The Evolution of Recruitment Agencies

While some us feared that recruitment agencies would disappear because of the Internet, networking, job boards, referral, and corporate websites, they are still prospering. Companies have not turned away from agencies because they offer an easy and fast solution to the largest problem most firms have: sourcing qualified people. Over the past two weeks I have been traveling and speaking in New Zealand and Australia, frequently to the owners and recruiters of recruiting agencies. All of them are concerned about the changing nature of the marketplace and the growing tendency for corporations to bring recruiting inside. More and more often, enlightened corporate recruiting directors see that they have access to the same tools that agencies do and can provide their internal clients a similar level of sourcing expertise. This is a healthy movement, as it puts the pressure on the agencies to reinvent themselves. I believe that the employment agency will survive but will clearly have to become more of a talent agency that provides candidates with career assessment and guidance and provides firms with much better qualified and screened candidates than is typical today. Some of this vision exists in the boutique search firms and will be the key to long-term agency survival and success. These are the trends that I see occurring:

Agencies will become more specialized while providing a broader range of services. They will seek candidates in a narrow range of skill sets and become very knowledgeable about everyone in that profession in a particular geography. For example, they might focus on Java programmers. Large firms may be able to encompass several professions of these professions, but each will be treated in a unique way. A big part of the new agency’s role will be competitive intelligence work and candidate pool development. Only the largest of corporations will be able to afford to do this on their own, making the market ripe for agencies that can perform these functions. Agencies might simply charge a transaction fee for supplying a few names. Or they could offer to do a full recruiting process at a fixed fee or on a percentage basis as they do today.

Agencies will have in-depth knowledge of the people in a particular niche. They will have knowledge of all the e-commerce Java programmers in the San Francisco Bay Area, for example. They will have a sense of the abilities of many of these programs, and even, perhaps, have those abilities ranked. They will know each programmer’s accomplishments and past employment history and who they would most like to work for. This knowledge, too, can be sold and packaged for clients. One agency could even provide their information and services to another agency.
Agencies will build strong, ongoing relationships with candidates and act as talent managers for many of them. I see the best agencies becoming much like sports talent agents, coaching and guiding candidates to the best jobs. They will more carefully match candidates to organizations where there will be a good culture fit and where they can receive the kind of support, career development, or benefits those candidates seek. The best agencies will be very good at matching organizations, candidates, and hiring managers. They may recommend certain kinds of development for a candidate or give them feedback on previous performance. No wise agency will recruit candidates from current employers, but agencies may instead provide career advice and maintain an ongoing relationship with candidates after placement. There will have to be some procedures developed to protect both clients and candidates.
Candidates and hiring organizations will receive guarantees. Agencies will not only guarantee a candidate to a client, but also career opportunities to the candidate. As part of this newly emerging career management service, I see a two-way relationship. Because of this, agencies will be much more careful about the candidates they take on and about the quality of their skills. Likewise, they will more carefully evaluate clients and build ongoing relationships where communication is constant and frictionless.
Agency fees will increase, but only when the value added is also clear and increasing. Agencies can maintain or raise their fees in direct proportion to the level of service and guarantee they provide. To achieve this, agencies will have to define clearly the benefits that the client will receive and re-educate many clients. They will have to show that they will provide very well-screened candidates who are ready to go to work immediately. The more services they can provide, the more they can earn. Some fees may come from transactions, others from commissions or other fees. Whatever emerges will be far more complex and multifaceted than what we find in today’s market. Many small fees may be accumulated via transactions rather than a single commission charge. I think the traditional and simple commission model will fade away.
Agencies will work with a variety of job types, including permanent (regular), temporary, part-time, and contracted. Many employers will want a mix of all these types for different purposes. Some agencies will be placing project teams with specific contracted job durations and scope. The best agencies will handle all of this, again, in a specialized area. They may actively help employees decide to change status and may coach both managers and candidates on how to work together more effectively. Each of these activities may involve fees, albeit small ones.

In the end, I think that many small firms will completely outsource their recruiting to agencies (RPO) and large firms will outsource their recruiting for specific professions or job types. However, I think there will be decreasing desire for agencies that try to provide all professions. In all my research and discussions, employers want more customized and personal relationships and are seeking more perceived value from agencies than they getting now. Agencies are going to have to develop more flexible pricing and add value beyond simply sourcing and lightly screening candidates. The success stories will be about those agencies that can develop a value-added process that benefits both the employers and the job seeker. In doing this there will be great wealth for those who are successful.