The announcement that Randstad had bought Monster was just the latest in an accelerating trend of M&A in the recruitment industry between technology companies and traditional staffing/recruitment services companies. This announcement comes on the heels of LinkedIn’s acquisition by Microsoft, and Indeed/Recruit Holdings buying SimplyHired in a fire sale. These announcements are just the beginning of the inevitable convergence of job boards, online recruiting technologies, and traditional recruiting and staffing services (as I started writing this piece I saw that Vettery announced it raised an impressive $9MM Series A Round).
The blogosphere is already filled with commentary about whether or not all this M&A & VC funding activity are “smart investments.” To individual recruiters, this aspect of all these major news announcements in the recruitment industry and talent-acquisition technology is just noise. Therefore, I hope to take a more relevant approach by explaining in plain terms to individual players in the recruitment industry what is occurring, why it should matter to them even if they don’t care about the stock market, etc. Additionally, I will illustrate what all this indicates for the recruitment industry and the livelihood of individual players in the industry moving forward. Let us start by addressing the first question.
What’s Going On
To avoid going on a long-winded tangent or backstory of how the recruitment industry got to this point, laymen readers can take comfort and confidence understanding that what is occurring in the recruitment industry is the same thing that has already occurred in the financial services & marketing-advertising industries. This change is both natural and inevitable. Bigger players in the industry such as Randstad, Indeed (Recruit Holdings), and LinkedIn (now Microsoft) are buying up smaller players and are expanding their services offerings via acquisition or building their own new business.
Commentators on the recruitment industry have always noted accurately and half disparagingly the fundamental truth of economic change is that finance will be the early adopters, followed by marketing, with HR always being the laggard. The same is true with the M&A going on recently in the recruitment industry to offer clients more one-stop shopping improved technologies, and increased synergies with complementary services for added customer convenience and improved cash flow. Investors and customers for all service industries do not want companies to be a one-trick pony. Customers in the recruitment services industry want, as much as possible, to have one-stop shopping for their various recruiting needs: job advertising, consulting, executive search, staffing, etc.
For reasons I elaborate on below, this change is inevitable because it makes economic sense — on paper at least. Recruiters and recruitment service providers must be prepared for this change. As the industry evolves, individual recruiters must learn to evolve alongside the industry in order survive and thrive.
What This M&A and Investment Activity Means for the Future of the Recruitment industry
Recruiters and other players in the recruitment industry have no need to be alarmed. Agency recruiting is here to stay. Job boards are here to stay. Corporate recruiting is here to stay. However, what is changing is that the perceived value proposition and thus the profit margins of each of these services have been and are increasingly being eaten away by intense competition and increased corporate pressures to cut costs at all costs. Just as small individual players that provide a great service to great clients with whom they have great relationships have survived in other industries, the same will hold true in recruiting.
However, what will change is with increasing competition and increase pressure to provide results and/or to cut prices is an inevitable divergence in the entire recruitment industry.
On one side there will be an intense race to the top for the select few who can provide premium service and can command a premium price.
On the other side will be an intense race to the bottom for the masses to find a way to compete by dropping their prices/salaries and perhaps, ultimately, getting out of the recruitment industry entirely out of frustration.
To better explain this, below I have articulated five specific ways in which this divergence will play out in the recruitment industry.
Online job boards, recruitment tools, and recruitment agencies will continue to merge or change business models in order to offer employers “technology enhanced recruitment” services.
Just as digital advertising and marketing are increasingly moving to a pay-for-performance model, the future of the recruitment advertising is ultimately pay per hire. Not pay per click. Not per pay applicant. This of course is not a new concept to agency recruiters, who adopted the model long ago. Therefore, the logical next step will be for talent-acquisition technology and recruitment services and agencies to merge business models to offer “technology enhanced recruitment.”
As a recruiter myself, this seems logical and inevitable. Recruiting agencies are looking for additional revenue streams and additional ways to differentiate their services from a highly saturated marketplace. From my observations at the talent technology and recruiting industry events, I notice that the suppliers are looking for new avenues to engage prospective clients and also to find new way to address the “attribution problem” of not getting credit/revenue even when they were influential to a job seeker applying for a job.
Ultimately, as the future of talent technology is pay per hire anyway, technology companies will find it makes business sense to get in the recruiting game themselves as large companies such as Indeed, Monster (which acquired RPO TalentFusion), Careerbuilder, and startups such Anthology (formerly Poachable), and Vettery have already done.
RPOs, vendor management systems, managed service providers, and recruitment process insourcers will become increasingly attractive recruiting solution options to employers.
It is unfortunate, but true, that talent acquisition will continue to be regarded and treated by most employers as a cost center rather than a prospective strategic asset. Therefore, as talent acquisition increasingly strives to “fight for its seat at the table,” business leaders are increasingly demanding results from talent acquisition — measurable results. Talent acquisition at companies large and small have been and will remain ill equipped to measure results, report results, and thus to justify their ROI to the C suite.
Increasingly corporations are turning to outsourced recruitment service providers in efforts to cut costs, improve nominal efficiencies, enhance nominal cash flow flexibility, and drive nominal ROI from the talent acquisition function. I keep saying “nominal” because as an admittedly biased recruiter, I am highly skeptical of most recruiting statistics used to monitor performance and ROI of talent acquisition as recruiters never act independently of the individual businesses, offices, and hiring managers they support. However, I digress. That is an argument for another day and another blog post.
My point is that perception is reality. As long as outside service providers provide perceived value, efficiencies, and cost-cutting measures, then employers will continue to find these services attractive in comparison to the traditional recruitment services of advertising, in-house recruiting, or agency recruiting for non-executive and non-niche job openings.
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Many of the most prominent players in the recruitment industry have already diversified their service offerings. Giant of the retained search industry Korn/Ferry got into the RPO business with Futurestep while its competitors such as Heidrick & Struggles have started offering their clients additional services like succession planning and other consulting services to protect themselves from increasingly volatile and challenging demand for their traditional retained executive search services.
Since 2010, RPO giant of the recruitment industry Adecco partnered with Oracle (read: Taleo and Peoplesoft) to offered integrated recruiting solutions integrated with employers’ existing ATS and other HR systems. Many contingent search firms such as Titan Talent Strategies and RecruitLoop have diversified by moving into what is known as Recruitment Process Insourcing by offering recruitment consultants on demand to come in house (either literally or virtually) to help companies better recruit and implement best practices and tactics and/or paying them by the hour to recruit rather than paying the standard 20-33 percent of salary.
Salaries, fees, and commissions for individual recruiters and recruiting service providers will stagnate and/or decline.
As new recruitment business models and services continue to expand, individual recruiters and service providers will find their salaries, fees, and commissions under continued pressure. As mentioned above, perception is reality. Although I am and will continue to be a tireless advocate for the tremendous value of good recruiting and consulting services, as new business models, tools, and technologies emerge the perceived value proposition of good hands on relationship-based recruitment services will be increasingly diminished. Recruitment agency fees which were once 33 percent of first year’s earnings soon dropped to 25 percent of base salary. More recently according to BountyJobs, average fees have dropped to 21 percent. Many independent recruiters are willing to work for fees as low as 15 percent.
As employers face increasing options for their needs, corporate “in-house” recruiters will struggle to justify higher salaries and/or headcount. Contract corporate recruiters will struggle to command higher hourly rates and to find contracts longer than six months as anything longer requires too much of a budgetary commitment from employers. Independent job boards will find their margins squeezed as their larger recruiting conglomerate competitors like Randstad, Indeed, and Careerbuilder can use job advertising as a “loss leader” or marketing tool to acquire and better service their RPO, contingent search, etc. clients.
Investment in Talent Technology Will Continue to Rise
As long as good recruiting, good sourcing, and good recruiting results continue to be ill defined and undervalued, there will always be a market on Silicon Valley and Wall Street for new tools, technologies, and services that promise to “revolutionize” the recruitment industry. Broadly defined to include any tool or service related to hiring, the recruitment industry is arguably one of the largest, if not the largest industry by revenues in the world. Payroll, with rare exceptions, is most employers’ largest expenditure. The recruitment industry is too big, the hiring and employment expenditures of employers are too large, the investors have too much “dry powder”/cash and are too hungry for perceived “good investments,” for investment in talent-acquisition to not continue to rise for the foreseeable future.
For more information on this please feel free to check out my blog post on Quora about the VC market for new “recruitment marketplaces” and the notable investments made in the field and the equally notable absence of a successful exit. Which, after seeing my conclusion in that post, you will understand why it is an excellent segue into prediction No. 5.
No business model, no tool, no artificial intelligence, no technology will ever prove to be a replacement for good recruiters offering great human-to-human services.
I have not meant for this article to cause worry or to be a “Debbie Downer” in any way for the recruiting community. I am merely trying to illustrate the unfortunate truth as I see it to my readers. Therefore, I would like to end on a positive note by pointing out the fundamental, unalterable, and thus inevitable truth that supreme value of good human to human recruitment and services will never change.
I could write a long research paper with well documented and supporting evidence, but there is no need for that. There is no need for that because no matter what happens in the recruitment industry, no matter how much the industry changes, it is still in the business of finding, attracting, and maintaining human capital. No tool, no technology, no artificial intelligence, no “scalable” business model can ever replace the service of a good human being because human beings, unlike machines, have emotional intelligence — the ability to read people, empathize with people, and react as a fellow emotional being in real time to the real life peccadillos of recruiting.
Therefore, because of the fundamental truth that corporations can never find a real replacement for good recruiters and recruiting services, and despite periodically being tempted by shiny news tools and technologies promising to replace recruiters, these employers will repeatedly themselves “born again” with renewed faith in good recruiters after new recruiting technologies inevitably prove to them to be the “god that failed.”
Technologies and tools exist to enhance good recruiting. They cannot and will never replace good recruiting.