Social networks make the staffing ‘middleman’ obsolete

The larger the company, the more likely it is to use staffing services, according to various surveys. In ASA’s 2006 staffing customer poll, 12% of companies with 25 to 99 employees used staffing services, compared with 24% of companies with 100 or more employees. There are many plausible explanations for the fact that employers tap into staffing agencies when it comes to hiring IT contingent workers, for instance the fact that staffing agencies provide services related to recruiting like background screening or payrolling. The core reason though for explaining the heavy reliance on agencies is the fact that traditional (pre-Web 2.0) relationships between individuals have been built on two main pillars:

• Direct or indirect contact through business or personal relationships
• Random encounters in a physical location
  

With the advent of social networking via the web, the first pillar has been further expanded through the use of more communication media (e.g. instead of only phone or email, people can now be brought in contact through blogs, LinkedIn profiles or shared interest groups). The second pillar is now on the road to extinction, as virtual encounters are poised to make the casual meeting in the airport or at a seminar a thing of the past. For example, in a matter of hours my connections in LinkedIn can show exponential growth and jump from 30 to 4,000 by simply following a trail of contacts and sending requests to join my network at a constant rate.

So where does this leave the ‘middleman’, i.e. the traditional staffing agencies that function as the brokers of connections, making the contact between employer and IT contractor happen and then quickly removing themselves from the relationship (at a premium cost)? If you ask me, I’d say: in the path of destruction that Web 2.0 is wreaking, and rightly so.

Employers and IT contractors can both benefit from this paradigm shift, as they can find one another in a variety of ways now and not let themselves be constrained by the contacts monopoly that staffing agencies have been exercising.

Two examples of companies that have identified this radical change are Blue Chip Expert and Protallian. Both offer social networking capabilities geared towards employment, and both thrive on the concept of referrals.

By allowing contractors to refer other contractors, Protallian creates a source of talent that employers can tap into without the added cost of staffing agency searches. Similarly, Blue Chip Expert encourages individuals to earn referral fees by promoting their connections to employers for top jobs like Director and CFO. That’s the effect that social networking can have on established business models, potentially making staffing agencies the ‘typewriters of the 21st century’ (i.e. museum exhibits).

When I return to this blog I will elaborate on the relationships between employers and independent IT contractors, using the concept of a Nash Equilibrium. Stay tuned for more insights into the changing balance of independent employment…