Scan the employment classifieds in any newspaper and it appears that recruitment companies have a pretty tight stranglehold on the talent on offer. Correct? Not so. Australian organisations have long been persuaded by recruiters that engaging a recruitment firm is the only effective way to find the talent they need in a market that is suffering from a (perceived) skill shortage and shrinking labour pool.
The structure of the Australian recruitment industry is fundamentally flawed, argues Abacus
Recruitment’s Toby Marshall, and both clients and job seekers are losing out
Scan the employment classifieds in any newspaper and it appears that recruitment companies have a pretty tight stranglehold on the talent on offer. Correct? Not so. Australian organisations have long been persuaded by recruiters that engaging a recruitment firm is the only effective way to find the talent they need in a market that is suffering from a (perceived) skill shortage and shrinking labour pool. What they are failing to identify, however, are two huge pools of talent that continue to go largely unnoticed: mothers with young children and older, semi-retired workers.
As a recruitment specialist with over 16 years of experience and analysis of the employment market, I continually find myself coming to the same conclusion: that the structure and dynamics of the recruitment industry in Australia are so fundamentally flawed that business is wasting millions in fees and failing to connect effectively with their ideal candidates. The issue of under utilised talent is a big issue and in my opinion, only one of the by-products of this very ineffective recruitment system.
It is, however, this very talk of dwindling labour and skills shortages that continues to detract the criticism away from the ‘supposed experts’ who manage the search and selection process on behalf of many leading Australian organisations. The way in which recruitment firms currently operate hinders rather than helps the recruitment process and until the industry adopts a more ethical and accountable framework, the economy continues to bear the brunt.
In an era where employee retention has become such an issue for so many organisations, a quick-fix mentality driven by short-term results and measured purely by commissions earned and classified advertising space sold offers, in my opinion, no framework for optimal long-term results.
Consider this: Recruitment firms only have access to a small percentage of the available jobs out there. In fact, many are not advertised or are ‘hidden’. It is estimated that up to 80% of jobs are hidden as only 10% of positions ever make their way into the hands of recruitment companies. And given the proliferation of agencies vying for a share of the lucrative commission, at best even the largest, most well-resourced recruitment firm has only 2% of the job market in a job seekers sector.
But herein lies the bigger problem. As the job seeker is not the one paying the recruiters they are not the recruiter’s number one priority. Recruiters, rather than looking to get maximum employee/employer match are focused solely on grabbing the closest fit in the shortest possible time and scooping up the commissions. Ultimately they are being rewarded for short-term success – not long-term employee retention.
What is it then that needs to be done to ensure the industry is more accountable, co-operative and effective for all stakeholders?
Companies need to take more effective control of their own recruitment needs and to this end need to think about recruitment as an ongoing process, continually identifying and communicating with prospective employees, whilst successfully marketing their employment brand to them. Furthermore, recruitment firms do have a powerful role to play in partnering with HR and Australian businesses – but whilst recruiters refuse to share risks with their clients and continue to take a band-aid view of human resources these problems will persist.
Recruiters have to be prepared to develop long-term relationships with clients; however, clients too need to commit to their recruitment firm and work long-term for the best results. Recruiters must be prepared to accept that fees should not be entirely up front – rather, apportioned over an established period so the incentive is not only finding the right person but being rewarded for that person staying in that job.
Good recruiters can help employers avoid making costly mistakes. They know their clients and their corporate culture intimately, which means they can identify the right person/people. Quality recruiters have access to in-depth market understanding which means they can help a client develop retention programs to keep their valuable human assets.
Furthermore, the good news is that change is on the horizon. A recent survey of CEOs by The Economist magazine found that the third highest risk factor facing companies is that of attraction and retention of quality employees. CEOs and boards are finally realising the need to get behind the issue of recruitment if they are concerned about the costs of attracting and retaining talent, and how they plan to manage this into the future.
Once companies begin measuring the costs of employee churn, it is only then that they will realise the income lost to the inefficient recruitment system. Whilst companies are not able to hire people, Australia is experiencing nearly 15 per cent under-employment. As a result, companies are failing to harness the great talent out there. The damage to the economy is huge. In fact it is estimated that the figure involved in un-utilised talent coupled with poor performance as a result of job dissatisfaction could be as high as $15 billion.
The cost of finding and employing staff is having a huge impact on the bottom line of businesses, especially when an employee was not ‘matched’ in the first place and then exits quickly. The revolving door starts again and employers are left footing the bill, whilst recruiters continue to prosper by the system. According to our research it is estimated that the cost of employee churn to a small business of 20 people is regularly in excess of $200,000 per annum.
We strongly believe that within the next five years we will see more of Australia’s Top 500 companies demand a shift to a fee for service recruitment framework where all stakeholders benefit. Under this system the individual recruitment firms gain by using the broker as their distribution arm, allowing them to focus their time on consulting,. Clients benefit because the quality of placements improves significantly and job seekers are rewarded because their skills are matched more effectively with the right employer. Essentially the fee for service recruitment system works because recruitment agencies are sharing the risks with their clients – the way it should have always been.
