The fundamental weakness of Retained fee search

Tim Wilkins- Commercial Director, TXT International.

Retained fee executive search firms are being strangled by their own operating models
The exponential growth in information available in the public domain, combined with the increasingly global nature of executive talent has resulted in retained fee search firms being caught off guard by the rapidly changing nature of global talent acquisition. If you look at the business model employed by these firms , and analyze the effect of their own practices, its 1 easy to see why household name retained fee search companies are starting to struggle. Here are some of the main areas where retained fee search firms are demonstrating clear weaknesses: 1. Retained fee search firms charge retainer fees This is fairly obvious, but the real impact of this is that it means that on any search assignment, up to 66% of the financial incentive to the search firm is removed before a search is successfully completed. It also means that the primary objective of any retained fee search firm is to get engaged on a search. Once this occurs, up to 66% of the fee is virtually guaranteed. TXT International only charges a fee on successful placement of a candidate, and if this does not occur for any reason, there is no charge for our services. This means that our level of qualification, definition and targeting of the initial job specification definition is far deeper and clearer than any of our competitors, because if we do not fill the role, we do not get paid. It also translates into the quality, screening and targeting of candidates that we submit. Whereas retained fee search firms initial objective once engaged on a search is to justify the retainer fee that they have charged, if we submit candidates that are not suitable for any reason (whether it be a mismatch in hard / soft competencies, personality / cultural fit, interest / motivation to move forwards or whether they are able to accept a salary within the budget allocated for the position), all it will mean is that we are wasting our time, our clients time and the candidates time, eventually resulting in a termination of our working relationship with the client. A success only fee business model at the executive level virtually guarantees a focus on quality, or the company working to that model will not survive long term, whereas a retained fee model only encourages complacency and a lack of rigor in screening / targeting. 2. Retained fee search firms meet their candidates At first glance this may seem like a positive, but actually it severely impacts on their ability to source the strongest candidates in the executive market (ie passive candidates and candidates internationally). High potential, fast track, successful executives who are perfectly happy in their current company are much less likely to commit to visiting a headhunter for hours of screening and psychometric testing than someone who is actively seeking another position. Therefore, by insisting that they meet all candidates, retained fee headhunters automatically restrict their ability to source the strongest and most successful section of the executive market, especially if candidates are concerned about other people in the market finding out that they are investigating other opportunities.

Source http://www.economist.com/news/business/21584040-times-are-tough-some-headhunters-searching-answers

TXT International's competitive advantage over retained fee search firms

Also, especially at more senior levels, the best candidates in the market are increasingly based internationally, having already been fast tracked by their company to operate at a regional or global level in other parts of the world. Retained fee search firms are severely restricted by their operating model in sourcing internationally, and therefore miss out on the strongest and most interesting candidates who are based in corporate HQs or regional hubs worldwide. TXT International runs all executive searches remotely, and this has 2 major advantages: Candidates do not need to commit to hours of face to face meetings, and instead have fast track access to direct conversations with our client. It lowers the barrier to entry into the process for the candidate, meaning that we are able to source a much higher degree of passive candidates (who are usually the people that are most sought after) than any of the competition. We are also able to run searches entirely worldwide simultaneously, and therefore are able to target top executives wherever they may be based in the world. This is especially applicable for smaller or emerging markets where we have the ability to target locals or native language speakers who are based in other locations. These executives are particularly interesting for multinational firms looking to expand their operations in those markets as they combine all the advantages of an international expat (working culture, matrix reporting lines, technologies, skills, English level, multinational experience) with those of a local candidate (local culture understanding, native language skills, ability to relate to the local workforce, external clients and government authorities). 3. Retained fee search firms are slow Apart from the frustration of waiting for 4-6 weeks for a retained fee search firm to produce their initial short list if a position is urgent, there is a risk that, due to the methods used in defining the job specification originally, the candidates will not be 100% targeted to the requirements of the position. This will only be discovered when candidates are actually interviewed, and if this is the case, then a significant amount of time will have been wasted. Because we run searches remotely, and can therefore work around candidates travel schedules, call people outside office hours etc, we are able to source candidates more than 10 times faster than any of our competition. Apart from the ability for our clients to see whether we are able to deliver the type of people that are of interest without any commitment in terms of timescale or financial outlay, the main advantage of this speed of response means that if we have missed some aspect of the search or are not hitting the target in a particular area, we can re-tune and get closer to the ideal much more efficiently than any other company, greatly reducing time to hire. 4. Retained fee search candidate generation methods are obsolete The amount of publicly available information regarding the positions and identities of senior executives in major companies is multiplying day by day, means that retained fee search firms traditional model of maintaining a stable of candidates that they are regularly in touch with is now almost entirely obsolete. The era of executives only dealing with trusted personal connections when it comes to considering job opportunities ended years ago, and with the advent of dispersed, multiple-degrees-of-separation social networking, personal relationships with selected key executives are no longer the key to finding the strongest people, especially when dealing with international searches. The key factors in attracting the strongest talent are now the strength of the employer brand of the end client, the prestige of the role on offer, and the skill and persistence of the headhunter in presenting the opportunity to the candidate.

TXT International's competitive advantage over retained fee search firms

The role of the headhunter is now becoming that of an introductions service, facilitating an initial conversation between the client and interesting candidates. The lower the bar to entry for the candidate, the more interesting people the headhunter will be able to present to the client. With these types of high value, passive candidates it is vital that the client does not just screen the candidate, but also moves to more of an attraction focus during the interview if the candidate is particularly strong. 5. The Exclusivity Clause Is there any other business sector in operation today that demands legal exclusivity from their clients? How retained fee search firms have been able to get away with demanding legal exclusivity, no matter what happens, for so long is staggering. Where is the benefit to the end client in making this demand? All it creates is an artificial monopoly, and as in any situation where a monopoly exists, competitiveness, efficiency, customer service and price all suffer greatly. Not only this, but looked at from a different angle, nothing demonstrates more clearly the lack of faith that a company has in its own ability to deliver better service than their competitors than demanding that they not only commit to using their services financially, but also legally. 6. Retained fee firms cannot work effectively alongside internal TA teams Many companies have now implemented specialized internal Talent Acquisition organizations. As a result, they have realized that for a large proportion of recruitment activities, external recruitment support is only required in very specific circumstances (e.g.: highly confidential searches, searches where internal talent acquisition activities have not produced strong enough results or situations where the internal TA team does not have the capacity or expertise to be able to run the search effectively.) In situations where an internal TA team has already tried to source candidates, engaging a retained fee headhunter has a number of drawbacks: The position is highly likely to be urgent, given that the TA team will have been working on it for some time. As retained fee firms move so slowly in producing their shortlist, this is clearly not ideal The internal TA team will probably continue to receive applications or replies from candidates that they have been trying to reach previously. Therefore there is a strong chance that the role will still be filled by internal TA efforts, meaning that a 66% retainer fee will be paid for no actual result This point above means that on any search where a retained fee search firm has been engaged, internal TA activities should ideally cease in order to maximize possible return on the retainer fee. For TA teams that are targeted on % fill rate in house, this could mean that the decision to engage a retained fee firm is delayed until the situation becomes critical, potentially causing significant damage not just to the relationship between the business and the TA operation, but also to the business itself.

With a success fee only search model coupled with a high speed of delivery, TXT Internationals services can be used as a highly effective safety net for searches where normal methods have not proven successful. As we guarantee initial candidates within 5 working days of engagement, Line Managers can see an almost instant response, and as there is no fee unless a candidate successfully fills the position, the TA team can continue to contact people that they were in touch with previously. This normally results in a much enhanced fill rate for the TA team, a faster time to fill and a reduction in recruitment spend compared to engagement of retained fee search firms in these types of situations (which are normally the typical KPIs on which internal Talent Acquisition operations are measured) So why do companies continue to engage retained fee firms?

TXT International's competitive advantage over retained fee search firms

One factor is that up till now, at executive level there has been no choice. The retained fee search firms effectively formed a cartel, and it would have taken a very brave HR VP to risk engaging any firm outside the household name companies. However, the situation is changing rapidly, and most companies are now running internal talent acquisition operations to some degree or another. With the amount of restrictions and disadvantages inherent in the operating model of retained fee search firms, it is only a matter of time before retained fee search becomes a thing of the past. For these reasons, TXT International have now become the go-to choice for major international firms for searches which are either highly confidential, or situations where internal talent teams do not have the capacity or ability to find strong enough candidates.

If you have any comments, or require any further information about TXT International please contact me on timwilkins@txtinternational.com www.txtinternational.com

TXT International's competitive advantage over retained fee search firms