Is in-housing out in the cold?

in-house or outsource recruitment

When coronavirus entered all of our lives, nobody had any idea the tsunami of change it would effect. Rishi Sunak stated in the budget that UK growth would slow to 1.1% and whilst it wasn’t good news, it now looks in the realms of fantasy. Certainly in the short term, it looks like the changes to GDP will be double digits and whilst things of course will eventually return to normal, it will be a new sort of normal. I can’t for a minute believe that employers will be able to continue insisting that employees spend five days a week in the office. Whilst it’s not good news for the prospects of corporate real estate, it’s good news for employee health and wellbeing, as well as potentially great news for the environment. It could also a herald a new era for how we purchase office space. Long gone are the days of firms announcing they’ve signed a long term lease. Surely, the future is flexible terms that easily allow firms to scale up and sadly down in the times of distress. In fact, I think most business leaders would give anything to have more flexibility in their cost base at the moment. So, with this in mind it made me think about another trend we’ve seen of late…..in-housing.

Now, please bear in mind that I run an outsourced service provider and so I am pre-disposed to see the negatives of this trend. Although in my defence, I absolutely think that the largest firms should be in-housing many elements of their business – my own industry serves as a good example. We work with some exceptional in-house recruitment teams, but it’s the scale of their employers that makes the whole thing work. These firms would spend vast amounts on hiring, but more importantly they are large enough to offer talented recruiters a career within their business. In my experience, the turnover rate of internal recruiters outside of the largest firms is enormous. It seems that every 12-18 months internal recruiters move on. Why? They are often under-resourced and under stimulated. At a consultancy they can work with multiple clients and on a range of assignments and, done well, you can become part of the client’s team. However, you’re always an outsourced part of the team who brings an objective view and who doesn’t form internal alliances, or partake in a firms politics. However, it’s the under-resourced element and the lack of challenge and progression that undermines the whole model when small to medium sized firms in-house. It also makes little financial sense unless you’re in a growth environment.

in-house or outsource recruitmentWhilst there are arguably many benefits of in-housing, the primary motivation is to reduce costs. Therefore, in many cases in-house recruiters often don’t have enough administrative support, good enough databases, advertising, or budget. They are asked to recruit across a range of roles, where they may have little expertise or network and are tasked with presenting the individuals they can get their hands on, but often they only have a handful of CVs to present to managers, who are often disappointed (we hear this a lot). However, in short the firm hasn’t invested enough into the process to get a better outcome, but to do so would undermine the cost saving argument. For many firms, their biggest asset is their talent, and why then would they want to spend as little as possible on it and wrap up their talent management process in underfunded budgets? If ever there was an argument for piggybacking off the existing infrastructure and deep talent pools of specialist third party recruitment consultancies, it’s this. Even the most talented internal recruiter (and there are many) won’t find this a stimulating environment and if they are the only recruiter in the business, or part of a very small team, what’s their next career move? Well if they’re any good, probably to the internal talent team of a large firm who can offer a career.

According to Linkedin, financial service and professional service firms have an employee attrition rate of c.11%. This is people resigning and retiring as opposed to a separation rate, which takes into account redundancy. Working the numbers, a growing firm of 100 people will need to hire 11 people to stand still and perhaps they will hire 4-5 more for growth. I regularly talk to internal recruitment teams who fill 70-80% of their roles. Therefore, in a growth environment, they are filling 12 roles and placing four with external recruiters. However, if this growth stops or redundancies are made, it would actually cost many firms more money having an internal recruiter. The tap can be turned on and off on external suppliers, they don’t need appraisals, they don’t get involved in internal politics, and they don’t take sick days, or expect career progression – their own employer provides these opportunities.

I’ve chosen recruitment, but one thing I’ve learned from good managers and the private equity industry is that most firms are better off focusing on their core business and outsourcing the rest. Do you want to be a financial services firm (or manufacturing or accountancy firm), using resources on running an even smaller recruitment agency internally?

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