Search Firms Must Innovate, But Will They?

This is my third recession in the staffing business, and this one is different.  The search business has arrived at what Andy Grove would call a  ”strategic inflection point” – where the fundamentals of its’ business are about to change.   Costs simply must come down, way down.  I saw alot of search firm repositioning in the last recession – mostly tinkering with their pricing models, but not fundamentally changing  who they hire and how they deliver services. 

The largest search firms got crushed in the last recession – some laying off 40% of their staff.  Of course they got into trouble because they gorged on the dot com bubble.  But they learned their lesson, right?  Wrong.   Good times returned and then they used the same inefficient business model to gorge on the financial services bubble and surprise!  now they are now laying off again.  Note to my investment advisor:  The next time any major national search firm earns a third of their revenue from any business sector…that’s the very definition of a bubble – a whole business sector not paying enough attention to costs.

Now the blogosphere is lit up with comments about “disruptive innovation” in the recruiting world.  Most of the comments are about technology and social media, but the same market forces apply to search firms.  One of the most thoughtful is David Manaster’s ERE post – (R)evolution.  In another must-read article, John Sumser bluntly counsels that HR “should be hammering its vendors for cost reductions.  Get the same for less money.”  John refers to a brilliant article in The Economist about the flip-side of Moore’s Law:

“Suddenly there is more interest in products that…provide a particular level of performance at an ever-lower price.”

Here is the problem.  The big firms did not reduce their cost of delivering service in the last recession.  They just cut staff.   When the market rebounded, they simply restaffed and found a new market for the same old services.   That’s not going to work this time.  Someone is going to find a faster, better way to deliver sophisticated search services for far less than 30% of salary.   Thousands of entrepreneurs are working on it, and you can be sure somebody will find a way.  (I think Staffing Advisors is making some fine progress, but admittedly, we are still a small firm in a relatively healthy job market).

BusinessWeek ran a great article about how recessions spur disruptive innovation, as did Wharton Business School.   Little known fact:  some of the most successful companies in America started during the Great Depression.  Here’s a quote from the BusinessWeek article:

“Economic downturns can have positive effects; they force companies to increase their efficiency, cut waste, and strive to do things in smarter ways.”

Since the last recession, we have relentlessly worked on eliminating costs, while hiring people with the business acumen and management skills to deliver a reliable, consistent search process.    As a result of our dogged research, I wrote a post a few days ago about obsolete business practices in search firms.    Well, as you might imagine, some old-school recruiting industry folks were pretty upset with me about that – they considered it industry bashing.   No surprise.  As Upton Sinclair famously observed,  “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”  

How about you, what are you doing to innovate your way out of this recession?