The Labor Market Tightens: Strategies in the Staffing Industry

by Timothy B. Faber

Staffing companies have two primary objectives; one, recruit people, and two, market their services. Much like a bakery that makes bread at a factory then sells its bread to stores and distributors; we, as staffing agencies, hire people and put them to work. Qualified candidates are our product. With low unemployment comes a scarcity of talent. This represents a challenge and a unique competitive opportunity.

As with any industry, the staffing industry produces products/services and markets those products/services to its clients and prospects. To be competitive we need to not only be effective marketers, but are required to produce a great product/service with the appropriate quality, price, and features or capabilities; said differently, we need to have a great product/service, and in our industry, that is qualified candidates – talent.

However, our mission is to work both sides of the management equation – supply and demand. Our sales team is in the marketplace daily to create demand for the type of “talent” we have – accounting & finance, skilled laborers, IT, nurses, attorneys, etc. while our account management team and recruiters are constantly, actively looking to build and maintain an adequate inventory of qualified workers.

During a recessionary period, demand generation (sales) is the emphasis as demand tapers and supply increases. As unemployment rises (supply) and demand drops, our client base requires fewer and fewer people to manage their companies and produce their goods and services.

Equilibrium of Demand and Supply

During a stable, nominal GDP growth economy, there exists a relative balance between supply and demand and tactical managerial emphasis is often in equilibrium with resources supporting both candidate and client acquisition.

This equilibrium is often short-lived. In my personal experience, having seen three recoveries, we typically have 6 to 18 months where supply equals demand – we have just enough people for the job orders that come in from our clients.

While this equilibrium may be optimal, the industry often spends significantly more time in “suboptimal” circumstances and how the company strategizes for and positively responds to these circumstances can provide significant competitive advantage.

“We’re seeing solid, demand-fueled growth across the U.S. as the economy continues to strengthen and the labor market tightens at pace,” said Becky Frankiewicz, president of ManpowerGroup North America. “The competition for skilled talent is set to heat up and a just-in-time approach isn’t always getting employers the skills they need when they need them.

The Labor Market Tightens

Following a recovery and during periods when the economy is robust and growing rapidly – typically 2.5%+ GDP for 3-4 years – unemployment begins dropping as businesses absorb available workers. As this growth continues – especially as GDP growth exceeds ~2.5% – it is common to experience a “labor shortage”.

Management-wise, this period of time is when a significant piece of resources is shifted or invested in maximizing recruiting capabilities; or, as in the bakery scenario, making sure you have the latest manufacturing tools, packaging, ingredients, and product variety to satisfy consumer demand.

As a practical example, in 1992 the economy began a rather brisk recovery. Unlike the Great Recession, the 89-91 recession was rather quick (though severe), and the recovery was quite robust.

By 1993 unemployment was dropping quickly and the pool of available, qualified workers dropped quickly as well. Though our marketing and sales efforts continued unabated, our firm – U.S. Personnel, Inc. – made a full-blown push on the recruiting side installing a Director of Recruiting to manage and focus that piece of the business…much like hiring a plant or supply chain manager at the bakery.

A Recruiting Czar

The implementation of a Director of Recruiting provides several key benefits.

That position’s responsibilities included, one, improving our effectiveness at recruiting qualified associates for all positions. This involves a study of all tools, resources, advertising, and best practices in the industry and implementing those that make the most sense based on our available resources.

Two, improving the efficiencies of recruiting. Over time, the frothy and high volume of a typical branch office reduces the recruiting effort into a “throw at it what will work” effort. This leads to inefficiencies and lack of focused effectiveness and cost per hire typically begins to rise. While increasing cost per hire is intuitively an effect of a tight labor market, it doesn’t have to be so – especially if you have a “recruiting Czar” overseeing the efforts company-wide.

Three, in the typical operations of an office, transaction volume can be high and swift. Operations staff have little time to explore and implement best practices, the latest technology, provide training, or modify process flow to increase candidate through-put. Assigning this to a corporate sponsored recruiting team and Czar has tremendous affect, offloads a time consuming effort from the branches, and standardizes best practices company-wide.

“Referrals are a huge part of our placement sources every year, and they’re so important because they’re a pipeline you can ensure will be there no matter what else is going on. There are a lot of pipelines everyone has access to, but your network? That’s something that nobody can take from you because you’ve cultivated it.” – Radhika Arora, Director, Inbound Recruiting & Marketing Strategies, Open Systems Technologies

Four, for those recruiting metrics not integrated into the operations MIS, we now have the opportunity to deep-dive into measuring our abilities. Time to hire, cost per hire, hires per dollar, regional differences, sourcing and channel effectiveness, costs and efficiencies, hit rates, candidate satisfaction and engagement, and submittal to hire ratios that are all key recruiting metrics we need to measure and improve our efficiency and effectiveness….and competitiveness. Many of these capabilities are now available with the latest and greatest technologies.

Recruiting as a Competitive Advantage

Many companies in the small and mid-market segments of the staffing industry have antiquated and narrow strategies and tools for recruiting candidates. Recruiting and sourcing in today’s staffing environment means multi-pronged strategies and a relative full menu of tools and services to successfully identify and capture a requisite pool of qualified talent.

To use a fishing analogy, in a period where the labor market is tight, it’s necessary to fish in all the right ponds and use the right lures, bait and gear.

Many recruiting avenues or sources are the most likely suspects – those techniques used by the majority of competitors; however, there is a world of sourcing methods often overlooked by many staffing companies.

As an example, schools, technical training campuses, associations, online career support tools such as myopenjobs.com [that provide cradle-to-grave career support, forums, education and certification support, and skill-centric job boards], and referrals from current staff or Associates, are excellent for sourcing qualified candidates…or, expanding your search for available candidates into untapped demographics – retirees (baby boomers), veterans, semi-skilled or disabled, etc. – introduces an entirely new population into the labor pool.

Firms are boosting their technology investments this year considerably. We see a huge jump in tech spending, with 52 percent of firms anticipating an increase, compared to 40 percent last year. – Bullhorn 2018 North American Staffing & Recruiting Trends Report

Competitively, recruiting is as much an advantage as sales and marketing.

Returning to the bakery analogy, we can have the best campaigns, sales, and distribution in the world, but if no one likes our bread, we will have a tough road to success. We have to have awesome bread that everyone loves. In the staffing world, this requires a lot of moving pieces…we need a large inventory of available candidates, but those candidates must be qualified with the skills and credentials needed by the client – requiring a successful vetting, on-boarding and engagement process.

A Look at Competition

Many companies in the industry are small with less than three offices. As a result, their investment in an adequate management team or technology leaves holes in capabilities – often in the recruiting or sales areas – the most important aspects for their potential success.

As a result, their size, sophistication, process or technology does not allow leveraging the latest recruiting techniques and tools. And despite the inability to identify and implement these best practices and tools, many firms (and I include larger ones in this discussion) do not have or are unwilling to invest in the technology and systems integration efforts necessary to use these tools.

As an example, Monster, Indeed, LinkedIn, and now Google recruiting tools are expensive and often viewed as an insurmountable burden to many companies – requiring choosing one option over another – severely limiting their recruiting capabilities. Though branches are often best at determining the type people they need, they are often so busy they do not have time or the resources to drill “three layers deep” to find candidates. Likewise, in a typical 1-3 office staffing company, owners/management will be unable or unwilling to invest dollars to plug the hole in the proverbial leaking recruiting dam.

“The staffing industry is at the earliest phases of adopting automation technology, but the learning curve is quick. Onboarding is a logical place to start, as many of the tasks are standardized. We expect to see a dramatic increase in the quality and quantity of tools available in the marketplace for every stage in the next few years.” Matt Fischer, President and Chief Technology Officer, Bullhorn

With that said, there are many untapped or under-utilized recruiting sources. Twitter, Instagram, and Facebook lead the charge on the social media side. And while the uninitiated may scoff at the use of social media, it has become one of the best tools to reach large targeted audiences and for communication.

Facebook for example allows for advertising and promoting to very specific demographics – geography, interests, skills, education, and social issues that offer relevance in employment. With the correct management and marketing, a database of 100’s of thousands can be acquired in a relatively short time span. Twitter and Instagram offer similar capabilities and have become a go-to for millennial communications.

Recruiting sources abound – Monster, Indeed, CareerBuilder, LinkedIn, ZipRecruiter, Craig’s List, and one-off aggregators allow candidates to compare among a huge range of opportunities. Employers (and staffing companies) now have tools that broadcast a single job posting across dozens of job boards, social media and direct communication supplemented by automated emails, SMS messaging (texting) and voice messaging. The use of these platforms and the ability to “touch” thousands of candidates at the push of the button now allow us to broadcast tools such as this guide for job seekers which builds authority and branding. As an interesting note, 43% of companies surveyed by Bullhorn (a leading staffing ATS system) do not use Twitter at all for communication or recruiting…a clear competitive opportunity for those that do.

Companies such as Sense and Herefish are recent entrants into the 4th gen capabilities of recruiting…made available only through the recent advances in technology and adoption by the younger, tech-savvy workforce. Sense automates each step of the engagement lifecycle from onboarding to redeployment. The Herefish platform enables staffing companies to deliver awesome brand experiences and drive more revenue through advanced email, text and communication tools. The best part of these super-efficient, effective tools??…they integrate seamlessly with the staffing industry’s leading ATS systems.

Technology

In the past 5-10 years there has been an explosion in the use of technology to enable recruiting. Newer Applicant Tracking Systems (ATS) with more robust functionalities – especially in sales and recruiting – have made typical branch operations more efficient and have provided a base management information system that allows more effective oversight of operations.

Years ago many of these systems merely automated what were already efficient manual operations [which some companies still use].

The advantage today is many of the “4^th Gen” systems such as Bullhorn and Avionte’ have real-time integration into the “latest and greatest” capabilities. Other technologies – increased bandwidth and communication speeds, mobile applications, GPS, and the proliferation of technology and coding – have catapulted a plethora of recruiting options that simply did not exist even six months ago.

As a result, the low adoption rate by smaller and lower mid-market staffing companies creates opportunities to leverage these new technologies into their operations and enhance the effectiveness of their recruiting operations – leading to greater order fulfillment and revenue generation.

Summary

The industry has experienced exceptional growth the past ten years and, as customary, continues to expand to new and higher levels following each recession. This expansion is a result of several factors:

Increasing penetration of temporary workers relative to total employment – February 2018 setting a new record of 2.04%
Expansion of services well beyond typical commercial services to include IT, healthcare, professional, etc. – services offered are expanding
Continued education of target customers on the economic advantages offered by staff augmentation and a flexible workforce – the customer base is expanding
The continued acceptance – and indeed a trend – of the gig/freelance workforce

A symptom of this growth and expansion is a tightening labor market. As GDP continues in the 3% range and unemployment is dipping below 5% in many areas of the U.S., the scramble for qualified talent is reaching full steam.

While a challenge, the scarcity of talent is an opportunity.

Staffing firms that are willing and able to invest in recruiting strategies, tools, management and technologies will find themselves able to compete successfully and uncover qualified candidates. And, if historic post-recession cycles persist, these firms will enjoy increasing revenue and margins as the economy begins its recovery and “demand for supply” increases.

“While the current unemployment rate may not be at a historic low, the shortage of candidates is being exacerbated by… (1) Heightened restrictions and enforcement regarding immigration, (2) More common drug use, and (3), A rise in gig work such as Uber and Lyft. This environment represents both a headwind to growth, but also opportunities for success for those organizations nimble enough to adapt their strategy and tactics. – SIA – September 2017 – Industrial Staffing in a Time of Candidate Scarcity