Should you be scared of…recruitment agencies?

Today’s clients are faced with a dizzying variety of options when it comes to buying professional services. While the industry is still dominated by a handful of big firms, they are no longer the default option they once were. This is the fourth in a series of blogs that explores some of the newer businesses and platforms seeking to turn the industry on its head—and whether your firm needs to worry about the new competition. Click herehere andhere, for previous blogs in this series.

Previous entries in this series have focused on some of the newer types of businesses that are—in various different ways—starting to come into direct and indirect competition with established consulting firms. But market disruption does not always come from start-ups. Recruitment agencies provide a fascinating case study of how organisations from adjacent sectors can move into the consulting space by taking advantage of new project delivery models.

We have written before on the emergence of “associate staffing” delivery models; as the global community of freelance consultants has grown, new types of service providers have emerged with business models that revolve around connecting clients to that freelance talent pool. Firms like Eden McCallum and Business Talent Group will use their internal experts to help clients scope out projects and then handcraft teams of freelancers to deliver them. Platforms like COMATCH and Catalant go one-step further, offering their customers access to self-service platforms through which they can source their own project resources.

What unites both these approaches is a recognition that, for some clients and some categories of projects, working with freelancers can be more attractive than bringing in a brand name consultancy. While independent consultants don’t come with their own intellectual property and institutional knowledge, the cost savings and added flexibility often more than make up for that. Moreover, freelancers are often able to give their clients their undivided attention in a way that senior resources from consulting firms can’t. The partner from KPMG working on your transformation project may be immensely talented, but she’s likely splitting her time between a number of different client engagements—while also spearheading a recruitment campaign for her practice, contributing to a piece of thought leadership, and helping her colleagues draft a response to a new RFP. Freelancers—even the most qualified—rarely have the same drains on their time.

But while this delivery model may have been pioneered by businesses like Eden McCallum, the last few years has seen a wave of recruitment agencies and executive search firms decide that they too want to get into this game. Many such firms now explicitly provide short and medium term project staffing as a service to their clients. Some have chosen to go as far as to create entirely new sub-brands built around this business model; London-based search firm Odgers Berndston, for example, launched Odgers Connect for this purpose in 2017. Others have instead created new service lines within their core brand identity in order to house this capability; the “managed project delivery” service offered by Leathwaite is a good example of this approach. Still others have chosen to offer this service on a more informal, ad hoc basis.

It’s easy to see why so many recruiters have decided that this type of service is a natural extension of their existing activities. The skills required to make this model a success—the ability to match up a resourcing profile against potential candidates, to evaluate CVs, and to assess the likely cultural fit between a freelancer and a client—are already firmly in any good recruitment agency’s wheelhouse. And any recruitment agency that does work for the professional services industry will almost certainly have pre-existing inroads into the freelance talent community; they don’t have to build up their talent database from scratch in the way that, say, COMATCH did when they first launched.

We wouldn’t be surprised if more recruitment agencies started experimenting with this business model as a response to COVID-19. With so many companies having put a freeze on new permanent hires in response to the crisis, the core revenue streams of recruitment agencies are looking increasingly precarious; some may decide that the best way to survive is to pivot into project delivery, and help clients staff up their COVID-19 response efforts with teams of freelancers.

While some clients may be reluctant to increase their reliance on freelancers at a time like this—preferring instead the reassurance and peace of mind that comes from working with a leading consulting firm—others may not have much choice in the matter. Purse-strings are tight across the board right now, and so the cost-savings associated with the associate staffing model have become more relevant than ever before. And those cost-savings may grow even larger as the pandemic continues; since they lack the overheads associated with large firms, freelance consultants have more flexibility to slash their rates during times of crisis.As we discussed previously when looking at talent networks like COMATCH, it is important to keep this trend in perspective. There are certain projects where the associate staffing model will simply never be a realistic option. Even the most talented recruitment agencies will struggle to compete against consulting firms for highly complex transformation projects, or for projects that require the support of a substantial amount of intellectual capital, for example. But that does not mean the threat isn’t a real one. Particularly in these uncertain times, consulting firms need to acknowledge that the lines of demarcation between different types of service provider have never been fainter—and they should be honest with themselves about what that means for their business.