April 5, 2018 – The executive search industry’s leading 50 players in the Americas once again surpassed $3 billion in revenues last year, according to industry newsletter ESR, in a market report to be released later this month by Hunt Scanlon Media. The group collectively jumped by near double digits, continuing a spectacular run for an industry that just a decade ago was left reeling from the Great Recession.
Since then, of course, a host of gravitational forces has tugged at the search sector. Back in 2008 it was LinkedIn making its presence felt; now it seems to be all about AI. Hunt Scanlon reports that while the top-end recruitment sector has been in transition for several years, it is about to enter a new phase of evolution. This time, clear winners will emerge.
Looking for Answers
Driving the latest changes will be big developments in AI – and how the new technology will alter, and advance, how search firms and their talent acquisition partners track and search for people. Korn Ferry has called in AI experts and Spencer Stuart is looking for an AI partner. For both firms, with declining or low growth rates, AI could provide a state-of-the-art competitive advantage. But rival boutiques that have been all the rage since the recession are also looking closely at what AI means for their businesses. They will, no doubt, be early adopters of AI technology as it comes forward.
“Adoption of AI is at a very early stage,” said Scott A. Scanlon, founding chairman and CEO of Greenwich, Conn-based Hunt Scanlon. “But AI and other assorted automated technologies are about to drastically alter the recruiting landscape and transform the search for talent,” he said. “We see big changes coming in how recruiters operate within this new ecosystem.” Behind it all, reports Hunt Scanlon, is how best to correlate, or match, candidates with jobs.
Precision and Speed
Survey data collected by Hunt Scanlon over the past year indicates that demand is rising quickly for greater evaluative and predictive accuracy in hunting down and then selecting global talent, along with speed. “Both precision and pace are at the core of a dawning new search industry,” said Mr. Scanlon. “These have always been the two most critical components of every recruitment lifecycle,” he added. “But AI is a potential new mechanism in helping recruiters pull it all together.”
Hunt Scanlon reports that the opportunity AI presents is limitless in how the search sector will come to reimagine how it organizes, communicates with, recruits, develops, manages, engages with and retains talent for clients.
Heidrick & Struggles Posts 2017 Revenues amid New Hires
Executive search, leadership consulting and culture shaping services provider Heidrick & Struggles International / (NASDAQ:HSII) posted global revenues of $621.4 million in 2017, a 6.7 percent increase from revenues of $582.4 million the year before.
“There have been two schools of thought around AI,” said Mr. Scanlon. One is that AI will eliminate the need for human recruiters in the search process – which will instead rely on bots and robots to search for and recruit talent. The other is that AI will simply empower the recruiting sector, giving it new tools to bolster its arsenal of capabilities and services. “We’re siding with that school of thought,” he said. “AI will affect each and every one of us in how we source talent – but it is a fundamentally positive change for the recruiting sector.”
Clarke Murphy, chief executive of Russell Reynolds Associates, concurred. “It is undeniable that machine learning and algorithms have amazing power in any industry,” he said. “However, automated tasks need to be balanced with a human understanding of how executives fit an organizational culture, and how their behavioral track records might equip an organization for a changing world. Our clients want our data and our judgment, not just one or the other.”
By most measures, it was an exceptional year of expansion for executive recruiters plying their trade across the C-suite – not only in the Americas, but around the world. A number of search firms and global recruiting consortiums enjoyed near double digit growth in 2017, while others seemed to take a slight breather from that sort of surge in business enjoyed over the past several years.
An analysis of global revenue performance among the industry’s Big Five showed, collectively, 5.4 percent growth, with revenues gaining by some $218 million to $4.24 billion. The pecking order among this group remained unchanged, though Russell Reynolds Associates showed the biggest gains at 8.6 percent. This was followed by Korn Ferry, Heidrick & Struggles, Egon Zehnder and Spencer Stuart.
“It was a strong year for the industry overall and we were the beneficiaries of a stronger-than-expected European performance,” said Mr. Murphy, the Russell Reynolds’ CEO. “Our success also reflects the fact that our clients are increasingly asking for our involvement in their boardrooms, with succession planning and other leadership challenges they face.” About 55 percent of Russell Reynolds’ business stemmed from the Americas in 2017, and that was enough to edge out its nearest rival, Egon Zehnder, for fourth place on the Americas ranking table.
For its part, Korn Ferry is settling into a new rhythm now, post its Hay Group acquisition. Compared to its nearest Big Five rivals, Korn Ferry has moved to compete much more broadly in organizational consulting, backed by an army of 7,000 global colleagues. “We help companies design their organization,” said CEO Gary Burnison, and that includes the structure, the roles and responsibilities, as well as how these companies compensate, develop and motivate people, he said.
But, as importantly, he noted: “We help organizations select and hire the talent they need to execute their strategy.” For Korn Ferry, it seems, as well as for all of its industry rivals who’ve been adding adjunct service platforms, executive recruiting still remains its central core business driver. Publicly-traded, its stock has been on a tear – up close to 25 percent just over the last month. Korn Ferry (NYSE:KFY) hit a new 52-week high of $52.26 only a few days ago and now maintains a market cap of just under $3 billion.
Americas Region Fuels Growth
Korn Ferry today works with 93 companies among the Fortune 100. About 100,000 professionals are developed in its leadership programs each month. It maintains rewards data on some 20 million workers, management data pours in from 110 countries and it has engagement data on six million professionals. Roughly 53.5 percent of its global business now emanates from the Americas region.
The other publicly-held Big Five search firm, Heidrick & Struggles, (NASDAQ: HSII) posted global revenues of $621.4 million in 2017, a 6.7 percent increase from revenues of $582.4 million the year before. But the Chicago-headquartered recruiter – the fourth largest globally as ranked by Hunt Scanlon Media – reported a loss of nearly $50 million on the year.
“Our record net revenue in 2017 was driven by the growth of executive search in all three regions and by leadership consulting,” said Krishnan Rajagopalan, president and CEO. “We also made significant strides in lowering the run rate of our general and administrative and business support expenses,” actions, he said, that would allow the firm to shift the focus of its capital to investments that support growth while helping it achieve improved operating margins on a more sustainable basis in 2018. About 55 percent of its global business now comes from the Americas region.
At privately-held Spencer Stuart, the firm retained its status as the No. 2 ranked search firm in both the Americas region and globally – edging out Egon Zehnder on one list and Heidrick on another. It reported positive gains on both rankings this year, after posting negative growth on each the previous reporting period. “Expect revenue growth,” the firm said, “due to broad based strength across all regions and most major industry practices and leadership assessment services.” About 62 percent of its global business now comes from the Americas region.
Egon Zehnder, the No. 3 ranked global search firm and also privately-held, said it continued to broaden its leadership solutions offerings in 2017, resulting in double-digit growth in leadership advisory revenues. That consulting segment is a business that remains clearly in the crosshairs of all of the firm’s top rivals in 2018. In addition to executive search and board advisory consulting, Zehnder’s service portfolio now encompasses executive assessment, leadership development, team effectiveness, and cultural and organizational transformation. About 42 percent of its global business flows from the Americas region.
At the end of April, Hunt Scanlon will take an up-close look at the expanding executive search business. In its special edition of ESR as well as its ‘2018 State of the Industry Report,’ Hunt Scanlon will release its annual rankings and provide expert commentary from leaders across the field.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media