Contingent Search - Still A Very Flawed Industry

No big news here. I often write simply to crystallize thoughts, so much so in this case that I changed my mind 3 times during the writing. I've read serious articles from ERE to The Fordyce Letter aimed at this painful subject, as well as, lots of blog posts. I just refuse to believe, or even understand, why staffing firms and their customers still bang their heads against this rock, both complicit in the madness.

How is it that something so broken has gone on for so long? At a time when the contemporary staffing business was coming into vogue (80's) things were different, right? Surely there are scores of others who see the fundamental problem in the contingent search model (aka the "we'll work for free in hope we win a rigged race" model). I've seen a few articles trying to decipher the hows and whys that seem to hit the mark, but most just commiserate and offer solutions like sticking to higher fees (to make up for the free work?), shorter guarantee periods (because there's no reasonable way to deliver quality?), and other band-aids that do nothing to substantially change the collective mindset. Most large companies have stock agreements and most are happy to sign them, maybe asking for a concession or two. Smaller companies just follow along because it's common knowledge that staffing firms will work for free.

Why hasn't anyone made significant strides in educating staffing consumers that the model is all wrong and detrimental to valuable outcomes? Every time I mention this to someone in a staffing company, they look at me like I'm an instigator of trouble and start whispering, like I'm about to destroy their livelihood. It's like I'm reliving the Jerry Maguire manifesto aftermath scene. It's no secret. Staffing companies are entrenched in doing business "the way they've always done it" and customers go along willingly for a number of reasons - they haven't been properly enlightened, they haven't been offered a sensible alternative or they simply don't see a problem.

Is Anyone Listening?

I've had the discussion with countless hiring managers, executives and owners of staffing companies, and I've gone as far as explaining it to people who have no good reason to care. Funny thing is, the vast majority nod in agreement, and most are generally accepting of this way out premise that the contingent search practice, as we know it, is flawed. Some even have a major light bulb moment. And yet, no one I know has done much to disrupt the heinousness of contingent staffing - also known as working for free. I do know some sharp account folks who will walk away from this kind of business agreeing only to exclusivity (or some variation therein). But they are the few.

Like any well-established practice, many just knowingly go along. It's the no- ripples-in-my water effect. Others go along because of the its-no-sweat-off-my-back attitude - "not my money." And then others just go along, unwilling to question it. It brings to mind the story of the 5 monkeys (jump ahead if you know it).

A group of scientists placed five monkeys in a cage, and in the middle, a ladder with bananas on top. Every time a monkey went up the ladder, the scientists soaked the rest of the monkeys with cold water. After a while, every time a monkey would start up the ladder, the others would pull it down and beat it up. After a while, no monkey would dare try climbing the ladder, no matter how great the temptation. The scientists then decided to replace one of the monkeys. The first thing this new monkey did was start to climb the ladder. Immediately, the others pulled him down and beat him up. After several beatings, the new monkey learned never to go up the ladder, even though there was no evident reason not to, aside from the beatings. The second monkey was substituted and the same occurred. The first monkey participated in the beating of the second monkey. A third monkey was changed and the same was repeated. The fourth monkey was changed, resulting in the same, before the fifth was finally replaced as well. What was left was a group of five monkeys that – without ever having received a cold shower – continued to beat up any monkey who attempted to climb the ladder. If it was possible to ask the monkeys why they beat up on all those who attempted to climb the ladder, their most likely answer would be “I don’t know. It’s just how things are done around here.”

There you have it. We've done it so long this way that we just acquiesce to familiarity and chastise others who rebel, even if we don't know why.  

Why Customers Think It's Good

I don't want to paint with too broad a stroke here. But, most customers believe the competition they create among their providers is a good thing. I don't disagree - competition is good. The problem is that the customer has the provider competing on the wrong value proposition, and that ultimately leads to a lower quality outcome, mutual resentment, and either too much, or not enough, work to earn the fee. Hmmm.

In a typical contingent job order scenario a customer has a need, waves the high points in front of account managers from the staffing companies on "the list," and waits. Meanwhile, the account manager communicates the need to one or more recruiters with a sense of urgency. The recruiters know instinctively that time is of the essence and the race is on. They usually don't even consider the fact that the firm has a 1:8 or worse chance of making the placement. Divide that probability into the number of recruiters and the odds get lottery-like, as if they weren't already. Let's say 4 firms are engaged, and each firm has 3 recruiters who will touch the job order (requirement). Oh my. At least 11 recruiters are working for free right out of the gate. At least 3 of the firms that pay salaries, benefits and related expense are losing money from the get-go. It hurts to look at it through this optic. Could it be that this alone has lowered the bar to ground level for the hiring of recruiters - paying them draws on placements until they fail and watching the attrition curve surpass the term life insurance sales hiring model of the 1970s? When is the last time you saw a job posting for a "Sr. Technical Recruiter" that requires 1-2 years' experience? I see them daily.

So, customers are correct to believe, in many cases, competition has the potential to create better outcomes. But in this case, by these rules, it simply doesn't apply. 

So How Does the Current Contingent Search Model Manifest Poor Outcomes?

I thought you'd never ask. I will break it into two chunks - what's bad for the customer and what's bad for the provider.

Bad for the Customer

  • Your staffing providers realize when you give them a search that it's a race. Regardless of the importance you apply or imply, they will dive in quickly, check the shallow water, send you a few fish if they find any, and move on. The numbers show that most staffing companies who engage in these searches will work diligently for 24-48 hours. Depending on what they find, the quality of material feedback received through the account team, and whether anything more interesting comes across their desk, they move on - it's called working on what is "closest to the money."
  • You're being asked to pay 18-25% for the activity described above. Yes, the firm has resources, technology, and (assumed) know-how that you may not have. But if you have engaged them in this scenario, don't expect much more than a superficial effort. More recruiters )firms) is not better in this case. Better is better. By engaging multiple providers looking for the same fish, you may get a quick result, yes. But unless luck prevails, you will get an inferior result - inferior meaning not nearly the best it could be.
  • When engaging multiple providers, you typically end up with a stack of resumes to decipher yourself. Why? It goes back to the sprint concept. Staffing companies place high importance on being the first in the door, meaning they will take less time to do any deep vetting themselves in lieu of getting the name and resume on the roster - often called "peeing on the candidate" and thus creating ownership. If you're going to pay $20,000+ to find a candidate, don't you want to know that an expert will invest time and diligence in the search, employing a multi-channel strategy instead of someone filtering resumes based on your job description keywords? This one often surprises me. Hiring managers are so accustomed to this practice that more than you would expect don't see a big problem here. Ugh.

Bad for the Provider

  • YOU'RE WORKING FOR FREE! That should be the first and only clue required. We can blame this on the customer for abuse of the system, but you are a willing accomplice. You, or someone in your firm, signed the agreement that says you will work for free, that you will initiate recruiting efforts on a non-exclusive basis, that you will use best efforts and provide status updates, (and one of my favorites) in the event of a competing claim for a specified candidate or position, the candidate’s resume bearing the earliest time and/or date will be deemed as being referred by the agency. All of this is common context in contingent search agreements. You will also sign off on non-solicitation language showing great loyalty to a customer that has shown you none.
  • That's it! As if we needed more about which to be concerned. There is certainly all kinds of nuanced negativity that is created through contingent search agreements, bad behaviors that result, and the manifestation of a poor perception of you through the eyes of the candidates you seek. Why do you think recruiters get a bad reputation? That said, I should have had you at "you're working for free."

So What Now

I hope you weren't looking for great answers. I'm mostly writing for my own amusement. I certainly have thoughts and I will share a few here. You may not like them, but at this point in my career I've learned that you won't be alone. I'm not one to hit and run, but this is a big ship. How do you turn a big ship? With purpose and preparation. That means, you have to want it and you have to be prepared to offer an alternative and stick with it to the bloody end.

As I said earlier, there are many staffing providers out there unwilling to participate in this madness. Good for them! Some just walk away from the business. Some offer alternative contract language to mitigate risk. And, a few have won the loyalty of clients thereby having the luxury of filling orders sans competition. Lacking other solutions, this is preferred. However, it shouldn't be a luxury. The problem is that most firms have to (or will) "prove" themselves first by working for free. And so the story goes.

Here are some things I am talking with companies about. Most are receptive but a few simply don't want to be bothered. I think the points are difficult to refute, however many will simply not change under any circumstance. I would love to know what you think - really. 

Lower Fees: Gasp! You are working most of the time with a 1:8 (best case) chance to fill an order, i.e. working for free on 7 out of 8 searches if you are not competing with other internal recruiters in your firm. What if you could virtually assure a higher quality outcome, get paid a small percentage to start the process, and be assured you will make the placement within a reasonable agreement construct? I believe you can afford to charge 5 to 15% less, be more profitable, all the while offering your customer a superior product - and have a lot more fun doing it. I've done the math. Getting clients to have skin in the game with an engagement fee up front is nothing new. And, you're only charging 10-25% because you are working for free most of the time. Nearly every other professional practice employs the engagement fee requirement with the exception of real estate. We're not selling houses!

Teach What You Know: For you real recruiters, and you know who you are, wouldn't this be an interesting concept. For some reason we've typically positioned ourselves supplicated to a hiring manager when offering our search expertise. But wait, we're the experts. We end up simply fishing for them and providing a bucket of fish from which to choose, or not. What if we actually taught hiring managers how to fish? I know, lots of consultants out there who do that. But, why shouldn't that be a standard offering from staffing firms? If you really are an expert, don't be afraid to share that knowledge - afraid meaning fear of losing the client if they learn to do what you do.

Guarantee Your Work: Yes, you already offer the obligatory 30-60 day "replacement" guarantee. That's because you know so little about the candidate whose resume you presented, and by chance placed, that you aren't willing to really assure it's the right person. In fact, you didn't have the time to do any due diligence beyond a short meeting at Starbucks (at best). And you did that just so you could get out of the office for a few minutes. You would much rather have gotten the resume in front of the hiring manager, stat, because we've been conditioned to believe that is how we get closest to the money. What if you could offer a real warranty. If the new person leaves for these reasons I will refund your money minus the engagement fee. Haven't seen many of those lately?

Conclusion?

It's not likely any of this will change wholesale because human nature and tendency simply doesn't work like that. As with any disruption, it will start with an agitator (or a group of like-minded agitators). And, it will require results over time that prove it's a better mousetrap. You say lower fees? Never! Staffing companies already feel beaten up on daily basis regarding fees. And yet, I submit that you can afford to lower them below what is currently considered rock bottom under a different working relationship with your customers.

Many of you will say - we're already doing this and we didn't lower our fees. If that's really true, bravo. I know from my experience in the industry that it is, by far, the exception. You are exceptional! What I am proposing is to change the model fundamentally. I would like to see the entire notion of competitive contingent search fees evaporate. For customers to get what they pay for, every time, and for staffing firms to not roll the dice every time they take a job order. Wouldn't that be something?

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