Wednesday, 7 October 2020

Is your Agency Preferred Supplier List reducing candidate quality and increasing your costs?

How many agencies and search firms can a recruiter or business professionally manage? For most, it's probably a tiny percentage of those calling on a daily basis. So how do companies manage the number of calls versus the capacity to manage relationships effectively to deliver hires? The answer for many is the preferred supplier list (PSL).

The agency/search firm PSL has been common practice for decades providing a manageable way for recruiters to get access to agency databases and to cover those candidates who are active in the market, often in combination with e-recruitment and employee referral. The upside is a manageable supplier base, who progressively know your company better and often at a discounted placement fee. For the agency, it works well, as it gives a sense of commitment by the client and usually helps the process to move more quickly than a casual use of agencies.

So far so good, the role gets filled, the agency receives its fee and everybody wins…..or do they? I'm not so sure. At the practical level, the agency PSL, and e-recruitment, only provide access to those candidates who are looking for a job, and in the case of the PSL, only those registered with those agencies with whom the company is working. Typically agencies will work their database and utilise jobboards to generate additional prospects, again, only identifying those who are looking.

The implication of relying on a subset of the talent market, the active subset, is that organisations are ignoring the vast passive candidate pool – those not actively seeking a role but with skills and talent required by organisations. The implications for diversity and inclusion are clear as is the opportunity cost of hiring the best available candidate as opposed to the best candidate possible is a significant one for businesses. In tight talent segments, Finance, Engineering, IT and other specialist areas, there are many more employers seeking those skills than candidates, these roles take longer when relying on active channels or the PSL only, with the associated cost of leaving a role open, again significant.

Using a search firm (headhunter) PSL at least ensures that the passive candidate market is engaged, but typically neglects the active candidate segment and the loss of valuable direct market feedback on the Employee Value Proposition, as well the market connectivity for later use is a missed opportunity.

So, if there is a cost in terms of quality and there is also a cost in terms of time, what are the other costs and issues? There is also the agency/search firm cost running at c. 20-33% of candidate's salary, again not insubstantial when compared to alternatives. I also worry that given the first past the post nature of the PSL approach to recruitment, and agency recruitment in general, that recruiters at agencies are motivated as much by speed in terms of securing the fee, as the quality of the process for all stakeholders and I have seen much feedback from clients, hiring managers and candidates during my time as an in-house recruitment leader.

Whilst I am not advocating that agencies and search firms do not add value, that they are not a valid element of a sourcing strategy, or that a PSL is not the best way to manage those relationships, I would suggest however, a more balanced and progressive recruitment supply chain. I challenge whether, with the availability of internet research, competitor talent mapping services and social media databases and other direct channels, that for many roles, including technical, professional and managerial and leadership, a much more inclusive and cost effective sourcing opportunity is available.

To mitigate the risks and generate the benefits mentioned above, I recommend clients develop passive candidate recruitment channels and combine it with their active candidate process to develop a true multi-channel sourcing approach. Just adding competitor/social media talent research and approach would significantly reduce costs and increase quality, whilst an approach towards relationship recruiting and talent pipelining for key segments would add long term strategic value to an organisations talent supply chain.



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