18 April 2017

ACT Government voluntarily opts out of quality recruitment outcomes by Simon Cox

This week I turn InSight over to HorizonOne co-founder and Director, Simon Cox. I've done this to highlight an issue that many of you may not be aware of, but it's a practise that I believe to be both very short-sighted and counter-productive. It's a practise that, as an industry, we need to resist with all of our combined energy. I'll leave Simon's excellent article to explain why and, at the conclusion, I would invite you to contact either the RCSA or APSCo to see what you can do to help roll back this mass stupidity.

ACT Government voluntarily opts out of quality recruitment outcomes by Simon Cox

Simon CoxIn a move that defies logic, the ACT Government is about to explore how much damage can be done to an employer brand by testing the age old principle of "you pay peanuts - you're going to get monkeys."

In a ‘forced choice' procurement exercise described by some in the industry as a ‘process trap', the ACT Government have unilaterally set labour hire margins at 7.05% effectively forcing those that rely on ACT Government business to either sign up, or risk losing their contractors to other firms on the panel.

A margin of 7.05% represents less than half that paid by Commonwealth Government panel arrangements, which are already cut price rates.

For a Government crowing about how strongly they support small business, how many SME's could survive a Government imposed >50% drop in profitability?

7.05% puts professional recruitment services in the same bucket margin-wise as those who supply standard transactional products and services. Given the complexity and challenges involved in sourcing highly skilled contractors, this doesn't make any commercial sense.

Canberra's recruitment community is stunned that our local Government would make a unilateral move across most of Canberra's major labour hire categories.  Our region consistently ranks above all other States and Territories on candidate shortages in sectors like ICT, Accounting and Finance, and other specialist professions.

The number days to fill an average ICT contract across Australia is 25 days, whilst in Canberra it takes on average 60 days!

This is why implementing a scheme like this in the ACT market vs the NSW market is so different. In addition to this uniquely Canberra challenge, attracting talented contractors to the ACT Government is already a challenging task.  By compounding this challenge and making it unprofitable for recruiting firms to supply staff, surely the ACT Government will damage their already limited supply of talented professionals?

I will tackle concerns about the ACT Governments bullish approach to the procurement process in a future blog article.  I will say for now however that this represents another very clear example of how the ACT Government pays lip service to support local SME's, whilst behaving completely differently when it comes to managing their own procurement.  For another recent example, have a read through recent article by Tim Benson from B2B magazine.

Let me spell out in plain and simple terms how this move will impact the ACT Government's ability to attract talented contract personnel:

1. Opportunity cost will drive down quality
Like it or not, experienced recruiters make decisions daily on how they prioritise the application of their talent network.  Where recruiters send their best people is a multi-faceted decision, but one of the key factors considered is around the client paying appropriate fees.  The opportunity cost of doing business with the ACT Government through this panel is so extraordinarily high, recruiters will simply avoid referring their best talent.  Quality referrals will dry up rapidly.

2. Existing contractors will be placed elsewhere
Local recruitment firms are already looking at reprioritising their existing ACT Government contractors to employers paying reasonable rates.  Whilst nobody will be being overt about this, it is simple economics at work.

3. Pay peanuts, get monkeys
Having spoken to a number of experienced recruiters that managed teams on the NSW Government equivalent of this scheme, it sounds as though a number of poor outcomes will prevail when you stiff a recruitment company on margins.  These recruitment companies would allocate their lowest performing consultants (read cheapest), and put them in a corner of the engine room where they battle for the bottom rung candidates and fire them at the client till something sticks.

Experienced recruiters, those with the strongest talent networks, avoid engaging with low fee panel work like the plague.

4. Reputational risk (could this be brand suicide)
As mentioned above, the ACT Government already has distinct challenges when competing with the likes of Federal Government for talent.  It is a shame, there are some great jobs in the ACT Government and we often hear positive stories from contractors who enjoy the proximity to ‘real outcomes' in their work.  But in a market driven by recruitment companies, where recruitment consultants are the critical interface for communicating employer brand, what will happen when the middle man feels jilted?  That's right, there will be a ‘pong in the air' likely to cause a lasting impact on the ACT Government's employer brand, and this may also impact permanent and non-ongoing talent attraction capability.

In a notoriously candidate short market, talented contractors are highly sensitive to bad press and will favour offers from other employers.

5. Evidence from recent history predicts pain ahead
Below are two examples where similar approaches have run into trouble recently:

(a) Queensland Government
The Queensland Government went to market with a similar model to ACT and NSW Governments, not with a fixed bargain basement margin, but with a model that failed to appropriately consider how the sector operates.  Combined with a messy implementation and a lack of communication with suppliers, the panel quickly ran into trouble.  The supply of quality talent to QLD Government reduced markedly.  In this instance, through engaging with a strategic working group including industry bodies and improving the process and information sharing, the panel is operating positively and suppliers negotiate commercial terms they can afford to work to

(b) Department of Health and Ageing
At the end of 2011, just as Canberra was starting to experience its own little GFC (i.e. Government cut spending, redundancies, recruitment freeze), the Department of Health picked a far more intelligent time to try a low cost panel for contract recruitment.  Trialling a fixed rate model for non-ongoing staff at around 60% of normal rates, these were the results:

  • Many of the agencies on the panel reduced their level of work with Health, easily transferring their commitment to other clients who were willing to pay proper fees
  • The panel leaked like a sieve. If hiring managers could demonstrate ‘they tried' to use the panel, they were able to agree on new commercial rates with anyone they chose.
  • Investment in short term personnel through consulting firm panels increased dramatically, at much higher premiums (typically 30%)
  • Recruitment agencies avoided sending their best talent, and experienced recruiters avoided the Health panel work. Some of the large multi-national firms eventually setup specialist health panel teams with junior recruiters tasked with flicking CV's until something stuck.
  • Only 1-2 other Commonwealth agencies ‘piggy-backed' the arrangement, with at least one Department quickly backing out of their commitment once they saw how the panel operated.
6. The margins are prohibitive for small businesses
Companies that are able to exist on tiny margins are typically built for high volume, low value-add labour hire supply.  Typically these margins are seen in hospitality, mining and blue collar industries, and construction recruitment where entire teams are hired at once, and often for sustained periods.
Quality focussed, value-add recruitment companies simply cannot turn a profit on these rates unless there is a restricted panel on offer (there isn't), and a guaranteed volume of work well above what is on offer from the ACT Government.

7. False economies
We all know the ACT Government have a cash problem.  But will taking the lion's share of margin away from a group of suppliers like this, really save money?

Advice from a number of very experienced consultant contractors in the commercial procurement space is this approach creates a false economy.

The driving down of quality by panels like these will mean it will be harder for ACT Government agencies to ‘do it first time, and do it right'.

Lower quality contractors that deliver a poor service will lead to more failed hires, and value for money quickly disappears.  To replace someone after the first hire fails to deliver incurs more cost, and often at an inflated price.

Where to from here?

Currently, it is optional for ACT Government agencies to sign up to this agreement.  We would recommend any Government agency considering signing on should think very carefully about what this means for their employer brand, and what hidden costs are involved in the change.

However, signing on may become mandatory in the near future.  Therefore now is the time for some real public debate.  Any form of conversation about this enormous change has so far been strategically avoided by the approach taken with the procurement process for this panel.

Whilst the recruitment industry bodies APSCo and the RCSA are working hard to engage the Government in some eleventh hour lobbying, we are interested to hear from employers, contractors, and all other interested parties.

I would also call on recruitment company leaders to consider very seriously the move of signing up to this agreement, what that might mean for your business and the industry. Also, if you are unhappy to be treated this way contact your local member, contact ACT Chief Ministers and ACT Procurement, and let them know that you won't stand for this level of disrespect.

As a recruitment company that seeks to add value to local employers through the quality of our services, and as an SME who do a significant amount of business with ACT Government, HorizonOne won't be signing on.

About the author:
Simon Cox co-founded Horizon One in 2008. Horizon One are based in Canberra and provide recruitment services in the Accounting and Finance sectors,  including in tax, audit, business services, government accounting and related positions, commercial accounting and the not-for-profit sector. Other specialist divisions include  Government (APS) recruitment (Policy, Program Management, Procurement), HR, Communications, Marketing, Scribing and Administrative support positions.

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05 April 2017

Deligiannis returns Hays Australia to star status in Hays worldwide

In January 2015, when I was writing about the Hays global results from the previous financial year, featuring a stellar performance from Hays UK & Ireland and a resources-downturn induced slump for Hays Australia, I editorialised as follows:
 
In summary, it’s easy to conclude that the move of Nigel Heap, from running the Hays Asia Pacific business, to running the Hays UK & Ireland business has been a hugely successful one. The underperforming UK & Ireland business had its costs slashed (235 offices have now been reduced to just over 100) and revenue has improved, resulting in a dramatic 500 per cent profit turnaround in the two years of Heap’s stewardship.
 
Unfortunately, in the same two year period the Hays Asia Pacific business has slumped, with operating income down by nearly one third and operating profit nearly halved. The conversion rate in Asia Pacific, although down from 37.2% to 28.6% over the past two years, is still comfortably the best conversion rate within the Hays empire.
 
Of course, Heap has been the beneficiary of the UK’s vastly improved economic position while Heap’s successor in Australia/New Zealand, Nick Deligiannis, has had to contend with very subdued economic and recruitment activity over the same period after riding the recent mining and resources employment boom.
 
I am sure Hays Aus/NZ MD, Nick Deligiannis has been breathing much easier recently as his region produced outstanding six monthly results for the current financial year, contrasting sharply with the 10% decline in net fees and 29% drop in operating profit reported by Hays UK & Ireland, where Nigel Heap remains as MD.
 
The Asia Pacific region Conversion Rate (operating profit divided by net fees) jumped from 27.5% to 29.8% which, again, contrasted significantly with the UK & Ireland Conversion Rate of 14.4%, down from 18.1% the previous year, indicating significantly lower consultant productivity.
 
As a result of the most recent financial data released by Hays (June – December 2016 half year results), published on 22 February 2017, I decided to dig down into the data to see what I could extract of interest re local results.
 
The financial data I have listed below is my estimate, as separate reporting of the two countries is not publicly provided by Hays. The year listed is the financial year ie 1 July (the previous year) until 30 June (of the year listed).
 
All numbers for the combined Australia and New Zealand operations are an approximation based on information provided in the Hays Plc Annual Reports (Asia Pacific Region) and other public releases of Hays’ financial data as reported by industry news service ShortList.

Key Indicator
2017*
2016
2015
2014
Net fees^
AUD $million (i)
302
279
270
255
Operating profit AUD $million
114
99
91
81
Consultant headcount #
870
814
775
705

* 2017 results and consultant headcount represent my estimate based on the July – December 2016 half year results
 
^ net fees is the aggregation of permanent placement revenue and net temp/contractor margin
 
(i) represents the AUD$/GBP£ exchange rate used in the Hays public release of Australia & New Zealand half year results each year
 
# calculated on consultant headcount data changes as listed in the Hays Annual Report using the reference point of the Aus & NZ combined headcount of 706, as at 30 June 2010 (ShortList, 3 September 2010).
 
Here’s a summary of the commentary provided by Hays in the release of their half year results. The same period last year (July – December 2015) is the reference point used when changes from previous data are referenced. 
  • Aus & NZ net fees were up 9% and operating profit was up 16%
  • Perm business was up 6% and Temp, which represented 66% of net fees in the half, grew by 11%
  • Australia’s net fee growth accelerated 11% whereas net fees in New Zealand were down 8%
  • Australian private sector net fees were up 10% and public sector rose 12%
  • New South Wales was up 14% and Victoria rose 15% and Canberra increased 13%. Queensland and South Australia both delivered 9% fee growth
  • Construction & Property, the largest Hays Australia specialism, grew 12% and IT jumped 22%
Hays Australia returning to substantial growth is an excellent lead indicator for the health of the local recruitment industry. It certainly augurs well for an excellent rest of 2017.
 
No doubt Nick Deligiannis looks forward to any conversations with his boss, and long-time mentor, Hays Asia Pacific Chairman, Nigel Heap. It's just that these days Deligiannis might just, rightly, have a bit more spring in his step, after now definitively proving he is the rightful heir to his boss's old job.
 
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30 March 2017

Hays 2015/16 results: Germany surges, UK and Asia Pacific marking time

Any smart recruitment agency owner or investor in the recruitment industry keeps an eye on what’s happening at Hays. As a London-listed specialist recruitment company Hays has operations in 33 countries across three divisions (UK & Ireland, Continental Europe & Rest of the World, Asia Pacific) and has consistently been one of the most profitable recruitment companies in the world, in terms of converting net fees to operating profit. 
 
The Hays plc annual report for 2016 covers the 1 July 2015 – 30 June 2016 financial year and is available for download here.
 
Here’s a summary of the data and commentary points that I found the most interesting along with a comparison to the key data from the same reporting period, two years and four years ago, respectively:
 
Table 1

 
Result for period 1 July – 30 June
24 month change 2014 - 2016
m = million
2012
2014
2016
Global Net fees
£734 m
£724.9 m
£810.3 m
+11.9%
Temp net fees
£414.0 m
(56% of total)
£427 m
(59%)
£470 m
(58%)
+10%
Perm net fees
£320.0 m
(44% of total)
£297 m
(41%)
£340.3 m (42%)
+14.5%
Global Operating Profit
£128.1 m
£140.3 m
£181 m
+29.1%
 
 
 
 
 
Asia Pac consultants
1,112
1,055
1,210
+14.7%
UK/Ire consultants
1,934
2,157
2,024
-6.1%
Europe/RoW consultants
1,967
2,145
3,034
+41.4%
 
 
 
 
 
Asia Pacific net fees
£242.2 m
£173.9 m
£176.1 m
+0.1%
APAC Operating profit
£90.9 m
£49.7 m
£50.2 m
+0.1%
 
 
 
 
 
UK & Ire net fees
£225.3 m
£246.9 m
£271.7 m
+10.1%
UK & Ire operating profit
-£6.5 m
£26.2 m
£52.1 m
+99%

Table 2

 
Asia Pacific* largest specialisms by net fees
2013/14 Actual Net Fees AUD$#
% of total Asia Pacific net fees
2015/16 Actual Net Fees AUD$#
% of total Asia Pacific net fees
1.
Construction and property
$66m
21%
$67m
21%
2.
Accountancy & finance
$50m
16%
$44m
14%
3.
Office support
$35m
11%
$35m
11%
4.
IT
$31.5m
10%
$35m
11%
5/6.
Resources and mining
$10m
7%
 
 
6/5.
Sales & marketing
 
 
$19m
6%

* Asia Pacific (by percentage of net fees for year ending 30 June 2016) comprises: Australia 69%, Japan 9%, New Zealand 7%, China 6%, Singapore 4%, Hong Kong 4%, Malaysia 1%
# Using sterling/AUD exchange rate on 30 June, 2016 of £1 = AUD$1.80
Overall note re year-on-year comparisons: Exchange rate movements decreased net fees and operating profit by £16.4 million and £4.5 million respectively, primarily as a result of a material depreciation in the average rate of exchange of the major currencies to which the Group has exposure versus sterling, most notably the Australian Dollar and the Euro
 
Understandably the Hays board are pleased with the continued acceleration in global sales and profit after the relatively modest gains achieved across the 2012 – 2014 period. Especially positive was the continued year-on-year like-for-like net fee growth of 7% (2016), 9% (2015), 5% (2014) and the critical metric of Group Conversion Rate (operating profit divided by net fees) which continued its steady climb to 22.3%; up from 21.5% in 2015 and 19.4% in 2014.
 
In 2016 Germany net fees increased 13% on the 2015 result, (2016 net fees of £174m) to now rival the whole Asia Pacific region (£176m) in size, powered by 24% rise in perm fees and a 12% growth in temp and contracting margin. The consultant headcount in Germany rose 11%, pointing to significant near-to-medium term optimism about the growth opportunities in the German market.
 
Across the Channel in the UK & Ireland business was more subdued with net fees flat year-on-year but profit grew from £45.7m in 2015 to £52.1m in 2014 on the back of a 8.8% decline in consultant headcount. Ireland was the star performer of the division with net fees up 24%.
 
By specialism, Office Support delivered the best growth in the UK & Ireland (6%), followed by IT (3%) while at the other end of the spectrum, Banking sunk by 12%. The more positive news is that over the past three years, the UK and Ireland business has converted over 90% of incremental net fees into operating profits, way ahead of company historical norms.
 
Although overall Asia Pacific net fees decreased, they increased 4% on a like-for-like basis and operating profit increased 8% on a like-for-like basis. The difference between actual growth and like-for-like growth rates is primarily the result of the depreciation in the average rate of exchange between the Australian Dollar and Japanese Yen versus sterling during the year, which reduced net fees in the division by £9.4 million and operating profits by £3.4 million.
 
Other interesting snippets from the annual report include:
  • Hays has 9,214 global employees (8,237 in 2014) including 6,268 consultants, (5,357 in 2014) in 252 offices (237 in 2014) in 33 countries
  • Gender split (male/female): PLC board members 6/3, Senior Management 46/17 (73%/27%), employees 3528/5686 (38%/62%)
  • Employee engagement was 83%; a slight dip on the 84% recorded in 2015
  • IT (20%), Accountancy & Finance (15%), Construction & Property (15%), Office Support (8%) and Engineering (8%), are the largest fee earning specialisms, representing 66% of Group net fees
  • 83% of group net fees are earned from the private sector and 17% from the public sector
  • In 2016 Hays filled 220,000 temp and contract assignments and 67,000 permanent jobs
  • There were 2,800 internal promotions in 2016 and 59 international employee transfers
  • Like-for-like net fees per consultant per annum grew to £128k (AUD$230k) from £127k (AUD$228k) in 2015
  • Net debt eliminated during the year finishing the year with a net cash balance of £36.8 million, ahead of expectations 
  • In the 2016 Glassdoor Employees’ Choice Award (UK) Hays ranked second overall in the Best Places to Work, and the top rated recruiter listed.
  • Net fee growth in Australia was 5% with public sector business was up 18%, while the private sector declined by 2%. Consultant headcount in Australia & New Zealand increased by 5%
  • Net fees in New Zealand were flat
  • 4,000 days of training were delivered across the global business, “designed to make our consultants expert in their jobs and to further develop our management teams to run ever-larger businesses.”
The Hays formula for success is very simple:
 
“Hire the very best people to work for Hays, provide them with world-class training and career development opportunities, equip them with state-of-the-art technology tools to be better at their jobs than their competitors and reward them based on their performance. All our investments are designed so that our teams can better help our clients find the scarce talent they need and help millions of candidates we are connected to secure the perfect next role in their career.”
(Hays Annual Report and Financial Statements 2016, page 15)
 
While it may be a simple formula, Hays are very aware of the downside of having high performing people: the attractiveness of these high performers to competitors and the potential personal ownership ambitions of these high performers in an industry that can deliver phenomenal returns on capital investment. 
 
Key to our growth and continuing success therefore will remain our ability to hire, train, motivate and retain the best people in our industry. That’s why people risk is one of the key challenges we face. It’s why we are so focused on the global mobility of our people, moving high performers from established businesses to help grow and develop newer ones.
 
“We address the risk of losing key people through industry-leading training and development programmes, succession planning and incentive schemes. Over the years, we have invested to build the resources and infrastructure to manage these things well but we will continue to invest in upgrading this capability.”
 
(Hays Annual Report and Financial Statements 2016, page 15)
 
Hays: What an outstanding example of operational efficiency they are; only a fool would dismiss them or take them lightly.
 
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