The latest REC ‘state of the recruitment industry’ press release misses the mark. By quite a margin. Here’s what we think it should have said…
It was a curious experience reading the REC’s latest ‘state of the nation’ press release. As we discussed it afterwards, we came to the conclusion that it took a lot of useful data and came to a lot of wrong conclusions.
Bigger isn’t necessarily better
An industry turnover figure of £38.9b tells us that a lot of money passed from employers to contractors through agencies (£33.4B according to the report). If this number rises it tells us there are more contractors. This might be interesting in itself, but it doesn’t have much to do with the actual efforts of agencies who can only respond to demand rather than create it. It just shows a trend in employment. Overall spend tells us very little about the health of the recruitment industry, indeed it disguises more important findings.
Which brings us to our second point; celebrating the sheer number of agencies is misguided. Again, using the REC’s own figures, 119,000 people employed in the industry divided by the number of agencies (31,000) gives an average of, er, 3.8 employers per agency. So, what we’re hearing isn’t the sound of an industry expanding, it’s the sound of an industry shattering.
Profits are sanity
As the old saying goes ‘sales are vanity, profits are sanity’ and every agency owner will be painfully aware that margins are under ever increasing pressure. Indeed, the REC’s press release says industry average Operating Profit is 3.8%. I’ll say that again 3.8%. And that’s the average. This means there are a huge number of agencies who are operating perilously close to breakeven. This means there is even more pressure to take on business at any price and to cut corners. Which, of course, is the logical consequence of having too many agencies chasing too little business. This isn’t healthy for anyone.
Highly Satisfied Customers, just not a high number of customers
Obviously it’s encouraging to see that 82% of those who use agencies are satisfied. Our own work through our Agency Benchmark programme suggests this is because employers really value an agency’s ability to provide a better candidate experience, or to deliver a compliant and efficient contractor experience. But, again, the more telling number is what % no longer use agencies or have reduced their usage dramatically. We meet around 1,200 employers a year through our HR and Talent Leaders events and, whilst they have a whole host of resourcing challenges, the cold, hard truth is that we are yet to meet one who has a strategy to increase their agency usage.
The biggest threat of all
Which brings us to our key point and the most glaring omission from the release. Sure, there are a number of market challenges to be faced; skills shortages, the economy, the changing make-up of the workforce, and the impact of IR35. But the biggest, most urgent and frankly existential threat to the traditional recruitment industry is the inexorable growth of outsourcing and tech enabled direct hiring.
And it’s a shame because we meet a lot of large and growing agencies who are doing what recruiters do brilliantly: recognising and understanding the challenge and then responding in creative and commercial ways to build scalable, profitable businesses. They are evolving their business models to become talent solution providers, deep subject matter experts, brilliant candidate advocates, developing new international markets – all sorts of things.
And let’s be clear, there is a lot of opportunity out there. Employers are really struggling with a whole host of talent issues – candidate experience, diversity, market insight, talent pooling as well as sourcing effectively. The best agencies are re-thinking their business models at a fundamental level and using culture and technology to help them deliver better and faster than ever before.
But for too many it’s still business as usual and we think trade bodies should be more vocal about the need to acknowledge the problem rather than rose-tinting it.
Between us, David and I have over sixty years’ experience in the recruitment and talent acquisition industry, which gives us a certain perspective about how things are changing but we’re sure there are other views. We’d love to hear them and any other comments you might have.