The field
of executive search was long an exclusive club whose workings were
shrouded. But the Net has opened this world up to far more job seekers--and
a host of new rivals. Here's a look at the changes and how you can
profit from them to find your next job.
For the old
guard, Pitfalls and Possibilities
Ask any chief
executive for a laundry list of things that make him or her sweat,
and you can be sure that the difficulty of attracting executive
talent will rank high. Because of the buoyant job market and low
unemployment, companies are more focused than ever on getting the
best and brightest onto their payrolls--and keeping them there.
No one has benefited
more from that shift than the executive search business, which has
profited handsomely from placing itself at the nexus of this thorny
management issue. Worldwide search revenues have nearly tripled
of late, from $3 billion in 1993 to an estimated $8.3 billion in
2000, according to Greenwich (Conn.)-based search industry consultant
Hunt-Scanlon Advisors.
Yet the search
biz suddenly finds itself facing a host of ugly new problems. Growth
rates are slowing at the high end even as new Internet-based job
sites challenge traditional practices. The shift is putting pressure
on pricing--and emboldening customers to become far more demanding.
As if that weren't enough, some well-capitalized new rivals have
entered the market, hoping to create recruiting businesses that
encompass everything from lowly classifieds to top-of-the-line chief
executive searches. That means such industry giants as Korn/Ferry
International, Heidrick & Struggles International, and Spencer
Stuart must adapt or risk losing their longtime dominance. ''Our
industry has lived a charmed existence for 50 years,'' says Windle
B. Priem, CEO of Korn/Ferry. ''Now it is changing. Clients want
more service, faster, and they want it cost-effective, with a technology-driven
solution.''
It all makes
for quite a shake-up in the traditionally clubby world of executive
search. Long personified by the likes of Spencer Stuart's Thomas
J. Neff and Heidrick & Struggles' Gerard R. Roche, who between
them have filled some of Corporate America's most prominent CEO
openings, high-end headhunting has always been the quintessential
relationship business. Unlike the more populist staffing firms--which
fill large numbers of low-end jobs--the big- name search firms have
used their vast network of contacts to place middle- and upper-level
executives. Although they start with jobs that pay upwards of $100,000,
the real money comes from filling senior-level jobs, from the $250,000
a year Senior Vice-President up to the CEO. That task is neither
fast nor cheap. Finding the right candidate can take up to six months,
with the search firm usually pocketing a fee of one-third of the
first year's salary.
Merger Blues
he Internet-based
job sites are a long way from kicking search consultants out of
the corner office, but that traditional model nevertheless faces
plenty of risks. For starters, growth is slowing. After accelerating
20% in 1996 and 25% in 1997, the largest 40 search firms grew at
a 14% rate last year, the lowest since 1992, according to Kennedy
Information Research Group, a Fitzwilliam (N.H.)-based search and
consulting specialist. One reason: The recent spate of mergers is
cutting executive jobs. ''I have lost at least three to four significant
clients recently because of M&A,'' says third-ranked Spencer
Stuart's U.S. vice-chairman, Dennis C. Carey.
At the same
time, the success of such Web sites as Monster.com and ExecUNet.com
is beginning to eat at the low end of executive search. These sites
typically target middle-level managers- now the fastest growing
corner of the executive job market. Hunt-Scanlon estimates that
the Internet recruiting business will go from $250 million this
year to $5.1 billion by 2003--half the size of the traditional search
industry. Hoping to take advantage of that opportunity, Korn/Ferry
and others are scrambling to respond with their own Internet units
(page 80). Still, making the switch is hardly a slam dunk; executive
search on the Net is more transaction-oriented, and volume counts
as much as selectivity and relationships.
Launching an
enormous technology unit from scratch also requires a lot of capital.
That's one reason Korn/ Ferry, LAI Worldwide, and Heidrick have
gone public in the last year and a half. So far, however, the results
have hardly been stellar. LAI, after its July, 1997, initial public
offering at 12, saw its stock plummet to 6 when it missed some of
its 1998 earnings targets. Korn/Ferry's much-heralded February IPO
has fallen below its offering price of 14 to about 12, and Heidrick
hasn't gotten a bounce since its Apr. 27 IPO at 14, even as the
Dow hit 11,000. John Hillenbrand of Credit Suisse First Boston thinks
the failure of LAI to make its numbers ''left somewhat of a bad
taste in investors' mouths.''
Moreover, higher
competition and expenses may hurt gross margins, which Tom Rodenhauser,
president of Keene (N.H.)-based Consulting Information Services,
says average around 30% for large firms. Indeed, the more successful
the technology-based recruiters, the more heat traditional firms
will take. ''I expect [search firms] to drive costs down and speed
things up,'' says Dennis Zeleny, vice-president for human resources
at AlliedSignal Inc.
Even those clients
who prefer personalized executive searches are now demanding more.
''The knowledge that we're expected to bring to the table. . . is
increasing dramatically,'' says John Hawkins, managing director
at Russell Reynolds Associates Inc. He says clients now want more
specific industry expertise. They're also asking search firms to
spend more time with them. At Finance One Group, a unit of Bank
One, CEO Donald A. Winkler recently hired Paul J. Ray of Ray &
Berndtson to fill several posts on the condition that Ray first
spend several days getting to know its culture. ''It's part of his
cost of sales,'' says Winkler.
All of these
financial pressures have helped fuel a consolidation that is bringing
new entrants into the business. The most successful so far is TMP
Worldwide Inc., a public company best known for Yellow Pages and
classified advertising. The owner of the popular Monster.com site,
it has gone on a buying spree. Using its high-flying Internet stock
as a currency, it has snapped up TASA International and LAI in order
to create a full-service advertising and recruiting operation. Says
Samuel Marks of Marks International, a consultant to professional-service
firms: ''The soup-to-nuts concept has real viability.''
Untouchables
Yet the strategy
is a controversial one: While there are economies of scale to be
had by growing larger, there are also limits. Unlike most industries,
an executive search firm can actually be hurt by getting too big.
The reason: Most consider employees of one client ''off limits''
when they search for a job candidate for another client. So the
more clients a firm has, the more it shuts itself off from other
talented execs.
That's why plenty
of small firms think they'll prosper despite the shakeout. Robert
D. Kenzer of Kenzer Corp., a small firm specializing in retail and
consumer goods, says he has received some 12 feelers from interested
buyers over the past two years. But he sees an opportunity to pick
up business by taking advantage of the large companies' limitations.
That's what happened in April, for example, when Hewlett-Packard
Co. awarded its CEO search to Cleveland-based Christian & Timbers
Inc. Although HP wouldn't comment, one person close to the search
says Christian & Timbers got the job because employees of IBM
and others were off limits to its bigger rivals. ''It is a power
shift in the search industry, almost a changing of the guard,''
says Scott A. Scanlon, CEO and chairman of Hunt-Scanlon.
Of course, the
old guard scoffs at that notion. Patrick S. Pittard, CEO of Heidrick
& Struggles, notes that his company has been able to reduce
off-limits restrictions from two years to one with little fallout.
But with so many new offerings and rivals around, he will have to
be careful not to push clients too much. Today, they have options.
