A while ago I have written a blog on Client Value Pricing: the Client can determine the Value of products or services delivered afterwards, and decide what he wants to pay for it. Some people call it PWYW or Pay What You Want. I promised to post regular updates on how this is working out for us.
Luckily I am not the only one in our company who writes blogs about our business. Tjibbe van der Zeeuw published an article yesterday called Qhuba switches to Client Value Pricing for Executive Search, which generated some interesting comments both from internal and external colleagues. Since this piece was in Dutch, and since I am really eager to share his views and experiences, I have translated and slightly adapted it below.
Due to the influence of the Internet and social media the business models of executive search services are increasingly questioned. Why pay peppered invoices to agencies if you can tap into a network of candidates for your vacancies through channels such as LinkedIn or Twitter.
Our search practice believes that by diligently building and maintaining a network of potential candidates, by continuously gathering intelligence on customers and on the labor markets there definitely is a valuable role to be played as an external intermediary. As an agency the focus of your services shifts from organizing “recruitment” to supporting the “selection”. By maintaining a prolonged and intensive relation with candidates, who can also be or become clients or partners, you will have valuable knowledge of the intrinsic motivation of people (which cannot be distilled from their resume or CV) and of their development potential as well as of their value on the longer term. That is: the very things that you can only see and understand if you really know someone longer and better. Enriched with knowledge of labor markets, an understanding of potential career paths and the specific circumstances and challenges of the client as well as your relationship with stakeholders in the selection process the intermediary can be an advisor to both candidate and client. That is where the headhunter becomes valuable. Headhunting is a job for consulting professionals. And a pretty labor-intensive job at that. What to the client might initially perceives a “making a few calls and sending a CV” takes – behind the scenes – years of investing in relationships, following people, building dossiers, gathering intelligence and having numerous meetings and discussions. These investments can only be recovered with matches is made. The client usually sees what happens between the moment a contract with the agency is signed, and the moment a labor agreement with the candidate is signed. What happens before and after this sheds a different light on the amount on the invoice.
The challenge of the headhunter is therefore to convince the client of the value of the network he built, as well of his market knowledge and consulting skills in guiding and guarding the process with a long-term focus. The challenge of the client: to determine and decide how honest the headhunter does this. We all know the examples of recruiters saying yes to anything, indicating that the search will pose no problems, only to find out later that he overstated and overestimated his capabilities. Reputation and track record should be leading in this decision, and it should not be reduced to a discussion about the lowest rate (often expressed as a percentage of the salary the candidate will earn) or about the most flexible No Cure No Pay attitude.
This would be bad news for all parties.
The calculation model that has grown to be commonly used for these services is strange in itself. The shorter the process and the higher the salary the better the headhunter is rewarded. There is no real correlation between the outcome of this calculation and the client value of the service provided. At the moment of signing up the candidate as an employee the client cannot know what value the newly attracted resource will bring him. For the headhunter it is difficult to explain for what effort (in time, investment, and risk) he is charging the client.
The most serious drawback of the currently used methods and processes is that implicitly they lead to short-term transactional relationships between all stakeholders (employers, candidates and agents) and work solely towards a signed employment contract as an end point of the cooperation. That is recruitment as a production process, with one contract as input and another contract as output. In an optimal relationship each of the contracts poses a starting point. The No Cure No Pay principle strengthens the short-term thinking and leads to a total lack of mutual commitment.
Tjibbe, who is running our Executive Search practice, made a conscious decision three years ago to leave the corporate world of Executive Search, where recruitment is a production process, signed contracts are the products and advertising is the icing on the cake, to develop an alternative service as an intermediary between the candidate and the client. He did this because he wanted to and because he thought that role would be relevant. Sometimes he is involved in “old-fashioned” search assignments, but he also proactively introduces candidates to clients, manages the selection process, or advises senior management on whether or not they are making the right choice on a self-recruited candidate (because he knows both individuals well). He councils and coaches candidates on career changes, or HR Departments on labor market communications. In all cases it is difficult to determine beforehand what the value for client will be. Therefore, we leave it up to that to the client to determine that himself, afterwards. Based on what benefits he sees, or what cost he saves, or based on anything else that is important to him.
Now we can focus on what we do best: developing ideas, seeing opportunities for people, matching and supporting professionals in their careers. And now we do not have to engage in miserable discussions about one percent more or less of an annual salary. Whether it will actually work? Ask me in about one year. The first experiences are certainly very positive and satisfying and lead to exciting assignments such as for an investor with a vacant CEO position, who is looking for a seemingly impossible combination of a banker and an entrepreneur, or for an energy company who wants to appoint senior female managers in technical areas, or for a global Telecom enterprise who is looking for international M&A professionals with both technical, financial and commercial expertise. Challenging questions that we gladly take on because we understand the market, because we know the people and because they deserve to be successful.