The Road to Transformation
Taufik Arief, Founder & Director of www.peoplesearchindonesia.com, discusses the journey from contingent to retained executive search.
Our firm was born as a contingent executive search company in 2002. The business went very well in the early years of our business, with a lot of reputable multinational companies coming on board to work with us. We continued this practice comfortably into the next decade when we started facing and experiencing new changes in the recruitment space.
At this point, LinkedIn was born and at a later stage, clients started using paid LinkedIn. Also, some clients started to regionalise their recruitment, applying a shared service model for their recruitment function. In 2016, a lot of our clients stopped using recruitment services altogether, or at least dramatically sliced their head hunter budget due to their local economic situation. All of this presented a perfect storm to our business.
On the brighter side, however, this created the perfect time for us to evaluate and re-think our business model. To do this we asked many questions: What is the suitable revenue and cash flow model for the company? How do we make sure we generate revenue from every resource the company has and all the time we work with our client?
We developed some new products, and one of the most significant initiatives was to transform our organisation to retained executive search. This move took dramatic changes in the way we did business. In 2018, 50 per cent of our revenues were already made from retained search, and by 2019 this had become 75 per cent. The pandemic forced us again to change the model, and we returned to contingent executive search and today only 10-15 per cent of our business has remained in retained executive search. During this Covid period, the biggest chunk of our business is in contingent with some revenue still coming in from our other products. Indeed, right now we see this situation as force major, and we hope it will improve further in 2021 and into 2022.
I know there are many firms that would like to get retained search assignment and consider this business model might be best for all recruiters. However, from our current experience we can see recruitment businesses need to undergo an extensive process to make the transition work. So let me share with you some of the action items that we have done, and have yet to do, now and in the future.
- Sales & Business Development
Selling retained search service to our existing (contingent search) clients did not work. Just because you have been successful in contingent search, there is no reason for customers to pay any retained, engagement, or initial fee. For this reason we tried to find new clients for this service. Our ex-clients who trusted us and were happy with our historical service presented the best market for this. Telling them the importance of a retained search model for our business sustainability could help to convince them.
Being confident and therefore convincing with our service, capabilities and past successes is the key to presenting our service appropriately, especially with new clients. We must convince potential customers that we can deliver the expected results with our experience, methodology, and the tools that we apply.
Marketing is a strategically important item. In general, we only need to sell to and serve companies who need our service. Many companies have developed their in-house recruitment function with good recruiters and have invested in expensive recruitment technology, so naturally, they don’t need us anymore.
The good news is that there are even more companies who do need our service. They haven’t developed their in-house recruitment function for many reasons. Perhaps, they don’t have enough economies of scale to hire and build a recruitment team. Some organisations don’t see recruitment as a strategic function and want to focus on more important things.
These companies are our target market. They need us and want to spend their money on paying for our service. Of course, some of them want to use contingent, and few of them are interested in retained executive search.
So why should we care about the small retained executive search market? For us, we don’t see it as an issue. The number of retained executive search players are also very few compared to contingent ones. The expected outcome of a retained search firm is to generate a high income with a fewer number of quality projects. The success rate in this business should be at least more than 80 per cent of total outstanding projects, compared to +/- 20 per cent in contingent search. We do not need many projects on our plate, and we most probably have no need to hire so many recruiters as we did in the past.
We were shocked by the amount of work we needed to do for this service. The clients’ expectations were very high. The amount of communication, reporting and updates were massive. We needed to coordinate heavily with third-party vendors who provided online assessment tests and also background check services. The users even sometimes requested interpretation of assessment reports. They sometimes requested formal benchmarking and comparison reports over the candidates we submitted, and a discussion and the findings. Breakfast and lunch meetings were a usual activity for us with directors and commissionaires of clients. The commitment required cannot be under-estimated.
Retained search, unlike contingent search, is so punishing if we fail a single case. If we disappoint a customer, they will never return to us. The money they paid to us is lost for them and they will remember that.
- Our Resource & Team
In our experience, the readiness of us as the owner, and also our team, to do this transformation is crucial. We had been educating and training our staff for more than a decade as a contingent search consultancy. As contingent search staff, they chose what assignment they wanted to do. Their target was the nominal values they could bring to our firm. Placing 3-4 positions every month usually had been already enough to secure their job, no matter how many projects might be in their portfolio. The bottom line was they chose the work or assignments to generate their targeted revenue.
As a retained search consultant, they don’t have that kind of flexibility. Whatever assignment they have, it must be finished according to the client’s expectation, and timeframe. Consultants might get frustrated when they are stuck with jobs and have no alternate work to do. This meant the mental transformation was crucial. The other truth is the recruiter compensation – the gap is huge between retained and contingent executive search consultants. Therefore it would be difficult to recruit qualified retained search recruiters without increasing our hiring budget. If we could partner with some experienced, mature recruiters on a revenue sharing basis, this might offer a good solution, especially when dealing with tough clients and high-pressure assignments. In the end, finding good recruiters who can deal with this retained search assignment is important, otherwise, we will face challenges, as business owners and operators.
- Quality of Clients & Assignments.
Some clients are forced to use retained executive search as they had been failing to hire by themselves and or by using contingent executive search firms. We need to be extra careful with this kind of customers. From personal experience I found it was sometimes better not to serve this kind of customer because it could result in endless painful work. The transformation we undertook taught me the importance of generating more business leads. We partnered with many institutions to get quality accounts and assignments. For me, the best clients, are the ones who knows exactly what they want, communicate with us perfectly (including direction and feedback), drive the recruitment process flawlessly and certainly have full respect to us as a professional service provider. They listen to us, particularly regarding the talent market information, about progress, challenges and our proposed solutions. If we do the right due diligence, we might get a better chance to obtain a good quality of clients, users, and assignments.
In the end, transformation always needs extra work, effort and the ability to deal with challenges and pain. I have to say that the retained search model is not always as perfect as people might think. In some situations, contingent search even can generate better income, especially when you have good clients, and aggressive and diligent recruiters working for you.
If you are looking to pursue this transformational path, please consider the above-mentioned factors, and prepare yourself, your team and all other resources. Have a successful transformation!