Death of Headhunting
Long term, the market for recruiting companies will shrink, commissions will fall and many recruiting companies will go out of business (all the while employment and the number of jobs filled will increase).
Let me make my case by providing an analogy. The job market is a marketplace, just like the stock market in many ways. There are buyers and sellers, there are regulators, there are data vendors and brokers. If we look at the stock market in general, and the NYSE in particular, as a parallel, the last few years have seen a huge wave toward greater transparency and greater efficiency through electronic connectivity. One of the byproducts of these trends is that there has been tremendous pressure on brokers and market makers (to the point that many have gone out of business).
Essentially what happens is that the buyers and sellers have more information and great access to each other directly (LinkedIn is a great example for human capital) which reduce the need for brokers (who historically relied on their relationships to justify their commission).
Then there is the argument that certain jobs are too sensitive to recruit directly, a CEO where the incumbent is still at the company for example. I don’t buy this argument. Wall Street used this excuse for a long time (if I had 1 million shares to sell, I’m worried about that information leaking out so historically I’d go sell the whole block to a market maker who would deal with it from there). Well, that bubble was burst when Liquidnet created a billion dollar business crossing anonymous block trades and today these crossing networks are all the rage. The same thing could be done w/ LinkedIn or other online / relationship tools for recruiting.
Here’s a simple test for CEOs who use headhunters to illustrate my point. Are you using carve-outs in your engagement letters and is the list of executives who are carved out getting longer? My bet is yes.
Smart recruiters will embrace this new environment in the same way that progressive brokerage firms embraced electronic trading. Some new types of recruitment firms will emerge (in the same way ETRADE and others evolved in the trading business) and many recruitment firms will simply disappear because they can no longer charge for the "relationship" (how can they charge if the hiring manager and the candidate are connected on LinkedIn?).
I also think that smart recruiters will evolve so that they advise companies on "what type of person they should hire" as opposed to "filling an order" in the same way that smart stock brokers evolved from executing the trade to advising money managers on what trade to do. The companies that use headhunters will do more internal searches first before resorting to recruiters and they will have more and more carve-outs thus putting pressure on commissions.
It’s hard to say over what period of time this change will happen. For the NYSE it took 10-ish years. I would think that the human capital market will evolve more quickly, say the next 3 to 5 years, because there aren’t any NYSE or LaBranches of the world to slow things down and technology is evolving at an ever faster pace.