I’m often reminded of a comment (source unknown) that can be paraphrased as “If you are not actively working out how to destroy your current business model, someone else will do it for you”.
HHMC invests a lot in presentations, webinars and articles. But most of all we have a LOT of one on one conversations with recruitment industry business owners and managers. What continues to surprise us is the active resistance to change that exists in the industry.
The recruitment industry in our region has changed over the past few years. The enjoyment of continuous growth since early 90’s and low barriers to entry stopped with the financial crisis.
Recruitment is now like most other industries: compliance is rising, costs are difficult to contain, growth is not certain, business models are changing, and there are national and international influences. Today we can not describe the Recruitment Industry as a relaxed cottage industry.
Costs are out of control
Nigel Harse’s RIB Report is essential reading for privately operated recruitment agencies.
There continues to be one statistic that stands out to HHMC – over the past few years, but especially in the past five quarters, the total cost of staff and management costs has risen to well over 60% of Gross Profit. And that’s an average – half the agencies are worse!
I'd contend that it is not possible for a services company of more than a couple of people to survive in the medium term if staff costs continue to absorb over 60% of Gross Profit. The old rule of thumb is that staff costs should take one third of Gross Profit. Maybe that is no longer relevant but we should be concerned when it rises above 50%.
That one statistic alone should be leading to mass change in the recruitment industry, but there seems to be a hesitation even to discuss this issue let alone take actions that would recast base salaries and commission structures, or change the recruitment model to allow outsourcing of lower value processes.
HHMC estimates that 70% of companies in the recruitment industry have an uncertain future. The RIB Report shows that currently up to 30% of agencies are trading unprofitably. But our statement is not just related to profitability or the cost control issue, it is a broader issue. Those agencies that are not changing to meet client requirements or cannot articulate their value proposition are included in those that have an uncertain future.
We have written a number of articles on changes we have seen happening and the impact on small to medium private recruitment agencies. These include
- The Big Issue For 2014 – Structural Change,
- Online Staffing – It Is Here And It Is About Your Business,
- Compliance Requirements – No Escape For Business Owners,
- What Is Your Business Worth? Let’s Get Realistic.
Other industry commentators have written articles as well.
Maybe a fair summary of the changes that most of recruitment agencies are facing is that your clients have a lot of choices and not all of your clients want the products and services you offered five years ago. If you can’t demonstrate your value to your prospective clients you will be left behind.
So why are minds closed to change?
HHMC is surprised by the lack of enthusiasm for change when we see the very survival of your business needs to be addressed. Here are 5 points for discussion:
1. Who can genuinely undertake business development within your organisation?
Not account management, not job filling, but genuine business development to win and nurture new clients.Those who can undertake business development probably deserve a sales based reward structure. Those who cannot do business developement probably don’t deserve a sales based reward structure, and further, may not have a role in your business.
2. What excuses are sitting on the desk of your consultants?
That is, what processes do you have in your business that allows staff to hide at their desk and look busy so they don’t spend time face to face with clients and candidates. Those processes should be considered for outsourcing where they can be undertaken on a contract basis at a lower cost. The consultants will then have little excuse to do anything but the job you are paying them to do.
3. Can you articulate your value to your clients?
If you and a few other competitors are chasing a new opportunity, why would the client ring you back rather than one of your competitors? You need to be able to articulate your value.
4. Can you prove your value to your clients?
What percentage of placements over the past few months have been made from your database, as opposed to fresh candidates sourced from the job boards or from LinkedIn? If the majority of your placements are fresh candidates, then why wouldn't the client do that themselves? They have access to Job boards and to LinkedIn. They can hire an internal recruiter.
5. As a leader in your business, are you inhibiting change?
Leaders in the recruitment industry need to critically look at themselves. It’s a big fast-paced global industry we live in and you need to invest in your own personal development to be able to contribute to your organisation. Repeating what you did last year is not sufficient.
A genuine conversation about change either internally in your organisation or with your advisors will uncover a range of fears, prejudices (yes, prejudices), resistance to change and limitations in your organisation. Its then up to you to work out how you are going to address those issues.
The recruitment industry is changing and you cannot avoid that change if you want to survive.