Chief Executive at REC (Recruitment and Employment Confederation)
At the end of 2012 the Recruitment and Employment Confederation (REC) published the Back to the Future working paper that took an in-depth look at the trends that have shaped the recruitment industry over the past few years and those we expect will impact on the industry over the next decade and beyond.
In 2012, many recruiters learnt a tough lesson and found that it is no longer possible to piggyback on strong economic growth in the wider economy as they have done in the past and we predict that running a successful agency is only going to get harder and demand more of recruiters.
The starkest finding in the report is that the number of recruitment businesses fell by 11% in 2011. The REC believes it is likely that the drivers behind this period of consolidation (weak economic growth, margin pressure, technological advancement and new channels to market) will continue for some time, leaving agencies with important choices to make if they are to remain successful.
The REC believes that the recruitment landscape up to 2020 and beyond will be shaped by eight key trends:
1. Economics drives the recruitment market: It’s clear that the whole recruitment market follows the UK’s broad economic trends. In the recession, the economy shrank by just over 7% whilst agency sales contracted by nearly 30%. The forecast for 2013 is for growth of 1.5% rising to 2% in 2014, so the economy will not drive industry growth over the next two years like it did in the 10 years prior to recession, when the industry grew by 200%.
2. Greater control of the supply chain: The drift towards managed service platforms and RPO will continue, driven by large public and private sector organizations seeking better management information, reduced exposure to risk, simpler invoicing and reduced costs. Agency margins for temporary and permanent recruitment are likely to come under increased pressure as a result.
3. Continue margin pressure: Employer organisations will continue to leverage the fragmented and competitive nature of the recruitment market to reduce agency margins. This will be driven by procurement in large organisations and alternative models of provision amongst SMEs and be particularly prevalent in commoditised markets such as temporary staffing.
4. A maturing market: As pressure on margins are maintained, weak economic growth continues and technological advancement drives new channels to market, the recent trend towards industry consolidation will continue.
5. Greater segmentation: The recruitment market will be shaped by external pressures. The demand for rare talent will ensure the continued use of executive search; the need to maintain costs and workforce flexibility will drive temporary staffing volumes and greater efficiency whilst permanent positions (below board level) and professional interim/contractor business models will come under increased pressure from in-house resourcing teams using sophisticated social media tools.
6. Increased ‘professional flexibility’: Current trends in the US and UK suggest that employer organisations are increasingly using interim managers, fixed term contracts and other forms of contracts to engage talent whilst keeping fixed costs down. It is also clear that many professionals are becoming increasingly comfortable with this freelance or self-employed way of working. Agencies in this space are likely to do well especially when growth in demand returns to the UK economy, highlighting skills and talent gaps that employers will have to fill.
7. Demise of high street recruiting: As the ability to reach candidates using email, SMS and social media becomes more prominent, the model of supply will move away from the high street for many sectors. Even high volume temporary staffing could increasingly migrate to on-site locations.
8. An inch high and a mile deep: The competitive pressures emerging leave SME recruiters with a number of strategic choices: to become a low cost provider of temporary workers via a range of low cost channels such as RPO and MSP: to become specialist providers of professional skills that are in demand for temporary and permanent staffing (project management, HR and financial services etc.): to compete as a high street ‘generalist’ agency by developing a deep relationship with local SME employers that are likely to continue to use traditional local recruiters. An inch wide and a mile deep rather than a mile wide and an inch deep may well be the right focus for many small and medium size recruiters.
For more information on this report and other REC research go to the REC website www.rec.uk.com.