Goodbye to all that

Hiring the right staff is often a lottery that relies on the experience and intuition of the recruitment professional. But Laurence Collins and his team could be about to change all that. Andrew Chilvers reports.

Finding the right person for the right job has spawned a multi-billion pound global industry – and which increased 10% in the 12 months to February this year.

Moreover, the UK is the focus of the executive search industry in Europe accounting for 29% of the total market share of European searches for the same period. The financial sector alone captured the largest share in number of searches for Q1 2007 with 24% of the market, according to recent research results.

Meanwhile, a raft of recruitment businesses have listed on the UK public markets, and large and mid-sized corporates have also been beefing up their human resources capability. Nevertheless, an executive hire remains a conundrum for most firms, an expensive lottery that largely relies on the raw talent of the recruitment agent or HR specialist to get the right result.

One management team that believes it has the answers to the HR enigma is the board of activ8 intelligence, a recruitment technology business that has developed a hi-tech approach to finding staff. The idea is to use an analytical tool – called a8i Recruitment – that provides a profile of an individual and compares the information with data about high performers in the same job. The software then monitors the impact of training and helps to predict the future development of staffing in particular roles. The theory is that over time jobs and job seekers become designed for each other, which cuts out the potential for bad hiring decisions.

Managing director Laurence Collins and his colleagues have spent the past two years developing their “intelligent” software and are now taking it to market. To help achieve this, activ8 has attracted top technical and commercial staffers and has brought in Paul Gratton, former CEO of Internet bank Egg, as non-executive chairman to add some extra gravitas to the project.

The company has also secured almost £1 million in funding and its product has recently received critical acclaim from Legal & General. The insurance giant was the first big company to trial the technology successfully and recently forecast £10 million in savings during the next three years as a result of its findings.

Collins admits it’s not a bad start for a business that had only four staff 18 months ago and relied for funds on the assets of the management team – that’s savings and mortgages – and any surplus off the balance sheet, mainly through long-term client work. In that time the management team has been in no doubt about the efficacy of the software, but for 35-year-old Collins the turning point that helped push the project to the next crucial phase was winning a competition for business start-ups. He modestly sends up the event as “Dragon’s Den meets the X-Factor”, but winners can afford to be coy about success.

“When we started looking at different types of business funding, our first port of call was the Web,” Collins says. “We wanted to see how other businesses had dealt with that process. We were aware of different types of funding mechanisms and the different suitors to approach, but we wanted to try to see how we could calibrate the level of investment we required.

“We wanted to look closely at the risks associated with that, was it possible to develop a funding strategy that reduced the risk for us, the founders?”

The team used an online profiling tool called the gauntlet challenge that asked questions based on experience. Following this, Collins received a self-help report that highlighted the gap analysis of the company’s aspirations and its position as a growing concern. For the team it was an invaluable lesson in finding out the criteria that venture capitalists and banks use to assess different funding options for start-up firms.

While using the profiling tool, serendipity then played its part in helping activ8 to achieve its financing strategy. Collins took a phone call from regional funding body Connect Midlands – backed by Catapult Venture Managers, venture capitalist Midven and public sector agency Advantage West Midlands – which launched the Connect £1 million Investment Challenge in July last year.

Collins: “Connect had affiliated with the Website tool and had been trying to attract early stage businesses into the competition to win the investment prize. I was sceptical to begin with. But we soon realised that with the checklists these people put us through and the disciplines it imposed on us, it was right for the business at that stage.”

These checklists included understanding the forecasts and projections of the business, the strength of the market proposition and what the future business strategy looked like. Judges were also looking for the size and scale of the market opportunity that activ8 was aiming for.

Jumping through so many hoops quickly helped the team to focus on what they wanted. Collins: “All the things that had happened in the first two years, such as experimenting with technology, was suddenly a truncated into a strong picture of what this proposition needed to be to maximise the rate of growth going forward.”

Following this initial period of investigation, activ8 was then put into the competition, which involved a series of challenges such as panel discussions and conferences explaining the product to 250 people. Some 360 companies entered the event and these were whittled down to 12 for the final. activ8 then won the final heat.

“The kudos and credibility of going through such a rigorous selection process and then winning meant that a lot of the due diligence that a potential VC would go through had already taken shape.

“We were quickly ushered into a series of meetings with potential backers, shown what they could offer and how they would want to work. It opened a lot of doors.”

Collins and his colleagues eventually selected Catapult, which had shown a keen interest in the product from day one.

Collins: “Artificial intelligence in HR is not something you can go out and speak to hundreds of people about. It’s embryonic, it’s new and a little bit edgy. For us Catapult demonstrated a belief in the product, access to credible management advice and reflected a fair evaluation of where the business was.

“At the time, we needed to think about what level of funding would be required to deliver some of the plans. We needed to get the balance right between equity and debt-based finance. So we were able to come up with a deal that also involved a level of debt financing and the rest of it equity based.”

With 25% of debt provided by the Royal Bank of Scotland and individuals in the management team adding their own investment, the funding deal came to £900,000. For the first two years, activ8’s turnover had been close to £1 million and with the funding now in place Collins predicts this will increase “tenfold” during the next few years.

This expansion, along with the capital injection, will ultimately help Collins and the team to achieve what he refers to as the business roadmap. This is the strategy that will continue the development of the intelligent software from an in-house creation to a marketable product. Above all, for the roadmap to succeed, the key is to make the brand appreciated and accepted in the marketplace.

Collins: “So we’re having to shake the market to some extent. But on the plus side we have an advantage because no one else is doing it. We’re ahead of the curve in terms of knowledge and understanding. We’re looking to build a marketing engine that will help that reputation to take root and grow – and that will support us through the further stages of the business model.

“That has also helped us go out into the market and attract further talent that we need.”

That talent includes the recent arrival of Paul Gratton as company chairman, which Collins believes will add “extra horsepower” to the growth of the business. With his financial acumen and background as a respected entrepreneur, Gratton’s name will inevitably open doors as Activ8 seeks to position itself in the larger corporate space.

Collins: “With Paul we made a direct approach. We were looking for a chairman who would have an appreciation of the technology side of the business. Within the first hour of meeting it was clear we had a shared vision of the commercial opportunities. It made a really good fit. Paul was keen to come on board and has added a lot of value even at this short time.

“You mention Paul’s name in the market and you get an instant recognition. For small businesses that’s so difficult to achieve. With our business we’re targeting larger corporates and they need some level of security. Paul has allowed that to happen.”

Since winning the award, Collins and his team have started to approach larger blue chip organisations that have a recruitment drive involving large numbers of people across a range of roles. Filling these positions can often be difficult as a result of high staff turnover, time to fill the vacancy, quality of candidates and length of time getting the successful ones up to speed.

“We profile those candidates so reducing the risk of making a poor hiring decision and increasing the likely return of the people you do bring in. In a sense that they will be more committed, be more likely to stay longer, more productive and a better cultural fit. There’s nothing else in the market like it.”

This technological approach to hiring staff was trialled at Legal & General and the results confirmed all the elements built into activ8’s software programme. When working with the insurance company, Collins and his team found that, according to the intelligent software criteria, only three out of seven hires at Legal & General were suitable when matched against the ideal profile. They found that the recruitment process lacked consistency across different locations and there was an overall inconsistent application of psychometric assessments that hindered good hiring.

activ8 then revamped the recruitment process for Legal & General to help shape the hiring decisions. The result has been a successful hire rate increase to 80% from 43% and cost savings and efficiency improvements of some £10 million over three years.

Collins: “What our technology does with the collection of data at each key stage of the process is present a profile of weighted strength for each of those individual elements that can deliver a desired outcome. In the world of recruitment that is a candidate who is going on to be a good performer and stay long enough to get a return on investment.

“That has never been achieved before. It’s always been very subjective and you rely on the intuition of experienced individuals. Where we’re going, some of that risk can be replaced by very smart analytic technologies that provide that level of judgement for you that you’re unlikely to see in the average line manager. It’s a safety net, but also a massive value creation tool.”

While the activ8 management team, Gratton and Graham Mold, director of Catapult, agree that the company’s intelligent software tool will take the recruitment and HR industry on to a new level. Collins, meanwhile, has plans to go even further. He believes the product could have a key role in deal making and will be used during acquisitions as a tool to help smooth through integration issues. Also, private equity firms will use it when looking at the management teams of potential targets.

Above all, Collins believes he’s only just starting to understand the potential that can be unlocked with intelligent software programme.