The word ‘disruption’ must, by now, be one of the most overused in the English language. It’s commonly used by any firm within Tech or Digital, and in a broader sense when considering the impact of technological advancement on society, on our economy, on our established industries and on us, personally.
It’s quite a negative word isn’t it? Some prefer ‘innovation’. But there’s a distinct difference between the two.
‘Innovation’ is about ‘doing the same things, but a bit better’. ‘Disruption’ by contrast is about ‘making things that make the old things obsolete’. So negative for those in the ‘old things obsolete’ world, but positive for those on board with, or driving even, that disruption.
Our CSO, Martin Shelford, talked about this recently at the Digital Festival held in Cardiff’s Millennium Centre, to a large audience representing Digital Firms, Educators and Recruitment Agencies alike.
The clear message at this talk was that disruption to the recruitment industry was coming, whether you like it or not. And, surely, it’s better to accept that and look at how we can embrace it in a way that is not only positive for our own firms, but for the macro UK tech economy.
A ‘skills civil war’ of increasing aggression and cost
Martin talked about how, as cited in the latest Tech Nation report, 83% of Digital clusters or regions cited ‘access to talent’ as one of their top 3 issues, with 55% citing it as their number 1 problem. And that’s not just in the start up communities such as Cardiff, which, with a combined turnover of £650m, is an ambitious minnow when compared to the UKs leading tech region, London, where combined turnover surpassed £64bn last year. Both Cardiff and London put ‘access to talent’ as their primary issue, proving that the issue doesn’t just get better over time.
It’s not getting better partly because of the global competitiveness of Digital as a sector, and the ability and ease by which top talent can work for firms across the world without leaving their houses. Partly it’s to do with local, devolved and national governments playing catch up, with a major focus on education needed, and not just 11-21 age groups, but on continual development and re-training throughout people’s careers. And partly, it’s to do with an ongoing ‘civil war’ between the UKs ever increasing number of digital firms. Facilitated, to a great extent, by recruitment agencies. A civil war that is damaging the UKs competitiveness on the global stage by contributing towards reduced tenure, rapid salary inflation and stagnation in a number of key areas.
The short-term forecast looks good, but it won’t last
It’s easy to dismiss the notion of looming disruption in recruitment given things are looking good. In fact, there was a rise in registered recruitment agencies of 20% in 2017, taking the number to 31,000. An industry that is now worth £32bn (across all sectors) is made up of 83% in the temp/GIG economy, 12.5% in permanent placement, and the balance, 4.5%, in Exec/Niche head-hunting.
The perfect storm of reduced average tenure in tech (now circa 3 years vs. 5 years in other sectors, and closing in on the average of 2.2 years in Silicon Valley), which itself is driven by rising wages and increased opportunities, combined with an ever increasing skills shortage as demand significantly outstrips supply, is leading to an increase in role fulfilment projects.
Consider that for a moment. As the skills civil war continues between the UK’s small, medium and large digital firms, more and more talented individuals and high potential candidates are changing jobs (63% expect to change jobs within 12 months), meaning more commission payments and a booming recruitment industry. Everyone involved should question what impact they’re having on accelerating the recruitment bubble, which, as history tells us, will always be followed by a burst.
The drivers behind recruitment disruption
It will all start in tech, but the virus will spread elsewhere. The talent challenges in tech are unprecedented given the scale of growth and the globally competitive nature of the talent market. But as other industries are disrupted themselves due to technological advancements, the impact on recruitment will be felt right across the globe.
You could argue that the advancement in recruitment and HR technology itself is enough to disrupt this industry. And you’d have a point, because the onset of AI, chat bots, people analytics and algorithmic led candidate selection promise to automate large proportions of task.
But there are other things at play here. In fact, the combination of changing candidate expectations, business demands, technological advancements and macro factors like the 4th industrial revolution and GDPR, all combine to make disruption a certainty.
1) Candidate expectations:
Putting it simply, candidates expect more, and rightly so. In an age of social media, instant communication and transparency, they simply do not accept any more that recruitment should be a poor experience, as 72% candidates cite it being. Poor communication, lack of feedback, slow processes, and a process that is still, amazingly, reliant on 2 sheets of A4 paper (the notorious CV). This isn’t to say that recruitment agencies are always responsible. Sometimes it’s the hiring firms. And sometimes it’s the candidates themselves. But history tells us that when enough people revolt, disruption happens.
2) Business demands
Businesses are savvy. That’s how they make money. And they respond to pressures all the time. One thing no business likes is a rising cost that impacts profit. And with the percentage of overheads spent on recruitment increasing pretty consistently, businesses are increasingly disgruntled. The image of recruitment agencies is generally not great, which at times is unfair. However, the simple fact that costs continue to increase, through both commission increases and increased recruitment activity (due to lower tenure) is enough to convince a lot of businesses that they need to take recruitment in-house. And a lot of them are already doing this.
3) Technological advancement
With over 5,500 ‘Recruitment/HR’ technology firms out there, we’re spoilt for choice. Be it AI sourcing tools, AI vetting and screening tech, chat bots or people analytics applications, a huge amount of task previously conducted by recruitment consultants is likely to be automated. Not only delivering a lower cost, but also humanising recruitment by reducing unconscious bias, improving communication and improving transparency. The entry in to recruitment by Google in the shape of ‘Google Jobs’ and ‘Google Hire’ alone is creating a tidal wave of change. Think ‘Google Shopping’ levels of transparency, but this time not on price, but on salary, benefits and employee reviews.
4) Impact of 4th industrial revolution
We could write all day about this, as we will over the coming months. But simple factors such as GDPR (going live on Friday 25th May in case you’d missed it!) will trigger major disruption, with agencies no longer being able to hold candidate records without consent, and a great deal of risk being associated with contacting candidates and firms cold. And this is just a minor macro factor to consider. The broader industry disruption that is looming as a result of technological advancement will render the job title obsolete, with skills and experience playing a much more important part in career planning and talent sourcing.
The inconvenient truth for recruitment agencies
If there’s one thing that businesses and candidates alike cite as their major frustration with the current, traditional recruitment model, it’s commission. With agencies charging anything from 12-35% of starting salary, and starting salaries themselves increasing (tech salaries are 30% above the UK average salary), the commission model is reaching the end of its life.
The inconvenient truth is that, whilst high commission rates were justified when the vast majority of task involved in recruitment was conducted by hard working people, as the bulk of these tasks are automated, how can we go on justifying commission charges to business, and commission incentives to consultants? We just can’t.
(Above for illustration purposes only)
When, where and to what extent will this happen?
Sometime within the next 6 months to 15 years!
If we could travel in to the future we’d know for sure, but the reality is we can never predict when and where things will happen, and to what extent. The technology in this field continues to get better and better, with some of it already being used whilst others, including AI screening and vetting, in the early stages of application. But regardless of how ‘ready’ the technology is, there’s this big barrier called ‘culture’ that always slows progress. Ultimately, it will take time for businesses, candidates and agencies alike to embrace innovation and use it to great effect. And there will be a lot of people actively trying to stop progress, as the Luddites once did.
A great question tabled by a member of the audience in a roundtable at Digital Festival was ‘do you ever see a world in which recruitment agencies don’t exist?’. Martin’s answer was ‘yes, it could happen, but that doesn’t mean it has to happen’.
If agencies collectively take a step back and re-think about their role in a digital world, there’s still the possibility that the industry could continue to thrive. But if they put their heads in the sand and refuse to accept that disruption is coming, then the definition of ‘disruption’ will become a reality. ‘Making things that make the old things obsolete’. Don’t allow yourselves to become obsolete. Use your expertise in the industry to navigate through this industry, and help the UK tech sector to move past it’s civil war and to collectively put UK tech at the forefront of global innovation.
Still doubt it will happen? Well give James Keyes and John Antioco a call.
As a parting comment, it’s recognised that only 2.5% of people on Earth are true ‘innovators’. The entrepreneurs and evangelists of this world. And sat just behind them, 13.5% are ‘early adopters’ of change. The embracers and deliverers of it. That leaves 84% of people who don’t jump on the bus straight away.
Psychology teaches us that, for every change, no matter it’s size, every individual person will experience ‘the change curve’. The first 2 stages of which are ‘shock’ and ‘denial’. Don’t allow yourselves to get stuck at the beginning, for you will watch the disruption happen with no ability to control it. Consider for a moment a key lesson in industry disruption from Blockbuster, the global movie rental firm.
In 2000, John Antioco, the former CEO of Blockbuster, was offered the option of acquiring Netflix, which at that point was a new DVD mailing business, for $50m. He refused, citing the lack of profit being made, viewing it as a ‘small, niche business’. Netflix is now worth over $61bn, the world’s 55th largest firm, according to Forbes (May 2017).
John Antioco’s replacement as CEO, James Keyes, guided Blockbuster to further growth, which peaked in 2004 as they reached over 9,000 stores worldwide, with a team of 84,000. All looked well.
In 2008, James Keyes famously said ‘Netflix and Redbox aren’t even on the radar in terms of competition’. He simply couldn’t see a world without physical DVD distribution. 18 months later, in 2010, he put his firm in to administration. The demise of a much-loved brand and the loss of jobs on a mass scale. All because they failed to recognise the looming disruption to their industry, feeling that their years of experience in that industry would see them through.
Don’t make the same mistake. Complacency only leads to failure, sooner or later