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Episode 57
249 Plays7 months ago
News for the week beginning 15 April 2024 and Question of the Week: "What has the history of diversification in the recruitment industry taught us?"
#RNA #RecruitmentNews #RecruitmentPodcast
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Transcript
Leadership changes in recruitment firms
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This is the news for the week beginning the 15th of April, 2024. I'm Ross Clennet. The long time head of IT recruiter Paxis, Jason Trevetic will leave the business at the end of April.
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Last week, Pranesh Prasad, the Australian MD of Paxis' parent company, AdCorp Australia, announced the company would invest resources to develop five new sectors. Prasad, formerly the long-term MD of Workpack, told industry news service shortly as last week he'd remove the current regional leadership roles and would hire five sector heads, as well as a head of solutions delivery and a head of people and culture. The five new sectors are financial services, emerging
00:00:48
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technology and professional services, energy and industrial, encompassing manufacturing for supply chain and transport, logistics, retail trade and wholesale trades, public sector government and life sciences and education.
International ownership and acquisitions
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Prasad told Shortlist the selection process was expected to take up to six weeks and is being facilitated by Russell Fairbanks executive recruitment company Luminary.
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Adcorp Holdings Australia is owned by the South African listed entity Adcorp Group and Paxis is the company's largest business unit. Adcorp also owns Labor Solutions Australia. In its most recent financial year for which results are available, March 2022 to 28th February 2023, Adcorp Australia posted revenue of $462 million, a 13% year on year increase.
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a gross profit of $43.3 million, up 15%, and net profit before tax and losses from discontinued operations of $5.4 million. When RNA spoke to Trevevic on Friday, he said he had enjoyed his 20 years of Paxis and was now looking to take a break and improve his golf game. Trevevic originally joined Paxis in 2004 as regional account director and was promoted to managing director in 2015.
00:02:06
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France-based Synergy Group has acquired IPA Personnel Services, effectively doubling the group's sales in Australia. The deal announced early last week will accelerate Synergy's development in Australia and is estimated to take the newly expanded group's local revenue to $190 million per atom. IPA is headquartered in Melbourne with 10 offices nationally.
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Synergy operates in 16 other countries and has been active in Australia since 2012 through its subsidiary, Cineco, which subsequently purchased the entire recruitment in 2018 and Acorn Human Resources in 2020. IPA was founded in 1984 by Paul Veith, who along with subsequent business partner, David Fowler, sold IPA to a private equity venture in 2007. At the time of the sale, IPA had over 500 staff operating from 50 offices.
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Tracy Hughes, MD of Melbourne based cyber security recruitment and consulting agency Q1 Group has announced her business has been acquired by Seisma Group, a trans Tasman IT professional services consulting firm whose existing offices are in Melbourne, Sydney, Wellington, Perth and Auckland. Q1 has 10 employees listed on LinkedIn. Information about the terms of the purchase were not made public.
00:03:26
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Last Tuesday, Sydney headquartered Employment Hero announced its acquisition of Employment Innovations, an HR advisory and payroll management business completing a full circle for the two businesses.
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Employment Hero provides employee lifecycle products covering recruitment, payroll and L&D to over 300,000 businesses. The acquisition will add managed payroll to customers in Australia, New Zealand, the UK, Singapore and Malaysia. The HR advisory service will only be available to Australia and New Zealand customers for the time being.
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Employment Innovations was founded by Rob Thompson in 1992. The company subsequently developed the foundation of what was spun off in 2013 into a new company, Employment Hero, co-owned and run by Thompson's son Ben.
Cross-national employment opportunities
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New Zealand Police are being offered a fast track to Australia's frontline as Queensland Police ramp up efforts to poach from across the Tasman. A four-page ad in a New Zealand-wide newspaper
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trumpets the fact officers transferring to the Gold Coast are able to complete an intense four-month course rather than the usual eight months of training required in New Zealand. Australian police figures from late last year showed 77 officers left New Zealand to work in Queensland and around 20 New Zealand officers were employed in the Northern Territory.
00:04:44
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New Zealand Police Minister Mark Mitchell, under pressure to fulfil the new government's promise of an extra 500 officers over the next two years, said, look, we don't want to lose our police officers. The Australians have been coming here for decades now, recruiting our police officers because they are so good. And it probably highlights the fact
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that they've got their own issues over there in terms of recruiting and retention. However, he admitted New Zealand Police's financial package could not match what was on offer in Australia. According to the New Zealand Police website, an officer in training would receive $56,000 rising to $75,000 in their first year and $83,000 in their fifth year. Constables in the Northern Territory started just over $100,000 a year and an officer with 10 years experience could expect
00:05:30
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a $118,000 base salary. There was also $20,000 for the relocation cost of new recruits and a rental allowance. Queensland offers a similar package.
Challenges facing academic institutions
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The Fair Work Ombudsman secured a total of $75,000 in penalties in court against the University of Melbourne for taking adverse action against two casual academics because they exercise workplace rights to make complaints or inquiries about their work. Under the Fair Work Act, it is unlawful for an employer to take adverse action against a person because a person exercises a workplace right or to prevent them from doing so.
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Australia's federal court imposed $37,000 in penalties after the university threatened to not re-employ the two casual academics in the Melbourne Graduate School of Education because they made complaints about being required to work more hours without more payment than their anticipated hours per subject in their contracts.
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The court imposed a further $37,000 penalty after the university offered no further teaching work to one of the casual academics after she made a complaint or inquiry to the university by claiming payment for extra work. In imposing the penalties, Justice Craig Dowling said the casual academics were entitled to complain or inquire about their ability to perform their work within the anticipated hours contained in their contracts of employment. Those complaints should have been free of consequence.
Impact of AI on recruitment
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Artificial intelligence is forecast to significantly impact the existing workforces of organisations, according to a survey of business leaders by Adeco. The survey found 41% of business leaders believe they will employ fewer people in five years' time because of AI. Adeco surveyed 2,000 business leaders across the US, Canada, the UK, Germany, France, Spain, Singapore, Australia and Japan.
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With respect to recruitment, 66% of leaders expect to bring in AI skilled talent from outside their organization, while just 34% plan to develop their existing workforce, and only 46% of leaders plan to redeploy their employees who lose their job because of AI.
Recruitment policy adaptations
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Royal Navy applicants in the UK will no longer have to prove they can swim before joining, with experts warning it is a desperate attempt to fix the recruitment crisis. Recruits were previously required to pass a 30-minute swim test to join the Navy, with the ability to swim being a basic level entry requirement for the force. But since a drastic fall in applications was reported last year, the Navy has sought to remove barriers to entry to encourage a wider pool of recruits.
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UK Defence Secretary Grant Shapps claimed in February the situation was improving with applications now at an eight-year high. Eradicating the need to pass a basic swimming test however has been described as a step too far and a true sign of desperation on the part of the recruiters.
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Under the new recruitment scheme, the source said applicants will be able to self-declare that they can swim. If it transpires that they are not able to pass the Royal Navy swim test, they will remain in phase one basic training while they receive swimming lessons.
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While this means that no recruit can be fully qualified as a member of the Royal Navy without being able to complete the now scrapped 30-minute swim test, a source said such a move forces the taxpayer to pay for service personnel while they train instead of ensuring the recruit simply learns in their own time.
Counter offers and market trends
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58% of employers reported an increase in the number of candidates accepting counter offers instead of moving forward in a new role, according to a new survey by Robert Half Australia. The survey of 500 hiring managers and 1,000 office workers across Australia also found that only 20% of employers believe that counter offers are a good way to retain employees in the long term.
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In response to the results, Robert Half Australia director Nicole Gorton said, rather than relying on reactive counter offers, companies should proactively address their retention policies to ensure their teams feel heard, valued and are therefore less receptive to offers from competitors. And that's your news up to date for we commencing the 15th of April 2024. I'm Adele Last.
Risks of diversification in recruitment
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Question of the week this week has been prompted by our lead article about AdCorp's notice of diversification, announcement around diversification of their business. And I want to ask you, Ross, what has the history of recruitment diversification taught us? It's taught us that it's very difficult
00:10:16
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to diversify, grow and grow profitably. And I would enter as the evidence to support my case.
00:10:28
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Future You, they attempted to grow very quickly and they had, I think, something like 10 to 12 specialisms they were attempting to build out in a very short period of time. They hired a lot of people, they burnt millions of dollars in cash, and they're now, I think, fewer than 20 recruiters and pretty much a very low key player. You look at the history of candle.
00:10:55
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Many people listening to this will go, whose candle? Well, candle became Clarius that became Ignite. And for the older listeners, they will remember candle as one of the premium IT recruitment businesses in Australia in the 1990s and early 2000s. So good that they were
00:11:16
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an IPO business. So they finished up being publicly listed on the Australian Stock Exchange. And then unfortunately, they went on a diversification path and they bought a number of existing businesses in very different areas of recruitment.
00:11:32
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Office support, accounting, library recruitment, whole range of areas. And those businesses proved to be a massive distraction. And Ignite, as it is now known, is just a shadow of its former business. And certainly in terms of an IT recruiter, Ignite's just really a footnote in terms of the current recruitment market. Rugacore, another example.
00:11:59
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tempted to be a very diverse recruitment business and didn't succeed. And if you look at the businesses that are excellent examples of strong growth and strong profit talent,
00:12:13
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significant IT recruiter resisted the temptation to diversify and they've stuck to IT recruitment and they've grown their business above a billion dollars per annum in sales, they're producing profits and they've grown into overseas markets, the US and Europe. So I think what people are underestimating perhaps is that it's more like starting a new business than they realise. They think diversification is just a sideways growth
00:12:42
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plan, but you have to really address it more like it starting a new business, correct? Definitely. Without any doubt, there are
00:12:53
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Well, let's just use the AdCorp Australia example. They are saying they're into five new markets, although what they've defined as five markets, personally, I think are more like 10 markets. And there's going to be a head of each of those markets. And those heads, I can't imagine, are going to be doing the business development and filling jobs themselves. So those heads are going to be hiring teams of
00:13:18
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Well, at the very least two or three people, but I'm imagining five or six. So what sort of salary cost do you think that is a deal for each of those sectors? How much do you reckon that's going to cost per annum? Well, attracting experienced people in this market is expensive. It's got to be between half a million, three quarters of a million dollars just in salaries.
00:13:40
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I would have thought, I mean, potentially up to a million dollars, depending upon the caliber of person and assuming that they're going, and I'd imagine they're going for a pretty significantly experienced and capable person, that just that head of package is surely going to be quarter of a million dollars or close to. So salaries are a big ticket item there, not to mention the other difficulties around
00:14:10
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these kind of sectors requiring, you know, panel arrangements, you know, that one of those sectors was mentioned by a corporate government, you know, navigating getting on to to tender panels and navigating the work that you can get from those for anyone listening will know that that's really complex, as well as the fact that some of these sectors are really high compliance sectors. Education is mentioned there. So, you know,
00:14:35
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you don't enter into those sectors lightly. Yeah. And building a network in them again, you know, all of these things take time. Again, like I say, just like starting a new business, you would approach it in the same way as you need to to start a new business. And I think perhaps that's the sleeper people are not thinking about when they're thinking about just moving, as I said, what seems like a bit of a sideways, we're just going to grow wider, doing the same thing. We're already doing it so well now, why can't we diversify into other areas?
00:15:04
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So what if people are listening and thinking about that? What if there are agency owners listening today saying, that's exactly what I'm thinking, Russ and Adele. I'm thinking I'm doing one area really well in order to grow my business. I want to diversify into other areas. What are the things I need to be wary of? Well, the first thing they need to think about is what don't I know? Because yes, it's easy to say, oh, recruitment's recruitment, but actually it's not.
00:15:34
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because some sectors are perm dominated. So what I mean by that is in terms of where the money is for recruitment agencies, some sectors are perm dominated, and others are very much on higher labour dominated. So let's look at education, for example. So of course, there's a lot of permanent recruitment that goes on for teachers and heads of departments and principals and so on. And yes,
00:16:02
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recruitment agencies get involved in that. But overwhelmingly, schools and other tertiary institutions, they want to do that recruitment themselves. It's the on higher side, it's the casual relief teacher aspect is where recruitment agencies do a much better job than schools do themselves. And if you look at the large
00:16:26
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teacher recruitment businesses in this country, probably in any country, they have grown because they're great at placing casual relief teachers, but that's high compliance as well as high volume. So if you're placing casual relief teachers, you start work at 6 a.m.
00:16:45
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There's one of my mates owns a teacher recruitment business. They have, I think he said 21 or 22 checks that they have to complete on every single teacher before they can put that teacher forward to a job at a school. So if you're someone who's been in accounting or officer support recruitment, you have no idea about that.
00:17:05
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You had no idea. Can you imagine asking an office support recruiter, you got to start at 6am or start getting an accounting recruiter around or thinking about the amount of compliance required to background check a teacher. Like these are very different types of recruitment businesses. And if you're an owner and think they're broadly the same, well, I'm sorry, you're deluded or naive. And there's other factors you mentioned that, you know, contract type work comes with
00:17:35
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cash flow issues, right, payroll funding, you need to be able to pay out the wages to those candidates without the money coming in from your, from your client for some weeks, sometimes months. So, you know, there's those risks, safety risks, a lot of these other categories that we're talking about. I mean, that's, that's, that's something you'd know about much, much more than me. Certainly blue collar sectors, certainly healthcare, you know, there are many sectors that are
00:18:04
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appearing to be very attractive at the moment because they're humming, because there's work going on, there's activity that agency owners are looking as the next shiny thing, but they carry with them a whole range of risk that I really hope people are unpacking and really delving into to make sure that they're aware of what they're actually either growing into or buying into. Is it easier, Ross, maybe just to buy another business in that sector?
00:18:30
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At least then you've got established clients, candidates, a business model, and there's expertise within that business that you're buying, but clearly that's pretty expensive as well. Sourcing candidates, like if you're in healthcare recruitment,
00:18:48
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Predominantly, well, of course, they're sourcing a lot of people locally, but there's a lot of international recruitment involved. So again, if you're an office support or accounting recruiter, you're not really getting involved in international recruitment. But if you're in healthcare,
00:19:08
Speaker
Often you are, and that's expected to be an expertise that you can offer when you go out and pitch to a new client. And again, these are things that on the surface, many recruitment agency owners thinking about diversification just don't truly understand the costs of. So bringing it back to the original question then, what has history taught us? What valuable lesson should we learn from those examples that you've spoken about
00:19:38
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this conversation we've had around some of the risks and pitfalls. What's the final message? Well, to Rocky Road Adele, it's high risk. History shows us in this country, it is very risky. Most recruitment agencies that attempt diversification do not do it successfully. They finish up burning a lot of cash. And of course, the other aspect is you risk burning the cash cow.
00:20:07
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You risk burning the business that's already successful, that's already producing money for you, and the moment you diversify as an owner, you are then trying to get your new baby off the ground, and you're naturally going to be distracted from your core business. And that often is where the seeds are sown.
00:20:29
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in terms of the long term demise of the value of the whole business. And that's where I fear AdCorp Australia is trading. We'll have to wait and see. Watch for more results, I suppose. Well, ultimately, as has always been the case, Adele, history will demonstrate very clearly whether it's a good move or not a good move.
00:20:58
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