Agency Recruiting: The Unmanaged $8 Billion Spend

Aug 28, 2013
Mike Hard
Mike Hard

2012 was one of the biggest M&A years for recruiting technology: Kenexa bought by IBM, Taleo by Oracle, SuccessFactors by SAP, etc. With all the consolidation and innovation, however, it’s ironic that one major source of talent acquisition remains stubbornly resistant to change: the way companies find, communicate, and work with search firms.

The oversight certainly isn’t due to a decline in the relevance of third party recruiters. Despite the emergence of LinkedIn, recruiting agency usage is exploding. Staffing Industry Analysts’ most recent report predicts that agency spend will hit $8B in 2014 (not including retained search), more than double what was spent as recently as five years ago. CareerXroads, in its 2013 Sources of Hire report, found agencies were responsible for 3.1% of all hires in 2012. Since agencies account for some of the most critical hires any recruiting team will make, one would think of this as an area corporations have locked up and tightly managed.

Anachronistic Management

2012 Source of hire CareerXroadsHowever, the reality is that the management of third-party recruiting agencies (“headhunters”) is anachronistic. Most companies have no way to manage compliance across the organization, no visibility into agency performance, and no workflow around communicating with agencies. In fact, many companies would be challenged to even tell you how much money they spent on agency fees last year, despite the fact that this figure can reach millions of dollars.

Why are companies so resistant to change in this area? Part of the reason is simple economics: $8B is a big number, but it dwarfs in comparison to the $111B that SIA estimates US companies will spend through temporary staffing vendors in 2014.

Little Visibility

It’s more than math, however. An employer’s decision to use a recruiting agency is often made department by department and without transparency. No single decision-maker has responsibility (or visibility) over the budget, allowing the magnitude of spend to get lost. Ironically, the department most knowledgeable about the pervasive use of agencies (the recruiting department) might be reluctant to call attention to them for fear (misplaced) that it will reflect poorly on its own ability to source candidates.

In reality, search firms have long proven to be one of the most effective sources for key candidates, and a great agency strategy augments a great recruiting team. The most forward thinking companies have partnered with business units to create a shared vision of when search firms are to be used, a mutually agreed upon process for ensuring accountability, and a common set of metrics to track performance.

A Smart Strategy

Agencies are a smart part of any recruiting strategy when planned strategically on the front end rather than executed haphazardly (and expensively) on the back end. The nature of the strategy can vary. One company may use agencies only for rarely recruited roles, while another may choose to independently recruit for all roles, but agree with business units to turn to agencies when critical roles have been open for a set period of time.

While an upfront agreement on agency usage is powerful, that clarity is wasted without an agreement on process. Recruiting teams have much better use for their time than playing “headhunter police” to enforce the proper usage of search firms. They agree in advance on critical items such as the make-up of the preferred vendor list, who makes the call on which agencies are used (and under what criteria), or the point in which new agencies should be added to a critical (but long unfilled) job opening. They then create metrics to keep those processes on track, and regularly report progress and improvement.

Like any part of recruiting, there is no magic bullet, no one technology vendor and no set of agencies that is going to be the answer. Forward thinking recruiting departments recognize the role agencies play in their process, and proactively create strategy, process, and measurement to ensure success.

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