8 Trends and Challenges Facing Search Firms (and Pricing Is One of Them)

Note: This is the first of a two-part article on what the future holds for external recruiters and executive search, and for the clients they serve. It is developed by the author from a seminar presentation he did in Budapest on “The Future Of Recruitment.” Part two will post Friday.

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On 12 June, I was invited to hold a seminar on “The Future Of Recruitment“ in Budapest, organized by our local partner office Ikelosz/ Kennedy Executive Search Hungary. And just like with the Rubik’s cube – a famous Hungarian invention – it is not always easy to define what the right move is. What does the future hold for us? What will change, what will stay the same? So far, all we know is, as Peter Drucker would say, “It will be different.”

However, there are some trends impacting the recruitment industry. Here are the 8 hottest challenges agency recruiting faces:

1. New pricing models

In some of the markets we serve, the retainer model is challenged. Clients want to run lower risk and work on a contingency basis. They do not consider that the “fill ratio” (i.e. the percentage of assignments that conclude with the actual placement of a candidate) for a contingent job is 20% and for a retained one 60-80% industry average (and, ahem, 95% here at Kennedy).

In the past, retained firms could say, “Pay me one third now; the next in 30 days; the last in 60 days even if you have seen no candidates. Plus 20% admin costs, of course.”

Today, clients challenge this – and they should. They ask: Work for a flat fee? Link the second retainer to the invitation of at least two candidates? Or add services such as onboarding? If you currently negotiate with an executive search firm, the above are pointers for you.

2. Digitalization

You have heard before that LinkedIn will be the end of external recruiters? They said the same when Monster.com was founded.; when the fax machine was invented. All industries I know are impacted by digitalization. Information is accessible to everyone. 24/7. What you do with the information is the question.

LinkedIn, artificial intelligence and big data are just tools. Yes, they do replace some of the tasks that are done by humans today. But they will allow the remaining ones to work more efficiently. As long as you deal with people (recruitment), people must be in the selection process. That will continue.

3. In-house recruiters

Internal recruiters will always better understand the company culture than a recruitment firm. There clearly are jobs that can be filled by internal recruiters.

The executive search firm, on the other hand, can bring in another vision and may be less biased. When it gets hairy or when an undercover approach is needed, however, that’s where we come in. The times where we got a fee for transactional recruitments is over or will soon be.

When internal and external recruiters work together in a complementary way and not in competition, both will serve their clients better — hiring managers and candidates.

4. Changed candidate behavior

Clients and candidates meet on eye level today. The old power balance — “I am the boss, you are my subordinate” — is broken.

Employer branding (heard this one before, you say?) is vital today. Candidates will look your company up on Glassdoor. They will check you out, yes, you personally, as their potential boss on LinkedIn and Facebook. If you want to attract the best talent, make sure you are the best employer. Treat your employees like you do your customers or they will go to your competition. Like customers..

5. Changed client behavior: They want clones

Clients tell us they want someone who is doing the same job at their direct competitor. Is this how we will create the enterprise of tomorrow? Develop a more innovative brain pool? How will we remain competitive and sharp by hiring clones?

However, we observe this all over Europe and the US. Fighting this means inviting that outsider candidate. And often s/he will be the one who gets hired!

6. Stagnant revenues in the core business

Executive search is a $13 billion USD business worldwide (as per the AESC). This number is growing – but not in the traditional core business. Some of the big players generate up to 50% of their revenues with leadership consulting, a once non-core business.

Diversification is the new black. And we all want to wear it. Assessment, board advisory, coaching? If we want to move away from the purely transactional recruitment business to become true advisors, we have to embrace these.

7. Persistence in an industry with black sheep

Barriers of entry are incredibly low in this industry. To become a headhunter, all you need is a business card and a phone. In most countries, no license is required. Not even your criminal record will be checked. (Welcome, if you are an ex-con!) To be a GOOD headhunter, though, is a completely different story. Ethics, processes, questioning techniques, good judgment and much, much experience are criteria that will make the difference.

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Every client and candidate I know has had at least one negative experience with an external recruiter. We face the challenge of making a difference in an industry with a not always good reputation — of showing the long-term thinking and maturity to do this job the right way.

In the end, it is the most beautiful profession in the world: We help candidates grow and companies reach their targets. Wonderful!

8. Internationalization

Today, talent flows freely from country to country. In some parts of the world, Europe especially, it is normal to hop on an airplane  Monday morning and fly to your office in another country. Or work from your home-office abroad. Recruiters must respond to this trend by offering both a deep understanding of the local market we serve whilst bearing in mind the global marketplace.

If we want to shape the world of labor tomorrow, we must understand its state of mind today. The world is becoming smaller. Our mindset must become larger. Local is important. Global, too. If we understand what moves talent globally, we have the answer on how to overcome ALL the above challenges.

I’ll have more on this tomorrow.

This article originally appeared in a slightly different form on the Kennedy Executive website.