Agencies and Direct Resourcing

According to many participants in the Direct Resourcing Think Tank, the resourcing industry in the UK is dominated by recruitment agencies of various types. In 2008, it was not uncommon to hear that 80% of a large employer’s staff came from agencies. Although there are three types of agency – RPO, Executive Search, and Contingency – it is more how they find candidates that will add value to the Corporate Resourcer and which differentiates each from the other.

In the current climate, saving money while hiring better business-critical staff have become the two overweaning drivers in the Corporate world. Even the Corporates who have announced recruitment freezes are still hiring key staff, as contractors in order to remain off the payroll system, or simply reinterpreting the freeze as a headcount freeze in order to justify replacing important people who have left. All large employers are creating pipelines in anticipation of the upturn. In the Private Sector, the need to protect income and reduce outgoings has become more acute, so staff who perform the business-critical tasks of increasing revenue and reducing overheads are in more demand.

The focus for cutting the cost of the resourcing function has been the commissions paid to agencies, with employers turning to the solutions of using Web 2.0 technology (like LinkedIn and mrtedtalentlink) and smart practices either to make more effective use of agencies, or to eliminate the use of them altogether. It is generally agreed that contingency recruitment is the easiest target for cost-cutting, because the technology is now available for Large Corporate Enterprises Public & Private to do inhouse what contingency recruitment agencies spend most of their time doing, namely placing advertisements on job-boards & sifting through the respondents, and sorting through CVs saved in job-board databases. This practice is especially prevalent in Public Sector recruitment because, due to compliance rules, all job openings have to be publicized, so contingency practice prevails. Where RPOs and Executive Search agencies in practice do the same as Contingency agencies do, then they too will be the target for cost-cutting. It is not unusual for an Executive Search firm to tout its headhunting prowess only to be found advertising openly their named client’s job vacancy. This may indeed be because they have made an agreement with the client that they exclusively can source the candidates, and because the Search firm wants to keep its brand in the market. But from the employer’s perspective, why pay to prop up someone else’s brand? The employer client should negotiate for this part of their service to be heavily discounted or even provided for free because the employer can perform this part of the service themselves as they too have cheap access to advertising media and job-boards. Inhouse resourcing staff should be able to outperform this sort of contingency practice using technology (like careerbuilder, broadbean and mrtedtalentlink) because they know their company, industry and core-defining business-critical roles better.

By “core-defining” I mean the roles that most personify the organization, as an engineer does a manufacturer, a programmer a software house, cabin crew an airline; and by “business-critical” I mean the roles that are most directly connected to either raising revenue or controlling costs, like a salesperson, customer service/ account manager, or accountant. For non-core roles, again by using technology & smart practices, inhouse resourcers should be able to fill every role without the use of agencies of any sort. However, some business-critical hires which are not core-defining to the employer, like a CFO for example, may lend themselves to using an Executive Search firm deploying genuine headhunting practices, whether because the Executive Search firm & its consultants have the better network of contacts for filling that type of role, or because of the sensitivity of succession planning. This piece, therefore, produced in cooperation with a number of participants of the Direct Resourcing Think Tank, addresses how to better use a headhunter.

As an aside, I strongly believe that non-branded employers and SMBs generally will still be heavily dependent on agencies for all categories of job function; my article concerns the major employers only.

There are two arguments used in favour of agencies which I want to dispel straight away, one because of its dubious legality, and the other because it does not realize the severity of the downturn in some sectors of the economy.

The first argument is that an organization can reduce risk and financial liability by hiring whole swathes of the workforce in a contract for services – as temps – by an agency and not by the employer; it is the agency that employs them, the argument goes, so the employer keeps the workforce at arms’ length and can dispense with them at a moment’s notice. Although this is widespread practice in the UK, the employer risks alot after a worker has worked for that organization alone for a large part of a year, and if the worker has been doing the same work for two years or more the law considers that the worker is unequivocably in a contract of services with the agent’s client, and not just with the agency. So, rather than risk falling foul of the law, being vulnerable to huge fines, and thereby ironically increasing risk, it would be wiser for these employers to find some other solution to the problem of risk & financial liability.

An objection to the efficacy of direct resourcing has been raised that because of the dominance of agencies in the UK, so lazy, non-core, non-business-critical candidates can continue relying on contingency agencies contacting them about jobs, as they have done for the last five to ten years or so. In the current climate, though, these people are going to be without a new job for a very long time.

There is one argument that may prove powerful in the defence of agencies of any sort, especially headhunters, and that is for the purpose of headhunting from direct competitors: in order to avoid poaching wars, it may be politic to recruit from direct competitors via agencies, so the argument goes. However, employers are usually more annoyed by their better employees leaving, not being talked to, and the subtle difference between whether it was an agency or a competitor who contacted their just-resigned employee first may be lost on the employer that loses talent to a direct competitor. Furthermore, using CRM technology (like Symantec’s ACT!, mrtedtalentlink, and your followers on twitter), and processes (for example by getting line managers to network their industry), an employer that wants to target employees from a direct competitor can, gently & over time, create & foster relationships to facilitate competitor recruitment directly.

Headhunting Top Talent

If you want to hire a business-critical executive, how would you select the best search firm to find your ideal candidate? All the executive search firms have a White Paper on this subject, most of it self-serving, but each with nuggets of truth contained somewhere therein.

The best headhunters have extensive networks of contacts in a defined niche that help them find top talent for their clients. By “top talent” I mean the people who are the best at their job, statistically the top five percent; I do not mean your Directors, although you would hope that they too are in the top 5% at what they do; the best employers find their top talent at every level in every department.  The top 5% people rarely have to look for a job, and this fact pinpoints the difference between the true Executive Search firm and the Contingency agency: because top talent almost never looks for a job, you won’t find their CVs saved on job-board databases, or emailled in response to job advertisements. You have to go find them in or around their place of work; you have to headhunt them. This is what inhouse resourcers should spend most of their time doing.

Non-core roles outnumber core-defining roles in most organisations. Niche agents are going to be necessary and important partners for non-core but business-critical roles, because for the employer what is considered non-core is the niche agent’s very essence, so they are likely to be alot better networked than the employer. And the top 5% of talent for that business-critical role are both the niche agent’s hot candidates and the employer’s likely longlist. If you want to maintain your market leadership, you do need to hire from that top 5% of talent. To establish who’s in that bracket, you need a longlist.

Where the role is non-core but business-critical, if the retained agency does not create a longlist of suitable candidates, chances are that you won’t find the right candidate. Anecdotally, when I was an agent, we were charged with finding a rainmaker for a big client and presented a 13-person longlist; they said we’d missed someone, so I think there is a good point in the client identifying some of the longlist to help the agency present the total longlist! When I looked for a six-figure salary ecommerce web architect for a global leader, they agreed that I had identified for them probably the top ten best suitable architects in the world (which was their brief to me). Yes, I’m bragging, but competitive advantage means top talent, and that in turn means a retained agency needs to identify who those people are – or they’re not doing their job.

The concern in this article is to look at the use of agencies from the large, branded employer’s perspective: albeit the best recruitment consultants can create long & deep relationships with candidates, even the best are only interested in candidates to earn a commission out of them and to sell them to the highest bidder, and they have some but less interest in the candidate staying at the employer past the probation period. In the current climate, even top talent is having to establish themselves as “employees of choice” and therefore need to be minded of their own brand. This is one reason why Web 2.0 technologies (like LinkedIn and mrtedtalentlink) and social networking methods are becoming so popular: from the top talent’s perspective, even though they are not looking for a job, they are minded for the future, and from the employer’s perspective, they can foster relationships with talent for next to no cost. But if your inhouse resourcing team can’t find business-critical top talent using these smart technologies and new methods, how do you choose the right headhunter who can?

Here comes the first of our counter-intuitive reality checks. And it’s this: whereas it is the individual headhunter that has the contacts, it is first the name of the agency that both client and candidate remember. The ideal is that you hire the biggest Executive Search brand with the best individual headhunters in your desired niche, but this will come at a higher cost more difficult to justify. It means that headhunters should be used as the last resort behind using your own internal & external talent pools, harnessing the networks of your own business-critical staff, and marketing & advertising in places where you know top talent is to be found. If those furrows prove fallow, then the cost of an external headhunter makes more money sense.

The second of our counter-intuitive reality checks is that because there is only a finite number of business-critical top talent and their value to the firm is more in a recession, so while salaries of most staff remain static or even fall, those of top talent rise faster as employers are the more keen to retain them (you may have heard the rumours about real salaries of top talent in the banks at the moment). And concomitant with that unpleasant piece of reality comes the increasing commission rates for the genuine & good headhunters. You need them more, so their market rates go up.

Many clients use the carrot of exclusivity as a way to keep commission rates from rising too steeply. But there are dangers here in that the really clever headhunters, because they are very well connected in their niche, will pimp their prize candidates around to all the competitors, with the competitor prepared to pay the highest price getting first refusal. Added to this, once a headhunter has persuaded a candidate to look at the market, the appeal of being bought by the highest bidder can lead to a lack of loyalty by the candidate; once hired, top talent may soon be gone to another employer offering even more money. It’s why so many good candidates are contractors or associates or interims. If your skill is scarce & sought after, you are going to earn more money not in a contract of service, but in a contract for service.

Longlists & talent pools

The essence of the Executive Search is that the headhunter is on a retainer in order to create a longlist of suitable candidates regardless of whether the candidates are looking for a job or not; this longlist should ideally be an approximation of all the best possible candidates who on a prima facie basis fit the job description and person specification. This longlist is another feature that differentiates Executive Search from Contingency. Business-critical hiring means finding Top Talent, not just people who happen to be looking for a job at the time of the search. Although the creation of the shortlist – those candidates that agree to become applicants and who pass the screening process – is accorded most drama and which many headhunters imbue with mysticism, it is the longlist where the Executive Search firm adds most value to the client, because it identifies the talent pool. Your inhouse resourcers and line managers should have the requisite screening and interviewing skills to whittle a longlist down, but if they don’t have a full view of the talent pool in the first place then they are not going to have hired the best candidate by the end of the recruitment process. It is therefore on the longlist that most attention should be paid.

Despite the current economic situation, there will be an upturn, and employers need to be ready for it to beat their competition, and so building talent pools and pipelines is key to success. Paying an agency a fair & negotiated fee to encourage them to create a comprehensive longlist is a good quid pro quo for building a talent pool for the future: the employer isn’t necessarily going to hire anyone, but they need to establish who are the best.

Executive Search firms will tell you that the best practice is to have a good, long-term relationship with a search firm; employers should authorise each search process as early as possible, even using anticipatory searches if necessary; they should also involve recruiters in succession planning, so they know about potential vacancies and understand what kind of candidates the employer would consider. But unless Executive Search firms are paid a retainer throughout periods of non-recruitment, they will not search for candidates; all agencies, whether RPO, Executive Search, or Contingency, will only work if they are being paid, or when they know a hire will shortly be made from one of their proffered candidates, thus triggering a commission payment. But weren’t you trying to reduce the resourcing overhead in the first place? So, because no agency will create a talent pool for an employer without being paid handsomely, there is no point having an uninterrupted, long-term paying relationship with an external recruiter. You’d be a lot better off employing them as a member of staff.

A good agent will themselves be a valuable quasi-staff member during the troughs of the economy. An employer cannot justify as big an inhouse resourcing team as during the peaks. In the current climate, there is a burgeoning number of interim recruiters many of whom would be suitable to short-term projects for acquiring key hires, but a niche agent can probably do as good a job and certainly in many cases for alot less money.

Key to success is categorizing job functions as being business-critical or not. Where you can calculate the return on investment for a particular role and where the direct impact on top or bottom lines is many times salary, odds-on the role is business-critical. Where roles are both business-critical and core-defining, then the employer should be able to hire top talent directly, but this is more down to a matter of pride than anything else. But if you can’t hire the best people direct for the job functions you are famous for, you’re probably going to disappear soon anyway. In most employers, however, there are far fewer of these core-defining business-critical roles than non-core roles. An energetic team of inhouse recruiters should be able to mop up all non-core, non-business-critical roles quickly & cheaply as the way of hiring them is by using contingency recruitment methods. The focus of attention, therefore, is on the non-core but business-critical roles, and it is in these roles the recruitment agency argues it is better for recruiting.

The argument, then, seems to favour the finding of the best possible individual headhunter, paying them well, and using them as a last resort. There is one area, though, where a global Executive Search brand will hold sway, and that is where the client needs multi-country or overseas searches. Because of the nature of the global economy, even Corporates operating only in the UK could benefit from searching internationally for top talent both business-critical and core-defining. The weakness of this case made by the global Executive Search firms is the fact that most of them are not global executive search firms but merely separate offices in different parts of the world which just use contingency practices to find candidates. Oh well.

Advertisements

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: