Interview: Donna Karnal Gives Insiders Look into Current State of Recruiting Industry

October 30, 2009 – Donna S. Karnal is managing partner of Ultimate Solutions, LLC, a retained executive search firm focused on the human capital industry. With 20-plus years in search, Ms. Karnal formerly served as national director of recruiting for Korn/Ferry International. Prior to launching Ultimate Solutions, she was with another firm where she developed the 'search for search' division, making it a revenue leader for three consecutive years. In the following interview, Ms. Karnal gives an insiders look at the current state of the executive search industry.

What is your take on the current state of the executive search industry?

At this point in the current financial cycle, most industries would expect to see significant consolidation; however, the unique nature of the professional services industry, where the assets of the business are people rather than products, suggests that consolidation will not be one of the major trends restructuring this industry. Instead, I see that the restructuring of the industry will occur on the basis of strategic specialization, client focus, being able to deliver consistent, high quality and value to the client on a global basis, as well as organizing and managing around producer and client-team productivity. I think the current financial economics are accelerating the trend away from the producer-based, generalist search model and toward the specialized, client-based boutique model that has been underway in the smaller firms.

Which firms have been hit the hardest by the economy? Are smaller firms better equipped to weather the storm?

The big four firms have felt the greatest pain since they have added a great deal of non-core products and services and their originators had nothing unique to sell aside from many (uncoordinated) offices globally and a brand. While boutiques were also hurt by the downturn, their volumes have held up better than the larger firms because of their focused strategies. The large firms have gone through significantly more downsizing which has resulted in opportunities for the boutiques to acquire talent as well as some consultants “putting out their own shingle.” Boutiques are better positioned to make the needed changes, but it will not be easy and they ultimately are stronger for it.

What changes have occurred at firms from the recent recession?

The big four firms, organized primarily around local offices and individual producers, expanded beyond search into HR-anchored, broad talent management products and services. These firms were essentially competing on the basis of brand, volume, off the Rolodexes of an undifferentiated, largely generalist sales force, with standardized low value added products and services. Boutiques, focused on industry segments (often on a global basis), organized and managed around targeted client-facing teams of producers, and leveraged industry and competitive information. These firms were competing on the basis of industry specialization and knowledge and were attempting to move the client into more value-added client solutions. Before the crisis, the second business model was winning. The boutiques were growing faster and slowly gaining share from the majors. However, the overall robust market volumes were masking these trends (“A rising tide lifts all boats.”).

In which industries have executive search firms been looking to build in recent months?

Hedge funds and private equity firms are still seek¬ing top talent – especially as they become increasingly institutionalized and, in some cases, go public. Also the commodities sector is mostly a result of a shortage of experienced search consultants with this knowledge base. Another sector on the rise is risk and compliance. Both are important sectors because of everything that has gone on recently within the financial services industry.

Which sectors have taken the biggest hit?

Investment banking and capital markets I believe have taken the biggest hit during this time, but they are starting to see a rebound.

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