There will be some sore heads in Wellington this morning. Some perhaps from the collective palm-meets-forehead moments when recruitment managers and sales managers saw how low the bidding was going for the privilege of recruiting for All-of-Government. But mostly from the boozy wake that must surely have been held to send off and bid farewell to what was once known as the Wellington recruitment industry.
Whilst we recruit for recruitment agencies we also recruit internal recruiters and HR types so even we were involved in the e-tender processes of the past two days, for a shot at being able to recruit these types of roles for Government Departments and Agencies.
I hate to discount my fees and cheapen my offering, but of course recognised this would be necessary to recruit for large public sector entities offering volume business. But going into the e-tender and seeing that my already-heavily-discounted Perm fees and Contractor margins still had me placed way, way, way towards the back of the pack lead me to utter despair. And I don’t even rely purely on the Wellington market, unlike some firms who gain 80% of their revenue from the public sector.
This is purely speculative but based on my involvement in the e-tender process I feel I can confidently state the following:
- The online auction software employed by MED was a triumph. For them. Clear, simple, easy to use and creating a transparent and fair real-time bidding process. It made it terribly easy to keep lowering your fees. I fancied I could picture a gaggle of Government big wigs gathered on a kind of trading floor, looking up at a big screen that ranked all the potential recruitment suppliers, and every time another one shaved yet another 0.1% off their fees cheering and popping corks, heartily patting Mark Ansell on the back and toasting the MED’s Procurement team.
- Recruiters would make awful gamblers. They would also make casino owners very rich. Every recruiter I spoke to who was involved ended up dropping their pants significantly lower than they had originally agreed would be their absolute ground floor rate. Like punch drunk blackjack players slumped dead-eyed at a gaming table, they were unable to walk away when all the chips were gone, and had to have just one more go. And then another. And another. Some even sold their broken gold for more chips.
- Contractor Margins would have gone as low as 9%, possibly lower.
- Temp margins would have gone as low as 8%, possibly lower.
- Perm fees will have gone as low as 7%, possibly lower.
- Recruiters have forgotten about the value of running a contractor and how damaging it is to your company revenue and company value to lose that contractor by allowing a client to take them on a Permanent basis. Of course this will happen, but recruiters should be charging as high a fee as possible to allow a client to remove a contractor from their books, a contractor they would have worked hard to source, register, place, timesheet, payroll, manage and then chase up obstructive accounts payable systems. The discounts being offered to allow Government to convert a temp or contractor into a Perm employee were ludicrous and there seemed to be some kind of race on to be the first firm to offer a 100% discount for contractors who have worked 9 months or longer.
- Some recruiters don’t understand the strategy involved in saving a bit in reserve for the sealed bids stage. Why 15 minute auctions had to go on as long as an hour, or longer, because someone had to make just one more bid and try and stay out in front, rather than use it as an ace up the sleeve, is beyond me. I resorted to alcohol on the Wednesday night. It was the only way to cope.
- There will be top quality recruiters no longer willing to recruit for companies involved in AoG. It will be simply impossible to earn the same money, and maintain the same lifestyle, at the billings attainable under the new rates. Whilst successful firms will have to change their models and delivery process entirely, including bringing in “internal recruiter” type account managers on low-to-medium base salaries with no commission, the more intuitive, creative, dynamic and ambitious recruiters will seek new homes to recruit into the private sector, or leave recruitment altogether.
There are some glum people out there in New Zealand recruitment today. A new day will bring the ghastly realisation that we haven’t simply reduced the cost of our service to record lows and cheapened our value to the employment sector, it will become apparent, for some, that they have sold their industry down the river and, at the rates bid, can never be the same again.
At the rates I suspect we reached, I can foresee a large amount of leakage from this new contract. Core Government Departments for who participation in the contract is mandatory will surely realise that the relationships they had with agencies before will not be the same again. If their favourite recruiter is not on the panel, what will they do if they have no faith in the ability of the ones who are there (with their reduced-quality recruitment personnel), to deliver on their important vacancies? What is to stop them declaring their hard-to-fill role an “Executive Search” assignment rather than a recruitment assignment, meaning it can bypass the AoG recruitment and they can use their old recruitment buddies once again.
Or what of the Eligible Agencies weighing up whether or not to get involved in using the panel recruiters? It might sound awesome to learn they can get recruitment services at 7% or 8% but what might happen when they realise the quality of delivery they will get at those rates? Will they be so eager to sacrifice quality for price, when it is not compulsory for them? Especially when the chances are they can persuade their current recruitment suppliers who didn’t make the panel to at least reduce their fees closer to the 11% – 12% mark with no noticeable decrease in service.
If the Government are smart about this they will not plump for the lowest common denominator, but instead recognise the gung ho lack of commercialism of some bidding recruiters and actually settle on a rate more around the median of the lower half of the table. No doubt they will request uniformity of fees and so be it, then let the chosen panel decide whether or not to engage at those rates.
Recruitment companies can still make this work though. I still hope that my overall tender gives me a Value For Money score that gets me on the panel. I still want to recruit HR and internal recruitment roles for the Public Sector. But trust me, I’ve already started putting plans in place to set up a new division devoted entirely to a different kind of service delivery that, whilst effective, will be cheaper to run and enable me to retain at least some small profits.
Learn from the botch job done by Chandler McLeod in Australia when they won the Defence Force recruitment contract from Manpower. You can win anything on price, if you go low enough, but it doesn’t mean you can deliver to the client and make it work for your business unless you radically shift the way you structure your firm. Manpower were back in after a matter of months.
Oh, and if you don’t make it on? Well that means you can retain your best and brightest recruiters, charge higher fees, keep an eye out for leakages, and plunder the public sector workforce for your private sector clients.
Every cloud…and all that. What do you wish for? We will find out in a couple of weeks’ time.
Great article … read and weep everyone…
Interesting comments Jon and if the rates you quote are indeed the outcome then even the AoG team themselves will be wary of the old cliche…”be careful what you wish for”
If 25 years in the industry affords me an opinion then my view is “simply not sustainable!” and everyone will acknowledge this.
It is what happens from here that could be intriguing and will force decision making that wasn’t an intended outcome of this process but rather a consequence!
Take “simply not sustainable” as the starting point for the Governments rocurent position. If agencies interpretation of value is determined by return on shareholders funds, and that podition is wide of what public sector clients seem sensible use of taxpayer funds then we need a new “sustainable”.
Sorry Jon, you’re wrong. Lower prices do not mean lower service. In fact it’s probably the opposite in that those of us who offer lower fees do a much better job than those who charge ridiculous ones.
Whilst a few of the categories reached surprising levels, the fees are very workable if you run the right model. At 7-8% for permanent and 9-10% for contracting, it’s still a decent fee, especially at salaries over $80K and rates over $60.00. And your suggested “internal recruitment” model isn’t the answer as it will just drive clients to more of that themselves, just as the industry propensity not to change has done to date. It just may mean that the industry earns a “decent” living as opposed to a “decadent” living and that some of the “big earners” might have to rent out the beach-house or wait another year to upgrade the car!
We’re in a world where savings are having to be made across the board in all sectors. We’d be arrogant to think we are immune, and if many in our industry haven’t adjusted their businesses in anticipation of this, then they deserve what they get (or in this case, no longer get).
I must agree with Kevin. Those that haven’t adjusted their business model in response to today’s business environment will be the ones that lose out.
Having worked in a number of different countries & subscribe to a number of different recruitment blogs & groups – I’ve seen almost exactly the same post as yours several times. Weeping & knashing of teeth as the old agency recruitment model dies.
I agree with Kevin there’s a common misconception that higher rates = better quality – but more often it means low or zero efficiency. There’s many internal recruitment operations including my own that operate very successfully at total cost of hire $1000 and many many at under $2000 per hire. Run that against an average salary of say $60,000 & see what the margin is.
But of course the ‘bitter pill” you would have to swallow is running an operation more like an internal function than a Friday long lunch, cold-calling, client entertaining, 2 placements a month agency model.
Fortunately lots of agencies are already well down this change track – hence their ability to quote highly competitive prices – not because they are gamblers – but because they can.
Just a quick update; shoulder pads are out, Regan in no longer President, and Gordon Gekko was a fictional character. In other breaking news, most of us eat lunch at our desks and I haven’t had a boozy lunch in days. Agency Recruiters could certainly operate at lower cost-per-hire if they had the advantage of a single, captive client, with no risk of losing deals to a panel of 7 other agencies. Comparing cost-per-hire between internal functions and agencies is pointless. Agencies win more when we place, but we also have to cover the cost of jobs lost.
Having worked both sides of the fence, if the Internal Recruitment functions of New Zealand are the guiding light of best practice and innovation in recruitment, then I’m retraining as a Real Estate Agent. Anyone got Unitec’s number?
We have existing preferred supplier agreements at 10% so the drop was not too bad to get into the top three – if the volume is there. In contracting we have done deals at less than 8% – which is where the winning end is guessed to be. Again this business is viable, if the volume is there. I think you will find that the experienced operators saw the way the industry was headings some time ago, and moved to cut their overheads, install state of the art systems and technology, and got their businesses into a shape that could operate profitably and be sustainable at these levels. The one thing you can’t do is run this sort of business with “cowboys” as is claimed – you need very experienced recruiters, who can operate without the security of a monthly salary cheque, and don’t need the overhead of management either.
So true Richard. The reality is that the traditional model has always
been flawed in that it has to charge big fees on the successful
placements to subsidise the “non-placements” – hence the reputation of
overcharging. What makes it even worse is that many who run the
traditional model engage inexperienced consultants who then “train” on
clients. And the fees still remain the same regardless of who does the
work, and how it’s done.
What the AoG has done is very clever. Let the market determine what they are prepared to pay and still be able to deliver quality service. In every sector, supply and demand shakes out those who aren’t prepared to meet the market. For far too long, many in our sector have maintained sheer arrogance that they can control the market, when in fact it’s the opposite. I witnessed it at the AoG coffee morning I attended last year.
So get used to the “new recruitment world” because it’s here to stay. And don’t believe that it will all fall to pieces, because it won’t. There are many very experienced recruiters who will finally being given the opportunity to perform in territory that was only the “preserve” of the big operators. And hopefully, our industry reputation will finally rise to where it deserves to be.
I’ve seen the term ‘quality’ come up a lot in relation to this. Could an approach like the one I’m about to outline have worked as an alternative in selecting recruiters? …
Phase 1: Run an initial 3 week challenge where internal public sector recruiters pit themselves against recruitment agencies. The real life mission is to arrive at a shortlist for 10 hard-to-find/fill public sector roles. The competitors can use any sourcing and marketing/advertising techniques and channels they want, and can seek talent from both the private and public sectors. Reaching talent previously untapped is encouraged. A qualified judging panel assesses the quality of the shortlists against pre-determined criteria. Phase 2: Qualified judges observe interviews (face-to-face, telephone, or video) and the selection process, assessing the rigor of systems and process. Phase 3: Candidates are surveyed regarding their application experiences, and for candidates outside the public sector whether they felt the public sector was promoted effectively as a sector of choice.
If a higher percentage of internals win then agencies will not be required and the public sector will start to build a massive talent pool/community that they “own”. They will be required to work collaboratively and strategically with other government agencies on introducing world-class recruitment technologies, talent sourcing and social recruiting strategies, and much improved employer branding and marketing/advertising. The effected agency recruiters will be invited to apply for in-house recruitment positions. If the internals lose then the best agencies, as determined under the above controlled conditions, will be invited into the bidding war.
Good comments. A specialist recruiter myself I see competition agencies continuously reducing fees. In my experience if you value your time and service as a good recruiter then it should be reflected in your fees. Clients may be tempted to try a lower value service but will often return to your business with a greater appreciation of what you do. So to all you generalist, PSA hunting agencies keep reducing your fees – It really does help my business!
The quality aspect was covered fairly extensively in the various documents that were required to be completed. Obviously you can’t make responses that can’t be substantiated on inspection. The required service was also specified. References were also required from within the public sector.
With a normal quality control and audit process, suppliers who are consistently delivering short soon get found out.
The trick for the AoG Panel, having gone through this process of selection and price optimisation, will be whether they can drive it into the business, and realise the savings and business benefits that are now on the table.
Those who have already restructured their recruitment/contracting businesses, should have no issues operating profitably under this new model and rates.
Did anyone think the government tender was really going to be a road paved with gold – from the sidelines I’d say the recruiters got exactly what they as suppliers were prepared to offer….that being the case – where is the problem?
Well said George, it’s been a road paved with gold and platinum for eons now and you’re right, as in any tender, you put your best foot forward and rise or fall on that. Anyone who loses out should celebrate that they had it so good for so long!
Interesting comments Jon, so whats your secret plan if you dont make the panel? 🙂
Good Luck Kevin and others who maintain that these lower rates will not result in a lower level of service. I am sure that in some circumstances that this will be true but equally I realise that in just as many cases service levels will be compromised. No doubt your “modern”recruitment model will bring you the results that you deserve and the “traditional model” will fade. However to assume that your “modern model” (whatever that is) will be replicated across the board smacks of either arrogance or naivety. If history is any indicator the recruitment industry as with others, will always be judged by the lowest common denominator; the poorest serve deliverer; the cheapest provider; and that worries me. I see in many of the comments on the AOG that there are many “IFS”. “If the the volume is there”. “If the bidders have moved to cut their overheads” if they have installed state of the art systems and technology”. Some of these “ifs” sound expensive to me,so with reduced rates how do these businesses get a return on their investment. If they haven’t invested then how do they develop a more efficient and effective recruitment model. Many connundrums I think, AND given that many of these ifs were actually unknowns within the AOG such as volumes then just how does one calculate a viable level of return. I hope your cost model is accurate as this will determine your future. How much input into the conmtract that you will sign as a consequence diod you have? I hope a lot but suspect very little.
I am also intrigued with the definition of “experienced”. Does this mean years in the recruitment business, so 1 year times 25, or does it really mean 25 years of training, knowledge accumulation, application etc. Does it reflect broad business experience or very defined narrow areas of expertise. I bet everyones definition is different and the outcomes will not always reflect the “experience ” of the consultant. Some new to the business make better consultants than those that have been in it many years, often because they are more objective or just simply hungrier to be successful by what ever measure they use to gauge success.
In addition no two business models are identical and it is your model which will ultimately determine whether these rates are sustainable or not. If you are running a business from home or out of serviced offices your overheads will be completely different to those that have fixed leased accommodation etc. No two companies will be the same so to make broad accusations and point fingers is both futile and irrelevant. But i enjoy your attempts. Insecurity, complacency, or well founded confidence ? time will tell.
I am in Mark Chotes camp, my broad assessment is that it is unsustainable for most and for those that are sustainable the returns may not justify the investment. There may be greener fields to cultivate elsewhere so to those who are about to reap the rewards of being part of the AOG process good luck, but I hope you have also considered the opportunity cost of potentially losing sight of more profitable business elsewhere. Get your balance right and you may indeed reap the rewards you believe you can. If I am guessing Marks position correctly I will be joining him on the sideline watching the outcome with interest and not losing any sleep over it.
I suppose with our collective average of 22 years in the team, we can talk with some experience – and most of it general. Yes, I have trained people and run big teams previously but as anyone who has run a team of recruiters knows, it’s like herding cats and much time is spent in very unproductive areas. In my 30 plus years I have spent about half of that managing people, training people, and therefore was running a business with huge overheads, and of course had to charge a lot to recover those costs. Now we only engage those with 10 plus years’ experience and those who do not require managing, and we actually go to see people, so don’t have those unnecessary costs and infrastructure overheads. There’s a few other “trade secrets” but essentially that’s it. Hence much lower cost and therefore much lower fees that are passed on to the client. Quality is not forsaken and in fact improved as it’s a more “one to one” model with people who know what they are doing.
No matter what anyone says, our industry is not seen as delivering value for money where high fees are charged and hence why Government (and others) are taking the stance they are. John, I had a wee chuckle to myself when you made the comment that we are either arrogant or naive in relation to our “modern model”, but all I have seen from those who are lamenting the loss of the traditional model is arrogance and naivety and the continued justification that high fees means top quality. If that’s the case, then why does the reputation of our industry generally “suck”?
Hi Kevin. Generally it sucks because of crappy service and consultants who are poorly trained and dont service either their clients or their candidates. I hear too often of candidates who do not even get the courtesy of a response from Agencies or employers. This is a major fault in our industry. I think cheaper fees will exacerbate this issue as time is money and to reduce “overheads” consultants will only respond to those applicants who they consider worthwhile of a response. Fundamentally I think we are actually in agreement. I certainly agree that high fees does not equate to top quality. Nor does a low price equate to a poor service. I dont condemn the government for looking for lower prices. They definitely should. I do however question the “auction model” as being ALL about price and nothing about delivery despite the government outlining their service requirements prior to the auction. I am sure that particpants could not even remember what all these requirements were during the auction. The number that the Government put on each category will be the real determinant as to how they regard quality as opposed to price. if the panels are large then I think this scatter gun approach would indicate that Price is the major determinant and I am not convinced that that measure will deliver the results they expect. I aknowledge and understand that one model does not fit all nor will a new model be the panacea for the future. We have all seen different models come and go. Are they really different or the same thing under a different guise. e.g. how different is “managed services” from “RPO”. If RPO was the way of the future then why does it appear Talent 2 are now cutting back in this area. At the end of the day recruitment is a process which if properly delivered produces good results for both the employer and the candidate. And yes the process could be different from company to company.
Recessions are remarkable. They put people and businesses into situations way outside their comfort zone where any sense of responsibility and rationality fly out the window. Personally, I have no problem with people pricing to survive but don’t then try to rationalise the decision by calling it a sensible calculated business decision. It was only a few years ago that there was a lot of criticism within our industry of Internationals driving price and profitability down to drive out competition. All that happened was everyone took a cut in profitability, some cut staff, some went out of business. Competition remained. The Internationals did this to gain market share or on entry into the market. The difference now is economic reality. They did it in the good times. We are now in recession if not depressive economic times – go figure.
Thank you Jonathan for the opportunity to comment. Two more comments to come.
The AOG auction achieved the government aims if the rumours regarding price are correct and all participants contributed to its success in the race to the bottom. No one should complain as the outcome was as plain as the nose on your face. To suggest that the auction process was 50% about price and 50% about quality if service is an oxymoron. They do not go together. This was ALL about price. If it was not then there would not have been an auction including a combination of Blind and semi open bidding.
The stated aim was to achieve a 30% cost saving. For successful bidders that interprets into a reduction of sales of 30%. If companies have already pruned as much cost out of their business and maximised their efficiency to survive the recession what impact does a 30% drop in sales have when costs are largely inelastic. What company can reduce their sales by 30% and still remain profitable AND maintain current service levels. It just does not compute!
Think about it. If the government spend was $200 mill and your share was $1mill (0.5%), a 30% reduction means your sales are now $700k. Your expenses have not reduced by 30%. Ah but I will get a bigger share of the pie. To get back to your $1mill you will need to get 0.7% of the reduced spend requiring you to increase your sales of $700 by 42.86%. Realistic …Really? in an environment where the government is openly working towards reducing the Public service. Will their spend remain at current level; I Think not. And you also think that you will not compromise your service. This would make a great Tui advert. If the rumours are true about the rates offered then as an industry we have just shot our foot off….in my humble opinion that is. At this point I am glad I don’t have a Wellington operation and can watch with interest from the sideline while enjoying the chance to comment without prejudice.
The objective of a Procurement Dept is to achieve cost savings. This is how they are measured. Value is irrelevant to them despite what they try to claim. The auction system highlights this notion. I have worked in the auction industry and I know that auctions are attractive as many buying decisions are made on emotion rather than on a sound financial or business basis. There is no time for rational analysis. Auction participants almost always go beyond their expected limit or in the AOG case below what they ever intended. The only winner was the govt and the procurement team. Score AOG Procurement 10 out of10, participants 2 out of 10 just for having a go.
As for past overpricing – value is in the of the beholder. That is why Christian Louboutin can sell a pair of shoes for more than $2000 and Hannahs for less than 4100. Obviously Christian Louboutin can justify the value difference – RIGHT!!! So why can’t the Recruitment industry? Our ego centric industry will never admit to being wrong so we will continue to justify our position and point our finger at our colleagues. Long live the hypocrisy. Now that we have effectively killed the goose we can set about eating it. I fear however that the taste will be rather rancid.
Sorry for the typos with my last post now corrected. As for past overpricing – value is in the eye of the beholder. That is why Christian Louboutin can sell a pair of shoes for more than $2000 and Hannahs for less than $100. Obviously Christian Louboutin can justify the value difference – RIGHT!!! So why can’t the Recruitment industry? Our ego centric industry will never admit to being wrong so we will continue to justify our position and point our finger at our colleagues. Long live the hypocrisy. Now that we have effectively killed the goose we can set about eating it. I fear however that the taste will be rather rancid.
Why shouldn’t the Government have some choice who they wish to work with in the future, and the price they will pay/be charged for an agreed set of services?
For a client of their size and volume of business to be able to run an auction for services and get a 30% reduction in price for the required menu of services is to be commended.
If some can supply to that service schedule, at the target price – then surely the message for others is to copy the operation and deliver at the same price.
All the Government has done is to shift the game, so they are taking advantage of rates that are available in the private sector for those who are prepared to negotiate preferred supplier agreements against a target rate and reasonable volume of business.
We have all walked away from clients who are slow to respond, slow to pay, won’t make decisions and generally waste everyone’s time. Why clients who are decisive, move quickly, make decisions, are readily available, take advice and don’t embark on Unicorn Hunts, should effectively subsidise the former has always been rather difficult to understand, or endorse.
Weird as it may seem, the Government seems to have come to the same conclusion, and has taken the opportunity to successfully test the market in this way.
I haven’t said that they shouldn’t do what they did. I agree that they have a choice as to who they work with and the price they pay. What I have said is that their aim was clear and the method they used in contradiction with their stated aim, ie. They said it was 50% quality and 50% price. Where is the quality measure in an auction. If the price is low do you really believe that standards and service will not be impacted. Suppliers will have to devise a methodology to fit the price. This means something will be compromised. There is nothing to suggest that the target price will produce a profit for the supplier and against what set of standards? Time will indeed be the judge of that. As for volume, the Government had to get their suppliers to give them an indication of their own spend. Does this tell you something. Also no volume is guaranteed and government is committed to a reduction of the Public service so who says the volume any one company will get will be reasonable, and what is reasonable. Have they stated the number of suppliers on each category. The number may in fact mean that there is not :reasonable business so how did companies bidding have any chance of accurately forecasting their costs and their sales to ascertain whether they can in fact provide the required service. Too much of a guessing game for me to come down to the level rumoured. Perhaps others are clairvoyant. I am not.I have however been in Business Development in this industry for more than 15 years and have more often seen forecasted spend significantly over estimated by the client. No guarantees so they have been in the clear and anyway it is only a forecast. Forgive my scepticism as I admire your optimism. The Government may have led the way for clients but is it good for our industry. I think not, but could be proven wrong.All I am saying is this was about Price and only about Price and YES they have that right. By the way, Government have been found to be amongst the slowest payers, and they certainly haven’t been speedy with this AOG exercise. Whether they are decisive will perhaps reflect the size of the panels in each category. If there is a large number, will that be decisive?Good luck and I genuinely hope I am wrong.
John, I’m unsure you understand where we are all coming from because the only thing you said in your piece that makes any sense is “Suppliers will have to devise a methodology to fit the price”. Some will, others already have, and placed bids in the auction to reflect that. The fact is that as I said earlier, this has been coming at us for years and been ignored.
Let me give you a wee history lesson prior to your commencement in the industry (and apologies if I’m stating the obvious..). Internal recruitment didn’t really exist in any volume until the mid-90’s as companies had little access to the advertising channels because the big players had the media (newspapers predominantly) sewn up. Remember the Saturday/Wednesday front half page that Morgan and Banks had? Our industry almost had a monopoly and we milked it, charging like wounded bulls. Enter the internet and the likes of Seek and now LinkedIn etc, channels now available to anyone. Plus technology products that make it easy to retain and search themselves. What have many in recruitment done? Stuck their collective heads in the sand and carried on regardless, offering nothing more than what they did before. Some of us saw this coming and did something about it. Adjusted our businesses to meet this head on. And we’re still doing good business and making good profit, just not forking out the cost to achieve it. And those who do get on the Government panel and who adjust their business to enable them to deliver quality business will still do well. If they don’t, then they will not deserve to be there, and most likely lose their place.
You ask is it is great for our “industry”? You bet, because it will shake out the over-chargers, the under-performers, the inexperienced who cut their teeth on peoples’ futures, and hopefully allow us to brand ourselves as “the recruitment profession”, as opposed to “the recruitment industry”. As I have said before, welcome to the new world of recruitment!
Interesting discussion going on here. It seems there are two camps, the ‘bring it on, we can do this at 7%’ camp and the ‘good lord kill me now, we’ve sold our souls to the devil, recruitment is dead’ camp.
It seems obvious, that if you take your rates from 12% or 10% down to 7% then you’re going to make less money, right? If you’re making less money, you don’t have as much, correct? If you don’t have as much you can’t pay your staff the same rate or maybe you can’t increase it. If this is the case, when you hire, you aren’t going to get a top notch recruiter, because you can’t afford him/her.
So the person you do hire on the lower rate, won’t have the depth of knowledge or connections/networks in recruitment, therefore can we safely assume they won’t be as good at recruiting? Which you would think would lead to the standards of recruiting dropping…. Yes? No?
Perhaps the industry should have got together collectively and determined they would not drop rates below X, Y or Z %, thereby halting the Government tender plans of getting recruiters to scrap it out with each other for the lowest price.
But sadly the Govt threw the lollies and we scrambled like kids in a playground, every person for themselves, fighting over the hard toffees. I hope now that everyone’s sitting back unwrapping them that they tasted as good as they looked.
Love the analogy Susan. I think if the recruiters had all banded together to agree on a rate that would count as collusion and would be on shaky legal grounds. The probity guy would have had a fit. It’s also a fruitless endeavour as there will always be someone claiming to be a “recruiter” that will opt out and just undercut the rest!
I agree Jonathan. But Inot with Kevin. Sometimes you have to stick to your guns – so to speak. Do you see Channel dropping their prices? Or Manolo Blahnik having a fire sale?
Okay, its not the same market, but in a world economic crisis these companies must be feeling it too. If you keep dropping your prices, you tell the market that you can drop even further, so, if you can drop from around 12% to 7%, those wanting to use your services are going to say ‘surely if they can drop that far, they can drop another couple of %?’ No matter what the industry, you have to draw a line in the sand, or the sand will keep moving forward, until you find yourself living in a sandpit.
I now understand why our reputation (as an “industry”) is as it is. “Sticking to your guns” and demanding the market pay what you want is a recipe for going out of business. The footpath is littered with many premium brands in many sectors that held that view and “stuck to their guns”. Even the premium brands have had to adjust their pricing strategy (motor vehicles being a prime example in that not only do you pay a lot less today, but also as a proportion of income).
There will always be niche premium brands that command very high prices, but I noted this week that Prada, Jimmy Choo, DKNY, Bally and a host of other “premium” brands are on NZ Sale this week with discounts of up to 70% – prices down from $1500-2000, to $300-500. And Chanel was there a few weeks back with around 50-60% discount off their perfumes. Seems the traditional retail sector is being usurped by on-line buying and retailers are having to adjust their business models. Now they don’t have physical shops and staff to man them, they can afford to drop their prices to meet the market. Hey, that just might work in recruitment too!!
If recruiters can now drop their fees to 7% when they were up around 12 to 15%, what you’re suggesting is that the sector has been over charging for years and ‘creaming it’ because you’re implying, overtly, that businesses can make a profit on 7%.
Car prices have dropped because the technology to make cars has improved and they’re all made in third world countries where I think most of us would agree people are probably not paid a fair rate for their work.
Luxury brands like DKNY etc are already over charging and a 70% reduction only takes their goods to the price they probably should have been in the first place.
What I’m suggesting is that recruiters (in the main) do an excellent job and the fees are well earned.
It’s this exact kind of bickering we’re doing now, that has allowed the Government to run a tender that resulted in recruiters clambering over each other to grab the golden egg and in the process not taking care of the industry as a whole.
I’m not implying it, I’m saying it. Yes, we can make profit on lower fees; we just have to adjust our business model.
And my analogy of car prices is the same. We no longer receive printed CVs, courier CVs or have a bank of WP operators producing them as we did many years ago. I recall when we had one support person to two consultants! Technology has advanced for us as well, although you wouldn’t think so based on the discussion going on here!
Yes, recruiters generally do a good job, but no, under the traditional model, I don’t believe we really “earn” their fees. Is $1000-2000 per hour (as happens in some cases) justified on the time expended for someone who may be inexperienced? Because that’s exactly what happens under the traditional model.
I thought you said that Chanel don’t drop their prices and that they are justified in holding their prices up? The luxury brands are likewise recognising that they have to meet the market. And why do you think that car manufacturers have gone to cheaper labour markets? Lower cost, technology, improved logistics, as a result of customer demand to pay less.
And this isn’t bickering, just robust discussion that is probably well overdue in our profession!
Your examples of car manufacturers that have gone over seas because they can pay less to their employees, makes me wonder if this is what you want for recruitment, to see the industry paid less and less, until it too goes overseas?
I agree we no longer have a Gliding On typing pool situation, but we have other areas that need to be maintained, like social media, which might be free to sign up to, but takes dedicated time to maintain and stay on top of, it’s not free. I know one company who have five people dedicated to social media – so the typing pool has just shifted. Jobs have gone, but new ones have also been created.
If all this robust discussion had gone on before the tender, we wouldn’t be discussing the placement of the chairs on the Titanic right now.
I agree Kevin. Despite the odd finger pointing it is just robust debate. I can agree with your comment that you can be profitable at very low levels depending on your business model NOT your recruitment model although that too could contribute. However no two companies are the same so we cannot make fair comparisons or statements about models, experience, or anything else. My point is that the AOG process of an auction results in a price war that does not have any relationship to process or quality and therein lies the dangers. Perhaps the underlying problem shoul be laid at the door of the clients rather than our industry (but of course I will be seen as passing the blame, and maybe I am) who have perpetuated a contingency market(model?). An environment where recruiters often do not get paid for their work as roles are filled by competitors including their own internal recruitment team). The result is upward pressure on fees across the board because if you applied the increase only to that particular client the rates would be totally unacceptable and you would never get any business. There IS a lot of work done by consultants in this regime for which they do not get paid. Who pays for this. The ones that actually take a candidate. If,(and I dont know what the arrangements will be with the AOG), all roles will be on a retained basis with the Company that is selected from the Panel, then maybe the low fees are profitable. If they are contingent within a large panel then what is the difference to the public market. T I looked up the definition of auction . It does not include anything about quality or service. In addition the AOG was not only an auction it was in fact a “Bidding war” the definition of which is “A situation in which two(sic or more) persons or organizations are so interested in a product, asset (sic service) …successively higher (sic or lower) prices …. . Bidding wars usually occur very rapidly.” herein lies the problem for me. “Occurs rapidly”..”prices”. Whereas had they indulged in a closed tender where all participants were asked to provide their BEST price and then a choice was made on that and other factors such as reputation, past delivery, quality process, then wouldnt the outcome have resulted in just the same result. If it wouldnt then that is why an Auction or Bidding war better. because it is better solely for the AOG . That IS not a partnership. I am sure that the AOG procurement team are very aware of this and that is why it was an auction. Yes pricing models, delivery models, recruitment models etc are, and always will be different and there is room for evolvement but I will remain of the opinion that many of the pricing decisions made during this particular process were made on no firm business or financial basis by participants and ultimately it may be the candidates and the recruitment industries reputation that will again be damaged , if it is possible to in fact damage it any more than it is.
Lets consider something else topical as well. The definition of “commoditisation” is interesting. Prices tend to be regulated by the law of supply and demand; that is, a price of a good or service increases with smaller supply and/or greater demand. A corollary to this is the idea that commoditization drives prices down because it increases supply (sometimes vastly) while leaving demand the same. ”
Has the AOG contirbuted to the commoditisation of our industry .My belief is YES. Is this good for our industry. My belief is NO. Why?, because it encourages poor ethics and crappy service.
Susan, your example is correct if you retain the same business model and expose clients to inexperienced “recruiters”. But today you have to think differently as everyone everywhere is looking to reduce their own cost, recruitment costs being no different to any other business cost. And your assumptions are incorrect because we have for a long time charged a lot less but still have top recruiters on board and based on client feedback, deliver quality service. Should we be ultimately selected, we will continue to deliver that quality service. So a sound “No” to standards dropping.
One thing the traditional doomsayers and “hand wringers” have missed in this process is that if the cost of external recruitment is driven down to a reasonable level, then the cost gap (under the traditional fee model it’s a chasm..) between outsourcing recruitment to ourselves (as a profession) versus setting up or maintaining an internal recruitment function and its associated costs, will narrow and make it much more viable to utilise external recruitment providers.
Let’s start a new discussion group, because the column’s getting narrower and more difficult to read!
Auctions are interesting because some would say that they can get you the best price and in the case of AoG, this has happened. But against that, 50% of their evaluation will be about capability, based on their evaluation. So they are not just taking price into account. The fact is they want to save money, but don’t believe they will do that at all cost – and I’m not naive in saying that. Those who have bid a low price will still have to convince them that they can deliver quality service and if they can’t, they will lose their place on the panel. And in the T&Cs, if you feel you can’t deliver, you have a right to say “No, not this time”. Hence why they are appointing a panel.
In reality, what will happen here is that in rationalising Providers, the CoE will immediately eliminate a cost for Providers (less competition – down from 182 suppliers at the beginning), put consistent KPIs in place, and work with a group of people in more of a partnership model, which should result in improved efficiencies all round. Theory only, I don’t think so, as it does work in practice.
And touching on the “business model” and “recruitment model”, they are intrinsically intertwined because it’s not rocket-science to understand the recruitment process. But if your costs are prohibitive to deliver that, then the cost is much higher. eg no or low occupancy and infrastructure costs means nothing to pass on and recover.
Your comment re “commoditisation”? A lower cost doesn’t automatically drop you into this category at all. Even at the rates that AoG have achieved, some fees will still make “eyes water” when you think about it, and we will still be considered expensive by some! 8% of $150K is still a lot of money and if you consider the time spent to achieve that, it’s still a pretty good hourly rate! “Commoditisation” will be in the hands of those who get on the panel and then try to cut cost by having a “Plan B” which in their eyes will probably be the “slave labour” approach of the experienced person fronting up but the actual work being done by the inexperienced (or am I being too cynical with this comment!!).
Hi Kevin. As much as I would like to continue the debate, as you make some good points whether or not I agree, I do need to withdraw and do some work. Have to review and respond to 97 applicants for an entry level laboratory technician role for which there will be a very low fee 🙂 albeit for an exclusive role.
I do agree with your comments on commoditisation and share the cynicism.
Cheers
John
Case rested…. Cheers!
I wouldn’t select a heart surgeon on the basis of cost but that is just me. The AoG approach recognises the need for recruitment suppliers and/or that Government is unable to replicate effective recruitment services in house. It seems strange that having recognised their need for these services they are only buying at the bargain basement. I would equate this to not being able to cook so going out to eat, how disappointing to always end up at ‘maccers’.
I wouldn’t work for at the fee levels discussed.
Industry leading employers will always seek the leading resource to maintain / grow their position. They are happy to pay for quality service. At those recruiters who work the AoG account it will be inevitable that Government will be treated as the ‘wheezy kid’ picked last as a destination for A grade candidates.
I think the most interesting thing for me is seeing how recruiters who have grown fat on the government teat adapt to the big wide world.
blah blah, your all parasites. Get a real job,.