Amp up your agency recruiting with innovative software.
By Mark Steinke and David Apple
Is agency recruitment a dying industry?
The past few years arguably have been the most difficult time in history for recruitment agencies. They have been hit by the compounded challenges of a global recession and a boom in social media—a format that makes it easier and cheaper for employers to connect directly with candidates. As with many other industries being forced to adapt to technological changes—newspaper, music, and movie industries being the most obvious examples—recruitment agencies must innovate or risk extinction. Some innovations in recruitment do offer the promise to move the industry in the right direction.
But challenges still must be overcome.
External recruitment has the power to deliver three very important business needs:
Access to talent. It might be cliché to say that people make an organization, but it is certainly true. Companies are in a constant state of fierce competition to identify, attract, and retain the best talent from around the globe. A challenge however, is that the most sought-after candidates are often not actively searching for new opportunities, because—even during a recession—they tend to retain their jobs. A way to identify and connect with these individuals is to spend time networking within an industry. Organizations often rely on recruitment agencies to gain access to these talented individuals.
Cost-effectiveness. As with accounting and legal services, recruitment is necessary to run and grow a business. Most companies outsource a portion of their legal requirements to law firms, because it is more cost-effective than paying a specialized legal team’s salary. It is a simple calculation: Estimate the fees associated with a law firm taking care of their legal issues, and compare that with the cost of hiring a legal team.
The same calculation applies to recruitment agencies. In other words, bringing all recruitment in-house does not necessarily reduce overall costs. The most cost-effective solution will be dependent on the overall volume of job openings, as well as the number of speciality roles. A break-even point exists at which it is more cost-effective to hire an in-house recruiter than it is to use an agency, but most organizations are not aware of their break-even point, let alone of how much they are spending on recruitment.
Volume fluctuation. Many organizations experience periods of low recruitment activity followed by high volumes of recruitment in a short period of time. These cycles can even occur several times a year. In such circumstances it is not cost-effective to have a large internal recruitment team waiting around for the periods of high volume. It is more efficient to have an internal team that can cope with the majority of the annual requisitions, and to use agencies for the periods of high volume.
So what needs to change in the recruitment industry? A few factors weigh on the future success of external talent acquisition:
Performance tracking. Some recruitment agents are quite professional, others less so. Since most employers do not track the performance of the agencies they work with, it’s difficult for them to gauge whether they are working with elite recruitment agencies or mediocre ones. Tracking the performance of recruitment agencies will enable the best recruiters to stand apart from the rest, thereby pushing the entire industry to become more professional and competitive.
Visibility on recruitment spending. Companies need to acquire better visibility of their recruitment spending. Having detailed spend information makes it easier to make strategic decisions on the structure of the internal recruitment staff. Plus, higher visibility will give organizations more leverage when negotiating with agencies.
Focus on talent search. Recruitment agencies generally spend too much time trying to find job openings, and not enough time finding great candidates. The industry would operate more efficiently if agencies spent most of their time and effort looking for talented candidates.
Reduce the cost of using agencies. In some countries, such as India and Israel, the average fee for a filled position is about 8 percent of the candidate’s salary. In Western Europe and the United States, that figure is closer to 25 percent. In India and Israel, it is more cost-effective for employers to use recruitment agencies than it is to build an internal recruitment team because the cost per transaction is relatively low. If the cost per transaction were to decrease in Western Europe and in the U.S., agency volumes would drastically increase as companies would find that it is more cost-effective to use agencies than to have large internal recruitment teams.
Software also plays a role. Agency Relationship Management (ARM) software connect companies to recruitment agencies. Using an ARM system eliminates the need to deal with hundreds of different vendors worldwide by having one single global vendor.
An ARM system has multiple benefits:
Simplifying procurement. Having a single vendor worldwide means that only one contract is required to cover all recruitment transactions. All of the invoicing is automated, with only one entity to pay for all external recruitment worldwide.
Detailed reporting on spending. Since all global recruitment activity is centralized on one platform with an ARM, real-time detailed reporting on recruitment spending is available. The data can be analyzed by division, by geography, by time period, as well as other factors. This information allows organizations to assess their efficiency, and to make strategic decisions about their recruitment spending accordingly.
Detailed reporting on supplier performance. ARM systems provide detailed reporting on the performance of suppliers. The reporting enables employers to analyze which agencies have proven success in specific industries, disciplines, geographies, and roles. This information allows employers to strategically select the supplier for each specific job. Overall, detailed reporting on supplier performance gives employers the insights required to improve the quality of hires, reduce the time to fill, and decrease overall costs.
Connecting to a larger network of talent. An ARM platform allows employers to interact with all of their existing preferred suppliers via one organized platform. If they find it difficult to fill a position when working with their existing suppliers, employers can post the requisition to the entire network of suppliers using the ARM platform, thereby accessing many more qualified and proven recruitment consultants. Posting job openings to the right qualified and proven suppliers reduces the time to fill and provides faster and better access to talent.
Managing the hiring managers. With all of the visibility gained through an ARM platform, the HR division of organizations will have the ability to more effectively manage their hiring managers while also providing higher quality recruitment services to them. Additionally an ARM platform that allows HR to invite hiring managers into the recruitment process by participating in all phases will strengthen engagement and quality of the hire.
Automated invoicing. Because all agency transactions go through one single global ARM vendor, all invoicing can be automated. This feature saves countless administrative hours and can single-handedly justify the implementation of an ARM system, both from the employer’s and the recruitment agency’s perspectives.
By organizing agency recruitment in a powerful, innovative tool, ARM systems are becoming an essential in any company’s recruitment toolkit. By making agency recruitment more efficient and more transparent, ARM systems have the potential to redefine the entire recruitment industry.
Mark Steinke is president and COO of Candex and David Apple is the vice president for the organization.