Revisiting Michael Porter’s classic work, “The Five Competitive Forces That Shape Strategy,” offers some insights on the state of the niche recruiting industry. The article puts forth a model that is intended to get managers and investors thinking about competition structurally.The five forces are the direct competitors in an industry, buyer negotiating power, supplier negotiating power, the threat of new entrants to an industry, and the threat of substitution. These forces are in turn affected by secondary factors such as technology, industry growth rate, and government regulation. Viewed through a broad lens, Porter’s model focuses on the forces that define a firm’s business environment in addition to assessing the effects of direct competitors’ actions within it.
Not surprisingly, the launch of LinkedIn Recruiter (LIR) has sent shockwaves through the executive recruiting industry. It is just the kind of disruptive technological factor that causes a rebalancing of Porter’s forces within an industry. In short, LIR is a database that offers hiring firm access to over 238 million job candidates bundled with a talent management system and analytics platform. This platform would appear to reduce the time/cost barrier to entry for in-house HR managers who could now use this subscription service instead of retaining an outside recruiting firm. Based on Porter’s model, one might initially conclude that the launch of LIR led to a strengthening of several forces within the executive recruiting industry, including, increased customer negotiating power, the threat of substitution and the entry or enhanced participation of other players in the market (both LIR and hiring managers). After all, the hiring firm could now purchase a $400/month subscription to LIR and forego an upfront fee required by a recruiter. The hiring firm could now choose to substitute LIR for the services of a recruiter and manage large amounts of talent-search data and processes in-house. Lastly, the hiring firm could utilize LinkedIn services intended to enable the hiring manager to more effectively taking the do-it-yourself road to procure new hires.
However, this isn’t the full picture. LIR is only as good as the person using it; smart hiring managers recognize that the costs of vacancy have a far more significant impact than the cost of hiring a recruiter. Put simply, the database of potential candidates is just a tool used at the beginning of the hiring process to establish a baseline. Note also that it doesn’t reflect intangible, but important, aspects of human resource management. That is to say, that wrong hiring can negatively affect a company’s corporate culture and generate costly internal stresses. An understaffed firm is statistically more likely to experience higher turnover. The Labor Department estimates it costs an average of one-third of a new hire’s annual salary to replace him or her.
While the power of the LIR database is potentially immense, it doesn’t convert interest to intent. This is where the value of a recruiter cannot be eroded because sourcing talent is just one step of the hiring process. J. Patrick + Associates (JP+A) has weathered this kind of disruption before in the mid-1990s, with the rise of sites like Monster.com and Career Builder. While these entities promised to be the universal recruiting solution to a hiring firm, in the end, they turned out to be not much more than glorified classified ad boards. What was true then is still true now; unlike a massively computerized checklist, recruiters bring deep, industry-specific knowledge, strong, enduring relationships, and hiring experts to the hiring process. The recruiter is equal parts consultant, advisor, researcher and counselor to both the candidate and the hiring firm. A good recruiter builds trust, and this takes time and commitment. Recognizing that sourcing is just the first step, the recruiter then translates interest to intention and walks the potential candidate through the process by preparing, communicating, qualifying and following up on each phase in the hiring process until the candidate has been successfully on-boarded by the hiring firm. Dedicated and experienced recruiters like JP+A will always add value because databases simply can’t replace them. Too many skills are required to be a quality recruiter and these take years to develop. There are no short cuts. This brings us back to Porter’s ruminations: it is precisely these skills which differentiate the recruiter from an online service and enable him or her to offer enduring, competitive value in the face of a structurally changing business ecosystem.
When you need to assemble a talented, motivated, and dedicated team it’s time to consider a firm with proven expertise and resources, like J. Patrick & Associates, to provide the results your business demands.