Few industries were hit harder by the downturn than the recruitment sector, but it is amazing how quickly the wheel turns.
While the financial crisis saw clients freeze their hiring, the looming skills shortage means recruitment agencies will once again encounter difficulty finding talent.
The SmartCompany Dun & Bradstreet industry growth list for the recruitment industry reveals a sector beginning to recover from the economic downturn by focusing on specialised services.
The total revenue for the companies on the list was $12.2 billion, an increase from $11.7 billion during the previous financial year. Additionally, average growth was 13%, although 18 of the companies recorded negative growth.
Conditions have been extremely rough for recruitment companies during the financial crisis. As large clients ceased to hire new employees, agencies were left with little work and nowhere to move.
But the best performing companies say they have overcome volatility in the industry by either focusing on one specific area with high demand, or by diversifying risk across a number of different industries while focusing on large, lucrative contracts.
Those companies operating where the demand had ceased with no back-up plans were the victims.
Recruiters ready to shine
PeopleBank, the largest IT recruitment company in the country, isn’t worried about the skills shortage. Executive chairman Leon Lau says while the industry is moving from the crisis head-on into a new skills problem, he believes the new environment will give recruiters a chance to show off their skills.
“We’re rather specialised just being in IT, and we actually like working in a skills shortage market because there is a trend for clients to start doing recruitment themselves… and then they get frustrated and start using agencies like us.”
The company, which is second on the Industry Growth list, recorded 66% growth in 2009, with revenue increased from $290 million to $482 million during 2009 – but Lau says revenue has fallen during the past nine months.
“Like most companies we’ve felt a hit, and we’ve definitely experienced lack of demand across the board. We were exposed to Federal and State Government work, so we took a bit of a hit there.”
However, Lau says PeopleBank has managed to maintain growth by focusing mostly on contracting, which is already the most prominent form of employment in the IT industry. He says this side of the business, even though overall employment was down, provided the company with “a sustained revenue stream”.
“I think it’s more the fact we weren’t exposed to permanent recruitment as a lot of companies were. Permanent recruitment is a big part of a lot of companies, and there’s a lot of infrastructure there that isn’t going to get paid.”
“Typically, we try and go for an 80/20 split where 80% is contracting, and even if we lost all of our permanent recruitment business, we still have a lot to fall back on.”
Nevertheless, the company has been able to cut costs through a hiring freeze, losing about 25% of the staff through natural attrition.
“We didn’t make anybody redundant, but we did have some consultants who found things a bit hard and wanted to go somewhere else, so we froze all hiring. We made no redundancies, but lost about 25% of our staff.”
As for the next few years, Lau says the company will manage to thrive by focusing on large projects to see out the skills shortage.
“We are structured to ramp up with some plans extremely quickly. At the moment we are still very much focused on large IT projects, and we still have those in the pipeline so I don’t think we’ll have to worry too much.”
Diversification strategy
While some recruitment firms have been able to survive due to their focus on a single industry, some believe the key to success is massive diversification.
Daniel Riley, director of franchised recruitment group Careers Multilist, says his company has maintained robust growth due to its business model of representing smaller companies in a wide number of industries.
The company, 11th on the list with revenue of $9.4 million, represents smaller agencies across all industries, and bids for projects on behalf of them all, putting applicants into a type of talent pool.
The company represents smaller recruitment firms, and distributes talent to them from a collective pool. Riley says this helps out the smaller, specialised recruitment companies which wouldn’t have been able to access certain projects on their own.
The agreement between Careers Multilist and the companies it represents works on a type of co-branding agreement. The firms can keep their own name, and operate independently.
The competitive nature of the industry, Riley says, forces a lot of companies to withhold their information and neglect sharing it with other companies even if there is a financial benefit. Instead, he says, recruitment companies will benefit by sharing talent which will lead them to better deals and “greater opportunity”.
Additionally, Riley says the company has been able to survive due to its focus on large, comprehensive recruiting programs instead of smaller appointments.
“When we came to reviewing spending, the first agencies to be removed from the list were those who weren’t under larger supply agreements, we needed to focus on the larger ones.”
“There some clients which had some significantly reduced activity with hiring freezes and the like, but our success came from individual agencies willing to stay on and keep moving, and worked closely with us. They had contracts in place that needed to be fulfilled.”
Riley says Careers Multilist will be impacted by the skills shortage but will attempt to withstand the next few years by “adapting… and understanding we can no longer put ads in the paper and wait for clients to apply”.
Choosing growth paths wisely
Chris Eldridge, co-director of recruitment firm 4impact, says his company has been able to survive due to a solid focus on premium IT contracting work, and by abandoning smaller, less-lucrative contracts.
The firm recorded revenue of $17.3 million during 2009, up from $13 million during 2008, representing 33.08% growth.
“The contracting part of this is the driver for us,” Eldridge says. “We trade in premium contracting, if you like. We contract experienced people who can go into a business, manage projects, do analysis work and architecture from an IT perspective and help solve some serious problems. Opposed to “I need to fill two spaces on a helpdesk” or whatever. We’re more on the premium end.”
Eldridge says the company was able to maintain robust growth due to a focus on contracting rather than permanent recruitment.
“We’ve held up very well through the crisis. I think it’s fair to say we’ve had a fair piece of our work done in Queensland, a lot of it has been propped up by the State Government. We have good relations, and have worked with the same people.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
