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NEW YORK — This is an important subject as far as I am concerned.  There is always something special in writing about the hand that feeds.

Future of search firmsSearch firms play an important role in the talent acquisition process.  That said, they certainly do not dominate in terms of the numbers of executive or management jobs filled each year — only about 35 percent of the total number of those positions.  The balance is made up of employer hires using personal contacts or internal talent acquisition resources.  I think most people would be surprised at how many top job recruitments never reach the open market.

The other thing about search firms is that they tend to irritate job seekers, either because the candidate is not qualified and is quickly shunted aside with little or no explanation, or they rarely return unsolicited networking calls.  They have among the worst communications records of any of the service industries, at least that is the common perception as evidenced by this veteran outplacement consultant’s comment:

“If I had a buck for every time one of my clients complained about the awful, crappy communications, primarily during and particularly after the search [when they no longer need the candidate] I would have a little nicer retirement.  I think it is a reflection of bad habits rather than some sort of character flaw,” she added.

So, it is not surprising that recurring predictions about the demise of executive search firms will not be a serious loss for a lot of people.  Some of the scorned are actively advancing a market theory that goes like this:

Technological advances, including the formation of increasingly sophisticated algorithms in the tture will be able to select candidates with far greater accuracy and efficiency than any so-called search consultant who probably does not possess any deep insight into the client and is really, at the end of the day, more concerned with earning their fee.

This all begs the question, what is the future of recruiting firms?

I think you have to assess the risk based on the type of search firm you are talking about.

First, these new technological developments will not produce the end of recruiting firms in the near future.  The initial impact of these new algorithms will be felt in enterprise recruiting programs by beefing up — improving — the computerized screening process.  There are currently some good programs on the market but there is still much work to be done in the area of automated screening.

In terms of the specific impact on recruiting firms, I believe improved “artificial intelligence” in the area of candidate assessment/selection will first disrupt the business of contingency firms — those that get paid only if they place a candidate and typically work on searches for lower level executives and managers.  LinkedIn has been a game changer in this segment and there is no logical explanation why computerized candidate selection formulas will not further have its greatest impact, at least initially, on these types of recruiters.

The impact on retained firms, those recruiters who work exclusively on C-suite and mission-critical executive positions, will not be as significant over the short to mid term.  There is simply no mathematical formula that can apply the nuanced judgment so critical in recommending these types of leadership candidates to clients.

The real short term threat to executive recruiting firms, such as it is, is that with continued formation of larger health systems you will see more of this type of recruiting work move to inside recruiters.  Some of this is based on a cost consideration, a belief, frequently unrealized, that by having internal executive recruiters, money can be saved.  However, there is a darker reason that search firms do not want to admit.  It is almost as if they are content to accept death by a thousand cuts.

The truth is that this “internalization” of executive recruitment is often driven by a frustration that executive recruiting has become nothing more than a transactional process that offers no real value.  Too many of the elite search firms have become order takers and fulfillment specialists, not the trusted advisors they should be.

One large health system quickly built an internal recruitment process when a well known national firm, which had done dozens of searches for the organization, recruited away a key executive for another client.  With that transaction, the trust was broken, and over the next five years, that system conducted more than 50 internal executive searches.  That one “transaction” cost that national firm more than $6 million in revenue.  The problem is that even when firms behave ethically, the process is still more about order fulfillment than solving a problem or adding value.

In the end, algorithms are about transactions.  Search firms are here to stay as long as they find a way to control costs and add real value for their clients.