Recruiting Industry Under Pressure to Find New Services to Sell

June 12, 2015 – The Economist reports this morning that in the aftermath of the financial crisis seven years ago, 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 percent to $676 million, and it declared a net loss of $10 million,” reports the magazine in it’s latest issue. But as The Economist went to press yesterday, Korn Ferry confirmed what Hunt Scanlon reported three months ago: that it had become the first in the industry with annual revenues above $1 billion.

“Like its competitors,” says The Economist, “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 percent last year.” But Korn Ferry’s core business faces fierce headwinds, reports the magazine. “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.”

Citing trend data from Hunt Scanlon, The Economist reports that Korn Ferry’s growth has come from pushing into new areas of business. Korn Ferry, it reports, “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 programs. 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 analyzing and improving corporate culture.” Korn Ferry, according to the report as well as Hunt Scanlon findings, now gets just over half of its revenues from executive search, down from 90 percent a decade ago.

“Korn Ferry’s competitors among the executive search industry’s ‘big five’ say that attempting to cross-sell clients could produce conflicts of interest,” reports The Economist, which asks: “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?”

“Its rivals have all pursued diversification to some extent,” says the magazine. “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 seven percent of Heidrick’s revenue, but almost a third of its growth.”

Egon Zehnder, says The Economist, has long provided client firms with assessments of their managers. It reports that in 2009, on the orders of American regulators, Citigroup commissioned Zehnder to produce a report on the quality of the bank’s bosses. Spencer Stuart also offers advice in this area, while Russell Reynolds is big in succession planning, another growth area, says The Economist.

“As they take on such work, headhunters will find themselves increasingly in competition with larger management consultants,” concluded The Economist. “But as recruitment work becomes harder to find, they have little choice.”


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