In-house or recruitment agency?

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With HR functions under pressure to deliver tangible value in the wake of the economic turmoil of recent years, direct hiring has become the ‘new black’. Why pay recruitment agency fees, the argument goes, when you can create an in-house hiring team that will do the talent acquisition job just as well and demonstrably cheaper?

In many cases, these in-house teams are providing a highly effective service, but are there areas where complete reliance on them might be a mistake? Are we perhaps at risk of throwing out the baby with the proverbial bathwater in a race to dispense with outside expertise?

Although McKinsey’s famous ‘war for talent’ might have dwindled to little more than a playground squabble at the height of the financial crisis, few would argue that it’s definitely back on now. And in an increasingly competitive environment, the aim of any serious business will always be to source the best talent in the shortest period of time and at the right price. The key question, however, is: what is the ‘right price’?

The cost of any hire will always be relative rather than absolute, because getting talent acquisition wrong can have an immediate and painful impact on the bottom line. Upfront savings can therefore be quickly wiped out, perhaps even completely reversed, if a recruit does not deliver what is expected of them. Of course the use of recruitment agencies cannot guarantee a better quality of hire, but selective employment of the better operators can give organisations access to a much wider pool of candidates, particularly those who are not actively seeking a new role, but who have been pipelined for very specific career opportunities. Economies of scale mean that external specialists can often cover much more ground than any internal team could justify. This in turn allows businesses to identify and acquire the best people, rather than those who are either already on the market or are the most obvious targets. Agencies can also reach out to candidates, such as employees of client or supplier companies that might be off-limits to an in-house team for political reasons. In this context, the payment of a controlled number of agency fees may seem like a worthwhile investment rather than an unacceptable overhead.

The argument in favour of the selective use of agencies is particularly strong when it comes to recruiting for highly specialised or ‘hard to fill’ roles. In-house teams tend to be good at making volume hires for their employers, but how realistic is it to expect them to be effective across all areas of a business? And can any but the very largest organisations afford to have the necessary (and often expensive) expertise permanently on the corporate payroll when it may spend long periods of time twiddling its metaphorical thumbs? Particularly when expertise gained from making these types of appointment day in, day out is readily available in the agency world. Given this, the deployment of specialist external help on an ad hoc basis may actually make good commercial sense.

One of the hidden costs of the recruitment process that often gets over-looked by organisations is the effect that the constant interface with disappointed candidates can have on the employer brand. Of course, every in-house recruitment team should ideally be able to manage the process to its advantage, providing candidates with rapid feedback, clear communication and helpful advice. But achieving this in practice can be time-consuming, challenging and expensive. Agencies can provide a buffer between a company and the marketplace, which protects the brand from the vocal disaffected, who now have more channels to express their frustration than at any other time in history.

While it has many obvious attractions, direct hiring is not, and is unlikely to become, a silver bullet solution to all recruitment challenges. What appears to be the most effective approach is a hybrid one where in-house teams enter into strategic alliances with a small group of agents that can complement existing capabilities and plug any obvious gaps. For this to work, in-house specialists will need to liaise closely with their external partners, allowing them to understand the business fully – warts and all – so that they can source talent on a strategic rather than a last-minute, tactical basis and market the organisation effectively to target candidates. For internal and external recruiters to see each other as enemies is clearly counter-productive and in no-one’s best interests. For organisations of all sizes, it’s making the most of both resources that will provide real competitive advantage in the war for talent.

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