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Listen to the music

10/26/2010

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Want to know one of the signs that an industry or business is going to fail?

They don’t think they can.

It has been true over the ages and it is true to this very day.  Organisational arrogance is the very first step towards organisational decline. This was why I was slightly disturbed about an exchange last week regarding the future of the recruitment industry.  The response to a purposefully provocative question about the death of the recruitment industry was essentially,

“A £25bn/yr industry blown away by social media?? never.”

When I responded that the music industry said the same, there was low-level derision that, the music industry isn’t dead.

Well dead, no maybe not….but significantly altered to beyond recognition it is. And the music industry big wigs stood before pronunciations of doom in the late 90’s and scoffed in exactly the same way.

There are a whole host of reasons that the music industry came under pressure and these are well documented, but you know, the biggest reason for their demise was because they did nothing about it. Because they didn’t think they had to. Because they were institutionally arrogant. They watched the world changing and they reacted too little and too late because they never thought it could happen to them. And then BOOM!

Do I think the same is going to happen to the recruitment industry? Actually yes, I do.  Because everything I see, everything I hear points towards group think and institutional arrogance.  The drivers of change might not be the same, the end result might not be identical.  But the industry that has grown fat and arrogant on easy pickings is showing every sign of being slow to react and dismissive of any suggestion of change.

It won’t be the end of course, that would just be wishful thinking, but the future will  be so radically different that you might not even recognise it.

29 Comments leave one →
  1. 10/26/2010 09:18

    Couldn’t agree more and the comparison with the music industry is absolutely spot on. I find it almost incomprehensible that there are people in charge of multi million pound businesses that are so far in denial that they can’t even be bothered to look into some of the change that is happening right under their eyes. I know I’ve spoken to a lot of them!

    This isn’t just all about social media either. There are number of forces at work that will change the industry in the coming years. If they are going to ignore all this then I wish parts of the industry would at least make an informed decision to ignore rather than just dismissing completely out of hand anything that doesn’t fit their outmoded model of the world

  2. 10/26/2010 10:08

    Could not agree with you more and I comment from the perspective of a 16 year recruiting veteran! I do not believe the industry will die – there is a place for such services but the services must be radically different from the current models and provide a service and advice that a client values and one that they cannot do or do not want to do themselves.

    Social media has unquestionably had a big impact but not in a way that the some would believe, like the half-wits that believe the CV is dead. Percentage fee structures don’t represent the work under taken not value added, talent is relative to an organisation not the supplier, relationships are transactional (mainly because the service provided is), assessment standards are poor, I could rant on….

    Some of my clients agree with my model of integrated talent management – where we provide services both up and down stream of the hiring process, helping businesses grow their own and then retain them, as well as helping them hire what they need. Some however only want the transactional service of putting a bum on a seat, as they have their own resources to provide the other services…..although in my experience those resources are frequently used in isolation to and not in conjunction with any hiring activity.

    I don’t know what the future norms will be but I do know they will be different from the current ones and I do believe that the industry will be smaller but will become more of the “professional service” they often profess to be…..

  3. LydiaW permalink
    10/26/2010 10:25

    I think similar is happening with print media and newspapers, which are scrambling to keep up with the digital age…

  4. 10/26/2010 10:25

    Hi. I’m not entirely sure that it’s arrogance that is the key barrier to change. Having met a number of recruiters over the years from both sides of the fence, I’ve come to notice that the really, truly excellent recruiters stand out like beacons on a stormy sea.

    My view is that because there are so few barriers to entering the industry and any old Tom, Dick o Harry can set up

  5. 10/26/2010 10:25

    To finish what I wa saying before my fat thumbs kicked in!!!

    Due to easy market entry, a lot of not very bright chancers have managed to make hay while the sun shone. Now the rules are changing they don’t know how to adjust. By the time they do, with a bit of luck it will be too late.

  6. 10/26/2010 10:41

    Good comparison.

    There are plenty of parallels between the music and recruitment industries, or indeed, any brokerage business, that makes the market between buyer and seller. However, whilst it’s true that the recruitment industry doesn’t suffer from modesty, I’m not so convinced that it is arrogance alone that prevents recruiters from evolving their service in the face of the challenge of social media. It’s a sales business with a capital ‘S’, and enormous pressure is applied on consultants and managers alike to meet targets. It’s this pressure which creates a short term, ‘quick win’ culture across the industry which precludes the strategic thinking required to reposition or re-tool a business in the face of external challenges.

    I agree with you that recruitment agencies will survive and also that it will be a very different landscape from what we have known and loved(!) for the past 30 years or so. The one’s who survive will be those who have the courage to invest now in socialising their business models and retraining their sales consultants.

    Good post – certainly worth further speculation. Any recruiters (especially from the biggies) got a comment to make?

    Best wishes

    Hung

  7. 10/26/2010 11:07

    Could not agree with you more and I comment from the perspective of a 16 year recruiting veteran! I do not believe the industry will die – there is a place for such services but the services must be radically different from the current models and provide a service and advice that a client values and one that they cannot do or do not want to do themselves.

    Social media has unquestionably had a big impact but not in a way that the some would believe, like the half-wits that believe the CV is dead. Percentage fee structures don’t represent the work under taken not value added, talent is relative to an organisation not the supplier, relationships are transactional (mainly because the service provided is), assessment standards are poor, I could rant on….

    Some of my clients agree with my model of integrated talent management – where we provide services both up and down stream of the hiring process, helping businesses grow their own and then retain them, as well as helping them hire what they need. Some however only want the transactional service of putting a bum on a seat, as they have their own resources to provide the other services…..although in my experience those resources are frequently used in isolation to and not in conjunction with any hiring activity.

    I don’t know what the future norms will be but I do know they will be different from the current ones and I do believe that the industry will be smaller but will become more of the “professional service” they often profess to be…..

  8. 10/26/2010 12:02

    The music industry analogy is apposite, because the major labels “owned” that business, yet it was taken from them because they refused to move with the times and technology. They believed that their’s was a static industry, and that the means of delivering and charging for music was never going to change.

    The key point is that the music product is ethereal, and could be produced, delivered, sold and owned in a myriad of different ways, that could subvert the established system. In recruitment, the product of value is information, and the ability to access it quickly and efficiently. This is even more open to subversion, and there are hundreds of different models currently being tried to do just that.

    I believe though that most small to medium recruitment companies are more agile businesses, and are able to exploit new methods to their advantage. This has always been a David V Goliath industry, and continual renewal and recalibration is the norm. Any business that insists on sticking to the old methods is in serious danger of becoming obsolete.

    I do have my concerns about some of the very large recruitment companies, but I have great confidence in the industry as a whole remaining central to the business of recruiting in the UK for the foreseeable future.

  9. 10/26/2010 13:48

    I think you are missing a key point in the whole conversation, the turnover figure for the UK Recruitment industry is made up of 65% temp/contract revenues. Unless industry is going to move away from reliance on flexible working some time soon, and I don’t see that happening, then we are arguing about a much smaller slice of the pie.
    The big shift in the temp market has already happened with the growth of V.M.S, and we are already seeing some backlash to this.
    Perm business is changing quickly as a result of companies moving towards the direct sourcing model or demanding either smaller revenues or better value/increased services. Specialist recruiters are reporting increased revenues. My feeling that the shift to niche and wider geographical coverage is already well under way, sped up by technology. I suspect that lower level “High Street Recruiting” faces the biggest challenge, although this is also changing with the growth of agency brokerage and flat fee or web based recruiters. They might work a different model, but they are recruiters none the less.
    In terms of the graph on music sales, I would be very interested in what constitutes music sales. Does this include live events, television, image rites, merchandise and the like? I suspect the figure for “music industry” sales and “music” sales would be quite different. i don’t know this for sure, but I would be willing to guess that it is the revenue streams that have changed rather than the revenue. I don’t think recruiters will be any different, and it is much easier to effect change in an industry that does not have any manufacturing process, and a low investmentcost to change.
    Industries evolve to respond to markets, recruiters are no different. I don’t think that the 35% of the industry turnover you are refering to will disapear, however, the way it is earnt might just change.

    Bill

  10. garethmjones permalink
    10/26/2010 15:04

    OK, if we are talking about the decline in the recruitment industry lets be accurate about what ‘recruitment industry is and lets put some facts in here. Firstly i often hear the ‘£25bn’ number quoted by recruiters in relation to their industry but this is gilding the lilly somewhat. The 25bn is made up, roughly, thus:

    75% = Temp Wages (Note – NOT Fees or Revenues!)
    9% = Temp Fees
    7% Perm Fees
    5% Rec Advertising
    4% Search and Selection

    So, the reality is that if you take the salaries/pay out of the equation which is really just a pass though, and recruitment advertising revenues its actually a £5bn max industry or thereabouts. So lets keep it in perspective. There are some other facts that we should take into account that many recruiters seem to ignore.

    Fact – recruitment company fees have been decreasing as proportion of overall revenue spend over the last 10 years despite the recent mini bubble leading up to the crash. The growth in the market since 2002 simply hid the fact that proportionately we were being used less as a solution. Most recruiters chose to ignore this, instead boasting about overall growth. If they took 5 minutes out to look into the market trends in depth, they would have seen this. But as Hung quite rightly points out, being sales based businesses with a capital S, this wasn’t even on their radar.

    Fact – In the years following the last major recession in 1993 – it was 6 years before the market warmed up to anything like decent growth and that was during a period when competition was far less furious than it is now, when the internet was still the stuff of sci fi movies and RPO and internal resourcing teams were not in the frame.

    Fact – Today, we are limping out of a recession that saw the worst GDP figures since the depression, – 5.5% to be precise (it bottomed out at -2.5% in 1991/2) and the prospect of returning to a growth rate of +2.5% which is required for the recruitment market to be FLAT, let alone show growth is looking rather unlikely. At current growth rates, the recruitment market is still shrinking.

    Fact – the big organisations and many medium ones are embracing resourcing as part of a wider talent strategy (Finally!) and as a minimum now have the tools and the ability to eliminate all but the very niche recruiters from the process – anyone who attended the recent smart resourcing conference would have seen that.

    Mat is right also in that its not just about social media – the recruitment industry has resisted any opportunity to redefine its business model on the face of changing client needs over the years.

    Stephen – the small ones may have the propensity to be agile but they have proved single handedly to be anything but. They are all just doing the same thing – charging a % fee for finding a body, however they find it, whatever the work involved. There have never been and don’t seen to be any fundamental innovations that could demonstrate ‘agility’.

    Bill – 65% of the market ‘is temp revenues’ is a little wide of the mark and anyway, regardless of the number, a requirement or market for temps or freelancers doesn’t guarantee a market for recruitment agencies. You do make an interesting point on music and where the revenue now comes from. Associated revenues in the music industry have indeed risen as direct music (or CD say) revenues have fallen. Touring and merchandising are increasingly being exploited to fill the gap. But it doesnt take away the fact that for a long time they were in denial.

    In terms of the recruitment industry, we need to find our equivalent of those additional or extended revenue streams. Unfortunately, we are not the music industry and in my humble opinion, our ability to deliver something tangible and, more importantly, credible to fill the gap is limited.

    Apologies for the long comment but, as someone who is in the sector directly, I feel the need to discuss the situation based on facts and not, as most recruiters would do, assumptions and misguided beliefs.

    I’m with Theo – the facts point to an industry demise. It’s been happening for years but you wouldn’t have seen it if you had your head in the sand.

    • 10/26/2010 16:24

      Not wishing to be pedantic, but if 75% of the recruitment market revenue is Temp wages as you point out, my 65% is undercooking it. A look at margin, rather than spend might be a better indicator of value over size. The actual figure accounted for by Temp revenue is 88%.

      The last figures available are for 2008/2009 from the REC:

      http://www.rec.uk.com/about-recruitment

      Key headlines:

      A drop in industry turnover to £22.491 billion compared to £27.006 billion in 2007/08. This represents a 16.8 per cent decrease in overall turnover.

      Temporary placements fell from 1,220,310 to 1,068,197, a contraction of 12.4 per cent.
      The permanent market now accounts for 11.6 per cent of the total share compared to 15.8 per cent last year.

      The permanent market now accounts for 11.6 per cent of the total share compared to 15.8 per cent last year.

      The shifting values of permanent and temporary recruitment over the year has lifted the temporary share of the market to 88.4 per cent compared to 84.2 per cent last year – its highest for some time and a five per cent rise on the year.

      Source: The REC Annual Recruitment Industry Trends 2008/09

      I have seen no indication that the temp/contract market are shifting to the direct sourcing model wholesale. The shift has been to VMS or RPO, and social media has had little, if any impact on this market.

      Big difference between Perm Recruitment and Recruitment Industry. Who is the obituary really for?

      Bill

      • garethmjones permalink
        10/26/2010 18:38

        Hi Bill. Well not wishing to be pedantic myself but you are missing something – temp revenue are not the same as temp wages. And the REC also quotes the number as revenue but that is misleading. The £19.8bn that the REC quotes is largely made up of the salary/pay that goes from the client to the contractor. We like to dress this up as revenue as recruiters to big up the size of our industry but it’s simply a pass through number. Its not bankable, investable or spendable money.

        In reality, if you remove contractor pay from that number, the real figure for temp REVENUES is about £2bn or thereabouts. Using my data, that means of the three different revenue breakdowns – temp, perm and selection – temp revenues account for approx 43% of the overall revenue number of £4.8bn in net fee terms.

        Further, if you add perm fees and selection fees together, which you should do to get the total perm number then perm accounts for 57% of the REAL revenues of the recruitment industry. Which means that, despite the fact that we big up the size of the temp at a headline level, its actually the smaller in terms of share of fee income i.e. REAL revenue. Not someone’s pay dressed up as revenue.

        Perm fees and therefore perm recruiting is the key area in the line of sight for organisations to address in terms of their own solutions in the short term. But medium to longer term, if anyone thinks that larger businesses will not try and create talent pools and therefore direct sourcing solutions around the freelance temp markets they are deluded. The exceptions might be the large volumes of blue-collar contract workers, but at the white-collar professional level its inevitable.

        The REC figures paint the temp market as being so big that it looks like the recruitment market wont be affected by the trends. But the reality is that the revenue at risk is largely perm, not temp based which means, on those figures that over 50% of the industry revenues could be at risk.

        I would also remind everyone that whilst Theo remains anonymous, he is, in fact, an HRD. A client. A buyer. When your customer is telling you that your service offering is no longer relevant you would think that the supplier would listen wouldn’t you? Not if they are a recruiter it seems….

  11. Gavin permalink
    10/26/2010 16:41

    I’m a recruiter of 7 years and I TOTALLY agree with this post.

  12. 10/26/2010 18:49

    I’m with Gareth on this. A lot of the response to the HRD’s post seems to have been a broadly pedantic argument about the minutiae of numbers and an attempt to forensically dissect what I’m sure was only meant as a broad brush analogy. Kind of proves his point really!

    Matt

  13. 10/26/2010 18:55

    and while I’m at it this isn’t restricted to third party recruiters either. I spoke to a major corporate last week who told me that they had struggled to spend all of their recruitment marketing budget this year because the recruitment ad agencies there were using pretty much refused to offer the products and services they needed

    Extraordinary times we’re living in!

    Matt

  14. 10/26/2010 19:05

    groupthink sucks. Arrogance is derived from ab (away) and rogare (to question) and kinda means turning away from questioning. It isn’t just a problem for recruiting mind, it’s happening all over the place. That mix of social media and “they don’t think it can” is going to blow up in a few other places too. I scribbled a bit about this in Aug 09 and what was emerging then for some local authorities (around how they try and control comms) and for BT. Here is the link if anyone is interested.

    http://stopdoingdumbthingstocustomers.com/leadership/dialogue-versus-groupthink/

    As my mate Amy Dean says:

    “The bottom line is that the masses have microphones. If management won’t listen and act, someone else will. The sooner companies accept the fact that they no longer have control of their brands, the better off their brands will be.”

  15. garethmjones permalink
    10/26/2010 19:59

    ‘The masses have microphones’ – love it, great quote Doug. The social Tsunami is coming and there’s an awful lot of people standing on the beach wondering where the water went….

    Great point Matt about those in the periphery.

  16. robjones_tring permalink
    10/27/2010 08:37

    I have been watching the Twitter reaction to this all day but have held off from reading it until I got home. I agree with Matt that the revenue arguments are semantics. As someone who has sold to recruiters, has been a recruiter (out of house and in-house) and now works in a different HR function I believe fundamentally that the market must evolve.

    From my perspective social media is just one of the levers or maybe could be viewed as a catalyst but it’s not the “thing”, the thing is value. If value=function divided by cost and the consultants wish cost to remain static then they must increase function to increase value. How they could do this is several fold but for me.

    I would like to see a rationalisation of the market and some true quality standards enforced (REC have failed in this task in my view). The “big shops” still have an advantage in some respects due to marketing and resource investment and some of them are disrespectful of the advantage this gives them with candidates (and anyone who’s been spammed a CV from that well known IT recruiter will know!). The days of the the ‘tippex name & fax’ may be gone but the behaviour still remains in some quarters.

    I would like to see consultants evolving to talent consultants who give as much value to candidates in terms of managing their careers and assisting in their development journey as they do in pleasing their other major stakeholder. Formatting a CV was never enough and although some businesses are helping candidates understand themselves and their opportunities I believe they could add significant value to candidates in this role.

    I would like to see internal recruiters understanding and challenging their line management colleagues to hire potential not just performance and understand the value of a medium term hire not just someone who can do the job tomorrow.

    And finally, if the recruitment industry is content to rest on the laurels of temp/contract/interim business I think they will have a nasty fate awaiting them as those people have been and are increasingly forming the neccessary relationships and contractural arrangements themselves (not saying this works for factory workers but definitely is an increasing trend I see in the management/professional roles)

    Just to finish on Matt’s point regarding recruitment advertising agencies I think they’ve already had their rude awakening (any of them making hay on 15% commission from a £68K advert in the Sunday Times now!?) but have been slow to understand or embrace the true value of the new paradigm they find themselves in and I think it’s cost their credibility dearly….

    Cracking post (doffs to TheHRD) and debate (shows bat to the rest)

    Thank you and goodnight!

  17. 10/27/2010 08:56

    @Matt Alder – I agree completely this isn’t just about social media. That is but one strand of the changes afoot.

    @Chris Underwood – Welcome and thanks for taking time to make such valid comments. The model has to change. The question is will it change before it is too late?

    @LydiaW – Great point and as we have seen with the Times, the outdated approach of just slapping an old fashioned model online (via a pay wall) shows that the thinking needs to be different not just the media. Oh and welcome!

    @andyyoung2 – I guess my question would be, why did the industry not self regulate then? Why do they consistently shy away from any regulatory body?

    @Hung Lee – Thanks for commenting. But isn’t the pressure put on from the top? And aren’t those the people that are suffering from the arrogant godmatic commitment to the past? Totally agree with you that the ones that will be at the forefront in the future are the ones that can socialise their businesses.

    @Stephen O’Donnell – You make a good point and my original post had some mention of the big versus large in terms of fleet of foot. Change doesn’t move at one specific pace.

    @BillBoorman – You make a good point. One of the factors that I had in my head when I wrote this was the Agency Workers Regulations which the coalition have committed to implementing. Personally I think overtime this will be game changing. As for music revenues, the industry has made SOME of the lost revenues back through touring and merchandising, but nothing like the total loss in overall sales. Take a look at EMI as a case in point.

    @garethmjones – Great point about needing to find additional revenue streams Gareth, the problem is that the adjacent markets are all looking pretty crowded from where I’m standing. So the question is how?

    @billboorman and @garethmjones – I’m not sure of the figures, but I’m guessing that a lot of these debates happened in the music industry too. “If you look at the figures this way you’ll see that CD sales are actually increasing…..”

    @gavin – Welcome and thanks for the comment. It appears you aren’t alone.

    @Matt Alder – Ahh see you have made the point I just tried to make above…..but you made it better…. booo!

    @Doug Shaw – I think the world of work is changing completely, I’ve written a lot about that. I agree completely.

    @robjones_tring – Fantastic points and a great summation of the main points. Cap doffed back at you.

  18. Gareth jones permalink
    10/27/2010 11:59

    My final word n this topic I feel strongly about 😉 Rob, you make some great points and whilst i agree that we might see internal recruiters doin more of what you wish, we will not see existing external recruiters evelve into career experts or community managers. It just won’t happen unless the business model and the people at the top of those businesses change. And I mean change fundamentally.

    When I mentioned additional services it was in response to recruiters talkin about adding additional services to shore up revenues but I don’t believe they can do this which was what I was saying really. As Theo points out, the space is already crowded and recruiters don’t have the credibility to move in on these markets.

    For “additional services” read “lipstick on a pig”.

    That’s why we need new. We need re invention, not tinkering with a crappy model to find another way to drive a target.

    I should know. We have already seen the light but it makes it no easier to innovate. Except of course. We are no longer in denial like sonmany others.

    Can I also just say it’s a bloody pain trying to comment in an iPhone!

  19. 11/01/2010 13:01

    Bit late on this as was at a conference last week, but can I make a very simple point as to why the analogy with the music industy is somewhat flawed in my opinion.
    The music industry (albeit FAR from dead, and I believe the above chart is misleading based on a chap who spoke at that conference who researches that industry – people still buy music, they just buy it differently) is a consumer market, wheras recruitment is a business service.
    Consumers change buying patterns of what is a static product on a whim, and particularly if they can get it for cheaper, and most pertinently, faster.
    Businesses changing buying patterns more slowly, if at all – based on the stability and security of business relationships that foster loyalty versus the ongoing need to look for new methods; including cheaper ones.

    Clearly evident from Bill’s #truManchester event in tracks I was involved in, was that there is a movement in recruitment methods. Larger employers are veering towards either RPO or Flat Fee service providers. Still recruitment businesses, but ones who provide a cost-cut – basically. There was also much agreement that the niche recruiter; ahead of the high street recruiter; was the format of the future and had a valid place as an service based on expertise.

    Where I can agree with the post, is that there is a self-consumed arrogance in the industry that fails to recognise these changes; and therefore there WILL be a steady decrease in revenues because of these changes in large scale recruitment practice.

    But to suggest that it will have the equivelant effect of the music industry is comparing chalk and cheese. The recruitment industry, as with the marketing industry, the PR industry, the Accountancy industry, etc, will always have a business case. In a world where businesses need to achieve results faster, with clear cost guidelines & ROI measurement, the recruitment industry still provides these things. I just think it needs to do it better.

    The warning is a good one. I don’t take it lightly personally… but the recruitment industry might.

  20. 11/08/2010 10:27

    @Steve Ward – Thanks for commenting Steve. In terms of the music industry, the graph and statss are taken from Forrester Research who are incredibly well regarded so I would stand by it. I’d also add to that my varioous conversations with individuals in the music industry and of course the recent situation with EMI.

    Personally I don’t think any industry is guaranteed a future business. I don’t think anyone can say that they will, “always have a business case”. I’m happy to be proved wrong, but I still believe from talking to the recruitment people I know that there is a major wake up call on the horizon.

    • 11/10/2010 18:19

      I think the observation made is that people now spend more money on music in different areas, live music, etc.
      My main point is that the comparison of Music vs Recruitment is flawed because of B2C vs B2B and different customer trends.

      I think you are absolutely right that the recruitment industry needs the wake up call. Frankly it’s not my problem. I’m WIDE awake… and laughing at those who insist on dozing in the same old comfortable bed. 🙂

  21. 01/04/2011 17:16

    The future will be radically different, 100% agree. A book that I enjoyed that touched on this mindset was Jim Collins’ “How The Mighty Fall And Why Some Companies Never Give In”. In South Africa, the Temp industry is under serious threat as legislation is being revised that in current form if approved would do away with Labour Brokers. It will be a long battle, but that is an easy way of wiping out a big chunk as politicians under pressure during hard times meddle. It is all about service and being more nimble in future. Biggest is definitely not the best anymore, so niche leaner players will fair better if you asked me.

  22. 01/05/2011 08:17

    @Thabo Hermanus – Thanks for taking the time to comment. I have that book sitting on my shelf a few feet away from me now and likewise I thought it was very good. You make some interesting points and I struggle to disagree. Thanks for giving a perspective from a different country too.

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