As 2009 gasps and wheezes its way to the finish line, all eyes and hopes are on 2010 and the fortunes the coming year may bring. Or not, as the case may be. If you listen to many commentators out there, both within the recruitment industry and outside it, you will hear much talk of recovery; lots of tweeting of potential upsides.
Me? I’m not so sure. And here’s why.
For those not around during the last proper recession in the 90’s you need to take a close look at what happened back then to really understand what the outlook for the next few years looks like.
The best way to view the impact of the recession is to look at GDP figures. It is widely accepted that the fortunes of the recruitment industry are closely tied to GDP. The chart below shows GDP figures dating back to 1990. The red line shows the rate at which the recruitment market neither shrinks or grows, which is when GDP is around 2.2%. Above this number it grows exponentially and below it it shrinks accordingly. So, roughly speaking a 1% shrinkage in GDP results in a 12% shrinkage in the recruitment Market. At zero % GDP the recruitment Market shrinks at c25%+. Extrapolate that through and you can see that at our current rate of GDP growth, the recruitment market is shrinking at around 70+%
In the last recession GDP bottomed out at -2.2%, and returned relatively quickly to a positive growth number. However, as anyone in the market at the time will tell you, the recruitment industry was hit very hard during this period. And it took many years, not months or Q’s to recover.
As the chart shows, despite GDP recovering to positive numbers quite quickly in the early 90’s the recruitment market remained relatively flat until around 97. This was a full SIX years after the lowest point was reached. Yes 6 years. Not 6 months or 6 quarters. 6 long years. Compare it to now and the numbers for the early 90’s look relatively tame by comparison to our current -5.2% which is the worst state of GDP in the post war period. And remember, the recruitment market does not start to grow until GDP reaches and stabilises at +2.2%. When you put it in those terms growth seems a long way away doesn’t it?
There are also some other very significant differences between the two periods that are worth mentioning that have a significant influence on the recruitment industry post recession:
- Competition – there wasn’t any. OK, that’s stretching it a bit, but certainly if you were in a niche like HR or Marketing like we were you were one of a pool of recognised competitors who largely stayed out of each others way. There were also no Rpo’s or In-house recruiters.
- Exclusivity – if Pepsi worked with me, they didn’t work with you. Why would they? They were paying a trusted partner retainers to find their key professional staff. Exclusivity has all but disappeared at anything below £100k as has the retainer.
- Margins & fees – significantly richer then than they are now, yet costs are higher overall
- The Internet – it didn’t exist
- Social Media – was merely a reference to leftist political publications.
I’m all for keeping the state of mind upbeat, after all there is nothing more depressing than being surrounded by doom mongers. However, overt optimism is equally as bad if not worse. We have an £850bn hole in the public finances which none of us has felt the impact of yet, save those poor souls who have already joined the ranks of the unemployed. And we won’t feel it until the political posturing is concluded next year and we have a new set of faces in the House of Commons. Only then, when the ‘clawback’ begins, will we feel the true force of this recession.
And as we enter 2010 I predict even further overall shrinkage in the industry as many small to medium sized businesses go to the wall. They may still be in business but many will now be operating on the edge of liquidity, with cash reserves all but spent in getting through 2009.
So what can be done in the face of such a crisis? My thoughts for what they are worth:
Stop talking it up – your staff, I imagine, are adults and, as they are at the coal face day in day out, they will know the score. If you continue to talk recovery like a politician you will lose the respect of your staff.
Hang on to your good people – It might be tempting to lose someone who hasn’t billed to expectations for a while but if they were capable once they will be capable again. Don’t fall into the typical recruiter/sales trap of ‘getting rid and bringing some new blood in’. Need to cut costs? How about reducing your own income or ploughing some of the previous years dividends back into the business to underwrite your payroll? And when I say ‘good people’ I include support staff!
Qualify everything – forget the typical recruitment KPI’s like CVs sent out, calls made etc. as all they do is measure activity. Instead get everyone to work hard on qualifying every brief and ultimately every client. In this contingent non exclusive and highly competitive world we now live in, it can feel unnatural to turn work away particularly if, as a consultant, you are measured on activity as well as billings. But better to work on 7 quality briefs you have a good chance of filling than 20 you don’t. No other industry would do this so why should you? Take the same approach with clients, work out who the profitable ones are and dump the rest, unless you know you can turn them around inside 3 months.
Make the most of what you have got – most recruitment businesses that have been in business for more than 5 years will probably already know someone for every job they have. They just can’t find them in their woefully poor databases. If you haven’t already, invest in some technology that will enable you to smart search your existing and incoming CVs.
Develop a solid Account Management Process – and reward your consultants for delivery against it. You can’t influence customers if you dont understand them and have a close relationship with them. Account Management is rare in the recruitment industry, yet the customers are crying out for it.
There is no doubt 2010 is going to be an interesting year. And whilst it promises to be tough, you can make the ride a lot easier by facing up to the brutal facts, instead of hiding behind a veneer of optimism. Good luck!