Why Aren’t Search Firms Out of Business?

Given that:

  • Corporate recruiters have access to tens of thousands of active candidates via job boards and specialized career sites.
  • Corporate recruiters have access to information about tens of thousands of inactive candidates via a variety of Web tools ranging from Google to ZoomInfo to LinkedIn.
  • Thousands of corporate recruiters have been certified in advanced sourcing techniques from firms like AIRS and the Adler Group.
  • ATS and hiring management systems not only house customized resume databases, but they also enable recruitment processes to be streamlined so that recruiters are able to spend less time on operational details and more time delivering value-added services to hiring managers.
  • Once the sole resource of search firms, research, and sourcing firms provide rapid candidate generation services to corporate recruiters at affordable prices.

…Why aren’t search firms out of business?

Out of Business? Search is Thriving!

In the face of all of this, the executive search Industry is not only nowhere near close to going under, it’s thriving. (The current economic downturn will temporarily halt this, but overall growth in the search industry has been explosive over the last 10 years.)

Consider this:

  • Kennedy Information reports that the global market for executive search services is $6-8 billion annually, and that growth in that industry since 1990 has been “staggering.”
  • Korn/Ferry produced record revenues and earnings in Fiscal Year 2008 ($790 million/38%), an increase of just under 50% from 2006.
  • The average placement fee at Heidrick & Struggles reached $114,900 in 2007, up from 2003’s average of $81,100. That, coupled with growth in total search assignments, created 2007 revenues that increased 95% from 2003.
  • According to ExecuNet, search firm recruiting assignments rose 24% in 2007, and 25% were adding staff at the end of last year.
  • Average compensation for a search consultant can range between $200-$600,000+ annually.

That the search industry has been growing may not be surprising, but the speed at which it is skyrocketing is, especially in the face of all the investment made over that same period into internal recruiting functions.

After all, it wasn’t too many years ago that staffing industry pundits were predicting the demise of the search industry, in the same manner that real estate brokers and stock brokers were supposed to disappear, thanks to the power of the Internet and its open access to information. After all, who needs a third party when all of their previously proprietary information is available for free or inexpensively on the Web?

Don’t Shoot the Messenger

There is an old axiom in the search business about competition that goes like this: “Other search firms aren’t our competition — competent internal recruiting functions are.”

When an internal function is competent and able to fill openings effectively, there’s no need to hire external firms. Therefore, as internal competence grows, more and more difficult positions are serviced in-house and fewer (or no) roles require external assistance. As a result, the market for external search shrinks as fewer positions make their way to external firms.

But this is in fact the opposite of what has happened: the demand for external firms has increased exponentially. This phenomenal growth in the search business tell us that search firms do a better job, or at least that they are perceived to do a better job, by the executives who choose to engage them over their own internal recruiting group.

Now before you pummel me with negative commentary, understand that I wish there were another conclusion to draw. But there really isn’t, and facing our shortfalls is the first step toward fixing the problem.

The recruiting service that is perceived to be the most valuable by executives is recruiting the top roles. This is easily proven by looking at the high fees executives are willing to pay for a single hire. The average search fee of $110,000 for one hire is more than most corporate recruiters make in an entire year.

The reason that executives are willing to pay high fees for search services — and worse, to not even consider giving search assignments to many internal functions — is because they perceive the external provider to be a more credible, capable, and more reliable source of talent. Why is this so?

It’s All About the Methods

There are several key differentiators for search firms that clearly distinguish them from the typical internal recruiting function. Although there are more, here are the top five that internal recruiting functions can adapt that will improve their outcomes dramatically. And, these can be integrated into most recruiting functions quickly and easily:

Run the assignment like a project and dictate methods

The first thing that search firms do differently from most corporate functions is to take absolute control of the project. This includes a documented project plan, timelines, and crystal-clear delineations of roles, responsibilities, and mutual deliverables.

It also includes getting the client to agree to follow the search firm’s project methodology, not the client’s. A critical mistake we often see corporate recruiting teams make is asking higher-ranking leaders how they would like to see the project unfold. Expert service providers dictate methods so that they can guarantee the results. Insisting on following the correct methodology is a key step that is too often missed by internal teams.

Force the client to define their hiring requirement in light of market realities

A good search consultant will excel at making sure the hiring requirement is specific, realistic, and actionable in the talent market.

This can be challenging since managers often provide requirements that read more like a wish list rather than a carefully considered formula for success. We have observed internal recruiters accepting assignments that contain so many hiring requirements that they cannot be fulfilled in the market.

Recruiters should take an active role in helping to build the hiring requirement right from the outset. It may be necessary to challenge the hiring manager on unrealistic requirements, too many requirements, or too broad a requirements set.

Secure the proper level of project funding

Why do we fund search firms with high fees, while internal organizations are forced to continually drive down the costs of recruiting to lower levels?

In some ways, internal organizations themselves are to blame because they have positioned their value equation in terms of cost reductions. They brag about reducing cost-per-hire and total recruiting spend. Yet, the reality is that some positions will cost more — and perhaps dramatically more — to fill than the average.

No search firm would accept an assignment for less than the cost of delivery. Internal teams shouldn’t either. To gain approvals for higher levels of funding, make the value of the service crystal clear and avoid focusing on the cost of the service.

Hire top recruiters with deep industry experience/subject-matter expertise

The most clearly visible difference between search firms and internal functions is the level of recruiter working in each.

In the course of our consulting work, we’ve met plenty of excellent internal recruiters. Unfortunately, we have met many more who really aren’t qualified for recruiting roles. Worse, we’ve meet some recruiting leaders who really don’t have much of a background in recruiting.

Article Continues Below

To really excel at recruiting, internal functions should take a lesson in staffing their recruiting functions with strong, industry-savvy recruiters who possess foundation knowledge in recruiting as a profession. Start by hiring a seasoned recruitment leader who understands talent markets, marketing principles, selling, internal consulting, and knowledge transfer. Select staff members who have been trained in the recruiting industry at some point in their careers and have enjoyed success in contingent/search roles but also understand the realities and limitations of internal recruiting functions.

Continually work a database of industry contacts/potential future hires

This is straight out of Recruiting 101, but let’s face it; search firms do a better job of building and maintaining recruiting networks than internal functions.

Part of the reason, of course, is that fees give them ample funding to do so. But another large part is that they are serious about recruiting for the long haul, and internal organizations are serious about recruiting to fill the open req in front of them.

This difference in focus changes everything about their behavior. When recruiters are pressured to fill today’s openings, they have little time to focus on cultivating tomorrow’s potential hires.

Most companies have plenty of resumes in the ATS/hiring management systems but have not built the capability or the know-how to stay abreast of who’s who and who’s where in the target talent markets critical to their growth. Building a robust database of key talent targets, engaging those targets in meaningful dialogue, and nursing relationships over time will pay big recruiting dividends over the long haul.

If corporate recruiting functions were truly great at recruiting and had the credibility they seek with top executives, then there would be limited need for third-party search firms. Realistically, there will always be a need for competent search firms. But the accelerated growth of this industry over the last 5-10 years indicates that internal functions are failing to deliver the most critical, and arguably the most valuable, recruiting services in a way that puts internal functions on equal footing with our external counterparts.

It’s time we took a hard look at why.

About the Author

Harry Griendling is a founder and Managing Partner of DoubleStar, Inc., a leading provider of talent acquisition and measurement solutions that enable organizations to optimize their talent management initiatives. During his time at DoubleStar, Griendling has led the design, development, and execution of more than 600 high-volume recruitment projects for 250 of the East Coast's fastest-growing organizations.
  • Martin Snyder

    I think there is something more meta going on than just an efficiancy argument between third-party and direct recruiting.

    Search firms are safety valves that allow organizatons seeking the same pool of talent to not directly attack each other. If the search firm buffer were not there, it would be open-season all the time- a situation with either good or bad effects for everyone depending on your politics.

    Search firms keep the war for talent from being a more tangible war; thats one good reason why they are in business and will be for a long time to come.

  • Yovanka Hinton

    Great point!

  • Todd Noebel

    First and foremost, let me say I enjoyed the article. I agree with virtually all of it and think that it highlights some of the struggles we, as corporate recruiters, work to resolve on an ongoing basis.

    Here is the small space where I disagree. While your conclusion holds true in some cases, permit me to offer a differing perspective. You have to take into account the size and structure of the internal recruiting function as well as the overall service delivery strategy of the team. Speaking very specifically from my own situation (being in my current role only since March of this year), we are gaining efficiencies and effectiveness in how we manage our searches – in large part because we have started managing our searches. I speak to this a bit more in my article in this month’s Journal of Corporate Recruiting Leadership.

    No matter how effective and efficient we become, and as a deliberate outcome and corollary of those gains, we have determined that we will unquestionably need to engage outside search assistance as part of our overall strategy for driving top talent into the organization. In fact, by doing so, I actually gain additional efficiency and effectiveness by keeping my team focused on other more consistently occurring talent needs rather then asking them to become rapidly skilled in a search area where we have rare call for that specific kind of talent. And this is where I may well be picking a nit – it does not make sound business sense for us to hire a cadre of recruiters that are too specifically specialized given the volume of hires we have in certain areas of expertise. Meaning that my internal recruiters need to be incredibly strong generalist recruiters (skilled sourcers, solid search PM’s, top consultants/advisors, etc.), yet if I need an IT Security Manager with CISSP and other certs, I am compelled to engage an outside firm to handle this one-time need rather then hire a narrowly focused IT recruiter, only to have them be not fully engaged and properly utilized when IT recruiting needs are low.

    So, from my perspective, we will always need and want to partner with outside search firms on a selective basis because it make good business sense and actually reinforces our value proposition to the firm.

  • Joshua Letourneau

    Harry, I have to commend you on what is, by far, ERE’s best article of the year – frankly, my view of 2nd place is a very, very, very distant 2nd place. Again, kudos and I hope to see more of you here.

    To add an element to augment your thoughts, let me also propose the following:

    a. Executives prefer to work with Executive Recruiters when seeking (or ‘being receptive to the potentiality of’) a new opportunity.

    The Execs I work with and represent don’t create ‘online profiles’ on career sites, they don’t submit their information to job board ads, and 95% of the time, they don’t even have a resume. While I admit having hiccups while verbally presenting a candidate to HR, most Exec Hiring Managers understand because they themselves haven’t put together a marketing CV. Put simply, they just don’t play the game that way – it’s as simple as that. So often, I run into situations with HR or Internal Recruitment where they want to treat all candidates and talent pools the same – it’s as if advanced market segmentation and portfolio theory is either a. not part of HR programs at the collegiate level, or b. overlooked with the mantra, “Those are marketing principles, not recruiting principles.”

    Another element worth mentioning is that the Executive Recruiter is seen to represent the Exec candidate’s best interests. Internal Recruiter are seen to be biased – obviously, they want you to join their company, so everything they say and promise is seen with an eye of skepticism. When I get an Exec on the phone and I’m working with him/her, I am able to discuss not only the position itself, but the internal dynamics and politics of the organization. If there is a rat or elephant in the room, I let them know – they appreciate this because life and corporate America is not all ginger & spice & everything nice. Every Exec I ever work with relies on me to provide the objective information necessary to determine fit, and ultimately, the probability of success in the role . . . thereby leading to the enhanced marketability 2-3 years down the road. Exec-level candidates are savvy enough to seriously weigh risk vs. reward; if they’re not, something is wrong.

    Let us also not forget the notion of confidentiality. Most of the ‘interviews’ at the exec level are not ‘middle-of-the-staffing-pyramid’ interviews that we see employed 99% of the time. Rather, these interviews typically start out with a dinner or something of the like . . . thereby increasing in intensity so as to ensure the vetting process.

    Great article and I hope to see more of your work.

    – Josh Letourneau
    Mg Director, LG & Associates Search / Talent Strategy
    jletourneau(at)lgexec.com
    w::404-418-8152

  • Karen Price

    I continue to be amazed (and dismayed) at the continued bashing of internal corporate recruiters that goes on in this forum. When will we realize that our relationship should be symbiotic, not adversarial?

    At my company, less than 5% of our 3000+ openings at any given time are performed by external search firms. We have a staff of outstanding recruiters that, in addition to sourcing and vetting good candidates, are holding the hands of hiring managers, dealing with federal compliance issues, and attending more meetings than any of us ever care to attend. Yet we are on record pace for hiring this year with little assistance from search firms! Imagine.

    So, why do we use search firms — in most cases, it’s a matter of timing. We have so much on our plates that sometimes we need the search firms to do the leg work for us. Does that make us bad or incompetent recruiters — I don’t think so.

    Executive search — those searches commanding the $110K+ fees you quoted — take a long time to complete. There is a lot of relationship building and handholding that must go on with executive candidates and our internal recruiters just don’t have the time. Our recruiters carry so many open requisitions at any given time that their ability to effectively recruit an executive is limited, not because of weak recruiting skills, but because it is too time consuming and we can best utilize them in other areas. And guess what — those $110K fee searches are less than 1% of what we need to recruit each year!

    I could go on and on about the inaccuracies and misperceptions in this article (as my staff would warn you, don’t get me started!), but it boils down to this: Internal recruiters play a very valuable role in the staffing of their organizations and so do search firms at all levels. It is time to stop pointing fingers at each other and learn to play nice together in the sandbox.

  • Steve Levy

    Here’s how I know articles are biased towards one direction: Harry, you had me until you used the word “exponentially” as in use of search firms has increased exponentially. The numbers you mentioned are certainly impressive and you cherry picked some good ones, but why don’t we let the readers check out AESC’s numbers here (Association of Executive Search Consultants) http://aesc.org/article/industrynews/. Also check out KFs stock price performance here especially the 5y performance:

    http://finance.aol.com/charts/korn-ferry-international-de/kfy/nys

    Here for HS:

    http://finance.aol.com/charts/heidrick-and-struggles-international-inc/hsii/nas

    It’s not bad at all but quoting record earnings without street performance is not full disclosure.

    For one, very few in-house teams have ever been charged with C-level and minus one (possibly two) hiring; those that reasonably succeed (I’m not one to polarize with my adjectives) model themselves after a typical search firm – research and relationship focused 24/7.

    Two, and here’s the biggie, while most corps have CEOs who are quick to utter platitudes such as “people are our most important asset”, very few are behind building and tasking their recruiting function to work like classic retained search firms.

    In a nutshell, the methods you mention that retained search firms do are EXACTLY the things the very best in-house teams do. It isn’t the recruiters who are deficient, its the leadership they receive from above – all talk, very little action.

    Here’s one more little tidbit: I attended Kennedy’s Executive Search Summit a few weeks back in NYC. Lots of blue suits, white shirts and red ties in attendance. You know what confused them the most? Social networking and Web 2.0. Guess who the next executives will be? Obviously folks weened on SM. Guess who balks at these new technologies?

    Perhaps the tide will change…

  • Thomas Mulhearn

    To support Karen’s point, effective external recruiters should be business partners with their clients, not competitors. I also strongly agree that internal recruiters get a bad rap. Even though our firm is an external reruiting firm, I am continually impressed by the variety of functions internal recruiters have to perform and how well most of them perform them.

    It seems that the difference is that external recruiters have the ability to perform on a project basis, while most internal recruiters are tied, by the nature of the position, to a process basis. We external recruiters can focus our whole attention on completing the search, while internal folks have a lot more varied things to be responsible for.

    And when you need us, we will be there to help. Isn’t that what business partners do?

  • MG Moore

    Harry,

    You do have some good points, but I can identify with what karen is saying as well. Having been in a Fortune Five recruiting department working with over 100 requisitions from hiring managers who:

    * thought their requisition was the only one we had
    * had no clue about job descriptions and KSA’s
    * could not make up their minds from candidate to candidate about that they truly wanted for the position
    * could not seem to make room on their calendars to interview
    * changed the requirements of the job during the interviews with a candidate
    * had no idea what EEOC and legal interviewing processes are
    * made up their own salary offers because they really “liked the candidate”

    At the end of the day, my team was evaluated on how long it took us to complete the hiring process. This was, of course, with no control over the hiring managers or the process.

    On the other side of the desk, having been an executive recruiter, I have worked with some interesting internal recruiters who started out as an administrative assistant and was promoted based on skills required for the old job. These were not “bad” recruiters, but rather people who had been placed in a role with little or no training or support.

    Finally, in an internal situation, recruiters are pulled away from their recruiting projects to perform so many other roles that sometimes things fall between the cracks.

    The bottom line is we are all in field of recruiting because we care and we want to have success. In my business, I go into companies and help them understand the role of the recruiter and provide training to those folks who are trying so hard, but are swimming in a muddy river.

    Let’s all help one another.

  • Leif Wennerstrom

    I also managed two executive searches – one with with Korn Ferry and another with Heidrick. One internal executive told me flat out that the top talent typically accepts calls only from the big search firms and that he was fine with the fee because of the certainty of getting the best person. Like the Big 4, Sr. Executives rely on any 3rd party consultant for big strategic decisions. The reality of both searches was that we hired people who had been in contact with my recruiting team for over two years. The bigger question was weather we could have landed these executives without the help of the third party..

  • Martin Snyder

    Apples to Oranges: Staffing is a basic economic activity.

    Net staffing activity overall dwarfs the net activity of executive search, as Karen ably points out.

    The mismatch in dollar value gives exeutive search more visibility, but it’s still a small niche in the great scheme.

    Leif hits a key point directly; the greater the value of the talent involved, the more political the situation becomes.

    Again to answer the original question; firms exist somewhat to buffer the politics (war by other means) of talent.

  • Candice Conerly

    Good Topic! Although I think it represents the “good” about the agency world, and does not talk about the “the bad and the ugly” it gave me some good insight as to how hiring managers view internal and external recruiters.

    As a Corporate Recruiter I see value in additional resources when needed and I appreciate those firms who truly represent our core values and respect all stakeholders in the hiring process.

    Now with that said, what is not mentioned is the clean up involved on the Corporate Recruiter side as a result of the “bad and ugly” part. This includes multiple calls multiple times from agencies to hiring managers and myself, misquotes of salaries and benefits to potential candidates, or worse inaccurate details of the job. More times than not the due diligence part is glazed over.

    My focus as a Corporate Recruiter is to bring on great talent while upholding the highest level of integrity. This means meeting the needs of the company, the candidate and our managers. In my opinion, no one can speak more true to this, I should know, I work here (:

  • Keith Halperin

    Interesting article. Let’s put this false issue to rest: ALL kinds of recruiters are necessary.

    I occasionally ask a potential client to determine what type of recruiter they need:
    1) They are successfully meeting their needs – they should stay with internal recruiters/ resources.

    2) They need one or two people that can’t cost-effectively be obtained through, or are extremely specialized, or are needed very quickly- use an external contingency or retained recruiter.

    3) They have a period of ramp up in hiring, followed by a plateau- use a contract recruiter.

    What clients SHOULDN’T do is to hire internal onsite recruiting staff to do anything that can be cost-effectively, eliminated, automated, or outsourced. This would have the added advantage of allowing the recruiting to staff to concentrate on higher-value functions such as have been mentioned in the article and commentaries.

    Keith Halperin keithsrj@sbcglobal.net

  • Rich Goldberg

    I have been both (actually all 3 an inhouse contractor)
    Internal recruiters do more about the hiring process. Consensus building running interviews etc.. Just as externals must sell the candidate on a company, internals sell the company on the candidate. I have done all 3 and I like the hybrid where I can take my time and do it right as oppose to the first in and not always hire the best candidate.
    3rd party has a needed place for the unique left handed blond plumber I’ll need once they are more efficient.

    But the harassing calls to passive employees makes the industry look unprofessional. But it shouldn’t be us VS,. them

  • Brenden Wright

    As someone who has worked on both sides of the issue, both points of view have some validity. However, I think it’s important for those who chose to work on the third-party side of things to understand that over the past few years, the HR profession has been elevated within many organizations. In fact, many internal recruiters who work “in-house” bring with them years of agency experience to leverage internally. Many have advanced education. Many corporate talent managers are connected to the strategic pulse of the organization and have a seat at the table in the C-Suite. Many have an incredible amount of influence regarding what firms to hire if such a decision is made. In addition, responsible corporate leadership won’t arbitrarily agree (unless they themselves are incompetent) to pay the fees you describe without assessing their internal capability first, effectively managing costs, measuring benefit, and making an informed decision about how to proceed. There are many situations where searches can and should be outsourced. But the assumption you make that outsourcing decisions are made because service is better or third-party recruiters are more competent in defining talent objectives and managing projects is, well, misguided. Unfortunately, I read this an another “us versus them” article that we could all do without.

  • Joshua Letourneau

    I’ve been watching the responses to this article come pouring into my inbox and it’s been quite interesting. Over the years, I’ve seen similar responses each time someone writes an article from a 3rd Party recruitment perspective. And to offer balance, the same dynamics are at play each time someone in HR writes about hiring processes.

    So here’s the irony: Many chalk these articles up to an “us versus them” philosophy, yet its articles like these that drive progress in the first place. Some internal recruiters may take Harry’s suggestions defensively, while some will work to implement one or two. Some may even get angry, yet still implement a recommendation. As a result, however, the situation will improve. Again, to add balance, the truth is that many Exec Recruiters do not understand the full scope of activities the average Internal Recruiter must perform. Often times, the organization gets in its own way, and no, it’s not the Internal Recruiter’s fault. For the TPR, we can wash our hands and walk away, but the Internal Recruiter must fit into the current structure, yet slowly instigate change . . . and let’s be honest: Some don’t want to change. Truly, each side has its own unique challenges.

    At the end of the day, however, look at the progress being made. It’s about more than educational levels of the Internal Recruiters, and it’s about more than having prior agency recruiters on staff in internal capacity. Everybody here knows that the typical exec search process is not only not necessary, but not feasible, for all roles. Would we want our middle-of-the-road positions that don’t equate much value to the bottom line to be handled in the same as a VP? Of course not.

    In my estimation, progress is being driven by pain. We can do better; we can think on a higher level. I believe we’re doing that. Sure, maybe there are fruits tossed at each side during the conversation . . . but we’re all better for it. I mean, what fun is it to have a bunch of Stepford Wives that agree on every recruiting subject out there? Would that lead to progress? No way . . . so let’s have some fun, debate vigorously, and then shake hands and enjoy a drink afterward 🙂

  • Brian Whitfield

    15 years ago it seemed that many of the internal recruiters didn’t actually get to do much recruiting. They often times were also in HR/Benefits and were still doing those functions while asked to also find candidates for 20 simultaneous reqs. No wonder they had a hard time.

    Most of the internal teams I work with these days are quite good at recruiting. Just no doubt about it. Many of them are long term recruiters who have worked in agencies and/or other high volume type environments and definitely know what they are doing.

    Smart companies use external recruiters for specialty/difficult roles, critical positions, out of the necessity of the volumes of people they need, or because they want the best possible candidate regardless of source (sometimes the managers (and CEO) and HR have a different view on that part). That doesn’t make their own internal staff any less qualified. The economic value of hiring the best vs. even the second best or leaving a position unfilled can be huge sometimes – which is why the fee may not matter to them.

    Any 3rd party firm firm that takes an ‘us vs. them’ attitude just isn’t going to have as much success as a firm that truly acts as a team / extension of their customer’s internal staff.

    Staffing firms aren’t going away. Good ones that understand it isn’t ‘us vs them’ won’t anyway.

  • eric burton

    There are some very spot on points made by both corporate & TPR’s. Corporate Recruiting leaders know the value of partnering with a strong TPR.

    I think the biggest difference is not about the competencies of Corporate Recruiters vs. TPR’s, but more about the best use of time. I can only speak for my current recruiting team, but an average recruiter on my team will place 120 new hires at an average salary of $100K/hire – THAT WOULD BE $3M IN ANNUAL BILLINGS (Based upon 25% placement fee). I think that would make her a Top Biller in most TPR’s. TO pull this individual off of her normal work load to work 1 high level req would be at the detriment of 4 different multi-billion dollar projects.

    The smart business decision is to utilize outside firms for these higher paying reqs that also have a long recruiting cycle.

    And of course there are some key hires that require the secrecy that can only be provided by an outside agency.

    I would hope that more & more TPR’s realize that not every Corporate Recruiter is incompetent and that Corporate Recruiters realize the value that some TPR’s can bring them.

  • Darrin Grella

    Sweet article. I happen to be a recovering Agency Recruiter. I currently work as an internal recruiter and have to say that your info is dead on point. I think the majority (not all) of Corporate Recruiters are less than good. Our corporation is unique as I have been given liberty to implement an agency environment under the corporate umbrella.
    We reduced 3rd party agency fees from 2.5MM to 14,000 in 2 years. However we have just signed up for a retained search firm for an executive. The only reason is due to time. Just like what Karen Price mentioned above. We are all strapped for time and do not have the appropriate amount of time to dedicate to this important need. Even though we are more than capable of doing it, it is a different type of approach.
    Internal and External recruiters are at each others throats because internal teams feel threatened by the effectivness of an agency recruiter. Sorry but true.
    Excellent article Harry.

    Darrin Grella
    darrin.grella@brulant.com
    http://www.darringrella.blogspot.com

  • Joshua Letourneau

    Darrin, your Exec Search spend reduction is staggering. Cutting from $2.5M to $14k is nothing short of mind-blowing . . . so much so that it seems like potentially too much of a good thing.

    Let me explain: My first job out of the service was as a Buyer for a very large 3rd Party Logistics/Grocery Retailer (I think it was #9 in size at the time). As a buyer, one of my key KPIs’ was ‘Service Level’ (range 0% to 100%). If I always had enough stock in the distribution center, I wouldn’t have a ‘lost sale’ when one of our stores ordered that product. So, a “perfect” Service Level was 100%, meaning I always had product in stock when stores ordered it.

    However, Service Level wasn’t the whole story. Anyone who ordered far beyond what was necessary could maintain a 100% service level – but this would later present problems meeting minimum order requirements from vendors down the line. In a nutshell, if you over-ordered, you could hit that 100%.

    Now, there was another counter-balancing metric that was also very important: ‘Overstock Inventory’. If you had product sit in the distribution center beyond a given point, it would become ‘overstock’. These numbers counted against us as well, so the perfect ‘Overstock Inventory’ number was $0. As you can see, achieving a 100% Service Level with a $0 Overstock Inventory was virtually impossible.

    Here’s another irony: If you over-ordered, let’s not forget the additional costs. For example, the truckload would cost more, the handling costs would be higher (to put the product ‘away’), and the carrying costs would be higher. So, in the end, you would be operating in the red (or your purchased categories would) for your organization despite meeting a 100% Service Level with $0 Overstock Inventory over the short-run.

    This begs the question: Assuming you cut your Exec Search spend to $0, what else gives? Is this the key metric some Internal Recruiters are using? What are the ramifications on business performance down the line?

    I ask this because I can think of 2 distinct ways to cut Exec Search spend down to $0 immediately:

    A. Hire 10 More Internal Recruiters (yeah, you’ll cut fees . . . but look at overall cost).

    B. Relax Specifications and Hire All Job-Board Applicants (sure, this will further cut spend . . . but is there a long-term cost to the organization’s performance here?)

    Some things for us to think through and discuss . . . .

  • Phil Haynes

    Seems to me from all the comments above that the basic need is for someone to come up with a way to give the internal recruiting department more time.
    I think streamlining their sourcing for lower complexity roles would give them time (free capacity) to handle more complex, Sr searches.
    The first way is to stop buying into Niche job boards – fragmenting the e-recruiting world is helping no one in corporate recruiting. Having to search multiple boards or weed through hundreds of on line applications in an ATS are the two largest time sucks of a corporate recruiter. Followed closely by all those meetings! 😉

  • Rachel Schneider

    Some general commments:
    There are a ton of marketing agencies supporting sales and marketing departments similarly, this does not mean there is a “replacement” mentality or “we’re better than you” mentality. Many marketing agencies have niche specializations and are very good at what they do within particular industries, so they are utilized for the knowledge they have. The same principle should apply for recruiting agencies, many of whom are specialized and have (faster) access to resources, ability to quickly weed out bad apples, and can handle certain process and/or time aspects better. This is where the agency is earning a premium.
    That being said, corporate recruiting departments can do a better job by implementing efficiencies in process and subscribing to training. There are many Talent Executives who still are unaware of Maureen, Shally, and other sources of training that are proven to reduce sourcing time and provide efficiencies in one of the most time consuming areas. However, they continue to invest in technologies that promote some efficiencies – this is a help, but not a means for teaching recruiters to work more efficiently.
    Not all external agencies are good at what they do also, I have encountered some who claim to know passive candidate search and revert to “in box” and “job board” recruiting. Highly transactional firms that are “bodyshops”. In every profession there are the good and the bad. Yes, many internal recruiting departments ARE saddled with administristivia, meetings, politics, and other “things” that get in the way of getting the job done. Also, many smaller companies have limited internal resources and have to outsource…

    The reason why the agency world grew substantially over the last 5+ years is because of the outsourcing trend and benefits to non-organization competency reductions for economies of scale/cost, the entry barriers are so low that any recruiter can start an agency, and tight labor market leading to more “needle in the haystack” and longer search times – better to gain focus thru outsourcing. With declining economic conditions, we will rapidly see that non-profitable or underperforming agencies will disappear, overcapacity will weed out agencies, reduction of internal costs will lead to desire for internal efficiencies, a focus on training and process/workflow efficiency expertise, and an industry repositioning of firms.

    There are big picture drivers for these things…I wouldn’t be over optimistic about agency growth, it is like any other business. Good, strong, effective and performing agencies will always survive and be needed, so will good strong internal corporate recruiting departments proving their value to the management.

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  • Sylvia Dahlby

    Wow – I finally got through all of this most excellent thread. And I’m surprised I still have an additional .02 to toss into the discussion:

    In the 20 yrs that I’ve been in this industry, the demise of Search Firms has been predicted over & over (even before the Internet became a viable recruiting media and the pundits all thought that surely was the death knell for high search fees) … as if Search Firms are the evil empire that needs to be replaced with better advertising, sourcing, recruiting technology or anything anything to stop hiring managers from paying a fee to a headhunter.

    News flash: The more things change, the more they stay the same.

    The mix of tools & resources in the recruiters toolbox will change whether your a third-party recruiter or corporate employer – and you’ll always need the right mix of tools & resources to fill a particular job.

  • Nancy Anton

    Don’t forget.. we are dealing with executives who sometime believe, quality comes with price. If I found a new Porsche on Ebay for $5k, they would believe it couldn’t be that good. But, if they pay $80K for it, it must be the best. Higher quality is implied. It is up to the internal recruiter to make sure the candidates are truly high quality, and not just a price tag. Internal candidates should be managing the search process when using an outside firm. Just like a ‘recruited’ candidate seems far more attractive then one that was looking for the company. A working candidate, more attractive then one that has a package. Marketing has everything to do with it.. so we need, as internal recruiters, to remember that when making referrals to our hiring managers.

  • Keith Halperin

    Indeed, this is a well-established psychological principal.
    We should remember that much of recruiting is driven by the GAFI Principles:
    Greed
    Arrogance
    Fear
    Ignorance

    It is best to understand that these principles are often in operation and to use them to create an optimium situation for everyone involved.

    Cheers,

    Keith Halperin
    keithsrj@sbcglobal.net

  • http://www.targethr.us Anil Kumar

    The most important thing why search firms will never go out of business is coz …they treat their Candidates as their greatest assets.They select what is in best interests of both employer and the candidate…..and the prospects feel free to discuss their concerns with an external recruiter without being criticised.
    While the corporate recruiters lose time on filtering irrelevant CV’s received by the company mail-box…. and after selecting few CVs…. try to fill the positions by selecting the cv Which they think is more relevant.

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