Uberization – Is the Recruitment Industry next?

There are many examples of industries disrupted over the last 10 years. Amazon totally disrupted the book industry. ITunes and online music services reduced the sales of CD’s. Netflix and online movie streaming services caused the demise of Blockbuster; it once had annual revenues of about $6 Billion per year.

Uber was a $5 Million start up 5 years ago is now worth in excess of £50 Billion and has taxi operators in many countries fighting for survival.

Could the same thing happen to the recruitment industry?

Well let’s look at what has happened to the industry over the last 15 years or so.

Firstly, we have seen the rise of online job boards such as Monster.com, Reed.com, Jobsite and Jobserve. Some would argue in less than 10 years the effectiveness of job boards has reduced by their inability to attract high calibre candidates.

Secondly, we have witnessed the introduction of the in-house recruitment team. Recruitment Process Outsourcing (RPO) operators are common in many companies. There are arguments about the value of these services, especially in filling niche or senior positions. As organisational success is closely related to the selection of high performance leaders is the RPO model the right selection methodology to use to select a company’s future leaders?

Thirdly, LinkedIn. LinkedIn is the largest global professional network with over 400 million members. LinkedIn has been a major disrupter of the recruitment industry as it has allowed candidates to be identified and approached by recruiters and companies. LinkedIn makes most of its revenue selling packages to recruitment companies. However, will LinkedIn become a victim of its own success in the medium to long term? Given the ease in which potential candidates can be contacted has led to some of them switching off their LinkedIn accounts and moving to other networks. This is certainly the case in the technology industry with the rise of StackOverflow, Bitbucket and Github.

The latest entrant to the recruitment “disruptor” space is the two sided marketplace. The aim of the marketplace is to bring suitable candidates and clients together without the intervention of a recruiter in the entire process. Hired.com has turned the two sided marketplace on its head. Hired focuses within the global technology market. They only allow a small percentage of candidates onto their platform (approximately 5% of those who apply) and they then share their profiles with hundreds of prospective companies. Before a company can interview, they have to make an up-front offer to the candidate who can decide if they wish to engage. Companies have up to two weeks to conclude interviews with a candidate. Hired has raised over $70 Million in venture capital funding with a view to supplying all industries and verticals. Already there are various other companies obtaining funding to set up marketplaces in the managing consulting and investment banking space amongst others.

So when we look at the introduction of job boards, in-house recruitment, RPO’s, LinkedIn and the two sided marketplace, have they fundamentally disrupted the industry? The answer is no. I think this is mainly due to the fragmented nature of the recruitment industry. Companies range from one man operations to firms with global operations and billions in fees. In the UK there are over 23,000 recruitment businesses (Anchor[1]) which makes it very difficult for one company or organisation to disrupt the industry in the same way as the taxi industry, hotels or retailing.

One of the major issues facing many companies is the cost of poor selection. There have been several studies that indicate that the cost of a bad hire can range from four times the annual salary for supervisory positions right through to 15 times the annual salary for a Vice President role (Anchor[2]). Apart from the financial loss other implications include theft, fraud and embezzlement, damaged employee relations and morale, loss of productivity and even public scandal and negative publicity.

At Darwin Rhodes we have introduced a range of services to mitigate the hiring risk to clients. This includes our high performance selection process which addresses the hiring risk issue for our customers and provides an exceptional client and candidate experience.

Although we do not believe we will see the recruitment industry become Uberized, we feel that there will be a two tier recruitment market. One will be a low cost model categorised by RPO’s and the two sided market place model. This model may have issues surrounding poor selection and poor quality as recruitment firms who participate in this model are unlikely to provide their best quality candidates and their processes are not designed to do that.

The other model will be a high touch quality service, where clients ensure they have selection methods that will produce the high performers. They will partner with selection firms to assist them in this process and those selection firms may need to have added value services to help them identify and source these high performers.

But will the recruitment industry be the next Blockbuster –we doubt it!

Kind regards
Calvin Dick

[1] http://www.hrreview.co.uk/hr-news/recruitment/over-1400-new-recruitment-companies-set-up-in-last-year/53674

[2] Bradford Smart, Topgrading 201: How To Avoid Costly Mis-Hires. (Top Grading, Inc. 2012). Pg. 34

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