comment by Dan Nuroo on March 7, 2009 at 8:25am
One thing to remember here is that the workforce will still be shrinking, Boomers retiring and not as many people joining the workforce. The war for talent we were all talking about a year ago, will still be there once the recovery clicks into gear. Who actually signed the truce in the War for Talent, and do Recruiters get a holiday for it?

Most businesses should experience growth in a bubble, and most agencies are reliant on their clients growth for their growth, and as a service industry it makes sense for it to happen that way.

Technical Recruiters have an advantage in this market, we've been through it recently, I'm not sure other industries have experienced such a hit in generational memory. I know of a number of companies who have been around for a while who have begun to focus on the clients of those companies who were formed in the last few years, ie set up in the good times, and focused on their clients with the idea being, "Dear Mr client, you may be nervous with company X there, as their financials haven't been that strong, rest assured if they fall over, we will be here to help you through any issues you'll have".
Comment by Bill Vick on March 7, 2009 at 11:37am
Todd - a thoughtful and provocative post. I think the comments from Pam, Sandra, George and Dan also show insight into the changes that are happening and that we are facing along with some excellent observations.

I'm not sure anybody has their hands completely wrapped around both the industry and where it seems to be headed. I've had the good fortune to talk to some of the gurus like John Sumser, Gerry Crispen, John Sullivan, Kevin Wheeler and many, many others. I have not heard a total consensus that offers a clear vision of where we are headed but there is a general feeling that the model we have seen over the last 20 years will change, some say it is broken, and the way recruiters work (and perhaps work itself) will change with it.

I came into recruiting in the mid 80's and have experienced the cycles described and experienced them first hand. I've never seen anything like we are now facing with the mix of the world wide crashing economy, a multi-generational work force, technology and communications all interacting at the speed of light. The problem with being in the eye of a hurricane is that it's difficult to see the chaos on the edges.

I personally feel better than half of those who categorize themselves as recruiters will find themselves doing something else with their lives over the next year. Those that remain will need to adapt to a new paradigm where the way we communicate has forever been changed. I think we are seeing a glimpse of the technology changes today with online tools like social media (LinkedIn, Facebook, Twitter, etc.) and the developing tools like mobile devices including phones and netbooks. The global reach we now have dictates a 24/7 model and relationships not transactions are the guide we will follow.

I think there is a place for recruiters down the road but it will be a different role and model than we now see. The way technology, demographics and recruitment come together has and will change or industry forever. It will be interesting to hear from others who share their vision of both what is happening and how to survive and thrive through it.
Comment by John Sumser on March 7, 2009 at 12:19pm
Great question, great discussion. My view is that the entire contemporary Recruiting ecosystem, from agencies to internal staffing, is a response to the Baby Boom in the United States. It's not that the functionality isn't historical (the roots are in the slave trade, the original body business). But, the baby boom, coupled with the radical changes in gender equity produced a huge logistics problem.

As a result, relatively sloppy practices, fat margins and low barriers to entry were the norm. Recruiting as a supply chain managed to avoid all of the powerful innovations (TQM, Lean, Re-engineering) that the rest of the organization (except HR) adopted in the late 20th Century.

The shift really has two complementary threads:
1. The shift to Do it yourself, desktop recruiting (internet sourcing) and
2. Process rationalization in the Recruitment Process Outsourcers

The trend to Desktop recruiting creates a set of easy to understand phases. First, sourcing is practiced as an arcane discipline. 2nd, it gets automated. 3rd, it disppears from view (this probably sounds familiar.)

The RPOs (like Novotus) are taking the fat out of the traditional agency process. With 6% to 7% fees and performance guarantees across all positions, they are almost unstoppable. They have focused on improving performance while actually reducing process costs. For many organizations, the high level of professionalism that will start to emerge in the RPOs will make a big difference. More of the staffing function will get outsourced. Just not to traditional agencies.

All older industries (WWII roots qualify this as an older industry), are faced with declining price points and increasing quality requirements. The agencies that thrive in this current encvironment will be the models for the future.


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