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Why Aren’t Search Firms Out of Business?
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Given that:
…Why aren’t search firms out of business?
In the face of all of this, the executive search Industry is not only nowhere near close to going under, it’s thriving. (The current economic downturn will temporarily halt this, but overall growth in the search industry has been explosive over the last 10 years.)
Consider this:
That the search industry has been growing may not be surprising, but the speed at which it is skyrocketing is, especially in the face of all the investment made over that same period into internal recruiting functions.
After all, it wasn’t too many years ago that staffing industry pundits were predicting the demise of the search industry, in the same manner that real estate brokers and stock brokers were supposed to disappear, thanks to the power of the Internet and its open access to information. After all, who needs a third party when all of their previously proprietary information is available for free or inexpensively on the Web?
There is an old axiom in the search business about competition that goes like this: “Other search firms aren’t our competition — competent internal recruiting functions are.”
When an internal function is competent and able to fill openings effectively, there’s no need to hire external firms. Therefore, as internal competence grows, more and more difficult positions are serviced in-house and fewer (or no) roles require external assistance. As a result, the market for external search shrinks as fewer positions make their way to external firms.
But this is in fact the opposite of what has happened: the demand for external firms has increased exponentially. This phenomenal growth in the search business tell us that search firms do a better job, or at least that they are perceived to do a better job, by the executives who choose to engage them over their own internal recruiting group.
Now before you pummel me with negative commentary, understand that I wish there were another conclusion to draw. But there really isn’t, and facing our shortfalls is the first step toward fixing the problem.
The recruiting service that is perceived to be the most valuable by executives is recruiting the top roles. This is easily proven by looking at the high fees executives are willing to pay for a single hire. The average search fee of $110,000 for one hire is more than most corporate recruiters make in an entire year.
The reason that executives are willing to pay high fees for search services — and worse, to not even consider giving search assignments to many internal functions — is because they perceive the external provider to be a more credible, capable, and more reliable source of talent. Why is this so?
There are several key differentiators for search firms that clearly distinguish them from the typical internal recruiting function. Although there are more, here are the top five that internal recruiting functions can adapt that will improve their outcomes dramatically. And, these can be integrated into most recruiting functions quickly and easily:
Run the assignment like a project and dictate methods
The first thing that search firms do differently from most corporate functions is to take absolute control of the project. This includes a documented project plan, timelines, and crystal-clear delineations of roles, responsibilities, and mutual deliverables.
It also includes getting the client to agree to follow the search firm’s project methodology, not the client’s. A critical mistake we often see corporate recruiting teams make is asking higher-ranking leaders how they would like to see the project unfold. Expert service providers dictate methods so that they can guarantee the results. Insisting on following the correct methodology is a key step that is too often missed by internal teams.
Force the client to define their hiring requirement in light of market realities
A good search consultant will excel at making sure the hiring requirement is specific, realistic, and actionable in the talent market.
This can be challenging since managers often provide requirements that read more like a wish list rather than a carefully considered formula for success. We have observed internal recruiters accepting assignments that contain so many hiring requirements that they cannot be fulfilled in the market.
Recruiters should take an active role in helping to build the hiring requirement right from the outset. It may be necessary to challenge the hiring manager on unrealistic requirements, too many requirements, or too broad a requirements set.
Secure the proper level of project funding
Why do we fund search firms with high fees, while internal organizations are forced to continually drive down the costs of recruiting to lower levels?
In some ways, internal organizations themselves are to blame because they have positioned their value equation in terms of cost reductions. They brag about reducing cost-per-hire and total recruiting spend. Yet, the reality is that some positions will cost more — and perhaps dramatically more — to fill than the average.
No search firm would accept an assignment for less than the cost of delivery. Internal teams shouldn’t either. To gain approvals for higher levels of funding, make the value of the service crystal clear and avoid focusing on the cost of the service.
Hire top recruiters with deep industry experience/subject-matter expertise
The most clearly visible difference between search firms and internal functions is the level of recruiter working in each.
In the course of our consulting work, we’ve met plenty of excellent internal recruiters. Unfortunately, we have met many more who really aren’t qualified for recruiting roles. Worse, we’ve meet some recruiting leaders who really don’t have much of a background in recruiting.
To really excel at recruiting, internal functions should take a lesson in staffing their recruiting functions with strong, industry-savvy recruiters who possess foundation knowledge in recruiting as a profession. Start by hiring a seasoned recruitment leader who understands talent markets, marketing principles, selling, internal consulting, and knowledge transfer. Select staff members who have been trained in the recruiting industry at some point in their careers and have enjoyed success in contingent/search roles but also understand the realities and limitations of internal recruiting functions.
Continually work a database of industry contacts/potential future hires
This is straight out of Recruiting 101, but let’s face it; search firms do a better job of building and maintaining recruiting networks than internal functions.
Part of the reason, of course, is that fees give them ample funding to do so. But another large part is that they are serious about recruiting for the long haul, and internal organizations are serious about recruiting to fill the open req in front of them.
This difference in focus changes everything about their behavior. When recruiters are pressured to fill today’s openings, they have little time to focus on cultivating tomorrow’s potential hires.
Most companies have plenty of resumes in the ATS/hiring management systems but have not built the capability or the know-how to stay abreast of who’s who and who’s where in the target talent markets critical to their growth. Building a robust database of key talent targets, engaging those targets in meaningful dialogue, and nursing relationships over time will pay big recruiting dividends over the long haul.
If corporate recruiting functions were truly great at recruiting and had the credibility they seek with top executives, then there would be limited need for third-party search firms. Realistically, there will always be a need for competent search firms. But the accelerated growth of this industry over the last 5-10 years indicates that internal functions are failing to deliver the most critical, and arguably the most valuable, recruiting services in a way that puts internal functions on equal footing with our external counterparts.
It’s time we took a hard look at why.