Why is executive search pricing still a percentage?

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Take a look at the history of firms like Korn Ferry or Spencer Stuart. They have been around for a while. They have seen the staffing world through muscle cars, disco balls, atari, the Internet and social networking. Work has changed so much over the years, but you know what hasn’t? How most search firms (not just KF and SS) charge. It is still a percentage.

I am not saying it’s a good or bad thing. But clearly the advent of technology and the increase in skill level of the corporate recruiter certainly makes us think differently about using any agency.

What surprises me most about the entire issue is that the pressures from clients have not changed the model more. There are so many other services that have moved to hourly pricing or flat rates and deliver high value, but search has not really changed. Install SAP and it’s an hourly rate. Can you imagine SAP saying give us 25 percent of your annual revenue?

Maybe tech is not the same as an executive, but I am sure the street cares more about the CEO and officers more than the type of inventory mgmt system.

So again, I wonder why has the percentage remained. Why the value based pricing? Do we really think that finding a candidate making 500k is twice as hard as one making 250k and four times harder than 125k candidate? Well let me tell you…it is not. Over the hundreds of positions I have managed at these levels, both directly and by observation, the higher up it goes the easier it gets. Don’t get me wrong…the work is intense. A great recruiter is going to talk with 40 to 75 well researched people on a hard search. But at the top, it’s actually easier to find the people to start calling on, that is because there are less of them.

I struggled to find another industry like this and then I saw it on tv the other day. Real estate. A percentage no matter what. Do we all really think that it’s twice as hard to sell a 500k house vs a $1M house? I don’t know if its twice as hard – I imagine its a little harder. But inevitably, we pay the fees as a percentage because of a perceived value and the relative nature of money.  There are real estate agents that take a flat rate or many do have minimum pricing that they will have in order to work with them – much like search firms. But also its pretty easy to spot the ones who can handle a $10M house.

As value changes in recruiting, this will continue to be a hot topic, but I do see that at less than 150k on total compensation that there is significant pressure on getting rid of a percentage. Over the last 25 years, the business quickly moved from greater than 25% to less than 25% for such positions, which is a value statement of its own. Because of the easy access in the recruiting industry, the natural economics will probably keep it there. More alternatives and models will arise, but many people will keep their spending habits.

As for me, I am fan of executive retained search. If you are going to spend money – then get a service that is greater than just the profiles, and demand quite a bit from your agency. Give them the ability to shine and present great talent. And if it costs 25 to 33%, then so bit it. If you are being smart with your agency spend, that means you probably engaged less, so the difference gets offset.

The Ides of March Approaches…Get Goals Aligned

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A few years back I ran across a study and set of resulting statistics that I now reference all the time in regards to project management. An analysis of 3000 projects done throughout the US government showed that if you are behind schedule early in a project or an initiative that there is an 88 percent chance that the project will come in late, over budget or less than scoped.

So how early can you tell? When you are 15 percent of the way till the projected end date. So that means that mid March marks 15 percent of the year is through.

This is a great time to review progress on your talent goals that were set in 4th quarter for 2010. Are you tracking okay?Are you 15 percent through the goals you set to your teams? If you are not, now is the time to readjust. Here are a few ways you can get started:

1 charter the goals and iniatives that you set for 2010. You can download a strong charter template from the Project Management Institute or on multiple websites but you should get one. Declare your goals, budget, resources and milestones you need to hit. Bring those to the sponsor of the program. By the way…you are not the sponsor. You may be the champion. Get approval and get your teams briefed before the end of the month.

2 Run an analysis on leadership and feasibility. You have to identify all the stakeholders and also make sure you have identified who needs buy in and approval. Is leadership really on board? Did you ask? Did your goals get approved yet? As for feasibility you need to ask yourself about 30 questions around feasibility (if you want them let me know) but they include questions around technology, if work like this has been done before, and what is the failure rate of projects like this. If the feasibility is poor, get awareness to it now, and get approval for the additional resources you need.

3 Confirm the Big 4 – Scope Budget Quality and Duration
All are in the charter template you find online (assumming it uses PMI standards) but this a really quick way to make sure you are target. If you have not declared the size of the goal, the money required, the quality of the delivery with approval from the customer, and how long it’s going to take to get it done, you are way behind already.

Take your goals, go to your directs and supervisor and take an hour to go over the big 4. If those are set, move into leadrship and feasibility and get those charters moving.

Perform these activities by the end of March and see how quickly your goals get advanced.

The Olympic Sport that is Like Recruiting? Figure Skating

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As an avid skier, I have been watching the Olympics regularly. As a person who lives baseball, golf, and skiing, I use sports analogies all the time – especially in business. So as I have been watching I have been trying to draw analogies between Alpine Skiing and talent organizations. The speed, agility, technique, and repetition of the races all seem logical to me.

My wife however is not a skier – she is a skater. Just as I grew up playing baseball in the summer, golfing in the fall foliage, and skiing on the white of Colorado, she was working with coaches, competing through the Northeast, and going to Lake Placid each year to compete in national events. So to both of us, the Winter Olympics is kind of a big thing in our house. But it also means I watch lots of skating – which I don’t really care for.

But the more I watch, the more I realize that if talent / recruiting was an Olympic sport – figure skating is probably it. Here is why:

1 – The merging of Art & Science
Any search firm worth its salt has said this in a sales call and talks about the delicate balance. I will admit that in moguls and freestyle skiing there are twists and turns that the skier chooses (just like in snowboarding) but pretty tough to argue that the technical aspects and artistry of figure skating is outmatched.

2 – The Subjective Nature of Scoring
Performance in talent is subjective. That is for sure. We don’t even have a standard for Cost per Hire (although we are working on it). Technically you can measure in recruiting – time to fill, diversity percentages, and so on – but you then measure “experience”. We ask for insight and poll and survey. How did you “feel” in the process? Were you satisfied? Bobsled, Luge, Alpine, Nordic and Speed Skating is about crossing a finish line first. Curling and Biathlon is about accuracy. Halfpipe Snowboard, Freestyle Skiing, Figure Skating and Ice Dancing have artistry, although most would argues that the subjective scoring is led in skating. The way I can say that is all the controversy around the scoring. Take this year’s men’s competition. Or 2006. Or 2002. We keep changing the scoring to make it less subjective, but the fact that there is so much controversy is just wild. You don’t hear any controversy in Alpine skiing. Pretty sure the lowest time wins – doesn’t matter how they go there.

This translates well to talent / recruiting. Performance is so subjective and once more has multiple stakeholders (judges). Talent is working went recruiting, hr, management AND the candidates say so – a very subjective situation for sure.

3 – All the programs have technical moves, with few innovations in technique over time
Sounds like talent. In my lifetime (mid 30s) there have been two innovations in skating – the triple and quad jump. The quad is not even a standard. That is in 30 years. Pretty much the same in talent – few innovations. Technology has played a big role in innovation – but technique – not so much. We still pretty much still view, screen, interview, and reference. Testing has become more regular as a technical process, but all the new technology, sourcing, and etc is just efficiency in a particular technique.

4 – Same Dimensions in the Sport – but No Records
Since you can’t measure objectively, you can’t really have records. The only record you get is most medals over time. Of course the rink is pretty much the same size. The skates are still skates. Just like talent – there are no records to break. In talent we all play by the same rules, and sure there are companies that are better at it than others, but there are no records to break. I never really even though of that until just a few days ago. We all try to be the best and compare each other, but there is not objective way to really do that and claim you are the fastest or best.

You may may be thinking – what about Halfpipe Snowboard? Its technical, artistic, relatively same dimensions, and no records to speak of. It also has few technical innovations. Shaun White pulled out a new trick this year, and it was the first in a while. To that I say – “I agree, but…”

5 – Figure Skaters Don’t Wear Uniforms and Stand Out from the Team
Can’t deny that. Even the US Snowboard team wears the same jacket. But skaters – always their own gear. It usually does not even match the colors of the country’s flag. They stand alone. If you lined up all the US Olympians in the gear they compete it, you would see variations, but the figure skaters would not likley be wearing red, white and blue, and would stick out for sure. If I had to pick a group within HR that is a little on their own, sticks out, and has their own brand – I would have to pick the talent group.

These are not bad things – but being figure skaters, we need to focus on:
1. Our artistry is just as important as our technical prowess. We have to be experts at both.
2. No matter who good we think we are, measurement is subjective. We have to please multiple masters, otherwise we can’t put on a good show.
3. Innovations don’t come often – so focus on the fundamentals – always practice the fundamentals.
4. There is nobody to beat out there. Focus on what you do, practice and execute. Being the best will be interpreted and then perceived.
5. Talent stands out and grabs attention. Be aware of this and leverage as you need.

2010 Predictions – Part 2

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Not to many predictions out there to comment on, so time to get on with mine. There is plenty of talk about what happenned in 2009 with lessons learned. Seems like every technology and rpo has a document on what to learn from 2009.

Predictions:
#1: Part time and outsourced work will be considered more as a way to get work done. Outsourcing is part of the talent space for sure as is part time employment but savvy hr leaders are going to be more careful about staffing up full time help and may look for slightly more expensive solutions per hour, but will consider less management responsibility and just less hours to reduce expense and avoid quick layoffs. HR leaders and talent managers will pay more attention to contingent and temporary labor as well and don’t be surprised to have these functions start to have goal alignment to talent leaders.

#2 efficiency and mobile technologies will become used more and become more robust. AT&T has an app for recruiting but that is not where mobility and technology starts, although it is really slick. Recruiters will also increase usage of text and social networks, but the real technology advances will be in operations. More assessment usage on the front end of an ats, scheduling tools, better onboarding technologies to increase retention is what I am talking about. Recruiters and HR leaders incorporating technology that reduce administration and increase self service.

#3 the grab for green jobs will continue and thrive in small business and large scale initiatives. Several labor department reforms and the job bill coming out of the white house give businesses the incentive to hire people and create jobs, but even more so when it’s about green work or community needs. Watch for larger green manufacturing retooling or initiatives which help companies create new products but also help them rehire. Not convinced that it means a surge of people leaving current jobs for green ones, but every organization needs to think about how being green enable the employees and retains them.

#4 we can do that too! Hit hard by the economy, talent vendors will continue to scramble and acquire new tools, competencies and products. Some will be very enabling (peopleclick authoria is one I like) as they combine two technologies or players that are logical. Be wary though of the rpo that now does workforce planning or the ats company that does employment branding. Business is about serving the client but it’s about margin too. I do suggest you review each of your primary vendors and understand their skill set though. Great opportunity to learn and really understand what they can do and what they should not do for you.

More to come later this week.

Check out the wordpress app for iPhone. This is too easy.

2010 Predictions – Part 1

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Kudos to Kevin Wheeler for several good predictions for 2010. You can read his full article on the ERE blog site at http://www.ere.net/2010/01/07/whats-hot-for-2010

Non Traditional Employment: I agree with Kevin that more resources (aka human capital) will be engaged using means other that full time employment. “We are going to see a steady and continuing rise in temporary, part-time, contract, and consulting work. This will replace a large portion of traditional employment over this year and continue on for the foreseeable future.” I also agree with “I predict no upsurge in regular employment. There will be hiring, but primarily for critical positions and to protect intellectual property.”

Non traditional employment has been on the rise really since 1970 – the concept of the dual income household makes this a reality, and it has continued to surge for some time. The advent of contingent labor companies like Kelly and Manpower couple with corporate acceptance of outsourcing and offshoring have made this normal, acceptable, and in many cases better.

My prediction for Non Traditional Employment is slightly different. The change in employment will be an increase in project oriented work, where full time employees will not have year long goals and objectives, but 6 month objectives, or maybe less. This move towards regular shift in priorities will be used to retain younger employees (Gen Y, Millennial) and also avoid displacement of other employees as the economic fluctuates. The inability to see beyond 180 days out will continue, as financial forecasts beyond 180 days have gotten fuzzy, so organizations will simply adjust to that timeline, rather than one that is 360 days long.

This may mean that recruiters will have to get into talent management. Who better to move them internally than the person they just talked to a few months ago?

Mobility Plus: “…this trend means recruiting will have to go virtual and recruiters, as I have said many times before, will need to become skilled at video interviewing, online testing, and the other components of a complete virtual recruiting process. Hiring managers may never meet face-to-face with a candidate, and once hired, the employee may work alone in some remote place with no face-to-face contact with any other employee. Others may work in small clusters located regionally, and others may choose to work this way on a part-time basis. The key will be flexibility in everything.”

I can handle that. The increase in the use of technology will enable candidates to engage these tools, and be willing to use these tools. But I think some of that is because the younger generations either prefer to use technology, or lack the prowess to represent themselves without technology. Additionally, corporate recruiting will continue to have to do more with less, and technology (whether appropriate or not) tends to substitute for human capital.Recruiters will be forced or encouraged to use these tools not because they are necessarily better, but because its the resource that is available to them.

My prediction for Mobility? Quite honestly, I have not really thought about it. Recruiters tend to remotely communicate with managers across geographies now, even if that means between the 3rd and 4th floor of a building. Use of tools (last year was social networks, the year before was LinkedIn) are always in vogue and we just need to innovate and perform trials because that is one of the best ways to find practices that work the best for a brand.  Those new tools or processes enabling mobility is just a by product. I think that in 2010 (and really beyond) we just have more ways to interpret the appropriateness of a candidate for a position, and will have more drill bits for the drill (rather than tools in the toolbox). You may not use them all the time, but they are available.

Few Recruiters / More RPO: Kevin has a few good ideas in here. The first is the rise of firms as one stop shops. Obviously I agree as our business has been managing clients this way for over 3 years, and really one of the few companies doing that. But after doing this a while, I will state that I see LESS need for RPO. Like many ideas, RPO is one has become over processed. I think the need will be an increase to the services AROUND RPO.

The world of HR is pretty much set on who influences who internally – I can count on just a few hands the number of organizations that have a chief talent officer and a SVP of HR both reporting to a CEO, and equal to each other. In most cases, the #1 talent person is under the #1 HR person, so stuff falls downhill. If companies have not outsourced by now to RPO – why would they start? Its possible that the conversation happened a while ago, and they were waiting on the fiscal to turn, but for most, that shipped has sailed. Recently, we seen the trend moving in the opposite direction – more companies bringing in internal just to avoid management fees, and ongoing work that could be brand damaging. The exception is the organizations going through “HR transformation”. If they are, they maybe hunting to cut heads, and recruiting is a good target if its headcount heavy.

I think that the increase will be in what is outsourced. Companies may outsource other pieces beyond RPO, and simply increase its RPO so it can reinvest in something else. But I dont think that will equate in FEWER recruiters. The companies that have the RPOs will take a hard look at what their HR business leaders are doing, and see if more efficiency can be gathered, and admin or commoditized work will be moved out. The will likely start with current relationships, and likely those companies will make it work.

Companies that have larger internal groups will look to be efficient, group work together, and drive certain core competencies. Whatever they don’t want to build internal, they will partner with external – and it may or may not begin with their current relationships.

Summary on My Predictions Built on Kevin Wheeler’s:

  • Employment will become more project oriented. Assignments will be shorter, and that will increase retention and allow for rotation of younger talent. This may drive an increased need for recruiters to experts in talent management and internal mobility.
  • Mobility will continue with mixed results. New Tools will come, virtual or not, and will be used. Their effectiveness, like always, will be brand and talent pool dependent. Try new stuff, innovate, fail, and try again.
  • RPO will not increase, but companies will increase outsourcing of services before and after typical RPO activity. Don’t be shocked when your RPO comes out with its onboarding service. The use of recruiters (in the classic 20 – 35% fee sense or internal corporate recruiter) will continue to fluctuate. Those who perform that work really well will survive, and those that do not will simply suffer or skate on by as usual.

More preictions coming. Have to go through some of the others that are out there, with a conclusion on what I think 2010 will hold in summary. Here is a preview of my first one:

  • Merging of the recruiting function with other elements of HR will increase. Talent management, retention, and onboarding will become part of corporate recruiting everyday. As the corporate recruiting is squeezed for resources, as the rest of HR inevitably is, the function itself has to survive with high value activities. The outsourcing of screening and even RPO make it easy for corporate organizations to “flex out” the most time parts of full life cycle recruiting – the sourcing and the screening. With that in mind, recruiters now have more time and pressure to be consultants, and that is going to mean solving human capital problems, more than simply recruiting problems.