Third-Party Agencies: Where Are They Headed?

Jan 24, 2007

How have third-party agencies fared over the past five years with the rise of Internet recruiting? Are there more of them or fewer? Are they doing what they did five years ago? How have they changed? What is going to happen to employment agencies over the next few years?

Agency owners and users, from Europe to Australia, constantly ask me such questions during my travels. Everyone agrees that times are changing and the role of agencies along with them. While there will always be a handful of agencies that remain similar to those we have today, most will undergo major evolution.

The employment agency will survive but will clearly have to provide more services and of a different type than they do now. Many will become more of a talent agency that provides their client organizations with strategy advice and employment-related consulting and their candidates with career assessment and guidance.

The new charter is, simply, to provide firms with much better qualified and screened candidates than is typical today. Some of this vision already exists in the exclusive executive search firms where candidate coaching and career guidance has been common for years.

However, this has only really applied to executives and very senior technical staff. I see this spreading to most professions over the next few years. And even the consulting I mention is not new, but it will be much more widespread and more commonly offered than it is now.

These are the trends that I see occurring:

  1. Agencies will become more niched and specialized. 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 for e-commerce firms. Large firms may be able to encompass several 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, and therefore the market is ripe for agencies. Agencies will charge a transaction fee for the research they do and the names they supply. Or they could offer to do a full recruiting process at a fixed fee or on a percentage basis as they do today.
  2. They 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. And, they will have a sense of their abilities 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 provide their information and services to another agency.
  3. They will build strong relationships with candidates, act as talent managers for many of them, and collect fees from the candidates for career management. I see the best agencies becoming much like sports talent agents, coaching and guiding candidates to the best jobs and even helping them negotiate salaries and compensation packages. They will offer career coaching on an ongoing basis and even provide additional training or skills development, if they think that will enhance the total “worth” of the candidate to a client. They may recommend certain kinds of development for a candidate or give them feedback on previous performance. I envision this looking much like the arrangement many of us have with a financial advisor. For an annual fee or for a percentage of the portfolio, they will manage your account and provide you with advice and education on financial and tax matters. No wise agency will recruit candidates from current employers, but may provide career advice. There will have to be some procedures developed to protect both clients and candidates.
  4. Candidates will be guaranteed placement. The agencies will not only guarantee a candidate to a client, but also a position 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.
  5. Agency fees will increase, but only when the value-added is also clear and increasing.

    By doing this intensive knowledge gathering and screening, they will be able to add great value to the firms they service. They will provide very well-screened candidates ready to go to work immediately. The more 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 receiving a single commission charge.

  6. Agencies will represent a variety of clients: 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 in, 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.

Firms large and small are already outsourcing much, if not all, of their recruiting to well-qualified recruitment process outsourcing agencies. However, I think there will be decreasing desire for agencies that try to provide candidates for all professions and do not bother to really understand the firms they are placing people in or the people they are placing.

In all my research and discussions, employers want more customized and personal relationships and are seeking more perceived value from the agencies than they are getting now.

Agencies are going to have to develop more flexible pricing and add value beyond simply sourcing and lightly screening candidates. The ultimate path may be in offering consulting and taking over the entire process for clients.

The non-profit Recruitment Process Outsourcing Association has already begun defining standards for this emerging area of recruiting and is setting itself up to be the forum for discussion and for improving the quality and standards of recruiting firms.

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.

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