2009 is dead! Recruitment outlook for 2010...

As 2009 gasps and wheezes its way to the finish line, all eyes and hopes are on 2010 and the fortunes the coming year may bring. Or not, as the case may be. If you listen to many commentators out there, both within the recruitment industry and outside it, you will hear much talk of recovery; lots of tweeting of potential upsides.

Me? I'm not so sure. And here's why.

For those not around during the last proper recession in the 90's you need to take a close look at what happened back then to really understand what the outlook for the next few years looks like.

The best way to view the impact of the recession is to look at GDP figures. It is widely accepted that the fortunes of the recruitment industry are closely tied to GDP. The chart below shows GDP figures dating back to 1990. The red line shows the rate at which the recruitment market neither shrinks or grows, which is when GDP is around 2.2%. Above this number it grows exponentially and below it it shrinks accordingly. So, roughly speaking a 1% shrinkage in GDP results in a 12% shrinkage in the recruitment Market. At zero % GDP the recruitment Market shrinks at c25%+. Extrapolate that through and you can see that at our current rate of GDP growth, the recruitment market is shrinking at around 70+%

In the last recession GDP bottomed out at -2.2%, and returned relatively quickly to a positive growth number. However, as anyone in the market at the time will tell you, the recruitment industry was hit very hard during this period. And it took many years, not months or Q's to recover.

As the chart shows, despite GDP recovering to positive numbers quite quickly in the early 90's the recruitment market remained relatively flat until around 97. This was a full SIX years after the lowest point was reached. Yes 6 years. Not 6 months or 6 quarters. 6 long years. Compare it to now and the numbers for the early 90's look relatively tame by comparison to our current -5.2% which is the worst state of GDP in the post war period. And remember, the recruitment market does not start to grow until GDP reaches and stabilises at +2.2%. When you put it in those terms growth seems a long way away doesn't it?

There are also some other very significant differences between the two periods that are worth mentioning that have a significant influence on the recruitment industry post recession:

* Competition - there wasn't any. OK, that's stretching it a bit, but certainly if you were in a niche like HR or Marketing like we were you were one of a pool of recognised competitors who largely stayed out of each others way. There were also no Rpo's or In-house recruiters.

* Exclusivity - if Pepsi worked with me, they didn't work with you. Why would they? They were paying a trusted partner retainers to find their key professional staff. Exclusivity has all but disappeared at anything below £100k as has the retainer.

* Margins & fees - significantly richer then than they are now, yet costs are higher overall

* The Internet - it didn't exist

* Social Media - was merely a reference to leftist political publications.

I'm all for keeping the state of mind upbeat, after all there is nothing more depressing than being surrounded by doom mongers. However, overt optimism is equally as bad if not worse. We have an £850bn hole in the public finances which none of us has felt the impact of yet, save those poor souls who have already joined the ranks of the unemployed. And we won't feel it until the political posturing is concluded next year and we have a new set of faces in the House of Commons. Only then, when the 'clawback' begins, will we feel the true force of this recession.

And as we enter 2010 I predict even further overall shrinkage in the industry as many small to medium sized businesses go to the wall. They may still be in business but many will now be operating on the edge of liquidity, with cash reserves all but spent in getting through 2009.

So what can be done in the face of such a crisis? My thoughts for what they are worth:

Stop talking it up - your staff, I imagine, are adults and, as they are at the coal face day in day out, they will know the score. If you continue to talk recovery like a politician you will lose the respect of your staff.

Hang on to your good people - It might be tempting to lose someone who hasn't billed to expectations for a while but if they were capable once they will be capable again. Don't fall into the typical recruiter/sales trap of 'getting rid and bringing some new blood in'. Need to cut costs? How about reducing your own income or ploughing some of the previous years dividends back into the business to underwrite your payroll? And when I say 'good people' I include support staff!

Qualify everything - forget the typical recruitment KPI's like CVs sent out, calls made etc. as all they do is measure activity. Instead get everyone to work hard on qualifying every brief and ultimately every client. In this contingent non exclusive and highly competitive world we now live in, it can feel unnatural to turn work away particularly if, as a consultant, you are measured on activity as well as billings. But better to work on 7 quality briefs you have a good chance of filling than 20 you don't. No other industry would do this so why should you? Take the same approach with clients, work out who the profitable ones are and dump the rest, unless you know you can turn them around inside 3 months.

Make the most of what you have got - most recruitment businesses that have been in business for more than 5 years will probably already know someone for every job they have. They just can't find them in their woefully poor databases. If you haven't already, invest in some technology that will enable you to smart search your existing and incoming CVs.

Develop a solid Account Management Process - and reward your consultants for delivery against it. You can't influence customers if you don't understand them and have a close relationship with them. Account Management is rare in the recruitment industry, yet the customers are crying out for it.

There is no doubt 2010 is going to be an interesting year. And whilst it promises to be tough, you can make the ride a lot easier by facing up to the brutal facts, instead of hiding behind a veneer of optimism. Good luck!

Comment by Todd Goldstein on December 22, 2009 at 5:22pm: Really well thought out Gareth and I think unfortunately tells the real story. I too am upbeat about 2010 but I am not subscribing to a complete rebound. I am in California where unemployment is 12.5% and real unemployment is closer to 17-18%, so I am still a bit weary. I think you make an excellent point that cash reserves are pretty depleted for many small businesses having suffered through 2009. They made it out but with not much left for 2010. I just read an article that bankruptcies were up 80% in California this year. Pretty scary. Well with that said, cheers to 2010.

Comment by Todd Kmiec on December 23, 2009 at 10:50am: Gareth, well said and I agree with much of what you have here. The GDP chart is interesting. A couple of things I think need to be considered in this. The sample is small (1990 'til now is a small specific period in history and has it's unique characteristics). However, our industry doesn't have the long history and stats to apply. Even so, the stats don't hold as much weight because of this. Also, you extrapolate after the industry shrinks by 70%. There is a point of diminishing returns and we are probably there. The industry loses 70%, it doesn't then likely lose another 70% and then from that point another etc.... Our industry has been blown up and I think your stats show that and make some sense of what has happened. I also agree that the outlook for business in general long-term is very rough. As your chart shows, it was six long years to siginificant recovery but there were waves up and down in that period. This is probably similar to what we face now, but maybe for a much longer period as recovery from this historic bubble burst will be a monumental task. Nothing goes in a straight line forever, so mini recoveries in a long difficult period for business in general seems most likely. I think all your advice is dead on. But with elections coming up next year apparently for you as well as here in the US, government will throw resources at things to try and make it look as good as possible. Combine that with an industry that has shrunk a ton and a business world that has shrunk as well and may have exhausted most or all of it's shrinkage, and you might have some recovery here in the near term. I'm hoping for that. Certainly not counting on it though.

Comment by Alasdair Murray on December 23, 2009 at 12:40pm: The best, most reasoned forecast I have read about 2010. I even RT'd it on Twitter a couple of times!

Comment by Gareth Jones on December 23, 2009 at 12:58pm: Hi all, and thanks for the great comments. Indeed Todd, the industry is not going to shrink by 70% ongoing and certainly it seems we have stopped spiralling down. The chart history was to illustrate the difference between the last major recession in the UK and now. So many in the recruitment industry in the UK were not working at the time of the last recession so I wanted to illustrate just how deep this is.

Looking at the chart, its hard to see us returning soon to +'ve growth which we need to do to have those 'waves'! Although I'm obviously hoping it does otherwise I'm out of a job if it gets much worse!

Thanks again guys for taking the time to comment and RT the post. Appreciate it. Have a great Christmas and New Year!

Best

Gareth

Comment by Siong Hee Chua on December 28, 2009 at 10:42pm: Hi Gareth, thank you for sharing with us. I feel strongly about those areas that you have pointed out such as "Hang on to good people", "Qualify everything", and etc. If companies just look at the button line and the P/L and then making decision to close down department and cutting staffs during downtime, that might not be the BEST solution in the long run. Although a couple of signs showing that 2010 might be a better year than 2009, however, it might just be too early cheer.

Comment by Andy Young on January 6, 2010 at 4:22am: This is a great post and really hits the proverbial nail on the head when it talks of all the do's and don'ts in terms of best practice. I work at the coal face on daily basis and it can be hugely frustrating when one is witness to some appalling malpractice across our industry.
However, I think the best practice Gareth outlines above is not a choice - it's a business imperative. To turn these intentions into action however, people on the ground need to be savvy and possess the ability to influence their clients. It's tough to do so in an environment where far too many clients don't take responsibility for the part THEY play in the recruitment process. This is not an opt out from our own responsibilities and duty of care, but if employers continue to give poor briefings, accept unsolicited cvs from Tom, Dick and Harry then it is incumbent upon us to make them aware that it's a short term fix - they'll simply drive their recruitment costs up based on a greater number of failed hires. So our responsibility if we are to become a profession that is taken more seriously, is to genuinely educate our clients, build trust and give them clear reasons why working with fewer, high quality recruitment partners (if exclusivity is not an option) is in their long term interests. So when recruitment firms to begin to hire again, they should leave no stone unturned in unearthing future employees who can have those grown up conversations with their clients. The days of letting the sun shine without fixing the roof (as our politicians are sound biting consistently at present) are gone and the job of the "order taker" in the land of milk and honey is no more. So fresh blood in that sense would be a welcome change to the industry.

Comment by Alasdair Murray on January 6, 2010 at 4:43am: "I work at the coal face on daily basis" - the one Thatcher missed eh? Must be bitterly cold down there at the moment but well done for even getting in to work. ;)

Comment by Andy Young on January 6, 2010 at 4:50am: Very amusing. She would probably claim she was ahead of her time and acting for the environment - as opposed to wrecking complete towns and villages!

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