Today’s post has been inspired by a conversation I had earlier this week with a long-time friend working as an executive search professional in Paris. As he was talking to me through his challenges in what remains a ‘tight’ job market, I could not help but put on my ‘process efficiency’ hat and highlight the paradox: why has executive search remained so labour-intensive?
Indeed, the Web 2.0/3.0 has been characterized by the rise of platforms aiming at putting ‘suppliers’ directly in contact with ‘customers’, being goods or services: Amazon for retail, Airbnb and Booking for holiday accommodation, Skyscanner for flights, and Uber for taxi rides. In all cases, products or services can be ordered at the click of one or a handful of buttons. Gone is the middleman, be it wholesaler or travel agent – processes are now more efficient and tend to be cheaper as a result. Comparing our lives today with the ones we used to live 15 years ago, very few aspects of our daily lives, either personal or professional, have been left unscathed.
Platforms are here to bring transparency to a market. In many circumstances, this transparency is beneficial to both the ‘supplier’ and the ‘customer’. Suppliers get access to a wider range of customers, who in return can more easily compare the various product or service features, including price. This enhanced access to information prevents any supplier from benefiting from local monopoly power (customers in the given area are forced to buy from this given supplier due to the lack of an available alternate solution) or, more rarely, local monopsony power (local suppliers can only sell to a given customer). Both are deeply harmful to one side of the trade.
Looking at job search, over the last two decades, job boards have flourished to bring transparency, although the task at hand is significant in its sheer size. Making some quick maths using the OECD statistics, the average employee turnover rate pre-COVID in the OECD area (27 countries) was 22%. Over an active population of ~650m individuals aged 15+, and assuming (very conservatively) that only 5% of those moves trigger an open online recruitment process, that makes more than 7m job ads per year, only for OECD countries. To help potential applicants find the needle in the haystack, job boards have been relying first on extensive filtering, helping applicants to only look at the jobs in their area, function, and industry of choice.
The result remains far from perfect. Despite all those filters, prospective job hunters may end up with tens, if not hundreds, of job opportunities to consider – and I am not even talking about the (online) application process itself, which, in many cases, remains far from user-friendly. More importantly, those filters largely leave competencies matching aside. LinkedIn claims to browse Premium users’ profiles to offer them a selection of the most relevant job ads posted on its platform based on competencies and skills. The feedback I have received so far from users is mixed at best.
To come back to my earlier point about HR, I have found that executive search has remained even one step behind in the digitalization journey. Undoubtedly, social networks such as LinkedIn have greatly simplified the access to candidates on a worldwide basis. Emails and mobile phone calls have replaced faxes and paper letters. And yet, the process remains largely ‘humanized’. Recruitment consultants get a brief from their client, reach out confidentially to a number of potential candidates (the ‘long list’), who in turn express their interest or not. A shortlist of 3-5 candidates is then crafted, only the latter being of interest to the client, who ultimately chooses the ‘right’ candidate. At each stage, feedback is gathered and shared, mostly via phone.
Adding so many human interventions in the process can introduce significant drawbacks:
- The headhunter may not accurately understand the client’s brief and thus look for inadequate candidates and/or inaccurately reflect the opportunity to potential candidates when interacting with them for the first time – this hurdle usually helps make the difference between poor and good headhunters, and also partly explains why executive search firms tend to create industry or function-specific teams;
- Emails can get missed, requiring the headhunter to always keep an eye on the progress of the various candidates – although Applicant Tracking Systems (ATS) tend to help in that respect;
- Some headhunters work ‘by network’, throwing in some of their connections in the long-list as they see appropriate. And yet, readers of “Thinking, Fast and Slow” will have noted that such a process is a privileged field for the expression of the ‘Availability heuristic’ bias, by which we tend to make decisions based on the examples we can most easily recall. In that case, many headhunters relying solely on this exercise will struggle to identify the right candidate(s) (within the hundreds or thousands in their mental Rolodex) if they have not met them recently – as a side note, this is always why you should regularly keep in touch with your ‘favourite’ headhunters, even if you are not actively looking.
The human touch has some sound justifications, though:
- Search firms typically charge fees directly proportional to the total compensation of the retained candidate. As a consequence, client companies may end up paying €100k+ for a single recruitment. At that price tag, they expect tailored, premium service, with a clearly identified point of contact ready to answer their questions and requests almost 24/7;
- For critical roles such as executives, soft skills, personality, and drive carry at least an equal, if not a more important, weight than other harder parameters, which can hardly be analysed only through algorithms. Moreover, studies have found (logically) that executives have an outsized impact on their company’s performance. A successful or missed appointment may end up costing shareholders;
- Executive recruitments may embed negative signals. A struggling company may not want to advertise it is changing its CEO and risk scaring customers and employees. Beyond the psychological element, some searches related to public (listed) companies may have an impact on share prices and thus lie on the border of insider trading;
- The very top of the pyramid is usually a small club. Technology yields maximum benefits when required to go through vast quantities of data. That is not the case here.
Another industry facing similar challenges, although in my view to a lesser extent, is real estate. Online pure players have been struggling to emerge. Some explanations listed above remain valid in this case, such as the high fee (many real estate agents earn, in my view, a disproportionate fee compared with the service they perform) and the cost of a bad purchase, notwithstanding the emotional element linked to housing.
Looking forward, I believe both executive search and real estate are prime candidates for a hybrid model, in which the essential human contact is augmented by a technology-driven, invisible ‘core’. In the case of executive search, the recent progress in artificial intelligence (AI) can be pivotal in helping headhunters identify promising candidates. Utilizing individual career trajectories, AI can broaden the search spectrum, providing clients with diverse and innovative perspectives, far from the conventional pathways. This application of technology in tandem with human expertise is especially valuable in a competitive talent market, offering a nuanced approach that blends the precision of data analytics with the insight of experienced professionals. In a competitive market for talent, such technology-human complementarity will bring extra value worth paying for.