As firms cut cost, recruiters get the short shrift
August 16, 2008,
Priyanka Golikeri/ DNA MONEY

When the going gets tough, the human resource (HR) manager in a company is the first to be summoned by the CEO. At a time when the economic conditions seem to be dillydallying, HR bosses are going all out to rationalise and cut costs wherever and in whichever way seems possible. Strategies like going slow on new hirings, taking in more freshers as opposed to experienced hands, changing the pay structure in favour of the variable pay, giving lesser increments, ejecting non-performers, etc have been done aplenty in companies belonging to sectors ranging from IT to insurance and financial services.

One methodology fast making inroads into corporate corridors are novel channels of recruitment —- meaning, recruitment consultants are losing primacy. Options such as employee referrals, campus hiring, networking sites, portals, etc are gaining more and more credibility, says Umesh Rateja, vice president-HR at insurance firm Tata AIG. These 'alternate sources of hirings' — which mean recruiting through non-consultants, help in bringing down the recruitment costs drastically, say experts.

"Every HR manager seems to be reducing recruitment costs, and the easiest way to do this is by bringing down the role of, or by doing away with, consultants," says Shiv Agarwal, chief executive officer of ABC Consultants.

Ajoyendra Mukherjee, vice president and head-global HR at IT major Tata Consultancy Services (TCS), agrees alternate sources of hirings is the key driver in the reduction in cost of new hires.

Sandeep Dayal, head-human resources at Citigroup Global Services, which recruits between 5,000-6,000 people annually in India, says: "We are relying more on low cost, high efficiency methods of recruitment, including employee referrals." When recruiting through consultants, hiring cost per employee could range anywhere from 12% to as much as 16% of the cost to company (CTC) of that individual. It could also go to the extent of 20% of the CTC in case of people at the senior levels, say some.

Says Elango R, chief HR officer at MphasiS, which is recruiting over 7,500 people this year, "Recruitments through referrals, sites, portals, etc. come 20% cheaper than through consultants," he said, adding that earlier, MphasiS would recruit over 50% through consultants. "Now the figure of recruits through consultants stands at 30%."

Ganesh Shermon from the human capital advisory services at KPMG, the business advisory firm, says over 80% of recruitments are done through the non-consultant route. "Two-thirds of new recruitments are happening through referrals," he said. At TCS, which is hiring about 30,000-35,000 people this year, about 60% would be hired directly through the campuses. Industry experts said referrals are advantageous as retention is at least 10% higher than through consultants.

"This is so as the trust levels are higher and you get a known product-the employee who is referring someone knows the capabilities of that person," says Rateja from Tata AIG, which makes about 800-1,000 additions to its employee based every month.

However, although consultants come expensive, chances of getting the right fit are higher and quicker, says ABC's Agarwal. "Especially when recruiting people at senior levels, companies need to rely on consultants, as they have a professional approach and huge network bases," he said.

Rateja says when making entry into new geographies and during large-scale recruitments, consultants prove handy. "But as an ongoing recruitment process, we hire through other methods."