Michael Page Recruiting – Do we still need headhunters?
Recruiting companies like Michael Page are losing out in this age of digital innovation. Disintermediation of the middle man is happening in many industries and looks set to disrupt the recruiting industry. The healthy margins that once made this industry an attractive one will be squeezed out by online platforms. Michael Page will need to adapt their business model to stay relevant.
Recruiting today is changing dramatically. Greater access to information is enhancing the fluidity of job markets and our generation is looking for more reliable information on companies. Gone were the days where headhunters needed to ‘sell’ the companies to potential candidates. Today we want to hear from the companies directly about their business vision and values. We publicize our resumes, skills, interests and connections online for the world to view so that we are reachable to anybody and everybody. This is causing a huge impact on the recruitment industry – worth approximately $400bn globally [1].
Michael Page (LSE: MPI) is a UK-based public listed company with £1.6bn in market cap today. It is a global professional recruiting agency, specializing in the placement of candidates by identifying and sourcing qualified candidates for their clients.
How does Michael Page create value? They hire headhunters to do the talent sourcing for companies – shaking a lot of hands, getting to know people personally, storing their details in a database and referring them to companies when they find the right fit. Headhunters have deep skills in locating candidates, vetting their skills and attracting them to right positions.
Michael Page captures value through success fees of job placements, where fees paid are derived as a proportion of the salary of the candidate placed. Industry average headhunter fees in 2014 is 21% of annual salary of candidates [2] – presenting a very lucrative business model that has thrived in the last few decades.
How are they being disrupted? The proliferation of platforms such as LinkedIn, Monster and Glassdoor is giving rise to the obsolescence of headhunters, where the information that they once held control of is now public. With information access and the innovation of recruiting software, companies are increasingly using online platforms to find suitable talent. LinkedIn is now worth $25bn in market cap – bearing the resources and expertise to further squeeze out traditional recruiting firms.
The job market is far more fluid today with millennials changing jobs every few years. With higher employee churn rates, candidates are constantly on the look out for new opportunities and companies have to be actively recruiting to fill those gaps. Paying for headhunters for each new recruit bears too high a cost, thus, companies now rely more heavily on their in-house recruiters to use new digital solutions such as Jobvite and Greenhouse recruiting software.
One problem with traditional headhunting firms by Michael Page is the lack of engagement with their talent pipeline – 18-35 year olds do not interact with headhunters until they’re fairly certain about their industry of choice. This limits the liquidity of the market. There is no constant interaction between headhunter and candidate where skills and interests are being updated in real time. With the seamlessness of professional platforms in providing information and connecting both parties, the value proposition of headhunting firms is slowly deteriorating.
The other problem is scale. Contrast how many potential candidates can one headhunter meet in a day with the number of profiles that software can process in an hour. The emergence of software that can analyze a candidate’s strengths and preferences is quickly replacing the need for humans to make the judgment.
Companies like Michael Page are losing out in this age of digital innovation. They will need to adapt their business model to stay relevant. Maintaining the status quo is not an option.
[1] Source: http://www.ciett.org/fileadmin/templates/ciett/docs/Stats/Economic_report_2015/CIETT_ER2015.pdf
[2] Source: https://www.bountyjobs.com/blog/2014/11/07/average-headhunter-fees-2014/
Recruitment agencies or Headhunters must be able to value-add to commercial companies in the critical areas of (1) quality of candidates; and (2) speed of search.
Though the technological disruptions presented by social media platforms have created fissures in the already challenging space of the recruitment agencies, I think the recruiters could still have the competitive edge if they are able to fully exploit the advantages proffered by such technologies.
Recruiters need to trawl through the many candidates, obtained through the various search engines, and spend time engaging and understanding the shortlisted candidates. Such combinations of search would certainly increase the probability of finding more suitable candidates in a shorter span of time. That said, this can only complement the existing pool of candidates in the network that the recruiter has established over time. And, hopefully well documented in the recruitment agencies’ internal IT systems.
Notwithstanding, the recruiters need to have the requisite knowledge in the commercial sectors in order to better understand the requirements and appreciate the expectations of the search. And one of the surest way to acquire such domain knowledge would be to have spent significant time in such sectors prior. This would then allow the recruiters to be able to sense-make the subtleties and sensitivities of the requirements and expectations set by the search. The recruiters would thereafter be better able to communicate and assess the interested candidates in order to recommend to the commercial company the choice candidate(s) that would meet the qualitative parameters in the time expected. The resultant aggregated effect of such combination of factors would allow the commercial company to have a competent candidate that can fit its organisational culture in the shortest possible time. These qualitative work could, and would, never be replaced by any digital innovation available today.
Thanks for the comment Tien. I totally agree with you that digital is not disintermediating recruiting firms such as Michael Paige. One thing to add is that this is a two way market and the preferences, culture and temperament of the individual potential recruits matter just as much as the requirements of the hiring firm. Over periods of time, recruiters come to serve as trusted career advisers to the candidates and place them in roles that are they are likely to succeed in. I have been placed 3 times by recruiters in different roles over the last 6 years and the best advice I have gotten are about the jobs I shouldn’t take based on corporate culture and fit. Recruiters also serve as a great yet free source of reliable information about the job market (you can get some of the information online but you can’t trust it. For example, would you accept a salary offer based of numbers from Glassdoor?!). Questions like what is market compensation for a given role? What other perks, incentives and non-cash remuneration should I be expecting? How about non-competes and severance? Even basic yet critical information like what kind of job market is this can be easily answered with the help of a recruiter. Just imagine quitting your job in a market such as the 2009 -2011 job market in which hedge funds and private equity funds were hardly hiring? A good recruiter can save you from such mistakes.
I don’t think digital disintermediates recruiters but rather complements the highly personal work they do
Interesting stuff, thanks for the great post. I always had a different perspective on professional networks and headhunters, but this really adds some more flavor to the picture.
I always thought of these communities as a “free service”. I have my profile page there and I can do some networking. The whole headhunting thing, for me was a different story. I will use headhunters in a later stage of the career. In addition, I considered professional networks such as linkedin sort of the 1st level of headhunting. The 2nd level are the headhunters. Quite frankly, the headhunters do use the professional networks and they are probably the best source for talent they ever had.
It would be interesting to really get some numbers on the implications of digital and professional networks on headhunters. Your post suggests that they are in trouble and cannot reposition as the 2nd level of job search. We will see how it develops further…
I hear your point. It’s true that headhunters have been able to leverage digital networks such as LinkedIn and others, and it’s going to be increasingly difficult to add value because their job scope is shrinking. I think it spells opportunity for the talented headhunters, but many of the basic services offered by headhunters will become increasingly obsolete.