Is the Transactional Corporate Recruiting Model Doomed?

We just closed our annual hiring challenges survey, with a few hundred participants describing their perspective on the state of the recruiting industry. From a preliminary review it’s not comforting, especially if you’re a corporate recruiter or recruiting manager. Most alarming is that things haven’t gotten better since we took the survey last year. In fact, the situation has deteriorated. For example:

  1. Agency recruiters on average handle eight to 12 requisitions while most corporate recruiters handle anywhere from 20 to 40 at any one time. Retained recruiters handle even fewer searches. Not many would dispute the fact that candidate quality correlates directly with the number of requisitions a recruiter handles.
  2. Sixty-five percent indicated that they were very experienced recruiters with over five years of experience. Yet the average salary for all of the recruiters taking the survey was around $75,000. This seems light compared to the amount of experience people had, but there was certainly an obvious link between experience and compensation. There was also a significant gap between agency and corporate recruiters. Corporate recruiters have an average cash compensation of $65,000 to $70,000, and third-party recruiters have an average compensation of $85,000 to $90,000. The best recruiters in the survey are making $150,000 to $300,000.
  3. A total of 80% noted struggles with hiring managers. Fifty percent of the survey respondents indicated that dealing with hiring managers was the biggest problem they faced, while another 30% indicated it was the second- or third-biggest problem they faced. Collectively, these problems had to do with their belief that managers are not strong at assessing competency or recruiting, and that many overvalued skills and experience when determining which candidates to interview. I think these are symptoms: the root-cause problem is more associated with using a transactional vs. account manager model. But more on that later.
  4. Eighty-eight percent cited sourcing, with 48% ranking it as serious or severe and another 40% ranking it as a frequent problem.
  5. Approximately two-thirds of the survey respondents indicated that they used four primary sourcing effectively to meet the bulk of their hiring needs. These included job boards, employee referral programs, resume databases and their career website.
  6. Regardless of type (agency vs. corporate), 70% of the recruiters said they are exceptional or very strong in most areas of recruiting performance. This included delivering top candidates, assessing candidate competency, and using technology effectively. This seems quite high when asking recruiting managers to rank their staff, or when asking hiring managers to rank their recruiters.
  7. About 60% of the respondents indicated that there is little ? and usually informal ? tracking of most measures of recruiter performance, including factors like sendouts/hire, candidate quality, and the use of Web analytics. It’s hard to know how well a recruiter is performing unless you have specific metrics tracked daily and weekly.
  8. 60% of the respondents indicated that their workforce planning methodology was either nonexistent or that it was poorly implemented.

While there is much more analysis required to draw any definitive conclusions, here’s my quick assessment of these results:

  1. We’re reacting far more than initiating. One of Stephen Covey’s basic principles in The Seven Habits of Highly Effective People is “Begin with the end in mind.” As far as I can tell, corporate recruitment management doesn’t even end with the end in mind. This is largely attributed to the lack of formal planning. To see where you stand on this scale, just assign this past week’s activities into a reacting or initiating bucket. If you spent over 50% of your time reacting, you have a severe problem here.
  2. Anarchy rules. Although there is no standard, fully recognized training method and quality-assurance reporting mechanism in place, most recruiters and hiring managers believe that they are pretty good at what they do. While recruiters are unhappy with their clients’ skills, these same clients are equally unhappy with their recruiters. Of course, all hiring managers believe they are great at assessing competency ? even though they all do it differently and rarely agree on which candidate is best. Worse, most don’t even know real job needs ? so they wind up assessing technical competency, personality, and presentation skills. From my view, both groups are right: anarchy rules, not a business process.
  3. Basic process controls are not in place. From what I can tell, many companies are using Band-Aids to solve their hiring problems when major surgery is required. Underlying this is the lack of appropriate metrics in place to figure out the root-cause problems. To me, the most important metrics are daily and weekly recruiter performance measures like sendouts per hire and hiring manager responsiveness. This equates to fill rate, time to fill, and quality in a factory or distribution center. Operations managers would be fired if they weren’t tracking and focusing on improving these core process-control metrics. Somehow, the recruiting department gets a free pass here.
  4. We’re not getting better. Available tools and techniques that could minimize some of these problems in the short term ? like better use of technology, workforce planning, process reengineering, and better recruiter and hiring manager training ? are not being used properly or to the degree necessary. Of course, it’s hard to get better if you’re not aware of the real problems. Regardless, planning is the key to long-term improvement, and separate from this survey we are starting to see more companies emphasizing the importance of long-term global workforce planning.
  5. We’re using a craftsman-like mentality to solve an information-age problem. Somehow, the recruiting department forgot the Industrial Revolution ? standardization, scalability, and process control. Instead, recruiters are hired based on years of experience and the quality of their “art” of recruiting. They’re not tested, measured, or trained, and they’re expected to do it their own way. Since there is no training available for best practices, we don’t have a way to train new recruiters other than in some “apprentice-like” manner. This is like a factory letting each worker make each part using his own tools and measuring his own quality his own way. This was America pre-1850.
  6. Corporate recruiters are set up to underperform by using a transactional rather than an account manager recruiting model. Good third-party recruiters who have strong peer-level relationships with their clients and their candidates have much more influence on the overall results. They also make more money and consistently deliver better candidates. Much of this is due to the recruiters handling fewer searches ? performing as account managers, not order processors. It might make sense for corporate recruiting departments to consider this approach for their more important positions and their more challenging searches.

In future articles, we’ll get into more details regarding the survey and some actions you can take to improve recruiting department performance. For now, here’s one micro and one macro suggestion you can try right away.

From a micro standpoint, every recruiter should read part II of my article, On Becoming a Great Recruiter. This describes how to take the assignment to better understand real job needs. There is a clear correlation between job knowledge and the recruiter’s performance and his relationship with the hiring manager. Job knowledge is not the job description. Recruiters must understand real job needs in order to attract top people and assess them properly. Getting this information from the hiring manager is one way to move from a transactional recruiting model to a more consultative account manager role.

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The macro suggestion involves workforce planning. For a quick way to institute a workforce plan, first conduct an 80/20 Pareto analysis figuring out which managers will be doing the most hiring in the next six months. Then send an email to these managers, asking them to give you a forecast of their hiring requirements for their most critical and/or important high-volume positions. (This is another 80/20 subset analysis). Email them monthly, including their last six-month forecast, and have them revise it and add one more month. This crude process will give you a real heads-up on what is happening throughout your company. These forecast-to-forecast changes will enable you to spot changes in your hiring needs four-to-six months out.

We’ll provide more survey details in upcoming articles and in a free conference call in September. Sign up now if you would like to participate.

While there are specific issues raised by the survey, the big one for me is the lack of progress on getting better. My sense is that this is due primarily to corporate recruiting departments’ lack of influence in effecting change. Feel free to send me your thoughts on this topic. Solving this problem most likely requires a shift from a transactional to an account manager model. This would involve a major reorganization and strategy shift, probably involving outsourcing or moving recruiting out of human resources. Whatever the solution, it’s obvious that the problem needs to be addressed head-on.

Lou Adler is the CEO and founder of The Adler Group – a training and search firm helping companies implement Performance-based Hiring℠. Adler is the author of the Amazon top-10 best-seller, Hire With Your Head (John Wiley & Sons, 3rd Edition, 2007). His most recent book has just been published, The Essential Guide for Hiring & Getting Hired (Workbench, 2013). He is also the author of the award-winning Nightingale-Conant audio program, Talent Rules! Using Performance-based Hiring to Build Great Teams (2007).

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14 Comments on “Is the Transactional Corporate Recruiting Model Doomed?

  1. Lou – like investments: if you are not going forward you are going backwards so agree with your suggestion that we, as an industry, need to progress. I would suggest however that this will always be hard because of a few things:

    1. By everyone except recruiters and the occasional HR person, recruitment is and probably always will be seen as a transactional requirement…

    2. The reason in-house recruiters get paid less and are asked to do more is because if they cant save money why not leave it with the agencies..?

    3. There are still very few people choosing internal recruitment as a career. They are largely, burnt out agency recruiters or people wanting to get into HR.

    My two cents…

    JK

  2. As a long-time corporate recruiter, I can vouch for the ‘reactive’ mode that I am usually in. Tight budgets and lean staffing make recruiting efforts take on a ‘just in time’ flavor that certainly appears reactive. Efforts to get managers to plan for future hiring needs are generally met with quizzical looks (How do I know who is going to leave next month?)
    . . .but it’s a job. Ariel

  3. I am a Sr. Technical Recruiter for a very large multi-national company and the recruiting budget for our entire 8000 employee division is less than that for many 100 person startups I’ve worked for. Senior management takes home huge multi-million dollar bonuses that far exceed the entire recruiting budget. In fact, our budget was just cut again because management feels growth is slowing and recruiting will play a smaller role in the next year or two.

    We have no money for relocations, sign-on bonuses or travel, and they just killed our entire employee referral bonus program because it was ‘working too good’ and they were ‘spending too much money’ on referrals.

    Our line managers are the first to declare that ever day a job remains unfilled costs the company tens of thousands of dollars, but their complaints fall on deaf ears. We have more open reqs than last year and half the budget to fill them.

    Unless we start educating business managers (at the college level) on the cost of unfilled jobs and the importance of integrating recruiting into the business model as an assett and not an expense, recruiting will always be a reactionary tool for business owners, and recruiters will always remain the firemen of the business world rather than part of the team of architects.

  4. Wow, Jonathan — what a cynical view of the state of recruiting. If I subscribed to it, I would quit today and look for a more rewarding career. But I don’t — I like to look at the beacons of hope that exist in the corporate recruiting world to which we should all aspire, strive to match, and someday exceed. Yes, the transactional model is pervasive, but within most organizations, you find at least one recruiting manager or recruiter who subscribes to ERE and is loudly beating the drum for change — and it will come or companies are doomed to failure. After all, the greatness of any company continues to rest on its ability to attract and retain the best talent available.

    Corporate recruiting departments are facing a transactional culture and mindset that has existed for decades — to think that anyone could walk in and change things overnight is silly. Rather, we need to start with education and keep reinforcing the message. Hiring managers need to learn how to better articulate what their business needs are — trust me, they don’t say anything to agency recruiters that they don’t say to their internal recruiters. All recruiters (both agency and internal) need to be better focused on business results and learn to speak the language of the business. Only then will we be able to build an effective partnership that garners the results for which we so long.

    Contrary to popular belief, corporate recruiting departments are populated with many talented individuals yearning to do more and be more, but who are constrained by budgets that cut all indirect costs to the bone to ensure a return on investment that will be appealing to Wall Street. Are there transactionally focused recruiters and burn outs from the agency ranks — you bet there are. But these recruiters aren’t succeeding and any recruiting manager worth his or her salt is weeding them out. Having spent eight years in the agency ranks, I can tell you that agencies need to do the same.

    As always, Lou is dead on in his assessment of the state of recruiting. I often wonder how Lou can be so insightful sitting outside of the corporate walls — if only all consultants were like that! We would do our companies well to sit up and pay attention — the answers are right in front of us and we just need to invest the time (and budget) to turn it all around.

  5. Since the accountants and finance guys took over the corporate world, adding value hasn’t been nearly as important as profitability (or the appearance thereof – see Enron, Fastow), achieved largely through budget cuts, reduced head counts, higher utilization, etc. And this trend isn’t likely to change. The only good news I can find is –

    a) that recruiting is not considered a core competency in most businesses… the obvious need not withstanding, and will swing on the typical cycle of ‘let’s outsource it to reduce fixed overhead’ or ‘let’s bring it in-house to save money’ and

    b) with the accelerating pace of business and the need for flexibility it is becoming more and more difficult to staff efficiently for either staff or line personnel… which means a growing market for outside consultants and contractors (can we say in-house contract recruiters?). OK, this one is good news/bad news.

    But of course there will always be a market for specialist.

    Moving forward… paradigm shift? Maybe we should enlist Tom Peters.

    PS Regarding the remark about ‘hiring managers say the same thing to in-house recruiters that they say to outside recruiters’ – perhaps, but what is heard can be a whole lot different. Personally, I don’t believe that what an employee says to another employee will ever be the same as what he or she might say to an outside consultant. That’s part of why consultants exist.

  6. I am re-reading The Goal by Eliyahu Goldratt (if you have never read it, I suggest you pick it up!) and the similarities of the manufacturing plant in the story and many corporate recruiting departments are astounding. The Goal was written 23 years ago and is still relavent today.

    I won’t bore anyone with the details, but basically the traditional measures of success in the corporate world are wrong, according to the book, and in order to succeed, we need to remember the goal of our business – throughput. Throughput equates to sales. In recruiting, it essentially equates to putting a new hire in the chair (respective of quality, butdget, etc.).

    Recruiting departments must look at their processes and procedures to determine what is slowing their throughput, referred to in The Goal as bottlenecks. Once the bottlenecks are identified, the entire process must manage to those bottlenecks… which is not a bad thing and can help manage expectations with your clients and serves as a basis for measurement, which is critical to the success of any business.

    I’ve gone on too long, but I hope that corporate recruiting departments take the time to think about their team strategically, determine the goal, identify a streamlined process that takes into account any bottlenecks, executes, and monitors what is important.

    Mr. Adler, your articles consistently remind us that recruiting is a business.

  7. Mark,
    what a tough situation you are in.. In reflection though your comments reminded me of a remark one of my Clients HR managers made to me..

    I had made a comment that their delays in hiring candidates were costing them money each day that position was open, and that they should consider expiditing the process.

    She said, ‘karen, it costs more to replace the ‘wrong’ candidate, than it does in keeping that position open to find the ‘right’ one..

    She is right, not getting it Right the first time truly is expensive.. Lawsuits, training, all the overhead that comes from bringing in the candidates.. do definitely outweigh the length of time in getting the position filled quickly..

    This may not relate to your current situation directly, but I wanted to share that story.

    Karen M..

  8. I’ll start out by saying Lou is right on target; just about everything he states in his article about the condition of recruiting is true, or may turn out to be true someday. However, my interpretation of the data is a bit different.

    A sidebar first: Is it just me, or do a lot of survey results seem to be a repackaging of facts and concepts that have been around for decades? Take Networking: I don’t want to sound like Al Gore here, but I could easily say I invented networking and referral mining. I started out in 1982 at the small Data Processing Consulting Services division of a large national supplier of engineering temps. We were the new guys on the block and candidates and customers both were happy to provide me with the names of colleagues and co-workers. I was soon doing a booming trade at the local insurance companies and the State of Connecticut; all due to networking (and some creative advertising on my part). But look at all the press Networking has gotten during the 90’s!

    My point is that much of what I see in this article are things most experienced recruiters are already (painfully) aware of. Like a study concluding that excessive consumption of sugar can contribute to hyperactivity in children; everybody’s grandmother already knows this, and has for years. Take the following quote for instance: ‘What is happening to our young people? They disrespect their elders, they disobey their parents. They ignore the law. They riot in the streets inflamed with wild notions. Their morals are decaying. What is to become of them?’ Plato wrote that around 400 BC, but we still hear similar comments all the time, as if it’s a brand new concept. But on to the article.

    – We’re reacting far more than initiating.

    Reacting is a fact of life: HR processes are always low in priority for Hiring Managers, and Staffing is the Orphan Child of HR. Most Hiring Managers perceive recruiting to be a necessary evil, to be dealt with last. It’s much like the non-profit I founded to refurbish recoverable IT assets (desktop PC’s) for charity: we would recycle a corporation’s hardware free of charge and offer a tax write-off to boot. Yet companies always waited until their used computers were literally choking the hallways before calling us. This is reality right now, and wishing for a universal manual for Staffing or HR will not change it.

    It’s the Recruiter’s job to be proactive with his hiring managers and to drive the recruiting process. I use what’s my first sales trainer called the two P’s: Polite Persistence. With every contact with a hiring manager I keep the focus on how I can help them, not on what they have to do for me. I ask what their individual preference is for contact; some say voice-mail, some e-mail, some their cell phone, etc. Listening to their needs gets me more feedback and cooperation than any corporate mandate or process change.

    – Anarchy rules, Basic process controls are not in place, We’re not getting better.

    And Anarchy will continue to rule for quite some time. It’s not that the problem isn’t being addressed, or that there is a lack of perception of the nature of the problem, or a lack of knowledge about available tools and techniques. It’s that no one department owns the problem. In fact, almost every department in most companies is a part of the problem, including HR. It’s like an immunodeficiency disease; so intertwined with the corporate body that trying to cure it by treating the symptoms – piecemeal or holistically – is only going to net marginal improvement. If you look at the real world (let’s, please), I believe you will find that the companies with a truly successful recruiting model have the buy-in of top management, from the CEO on down (see Google).

    – We’re using a craftsman-like mentality to solve an information-age problem.

    First off, recruiting is as much art as it is science. What top-notch recruiter doesn’t use his intuition daily? And dealing with difficult Hiring Managers and Superstar candidates takes a quality that would be hard to put in a manual or a curriculum. But more importantly, all the Best Practices implemented by all the Kings HR Men won’t put the broken Humpty-Dumpty of the current state of recruiting back together again. It takes a village to raise a child, and it will take a corporate change of mind-set to raise the orphan child Recruiting to it’s potential level.

    – Corporate recruiters are set up to underperform by using a transactional rather than an account manager recruiting model.

    OK, I agree with Lou on everything he wrote here. Which leads to a cautionary tale: I was on assignment at a Fortune 500 insurance company which was struggling to fill their most critical IT positions. Everyone from the CIO down was putting the pressure on Systems Staffing. I was in the fortunate position of being brought in as the ‘heavy hitter’ for the group developing their next generation of high-availability mainframe platforms; they had chewed up and spit out four recruiters before me. In one of our staff meetings the issue of how to attract more candidates for the most critical positions was thrown out. In my naivet? (fresh from having run a successful agency for 16 years) I said, ‘How about putting some of the recruiter’s contact information on the postings. That way a high-level candidate can learn more before spreading her/his resume around the industry they work in.’

    Well, I might as well have suggested we start lassoing candidates as they left our competitor’s workplace. Everyone looked at me, then looked at each other, then looked at the Staffing Director. He cleared his throat, obviously embarrassed for me, and said ‘Bill – we just don’t do that.’ The subject was quickly changed back to hashing through variations of doing more of what was already not working, and the awkward moment passed. Isn’t a humorous definition of insanity doing the same thing over and over and expecting different results?

    Finally, my own micro-micro suggestion to all recruiters: listen to your Hiring Managers. Take them to lunch. Sit in on their Staff meetings (this one works pretty well; everyone who’s been stalling you on feedback is all in one room). Talk with some of their direct reports about what they actually do day-to-day. I think that’s what Lou was saying, in a macro-micro way.

    I may not have implemented a Digital-Age Strategy utilizing Best Practices to ISO Standards, but when I left the big insurance company my Hiring Managers there had been happy with Staffing for the first time in years. And we all felt good about my accomplishments. No bleeding-edge cure; just a little chicken soup and some nice, polite listening.

  9. I’m interested in getting some stats on the percentage of folks who comment about the roles responsibilities and abilities of internal corporate recruiters that have ever done the job…

    Can i get a hands up if you have a comment AND you have done the job, otherwise its just another opinion.

  10. George, I couldn’t disagree more with your statement that recruiting is not considered a core competency at most businesses. Whether it is interpreted that way is an entirely different issue.

    I understand the frustration that recruiting teams feel when they are minimized by a hiring manager or their partners in the finance department. However, there isn’t a company I’ve run into that doesn’t portray in their recruiting literature that ‘Our people are our most important asset,’ or some iteration thereof. The importance of the recruitment function is in the fabric of most companies (as an aside, the reduction in budgets, headcount, etc. is not due to a reduction in importance. It is simply a matter of the economic cycle). The degree of importance, though, simply does not trickle down to every IT or Accounts Payable manager in the company.

    Even if a CFO demands an outsourced solution, there is still the admission there is a need, he/she is just convinced it is more economical (with very little consideration of its effectiveness).

    You are absolutely correct that added value is less important than profitability… great! If you are an IT company, and you can’t get your product to market and begin earning revenue because you can’t get the right people in the seats… that hurts profitability (and you can measure it, too!). If you are a manufacturing comglomerate and you can’t find the best sales people, you are losing money (unless you hire bad salespeople, but that’s a different discussion). You can measure that too… most good sales managers can tell you how much they lose every day they do not have a representative in the field.

    Outsourcing, insourcing, smartsourcing, consultants, agencies, and contractors all have their place in this market (or we wouldn’t be here). The relative need of each of these must be considered on a case-by-case basis, and the reason for utilizing any of these must be justifiable both in terms of a need and a financial benefit. As you said, ‘adding value’ just doesn’t cut it in the boardroom anymore.

    As a final thought, if your CFO or a hiring manager doesn’t believe in recruiting, let them fill their own positions for a couple months and ask them to compare the bottom line effect (agency spend and time-to-fill goes through the roof!). Internal recruitment is valuable and it does have a positive ROI.

  11. Let me first apologize to Mr. Adler – Your article was informative, and you offered many good insights – #6 got my vote particularly. My comments addressed more the context of today’s market as I see it, as opposed to the survey results or your conclusions. I agree that changes are needed and that they won’t be easily forthcoming. I suspect ‘Doomed’ is more wishful thinking than logical consequence. It’s just not broke enough to be a major priority for fixing at this point. But when you’re the expert, it’s your job to endeavor to persevere.
    Best regards, Lou. Keep up the good work.

    Dereck,
    I appreciate the thoughtful consideration of my comments. There is truth in both our perspectives.

    With regard to ‘core competency’, I meant to imply what companies actually do, not what they say they do… I find reality a little easier to deal with when trying to understand why things do or don’t work. My definition of core competency is something that couldn’t be outsourced for an extended period and still successfully fulfill the primary goals and objectives of the business. I agree that recruiting and hiring is perhaps the most important function of business management (see P. Drucker).

    Added value trumps profitability as a goal in my traditionalist world… Value added versus profitability was only my way of highlighting the current popularity of shortsighted business strategy which has reduced managing in some quarters to a string of reactive tactical maneuvers rather than envisioning and creating a better future. Investment spending ain’t what it use to be. (Perhaps it is a cause for some concern that Lou’s study and comments, along with those of so many others come at a time of such improved profitability and success in American business.)

    FYI – For the first time in a long time, shareholders are beginning to ask the question of how much value are the Directors adding to the corporate mission (better late than never).

    I’m not sure how we got to questioning the value of recruiters, but there IS a danger in an ROI evaluation that looks only at agency spend and time-to-fill numbers. What about the quality of candidates and business results? (Acknowledging the obvious, agency recruiters deal with quality instead of quantity, metrics notwithstanding.)

    IMHO Mr. Barnes no-nonsense approach (or was that no excuses?) was well worth the read… thanks Bill.

    Good luck all…

  12. Could we please get more information on your survey sampling methods, the amount of non-responses to your survey, and the actual survey itself? I would also like to see more information on those that did respond to the survey.

    Without any of this critical information I am really not sure what you are analyzing to agree or disagree with your opinions on the existing state of the industry. I think we can all cry wolf once we understand what we are crying wolf about.

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