Within the next 12 months the UK recruitment (agency) world looks straight into the face of significant challenges, both imposed by government and economic cycles but also self-inflicted by years of little innovation or reinvention.

It’s true that the agency world has felt the full force of all of this before and recovered, in fact prospered however this time things are different. Why?

Let’s deal with the two big ‘elephants in the room’, Brexit and IR35 in the Private Sector because they are intrinsically tied together albeit not deliberately.

Brexit and the uncertainty it brings will impact UK organisations in a number of ways that will have a negative knock on impact to agency recruitment including a lack of mobility amongst potential job seekers who will be more inclined to ‘sit tight’ in a job than move jobs. That decrease in market confidence reduces the number of available jobs to fill substantially.

The (in)ability to acquire EU talent has already impacted a number of sectors and depending upon the outcome of government negotiations may tighten further, reducing the availability of job ready individuals with the biggest impact being felt in key sectors like health, transport & hospitality.

The value of the £ directly impacts export and import based markets but the potential imposition of tariffs will make it harder to sell abroad and more expensive to import and it will focus companies on domestic supply and demand for goods & services which forces companies to grab market share by whatever means or for those on the domestically sourced supply side it’s an opportunity to capitalise on inward market focus. At the very least that means a change in the dynamics of the job market and some agencies will be caught focusing on a downward trending sector and for those more fortunate, the opposite.

The impact of the April 2020 IR35 ‘reboot’ in the private sector will have a significant impact on how the ‘non permanent’ labour market operates and whilst the market will ultimately readjust because the demand for flexible work and workers is not likely to change, it will force a large number of contractors to re-enter the permanent employment labour pool. However there is likely to be less jobs so where do they all go? The government hope to gain substantial tax revenue from the new IR35 but given the timing of its launch it may benefit no one.

The recruitment agency market has also struggled against the tide of increased competition for both revenue and talent for a number reasons.

Sourcing candidates is no longer a ‘value added’ service as anyone can do it for little financial investment. The value is in identifying talented people that are not necessarily active in the market, have specific skill sets, where the skills of a consultant are able to influence the process, to augment a lack of resource & time at the end user and compliance & ‘de-risking’. Even when these aspects are key the agency competes with the growing force of ‘internal recruitment’, RPO/MSP providers , hundreds of ‘apps’ in existence or development and the emergence of AI.

The agency world is also limited by its own talent challenges with experienced 360 recruiters constantly increasing in fixed cost (often in return for modest fee production), relentless poaching between agencies, crippling levels of staff turnover, a lack of entry level talent due to the attraction of other/newer sectors and the resulting massive compromises on talent quality.

One way to combat change is innovation however the majority of the agency sector are ‘micro entities’ or SME’s that have the desire and capability to innovate but are crippled up by financial limitations or more often the fear that change will fail and without the cash flow to ride that out they continue to opt for survival. Often the introduction of a new CRM is labelled as innovation where it is more likely to be automation and not that innovative at all and is probably only used to a fraction of its capability.

There has been little of no innovation in the ‘people’ aspect of agencies. Commission schemes remain largely the same, yet research indicates that they are not the motivator they were in generations past and the migration of consultants to ‘in house’ is proof positive that fixed salary and ‘employer brand’ matter more. Agencies continue to ‘sell the dream’ of big earnings but the average industry earnings for a consultant are <£40K per annum which is better than many roles but nowhere near the dream that is sold to aspiring recruiters.

The role of an agency recruiter also needs a ‘scrub up’ as the processes and methodologies are often rooted in ‘custom & practice’ derived from the days of old with a few cosmetic tweaks to keep it looking fresh on the outside whilst it’s a bit stale on the inside.

Amongst graduates and entry level staff the industry is seen as a ‘soft landing’ with jobs relatively easy to get, the base salary is competitive and the work environment is lively with lots of extra curricular activity and hard work is often optional as Managers are gripped by the fear of losing people. Regardless of agency managers continuing to invest in the perceived cost effectiveness of entry level fresh talent turnover rates are huge and come at a high price.

The industry continues to seek internal counsel when it comes to L&D and rarely exposes itself to external influence with the majority of those providing the training being ex recruiters or trade bodies all motivating in keeping things ‘in the family’. Where are agencies embracing newer management philosophies and best practice that has served others so well eg: Agile

Is it a case of those with ‘get up and go’ actually ‘got up and went’?

Finally owners continue to be conflicted by the desire to exit versus the enjoy it now (if you can) with the majority trying to do both. The reality is a small proportion ever achieve an exit due to lack of performance, planning or simply the fact they spend it to survive, reinvest, paper over the cracks,  service debt  or just meet the growing cash demands of a recruitment business. In fact the vast majority of firms in the industry are ‘micro entities’ that are habitually cash strapped and don’t have sufficient working capital to survive let alone grow.

How do shareholders actually achieve value and achieve their objective when the ‘iceberg is melting’?

Steve Carter is a global recruitment industry veteran with well over 30 years of experience at the coal face and board level, an advisor, innovator and candid commentator. Get in touch with him via: steve@cartersquared.com