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What if it’s not the economy? What if it’s your business model?

Strategic Approach to M&A

Rod: The past couple of years have been hard on the local recruitment industry. On average companies are smaller and less profitable. The economy, from a recruitment industry perspective, has impacted across sectors and geographies.

But is that the whole story? The recruitment industry has changed dramatically and not all companies are adapting to the changes. Has the patchy economy been a convenient excuse?

My Head-to-Head partner this month is Bronwyn Murphy of BJ&M Consulting. We both spend a lot of time with Recruitment agency owners and have seen how the past few years have impacted performance.

Bronwyn: There has certainly been a trend towards poorer results, on average, for organisations in the industry, but there are agencies in all sectors that are out-performing – growing their sales and profit consistently. The industry was again well represented in the BRW fast-growing list of 2013. That makes you stop and ask questions about what is happening to the industry and why are some companies performing well.

Rod: I think the overall recruitment industry has probably grown recently, but maybe what we consider to be “the industry” has changed shape and doesn’t look like it used to.

Four Major Impacts

We have discussed four major impacts on agencies.

Bronwyn: The first is the one that gets talked about a lot. It is the combination of actions from the corporate purchasers of recruitment services, especially the larger organisations. Simply put, they are not coming to agencies as much as they used to – internal recruitment teams, the use of RPO’s and restricted procurement-led panels have all resulted in a vast reduction of job orders being available for agencies.

Combined with this is the maturity of purchasing by larger corporates – they tend to work with larger agencies. Smaller agencies, even if they have a strong niche focus, are often cut off from business with larger agencies.

Rod: The second is less obvious but equally as important. The cost and complexity of doing business has increased dramatically. It is not just increased compliance, with the Privacy Act being the latest, which has absorbed management time and discretionary funds.

The expectations on technology and marketing are enormous since the global recession. I include social media in the technology and marketing mix. It is about having a rich online presence that is driven by content, having systems that are “anywhere anytime”, and being connected to staff, clients and candidates. For most organisations this continues to be an expensive, never ending, and time-absorbing project.

Bronwyn: In this category I would also include increased sales activity. If your business prospered by receiving contingent job orders from larger organisations then that source has probably dried up and you need to invest very heavily in direct sales activity (capably supported by technology and marketing) to generate the same job order flow.

Rod: True. We’ve even had the discussion with smaller organisations that they cannot afford to keep staff that do not have a genuine sales capability – the ability to approach target clients and create a relationship that will lead to job orders is a clear job requirement.

The third category of change is the emergence of disruptive technologies and disruptive processes. Locally there is little discussion about this.

Related: Building A Robust Business In Any Economy

As an example, Online Staffing, the category of business that includes freelancer.com, oDesk and Elance, is growing rapidly and removing opportunities from the recruitment market. Staffing Industry Analysts research shows a wide range of disparate companies across the world and the sector is predicted to grow rapidly from its current $1B+ size.

Bronwyn: Locally there are organisations that are offering recruitment services in creative ways, developing models that engage clients and are profitable. One example is RecruitLoop but there are a lot of agencies that are unbundling services or adding complimentary services to create a trusted relationship with the client – when this happens job orders do not come to the market.

The fourth category is “services”, where an organisation offers a business solution for the client’s issue, and that business solution includes people. The best examples are probably in IT and financial services, but every sector has examples. If a recruitment agency is seeking recruitment opportunities from a client that has purchased a service, then the agency is now talking to the wrong organisation – they need to go further down the supply chain to find the organisation that is trying to hire staff.

There are some great examples of recruitment agencies that now earn a significant portion of their revenue from services. As a result they have certainty of revenue that their competitors do not.

Strategy, Sales, Process

Rod: So what is a recruitment agency to do? I believe the recent period has brought into sharp focus the characteristics of strategy, sales, and process implementation that have long been requirements in business but maybe were hidden in the recruitment industry’s extended period of sustained growth.

I’ve been interested in comments from the UK’s Andy Headworth who recently attended the RHUB conference in New Zealand. He articulates actions agencies need to undertake to stay relevant to their clients. If larger organisations are trying to recruit 80% or more of their hires directly, the agency needs keep up with new technologies like gaming, database mining and social sourcing to achieve things that their clients have neither the time nor resources to do.

I particularly like the emphasis he places on technology. He also believe a database is the single biggest resource for an agency – it is the best place to start but it needs to be properly mined, refreshed and email-marketed.

Change or Perish?

Bronwyn: The agencies that are prospering at the moment have implemented major changes to the way they conduct business in the past couple of years. It seems if you are still performing your business in the same way you did prior to the financial crisis then you are fishing in an ever decreasing pond. If you can’t prove how you add value to your client (or candidate, or staff) then you are probably struggling.

Rod, what have you seen to be the impact in M&A?

Rod: We have certainly seen an increase in the number of agencies that are facing sustainability issues, and whose future is difficult. There are a lot of transactions with smaller agencies are seeking a clear exit – not all owners have the capital or energy to reinvent their business. We also suspect there are a lot of very small agencies that are just closing the door. Valuations have not really changed but buyers do have a better understanding of risk.

This sounds negative, but the industry has standout performers, it is maturing, it is going about its reinvigoration process, and it will be strong in the future. The lessons from the UK and USA, who had far worse economic disruption than we did, are positive. The UK, especially, has bounced back very strongly this year.

The industry will evolve, will have higher barriers to entry, and will prosper. Business owners have a choice of how they participating in the future.

Originally published in Recruitment Extra October 2013

Bronwyn Murphy

Bronwyn is the principal consultant at BJ&M Consulting Services. BJ&M assist individuals and companies reach their full potential in recruitment sourcing and retention of staff. Bronwyn is an experienced consultant to the recruitment sector.

She is a successful recruitment trainer and performance coach with experience in recruitment/HR process design & implementation as well as being an experienced bid manager, tender writer and Lead Auditor in ISO 9001 & RCSA SDS. www.bjmconsulting.com.au

Categories: M&A

Tags: Strategy, RecruitLoop, BJ&M Consulting, RCSA, Recruitment industry, advisory services

Picture of Rod Hore

Rod Hore

Rod is a 35-year veteran of Australian and international IT and corporate advisory organisations. His executive-level credentials traverse many segments of the staffing and recruitment industry and include corporate advisory assignments, mergers and acquisitions mandates, and C-level advisory to multinational and other public and private organizations. Located in Perth, Rod founded HHMC to provide local industry acumen and global knowledge to Asia Pacific recruitment agencies. HHMC’s innovative business strategies and well-grounded guidance result in clients realising their personal and corporate goals.

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