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2014-08-19 07:01:34
The social network has already shaken up the way professionals are hired. Its
ambitions go far beyond that
Aug 16th 2014 | MOUNTAIN VIEW, CALIFORNIA
A LOT of room in an office is a sign either of a blossoming company or a
shrivelling one. Happily for Frank Han, the empty space at Kenandy, a
cloud-computing company in Redwood City, a few miles south of San Francisco,
indicates the former. As manager of talent acquisition , he is busy filling
it. Since he joined Kenandy last October, Mr Han has recruited 32 of the nearly
80 staff. At some point when hiring half of them, he used LinkedIn.
LinkedIn, based a bit farther south in Mountain View, had its origins in 2002
as a network of people , says Allen Blue, one of its founders. We had in mind
a tool for ourselves, he explains, and we were entrepreneurs. People
starting a business may have a little money, but no office, no team and no big
institutions behind them. So much of what entrepreneurs need is about
interrelationships.
Since then LinkedIn has spread far beyond Silicon Valley. It is an online
contact book, curriculum vitae and publishing platform for anyone wanting to
make their way in the world of work. Its membership has almost trebled in the
past three years, to 313m (see chart 1); two-thirds of them live outside
America. Most are professionals, mainly graduates, neither at the apex of the
corporate pyramid nor at its base. It s a presence in your life that wasn t
there a few years ago, says a member who works for a firm of accountants. You
can t walk into a room without everyone having looked everyone else up on
LinkedIn.
Most members pay nothing to list details of their education and career, to be
told about jobs, to endorse each other s skills, to read recommended articles
and to be annoyed with endless requests from people wanting to connect with
them. Some pay a premium subscription for a customised profile, a bigger
photograph, and the right to send 25 e-mails a month to other members (even if
they are not connections already). Premium subscriptions bring in one-fifth of
LinkedIn s revenue, which amounted to $534m in the second quarter, 47% more
than a year before. (It reported a small net loss, largely because of a charge
for share-based compensation.)
Yet LinkedIn is more than just a means for aspiring professionals to make
friends and influence people. It has changed the market for their labour how
they find jobs and how employers find them. By bringing so many professionals
into one digital place, it has become a honeypot for folk like Mr Han. One
corporate recruiter after another calls it a game-changer .
But LinkedIn s ambitions do not end there. They are limited only by the size of
the world s labour market. Its chief executive, Jeff Weiner, envisions what he
calls a vast economic graph , connecting people seeking or starting work or
wanting more from their careers. That implies an eventual membership of 3
billion Mr Weiner s estimate of the global labour force. In other words,
LinkedIn wants to change not only the business of recruiting, but also the
operation of labour markets and, with that, the efficiency of economies.
The 60% solution
Recruiters are LinkedIn s main source of revenue. They pay for licences to
trawl for likely job candidates and to e-mail them about vacancies, as well as
for placing advertisements on the site. This business called talent solutions
accounts for about three-fifths of sales. It allows recruiters to be more
precise about the groups to search in order to find people to hire people who
attended certain universities, say. Rajesh Ahuja, the senior recruiter in
Europe and Asia at Infosys, an Indian software company, focused a recent effort
to hire 200 MBA students on graduates of several hundred colleges.
LinkedIn s main benefit to recruiters has been to make it easier to identify
people who are not looking for a new job, but who might move if the right offer
came along. These passive jobseekers, says Dan Shapero, head of sales in the
firm s talent-solutions business, make up perhaps 60% of the membership (active
jobseekers make up 25%; those who will not budge for any money make up the
rest).
LinkedIn has made it easier for companies to identify such people themselves,
rather than rely on recruitment agencies. In that sense, it represents a
challenge to the agencies. Mr Ahuja says that two years ago he used external
agencies to fill 70% of open positions in Europe. Now their share is 16%.
Steven Baert, head of human resources at Novartis, a pharmaceuticals firm, says
he hired at least 250 people through LinkedIn last year when we might have
used executive search in the past.
The agencies have not been put out of business, but they have to do more than
just compile a list of names, which in-house recruiters can now do for
themselves. Agencies will still be used in the later stages of hiring working
out who is likely to fit in, for instance. Since LinkedIn greatly increases the
number of potential candidates, there also is more sifting to be done. Some
recruiters say they are spending as much on agencies as they used to.
For the top jobs, LinkedIn is still too public. Denizens of the executive
suites often expect a discreet tap on the shoulder from a bespoke headhunting
firm. That is why Korn/Ferry, one of the biggest headhunting firms, reported
record revenues and profits last year. Even so, LinkedIn is working its way up
the greasy pole. Hubert Giraud, head of human resources at Capgemini, a French
consulting firm, reports that last year he used it in the hiring of 33 managers
in India. I don t have to pay headhunters hefty money even to reach out to
senior people, says Mr Ahuja.
Even outside the executive suite, LinkedIn is not ubiquitous. A French rival,
Viadeo, is bigger in France and China (see article) although LinkedIn launched
a site in simplified Chinese in February. In Germany recruiters are more likely
to use Xing.
LinkedIn makes planning ahead easier: firms know whom to approach before they
start a recruitment drive. When we re expanding, we ve already identified
them, says Mr Baert. It improves certain kinds of specialist recruitment
because, when trawling for scarce skills, it is better to fish in a bigger
pool. Glenn Cook, director of global staffing at Boeing, says LinkedIn is a
good source of specialised aircraft mechanics. You wouldn t necessarily think
these folks would be on LinkedIn, but they are. He reckons it is easier to
fill posts that used to be vacant for six or eight months .
It is true that LinkedIn makes it easier to lose people as well as to find
them, because they are on permanent display to competitors and headhunters. But
companies see this glass as half full, not half empty and, anyway, their
employees have joined in large numbers whether they like it or not (see chart
2). Mr Giraud says that when he ran Capgemini s business-process outsourcing
unit he encouraged all his 15,000 staff to join. I thought it would be
fantastic to have a nice profile to make sure our business partners had a clear
view of who we were.
LinkedIn also helps recruiters scour their own companies for talent: firms are
often poor at spotting what is right under their noses. Marie-Bernard Delom,
who has the task of identifying high-fliers at Orange, a French telecoms
company, is using LinkedIn for that reason. She has commissioned software that
combines LinkedIn profiles with internal data.
Companies can also see how they measure up against others trying to hire the
same people. They can do so using LinkedIn in combination with other sites such
as Glassdoor, where people anonymously rate the places where they work or have
been interviewed. Mr Shapero calls this a sales and marketing process , in
which companies treat their reputations as employers like brands. They can
track how many staff have quit to join the competition, as well as how many are
coming the other way. LinkedIn members can follow companies they do not work
for, another loose indicator of potential interest in a job: both Novartis and
Infosys boast 500,000. American tech giants have many more (see chart 3).
As LinkedIn attracts more members in more countries and industries, its data
will become richer. Put another way, the lines in Mr Weiner s graph will become
more numerous and more useful. He thinks that if you trace the connections
between workers, companies and colleges, and if you map people s jobs,
qualifications and skills and plot these against employers demands, you will
end up with a step-change improvement in information about labour markets: big
data for the world of work.
The world s labour exchange
And that, in principle, should help labour markets work more smoothly,
potentially reducing Europe s youth unemployment rate, for example; or matching
some of America s 20m underemployed with its 4.7m vacancies; or helping the
millions of Chinese expected to migrate from the countryside to cities to find
work.
Such hopes are remarkably ambitious. They amount to a gargantuan exercise in
eradicating the mismatch between the skills people have and those employers
want, or between the places jobs are on offer and those where people live.
As Mr Blue concedes, there are real barriers that we haven t even begun to
face yet. LinkedIn is only starting to reach beyond professionals, for
example. Eventually it may have even to think, as Amazon, Facebook and Google
are doing, about providing internet access in remote parts of the world; but
that is far ahead.
Still, LinkedIn is starting to do more than just find and fill professional
jobs. Undergraduates can see how many of their predecessors have ended up in
given companies or professions, to help them plot their own paths. (Those who
graduated years ago can do the same for their classmates, and laugh or weep
accordingly.)
Some companies have begun to use LinkedIn s data to help them decide where to
open new offices and factories. By looking at the skills on offer at least
among the network s members and demand for them in different parts of the
United States, LinkedIn s data scientists can identify hidden gems where
there are plenty of potentially suitable employees but little competition for
their services.
Perhaps most significant, LinkedIn has started to feel its way beyond
professionals. Since early June the number of jobs on its site has jumped from
350,000 to about 1m. As well as openings for software engineers at IBM can be
found jobs as delivery drivers for Pizza Hut or on the tills at Home Depot
which until now no one would have expected to find there. This is because
LinkedIn has added jobs from employers websites or human-resources databases
to its existing paid advertisements.
Unlike paid ads, the new ones are seen only by members who are actively seeking
jobs. The idea is being tested only in America so far. But if delivery drivers
and checkout clerks start to look for and find jobs on the site, LinkedIn will
have taken a step towards becoming a much broader job shop.
It is hard to know what its eventual effect might be. Even if Mr Weiner s grand
vision were realised, it could not cure global unemployment on its own, though
richer data ought to make a difference. In explaining high unemployment rates
in Western economies, many economists would put more weight on weak aggregate
demand than on a mismatch of location or skills.
It is even difficult to quantify the impact of LinkedIn on labour markets so
far. In theory, making it easier for people to find better jobs could affect
the rate of job turnover within firms: recruiters say they have noticed little
impact, and that other factors (such as the economic cycle) seem to matter
more. But no one really knows.
As LinkedIn s data pool deepens, its value to researchers as well as its
members and corporate customers will increase. Pian Shu, an economist at
Harvard Business School, points out that you could compare the career paths of
those who graduate in recessions with those who graduate in booms: do the
former, as you might suppose, fare worse?
Aiding academic research is not LinkedIn s priority. But its interest to
economists is a sign of how pervasive it has become. I m on there until
midnight a lot, says Mr Han, of his quest to find the right people for
Kenandy. I m hooked.