From Headhunters To Culture Vultures

June 13, 2015 – June 13, 2015 — In the aftermath of the financial crisis, companies were too busy trying to survive to do much recruiting, so they cut back sharply on their use of executive-search firms. When Korn Ferry, the biggest “headhunter”, announced its results for the year to April 2009, it seemed to be in trouble: annual revenues were down by 20%, to $676m, and it declared a net loss of $10m. But as The Economist went to press on June 11th, the firm was expected to report that it had become the first in its industry with annual revenues above $1 billion, with net income in the past year of around $85m.

Like its competitors, Korn Ferry has been buoyed by the stronger American economy. According to Hunt Scanlon Media, a trade publisher, the industry’s revenues in America rose by 11% last year. Its core business faces fierce headwinds, however. LinkedIn and other career-networking websites are making it easier for companies to do their own recruiting: JPMorgan Chase now has almost 500 executive recruiters of its own. As a result of this trend, Korn Ferry collected less revenue from searches last year than in 2008.

Instead, its growth has come from pushing into new areas of business. Korn Ferry has bought a host of firms that aim to improve workforce performance even when there is no vacancy to fill. Recently it added Pivot Leadership, which offers executive-development programmes. Gary Burnison, Korn Ferry’s boss, says he sees his firm as a McKinsey for “talent strategy”, combining traditional headhunting with such things as coaching managers, succession planning, and analysing and improving corporate culture. Korn Ferry now gets just over half of its revenues from executive search, down from 90% a decade ago.

For instance, after McGraw Hill Financial (which includes Standard & Poor’s, a credit-rating agency) was separated from its former parent, an educational publisher, in 2013, the newly independent business says Korn Ferry helped it work out what were the most important qualities its middle managers ought to have, and to evaluate whether they did in fact have them. These included being good at developing talent from within and at spotting market developments outside the firm.

Korn Ferry’s competitors among the executive-search industry’s “big five” say that attempting to cross-sell clients could produce conflicts of interest. What happens when one of its recruitment consultants has to choose between recommending a candidate the firm had previously coached or another that it has not?

Yet its rivals have all pursued diversification to some extent. Heidrick & Struggles, the other publicly traded search firm, has plunged into culture-shaping. In 2012 it bought Senn Delaney, an outfit that analyses attitudes and communication among corporate staff, and holds coaching sessions to help managers become more effective. So when Heidrick was asked to find a new boss for a giant state oil firm, it was able to win further work helping it change its internal culture. Last year Senn Delaney accounted for just 7% of Heidrick’s revenue, but almost a third of its growth.

Egon Zehnder, a private Swiss headhunter, has long provided client firms with assessments of their managers. In 2009, on the orders of American regulators, Citigroup commissioned it to produce a report on the quality of the bank’s bosses. Activist investors’ calls for reforms of company boards are good news for Spencer Stuart, which offers advice in this area. And Russell Reynolds, another of the big five, is big in succession planning, also a growth area. As they take on such work, headhunters will find themselves increasingly in competition with larger management consultants. But as recruitment work becomes harder to find, they have little choice.

Source:
The Economist, by Dan Rosenheck
http://www.economist.com/news/business/21654083-industry-under-pressure-finding-new-services-sell-headhunters-culture-vultures

Share This Article

RECOMMENDED ARTICLES

Leave a Reply

Be the First to Comment!

Notify of
avatar
wpDiscuz