Recruitment agency fees

I was talking with a Recruitment Director last week about what he deemed to be his greatest achievement in his current role.  He proceeded to tell me how he’d "screwed" his staffing agency suppliers down to bargain basement rates and saved his company a fortune as a result.

With further questions from me, he admitted that CV quality from those agencies wasn’t so great, nor was the service he received, and that it was proving tricky to find the "right" kinds of candidates these days; but he was genuinely proud of how he had contributed to great financial results for his employer.

I have since queried this success measurement scenario with several dozen business executives, some of whom are in the same company as that Recruitment Director, some of whom are in other industry sectors.  All of these people were mortified at the prospect that hires needed for their own teams, would be effected by such a contractual arrangement.  Without exception, each leader stated that they’d be very happy to pay market rate (and sometimes above) to any staffing agency, in order to secure the calibre of talent they needed to operate effectively against their competitors.  

So this got me wondering. 

How disconnected is a Recruitment Director from the business leaders if he/she thinks the primary goal is achieving short term savings at the cost of a timely and quality hire?  Does the recruitment function as a whole, really understand the priorities and pressures of the business leaders they're hiring for, and the longer term financial impact of a cost focussed recruitment agenda?  How many other Recruitment Directors measure their accomplishments purely through short term cost savings?

And when Recruitment and HR Directors are demanding bargain basement rates from agency providers (or any supplier for that matter), do they realise they're risking bargain basement service and results?

I am reminded of a company who decided to take the RPO route.  A decision made with the intent of securing better hiring results, better visibility on hiring, and overall a better price than the employer could effect themselves or through a mish-mash of 3rd party recruitment agencies.

An RPO took on the work, at a discounted rate to secure the contract.  But then, and understandably, they needed to find ways to cut their own costs, in order to make the profit margins they needed.  One way to do this, was to staff the contract with junior level, inexperienced recruiters, on low salaries.  Another was to demand that any recruitment agency who wanted to continue working with that employer, had to slash their fees but still provide the same level of service that the employer had been very happy with historically. 

Fast forward two years, and the company has certainly experienced significant improvements in cost to hire, but enjoys no service consistency or loyalty from their agency suppliers, and more importantly has struggled to achieve any improvements in time and quality of hire - particularly dangerous in a highly competitive market for talent.  Even worse is that turnover rates for professionals within 6 months of commencing is at an all time high.

Don't get me wrong.  I'm an advocate for cost containment when you do need to utilise the experience/support/expertise of a 3rd party recruitment service.  I'm also aware that there are still some recruitment providers who haven't changed their fee ratios or champagne & long lunch lifestyles since the nineties, and I know that that exorbitant fees do not guarantee the best service and results from any agency.  

But I've seen time and time again, that buying recruitment services is no different to buying say a car, or a suit, a stereo, or the services of a dentist or a builder - in that you usually get what you pay for.  There is a difference between buying quality, versus just buying cheap and the latter is simply false economy.