Talent Mobility, Fee Discounting Putting Pressure On European Search

The world is changing faster than it used to. Most industries are undergoing dramatic change at the moment.

As service providers of virtually all businesses that exist, we feel the impact more than others.

Recruitment in all its facets is a good indicator of how an economy is doing. In boom times we do well; in crisis, we do poorly. When managers are optimistic and are changing jobs easily, we make business. When they fear the future and stick to their seats, we don’t.

The situation in Europe is difficult at the moment. Two of the strongest economies here, Germany and France (by the way, historically, the two first offices of my firm, Kennedy Executive Search & Outplacement) have not yet fully freed themselves from the last crisis. Though unemployment is low, especially in Germany, economic growth is modest, and companies are hesitant about the future despite some positive signs. Other countries such as Greece or even Spain are deeply stuck in a seemingly never-ending crisis with unemployment rates above 20%.

And now much of Europe is dealing with the Syrian refugee crisis.

Yogi Berra said, ”It is difficult to make predictions, especially about the future.“ And Peter Drucker added, ”All we know about the future is that it will be different.” However, there seems to be some trends affecting independent search consultants here in Europe.

Search Trends In Europe

Here are some observations based on what I hear from my clients, partners and contacts in France, Germany, Austria, Switzerland, the Czech Republic, Italy, Spain and the UK:

1. Reduced loyalty on all fronts: The most painful learning (for our candidates) from the last crisis was that whether you are good or bad in what you are doing, you might lose your job nonetheless.This understanding has strongly impacted the collective subconscious.

The employer-employee relationship is perceived differently today. Loyalty from employees to their employers has decreased. And the same goes for clients toward recruitment firms. As switching costs are zero, clients “try out” new recruiters more easily than in the past. I hear from clients and partners alike that many recruitment firms (especially in the UK) prospect cross-border in continental Europe offering contingency based recruitment services at 18% or less. And some clients say, “Why not?” and give it a try.

2. Changed pricing and fee structure: Fees are apparently decreasing all over Europe — clients negotiate harder despite the fact that they are short of talent. It is harder to sell retainers too, say some colleagues. I hear from different corners in Europe that even the big five search firms have difficulty selling retainers in the thirty something percentages. A reliable client tells me convincingly that a recognized, global player we all know works at 15% (given their notoriety, they should not go below 25%).

The way fees are calculated is changing, too. Whereas working at a flat fee used to be a differentiator only a few years ago, today more and more clients don’t want to pay a percentage. Overall, negotiation has become tougher, especially for independent search consultants, and you have to be better to get your fee today.

3. Differentiation: Many recruiters in Europe feel that mere recruitment is not good enough to remain competitive. LinkedIn for sure plays a role in that, and, between us, a hiring company does not have to pay $10k US to a recruitment firm to find a junior financial controller.

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Will LinkedIn completely catapult us all out of business? I do not think so. The same fear was there when Monster appeared. But social media, and candidates who are accessible to everyone at anytime through the internet, push us to think over our service offer. Fees cannot be reduced endlessly (or should not be reduced at all if you don’t want to get trapped in a downward spiral) and thus, service and quality have to go up. Many recruiters want to achieve this by adding coaching, talent management, training or assessment. The additional services often represents up to 20% of their revenues.

4. International is the new black: Whether I talk to independent search consultants in the Czech Republic, Italy, Spain, the UK, Germany, Austria or Switzerland, I hear the same thing: a strong belief that it is not enough anymore in 2015 to have a fine boutique firm and deliver top notch service to clients and candidates alike. (Five years ago, the thinking was “treat the candidates well as they are your future clients,” but few really did it.) Many independent search firms feel today that having an international foot print is how to take the company to the next level, competing in an environment that is getting fiercer and upgrading their business and their fees.

5. Partner networks versus corporate careers: The answer to the last point – gaining an international presence – is often to join a partner network such as IIC Partners, IMD or, of course, Kennedy Executive. These arrangements allow firms to work on eye level in networks and alliances as equal partners, sharing leads and best practices without being bound to a strict hierarchy, which many independent search consultants deliberately left, creating their own firm. And as we are at the heart of the macro-cosmos of labor, this is a good translation of what work might look like in the coming years, too: flexible, autonomous yet inter-dependent.

The Outlook for the Rest of the Year

Many indicators predict growth for us here in Europe.

Europe’s stronger economies have decreasing birth rates and talent shortage is omnipresent today (one reason Germany is willing to accept so many refugees). A client in Germany told me that he recruits entry level engineers in Spain and Portugal as he does not find them locally. It is not unusual for senior managers to live in the UK, but work in France and fly in every Monday morning.

To achieve a competitive edge, companies still have to rely on innovation and technology, but once gained, the competitive advantage will be maintained by the people who are delivering the service to the customers. And these people will leave more readily than in the past if they feel that they are not treated well. Knowledge workers change jobs more easily than in the past; talent flows freely and, like a fluid, it is not easy to hold. To get this top talent, a direct search approach was and remains the best way.

Let us work hard, polish our service offerings and show rock solid business ethics and the future will look bright for us. After all, executive search or recruitment as such is one of the most ethical businesses in the world if done properly!

Jorg Stegemann is the CEO of Kennedy Executive Search & Consulting, one of the top 25 networks of independent executive search firms, with offices in Europe and the USA.

A headhunter and business writer, Jorg has 25 years of international work experience. Since 2001, he has successfully managed 350 in executive search and recruitment assignments and counseled hundreds of international clients and candidates.

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