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HR Magazine: A Recruiting Spigot

By Martha Frase-Blunt  4/1/2003
 

HR Magazine, April 2003Vol. 48, No. 4

Special Report on Employment and Staffing

An emerging alternative to traditional search firms enables companies to turn recruiting efforts on and off as needed.

The ebb and flow of business can make it difficult for a company to maintain a consistent recruiting strategy and budget. A business slowdown may leave in-house recruiters expensively twiddling their thumbs on full salary—or out of jobs. A new product launch might require hiring 100 skilled professionals—to start yesterday.

HR Manager Kirsti Etzel found herself in the latter position last summer when her company, Centocor, a Malvern, Pa.-based biotech manufacturer, got approval from the U.S. Food and Drug Administration for expanded production of its drug, Remicade. “We needed to bring on board a large number of specialist manufacturing operators—several dozen people with scientific degrees and experience in pharmaceuticals,” she says. Her department lacked the budget to farm out the work to an agency, and it didn’t have the internal manpower to undertake the job of sourcing and screening hundreds, maybe thousands, of applicants. “And if we hired an extra recruiter, what would we do when the recruitment project was over?” she wonders.

What Etzel needed was a temporary supplement to her recruiting team that could work closely with hiring managers for as long as the project lasted but that wouldn’t cost her 20 percent or 30 percent of each hire’s salary. After some investigation, she found TalentFusion, a Harrisburg, Pa., outsourcer that provides recruiting solutions tailored to any size project. Centocor pays TalentFusion a fixed weekly fee for the full-time services of an on-site recruiter. So far the agency has filled more than two-thirds of the specialized positions at a fraction of the cost-per-hire that a retained or contingency search firm would charge.

Filling the Gap

Over the past few years, a number of third-party recruiting consultancies have discovered the service gap Etzel faced and have set up shop offering flexible, front-end recruiting services that can be purchased monthly, weekly—even hourly. These on-demand recruiting services (ODRS), which typically charge based on time spent rather than per-hire, are emerging as a cost-effective alternative to retained and contingency search firms. (For more information on the other types of recruiting firms, see “Traditional Recruiting Defined.”)

With ODRS firms, HR controls a flow of qualified candidates that can be turned on and off like a faucet. Typically the vendor handles the sourcing, analysis and prescreening, leaving the client with a short list of prequalified candidates to interview. However, unlike traditional recruiting firms, ODRS does not guarantee a hire. The risk falls with the company.

Candidate “sourcing”—the continuous effort of identifying, attracting and screening potential employees—didn’t exist 10 years ago. Finding candidates simply meant putting an ad in the paper, or hiring a contingency or retained search firm to find interested people. But the skilled labor shortage of the late 1990s meant that the best candidates were already employed and hidden from view. Companies began hiring skilled researchers who knew how to unearth these passive candidates using sophisticated Internet search and telephone networking techniques.

Nowadays, with a rich supply of jobseekers beating down HR’s doors, the dilemma is how to separate the best prospects from the noisy pack—a tremendously time-consuming burden on a company’s recruiting resources.

Enter ODRS firms. HR departments turn to ODRS firms for two reasons: First, when they receive a heavy response to recruitment ads and need help replying to applicants, siphoning out those with merit and screening them; and second, when they have been unable to attract the type of candidate they need to make a good hire.

In the latter situation, “We work closely with hiring managers to determine the sort of person who would work well in the position,” says John Laporta, president and founding partner of TalentFusion. “We then look at the client’s top competitors and identify potential candidates in like positions. We then take that list and engage those potential candidates, educating them about the client and the position, and try to pique their interest. From there we can take the ones who express interest and begin the qualification process, moving toward presenting a candidate short list.”

‘Recruitment Optimization’

The Tiburon Group in Chicago delivers ODRS services as part of its recruitment solutions management consulting business. Its president, Carl Kutsmode, sees the company’s role as “recruitment optimization,” helping clients enhance their own recruiting capabilities and tailoring its efforts to the client’s recruiting culture.

“Often organizations have to move fast—to enter a new market, for example,” explains Kutsmode. “Everyone has to drop what they’re doing to staff up, and resources are spread thin. We have a well-oiled team ready to go who are used to working together, have a methodology and toolbox, and can be up and running in a very short period of time. The ability to leverage a team of experts only as needed is a key benefit to our clients. We also add value in terms of scalability, so that it’s cost-effective for clients to use us for a search of any size.”

The basic model has proved so successful that old guard recruiting firms such as DDI Inc. and New York-based TMP Worldwide are getting in on the action, offering flexible staffing services alongside traditional contingency searches.

“In trying to be responsive to clients’ needs, you’re probably going to see more search firms doing this,” says Scott Burton, senior vice president of Selection Solutions at DDI in Bridgeville, Pa. “Companies need to be able to mold and shape their resources at the speed of business, expanding or contracting more rapidly than in the past. Speed is the new competitive advantage.”

DDI offers “quite a bit of ‘just-in-time’ staffing for clients, in alignment with their business plan, that will flex with the ebb and flow of business,” Burton says. For example, one of DDI’s large automotive clients pays the company to do all hourly hiring and to keep a ready supply of candidates primed for the next open positions.

Large companies filling hundreds of positions each year gain advantage by outsourcing their candidate searching on an as-needed basis. But so do smaller firms and startups, who can benefit from the quick generation of potential applicants for one or two positions, at significantly lower costs than traditional agency searches.

Indeed, it’s the smaller cost-per-hire rates that attract most clients to ODRS. Etzel reports that early in her relationship with TalentFusion, she hired a team of quality assurance professionals from candidates the vendor had presented. “A typical recruiting firm would have charged 25 to 30 percent of salary, and TalentFusion’s cost was 85 percent of that. Our higher-ups were very impressed with that figure.” Over the past five years, TalentFusion’s average cost-per-hire has been under $7,000—a figure comparable with other ODRS firms.

Choose Your Model

Companies providing flexible, scalable recruiting services typically offer a range of services and payment structures, from simple candidate sourcing by the hour to furnishing an entire recruiting team for a project or timeline. ODRS firms are often brought in to handle ongoing hiring needs in a core area, such as a sales office, where manpower needs undergo cyclical or seasonal spikes.

“A lot of our clients are building centralized sourcing models internally,” adds Kutsmode. “We help them do that, and instead of staffing it to a peak, they staff it to a baseline. They keep us on call, so we can mirror their internal recruiting organization as needed. We are seeing this more and more; I think it’s the ideal use of the service.”

Each vendor seems to use a variation on the same basic time-based business model. TalentFusion, for example, charges a flat rate tied to time and materials, typically $1,500 to $3,000 a week for a prearranged level of service. “At any point the client can say, ‘OK, we have a good candidate flow,’ and end the arrangement but can continue to make hires using the data provided,” says Laporta. “Some customers’ needs are more transactional and sporadic, so for them we charge an hourly rate. For those with ongoing needs, we charge on a weekly or monthly basis.”

Search Strategies Inc. is a Moneta, Va., research firm that specializes in HR positions, charging on a job-by-job, hourly basis with no minimum fee. According to president Ed Talley, the firm typically sources for positions with base salaries beginning at $50,000, with an average base of $150,000. The client can expect a cost-per-hire in the neighborhood of $12,000. He says clients hire the candidates he presents 90 percent of the time.

Talley’s clients get the best value when they make the most of the candidate crop he presents. “One firm asked us to find candidates for one HR position; we presented six and they ended up hiring three. A contingency firm might say I’d been cheated, but that’s not the way we work. I am paid to do my job and then get out of the way.”

The Tiburon Group typically works hourly and for longer-term engagements, establishing a monthly budget for clients and setting a fixed rate tied to a specific scope of deliverables, usually in the range of $15,000-$25,000 a month. “Tiburon’s recruiting department-for-hire model really benefits companies with many positions to fill, that have limited internal recruiting capability or those that are frequently paying 20 or 30 percent of the hiring salary to a recruiter,” says Kutsmode. “With this arrangement, [clients] can hire any number of people for the same dollars, and they own all the data. All we own is the process.”

No Guarantees

That process, however, offers no guarantees. Where retained and contingency recruiters take full payment only when a successful hire comes on board—and sometimes after a period of retention—ODRS vendors are simply paid for the time and services they provide, regardless of the outcome.

This raises red flags for some HR managers who are used to the contractual assurances offered by traditional search agencies. But Laporta explains that ODRS firms are uniquely motivated to provide the best possible list of candidates for their fee.

ODRS firms “want to build an ongoing relationship and revenue stream,” Laporta says. “We are going to source and talk to dozens, sometimes hundreds of people. And all that data becomes the property of the client. And since we act as an extension of HR, we will not present candidates to multiple clients” like contingency firms may do, for example.

ODRS firms are equipped to give clients an accurate assessment of their outcomes, tracking and monitoring all the metrics on each project and for each individual, and freely sharing data with the client’s HR team. “Our best assurance is that if there is going to be a problem with delivery, we will know it well before the client does, usually within two weeks of the engagement,” says Laporta. “When we uncover potential roadblocks, we’ll work with the client to develop a more effective job description or process.”

Etzel discovered another unexpected advantage in her experience with the ODRS model: Her company’s job acceptance ratio is much higher. “More than half of the candidates we interview are offered a job, and more than 70 percent accept. It is a very precise process.”

Hands-on HR Involvement

HR should expect to take a more active role in the ODRS process than when using traditional search firms, working closely with the vendor throughout the life of the relationship.

“Relationship management is important,” says Etzel. “You can’t just turn it on and walk away. Make sure the recruiters provided are the right cultural fit for the hiring managers. Interview and screen them, and have them meet with managers before extending a contract offer.”

Etzel also stresses the value of honing well-defined position requirements before the searching begins. “You must have a good job description and good relationships with hiring managers. We had our TalentFusion recruiter get to know the hiring managers well, so he is aware of all the nuances and soft skills the positions require. We also made sure he knows our industry.”

That has paid off in some very creative searches, she says. “A competitor near us was laying off, so he reached out to them, offering to do a job fair for separated workers. I know he can sell the company as well as we can; he understands the culture because he is working inside of it.”

Laporta says, “We take the time to qualify our customers before beginning a project. So we count on them having very well-defined positions, the capacity to handle the candidate flow we produce, and the willingness and urgency to make the hires. A client’s success is directly proportional to their commitment to the process.”

That commitment may mean having higher-level HR staff and senior managers acting as the interface with the ODRS. “The worst way to work with us is to ask us to work with junior recruiters,” says Talley. “We work best with senior hiring executives and HR.”

Kutsmode recommends holding weekly meetings in which HR is apprised of all activity undertaken by the ODRS vendor. “We work to develop a close partnership among us, HR and the hiring managers/recruiters who support them,” he says. “HR is our advocate at the executive level and above, but we try to deal with hiring managers on the day-to-day [level]. Where we have had challenges is when all qualified candidates have to go through HR, and we don’t have direct access to hiring managers. The process can get watered down.”

Etzel agrees. “As a client, you have to be very much in touch with what’s going on in the process, through weekly one-on-ones with the contractor. I’ve found that this really increases the responsiveness of the hiring managers.”

For HR departments that are prepared to put the required effort into managing an on-demand-recruiting project, the rewards can be great, but no one expects this model to replace contingency and retained search. “This is just another service we can provide to HR departments,” says Talley.

ODRS works well for companies needing help with the front-end tasks of sourcing, prescreening and presenting a short list of candidates. But for many searches, HR wants a deeper service, extending perhaps to managing ongoing relationships with potential candidates, conducting in-depth interviews and skills assessment, succession planning and ensuring prompt closure for the search. In those cases, hiring a full-service firm may make more sense.

Martha Frase-Blunt is a freelance writer based in Shepherdstown, W.Va.

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