AI is forcing recruitment firms to overhaul their business models

Summary

As AI automates resume sourcing and initial interviews, recruitment firms are shifting toward senior hiring and re-evaluating traditional billing models.

Recruitment companies are changing the way they work as artificial intelligence (AI) tools take over functions such as resume sourcing, background checks, skillset matching, and even conduct the first couple of rounds of candidate interviews.

The result? Staffing firms -- typically into temporary hiring -- are moving towards mandates that need candidates with complex skillsets and more years of work experience. To retain clients, some have created their own hiring tools to offer faster services to larger groups of clients, while others are outsourcing the initial phase of their hiring to AI platforms.

However, there is gnawing worry that clients will ask for a drop in billing rates as companies realize that candidate sourcing may not require as many hiring agents.

Take the case of Quess Corp. Ltd, one of the top three staffing firms in India, which has rebranded its key IT staffing vertical to IT Solutions to offer more than just plain vanilla recruitment. The company said demand for candidates with at least four years of experience has been rising.

"Our data for January-September this year, compared with the same period last year, shows that demand for professionals with 0-4 years of experience declined by 22%, while demand for those with 4-10 years increased by 14%, and for those with over 10 years rose by 40%," said Kapil Joshi, chief executive officer of Quess IT Solutions.

The recruitment sector is largely split into four broad categories of firms - those that are into gig hiring, typically in the delivery space, where one person can be employed by many companies; staffing firms; those that look only into permanent roles for clients, and executive search companies that hire CXOs. The demarcations are not stringent and many hiring firms work across these services to cater to a larger client base.

Mass recruitment

AI's impact is felt largely by those in mass recruitment because the skillset matching is basic and there may be only 2-3 interview rounds. If skillset matching, resume sourcing, interview scheduling and even the first round of candidate testing is done by AI, that leaves very little work for the HR firm.

Headhunters responsible for CXO hiring so far remain less impacted by AI because the sourcing and hiring process takes months, depending on the equation and comfort between the candidate, the headhunter and the client company. Interviews can often go 7-8 rounds as multiple stakeholders gauge the candidate.

Some startups have cropped up to take care of the entire hiring cycle with AI recruitment tools -- understanding demand, sourcing resumes, stack ranking, automated candidate reach-outs and conducting contextual AI interviews in real time. Bengaluru-based RazorSwift is one of them.

"Today, about 60% of a recruiter's tasks are administrative and this time can be used to scale services that involve more interaction with the candidate," said Aravind Sridharan, founder and CEO of RazorSwift.

The startup charges clients ₹75,000 to ₹3 lakh a month, depending on the size and scale of the enterprise.

"AI-driven interviews range between ₹500-650 for a 30-minute interview and ₹1,000 for an hour-long interview," Sridharan said.

In the six months since the commercial launch of the products, the startup has roped in six companies, including recruitment firms, that have given them the entire hiring stack.

However, not all acknowledge the swiftness in turnaround time. Kamal Karanth, co-founder of recruitment firm Xpheno, said the scale and speed at the recruiter's end may have gone up but the client still takes time to decide on candidates and the hiring cycle has not changed.

Client billing

The other concern is billing clients. According to CIEL HR Services, recruitment firms may be forced to reconsider their billing rates in a few months.

"At every step of the hiring process, AI has entered and this will impact billing models. Pricing is a reflection of the value one delivers and if AI takes up a major chunk of the work, then the billing models will change based on the value delivered," said Aditya Narayan Mishra, managing director and CEO of CIEL HR.

Recruitment firms have various billing formats. In some cases, it could be a flat fee structure, especially in case of volumes. In others, it could be a percentage of the cost to the company, depending on the seniority and complexity of the role.

Karanth said billing rates will not change because AI tools -- even if built in-house -- have a cost.

"Xpheno uses its own AI tool called Vector to source and shortlist candidates and developing it was expensive. Therefore, the billing rate remains around 12.5% because the cost of AI is built in," said the co-founder.

However, the number of recruiters needed for a project has dropped.

"Earlier, I needed 10 recruiters to service two clients. Now, I need the same number to work with five clients."