1. Talent Shortages: A Two-Sided Problem

If you read our recruitment industry trends report for 2025, it’s no secret that talent shortages remain one of the most pressing issues facing the global workforce today. But for recruitment agencies, this challenge is twofold — affecting both their ability to serve clients and their capacity to grow and retain their teams.

On the client side, companies are under immense pressure to fill technical, specialist, and leadership roles in markets where qualified candidates are increasingly scarce. The combination of Brexit, tightening immigration policies, and ongoing skill shortages across key sectors like engineering, IT, construction, and healthcare continues to limit supply. According to a recent study, 77% of employers globally report difficulty filling roles — the highest figure in 17 years of tracking.

As a result, there is increasing pressure on recruitment consultants to deliver faster, with higher accuracy, and to outperform competitors. Lead times are shrinking, job specifications are tightening, and expectations from clients are rising — even as the candidate pool narrows.

But the challenge doesn't stop there. On the agency side, recruitment firms themselves are struggling to attract and retain experienced consultants. Teams are often under-resourced, over-stretched, and at risk of burnout. Despite the pandemic accelerating flexible work expectations, many agencies remain rooted in traditional models: in-office presence, target-heavy KPIs, and cultures that reward short-term billing over sustainable performance.

Another study in 2023 revealed that 60% of recruitment professionals feel their company hasn’t modernised enough to attract the next generation of talent, and that rigid processes and outdated management styles are among the top reasons consultants leave their roles. Similarly, LinkedIn’s Global Talent Trends Report highlights that flexibility, work-life balance, and purpose-led work are now key drivers in career decisions — especially among millennial and Gen Z professionals.

Despite these shifts, many recruitment firms continue to operate in ways that no longer align with the expectations of modern consultants. This disconnect can result in high turnover, limited engagement, and difficulty scaling teams — even in high-performing firms.

The irony is that recruitment agencies, whose business is built on matching talent with opportunity, are now facing the same internal issues their clients are grappling with externally. And unless addressed head-on, this dual challenge may undermine the very growth they're aiming to achieve.

2. Inherited Models That No Longer Serve

One of the more revealing patterns in our study was how many SME recruitment agencies are built on operational blueprints inherited from earlier career experiences—often rooted in traditional, large-agency environments. For many founders, these models were what they knew and what had previously driven results. But what worked then doesn’t always work now.

These inherited frameworks tend to emphasise volume-based activity, rigid KPIs, hierarchical structures, and manual admin-heavy workflows. While they may have once aligned with the transactional, desk-based recruitment of the 2000s, they are increasingly misaligned with the demands of today's market and workforce.

Instead of enabling growth, these legacy models often constrain it. Non-integrated systems, duplicated admin, and outdated communication channels burden consultants. Many firms still rely on a patchwork of spreadsheets, legacy CRMs, and email-based processes—none of which provide the agility or insight modern recruitment operations require. In these environments, consultant performance tends to be managed reactively rather than proactively, with leaders responding to problems rather than predicting and preventing them.

This challenge isn’t one of effort—it’s one of bandwidth and perspective. Many founders and senior leaders remain embedded in day-to-day delivery, leaving little time or headspace to assess and redesign their operational systems. Without a strategic pause to evaluate how workflows, systems, and structures are actually performing, inefficiencies go unchecked.

According to a recent study by McKinsey, organisations that redesign their operating models to prioritise agility and cross-functional collaboration see a 20%–30% improvement in productivity and employee engagement. Yet in recruitment SMEs, the tendency to "do what we’ve always done" remains a powerful blocker.

Additional research from APSCo notes that recruitment firms with highly standardised, inflexible processes are significantly slower to scale and less likely to retain consultants beyond their first 18 months. In contrast, firms that invest in simplification, tech integration, and continuous feedback loops outperform in both growth and retention.

The cultural legacy is equally important. Many inherited models foster a competitive, individualistic culture—where billings matter more than collaboration, and short-term wins outweigh long-term capability building. This environment often discourages knowledge sharing, innovation, and team-led improvement. Over time, this not only erodes performance but also makes it harder to onboard, develop, and retain talent in a sustainable way.

To thrive in today’s market, recruitment SMEs must move beyond the operational hand-me-downs of yesterday’s firms. That means actively redesigning their business around the realities of today: leaner teams, hybrid work, client expectations for speed and transparency, and consultant demands for autonomy and purpose. It’s not about starting from scratch—it’s about being intentional about what to keep, what to drop, and what to evolve.

3. The Slow Pace of Technology Adoption

Despite the rapid evolution of recruitment technology—ranging from AI-driven sourcing tools to automated interview scheduling, smart CRMs, and candidate nurturing platforms—most recruitment SMEs are still lagging behind in their adoption and implementation of these tools.

In our study, we found that while awareness of technology is generally high, meaningful adoption is often limited. For many firms, digital transformation has been partial, disjointed, or stalled entirely. Spreadsheets remain commonplace for tracking candidate pipelines, while key information is spread across unconnected systems, leading to duplication, delays, and decision-making blind spots.

Even among firms that have invested in technology, there’s often a failure to embed these tools fully into the day-to-day flow of work. CRMs and ATS systems are underutilised. Automation tools sit idle. And in some cases, systems are introduced without proper onboarding, training, or workflow redesign—resulting in consultant frustration rather than efficiency.

What’s particularly interesting is the mindset behind this pattern. Many leaders acknowledge the benefits of modern tools but hesitate to act—largely due to fears of disruption, concerns about cost, and lack of time to properly manage the transition. For agency owners focused on immediate delivery and billing targets, technology implementation can feel like a risky distraction rather than a strategic investment.

This hesitation, while understandable, comes at a significant long-term cost. Manual admin, data silos, and inconsistent processes don't just slow things down—they make it harder to onboard new consultants, track performance, forecast revenue, and scale operations with confidence.

A 2023 report from Bullhorn highlights this growing divide. While over 60% of recruitment firms say they plan to invest in automation, fewer than 30% report successful implementation. This gap between aspiration and execution is especially prominent among smaller firms, where change management resources are limited.

LinkedIn’s Future of Recruiting report (2023) reinforces this trend, noting that technology and data fluency are now key differentiators among high-performing agencies. Firms that embrace intelligent automation and invest in integrated systems are reporting better candidate engagement, shorter time-to-fill, and improved consultant productivity.

Yet the perception that technology is an add-on, rather than a core enabler, remains deeply embedded in many recruitment SMEs. Too often, tech is treated as a one-time purchase rather than a living system that needs continuous optimisation and team alignment.

To move forward, agencies need to shift the conversation from tools to outcomes. The goal isn’t simply to “go digital” but to build operational models that reduce friction, enhance consultant performance, and allow leaders to make more informed strategic decisions. This requires time, yes—but also clarity of vision, leadership buy-in, and a culture open to change.

4. Leadership Constraints Are Capping Growth

One of the most consistent—and perhaps most human—themes to emerge from our research was the role of leadership as a limiting factor in growth, not through lack of effort or capability, but through a structural and strategic gap that many recruitment firms struggle to fill.

In most of the firms we studied, founders and directors had risen through the ranks as recruiters. Their strengths lay in business development, delivery, and team management—skills honed on the frontlines of agency life. But few had received formal leadership training, strategic coaching, or mentoring in areas such as business planning, financial forecasting, innovation management, or change leadership.

As a result, leadership within many SME recruitment firms tends to be operational rather than strategic. Leaders are heavily involved in delivery, client management, or fire-fighting internal issues. They invest their time in the business, not in it. The day-to-day often takes priority over the big picture, which means decisions are reactive, and long-term planning is either informal or absent altogether.

Only one agency in our study reported having a formal, documented long-term strategy. For the rest, growth was largely intuitive, driven by gut feel, industry contacts, or short-term wins. While this approach may work in the early years, it becomes increasingly fragile as headcount grows, client demands shift, and margins tighten.

This lack of strategic structure creates several knock-on effects:

• Resource allocation becomes short-term and inconsistent, often driven by immediate client demand rather than longer-term goals.
• Internal development is under-prioritised, with little investment in management training, succession planning, or capability building.
• New initiatives stall quickly, as they compete with delivery-focused KPIs and billing targets.
• And perhaps most critically, leaders become bottlenecks—unable to delegate confidently or step back because systems and trust structures haven’t been built beneath them.

The data backs this up. According to a 2023 report by Harvard Business Review, companies with well-defined leadership development strategies are 1.5x more likely to be high performers in terms of growth, profitability, and employee engagement. Yet in the recruitment industry, leadership development often takes a back seat to commercial output.

This is especially risky in a sector where people are the product. When leadership is stretched, fragmented, or informal, the ripple effect is felt across culture, delivery, and ultimately, client satisfaction.

What’s needed is not just more time but a shift in mindset: from founder-led hustle to structured, scalable leadership. From firefighting to future-proofing. That means carving out space for reflection, seeking external input, and creating processes that make leadership replicable—not reliant on one or two individuals holding the business together.

Importantly, this isn’t about replacing entrepreneurial energy. It’s about augmenting it with structure, insight, and long-term focus—so that recruitment firms can evolve from being founder-dependent businesses to future-ready organisations.

What This Means for the Recruitment Industry

None of these findings are intended to point fingers. In fact, many of the agencies we spoke to—and many more across the industry—are delivering remarkable results under immense pressure. They are navigating uncertain markets, demanding clients, and ongoing talent shortages, often with lean teams and limited infrastructure.

But while individual successes abound, the industry-wide patterns are harder to ignore. The recurring challenges of leadership overload, slow technology adoption, legacy processes, and internal talent retention all point to a structural tension that can no longer be explained away as growing pains. These aren’t isolated issues—they are signals of an industry in transition.

The question is no longer whether recruitment firms need to change but how they will change—and how fast.

To remain competitive, scalable, and sustainable, recruitment SMEs need to rethink how they operate, grow, and lead. The change doesn’t mean abandoning the fundamentals of relationship-driven recruitment—those human connections remain at the heart of what makes the industry successful. But it does require evolving the way those relationships are enabled, managed, and supported.

That evolution starts with a few critical shifts:

• Smarter systems: To reduce manual admin, eliminate duplication, and free up time for consultants to focus on higher-value work. Integrated, automated platforms are no longer optional—they are foundational to productivity and scalability.
• Modern leadership: That blends commercial drive with emotional intelligence, self-awareness, and strategic thinking. Leadership must evolve from reactive management to proactive growth facilitation, with clearer delegation, succession planning, and team empowerment.
• Flexible structures: That support hybrid working, attract a broader range of talent, and promote autonomy and accountability. The agencies that embrace adaptability will be the ones who retain and develop the next generation of recruiters.
• Strategic planning: That moves beyond survival mode and begins turning ambition into executable action. This means setting long-term goals, making informed investments, and creating the space to reflect, review, and course-correct.

As Recruiter Magazine recently noted, “The firms that adapt fastest to tech-led change while still prioritising human leadership are the ones that thrive.” Our research supports that view. The future of recruitment won’t be built on hustle alone—it will be shaped by firms that have the courage to lead differently, think longer-term, and build from the inside out.

The good news? Change is not only possible—it’s already happening. And with the right support, tools, and mindset, even the most time-strapped agencies can begin to move from reactive to resilient.

How Kaezn Can Help

At Kaezn, we work with recruitment leaders who know their business can do more—but don’t always have the time, headspace, or support to make it happen.

Whether it's refining your strategy, modernising internal processes, developing leadership capability, or building systems that scale with your team, our role is to provide practical, grounded support that fits the way you work.

We don’t believe in off-the-shelf solutions. Instead, we take the time to understand what’s working, what’s slowing things down, and where the real opportunities for growth lie. From hands-on operational reviews to leadership coaching and change implementation, we help agencies unlock performance without losing what makes them unique.

If any of the challenges in this article feel familiar—and you’re ready to take a more intentional approach to growth—we’d love to have a conversation.