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Executive Search: Broken Business Model or Busted Value Proposition?

Kevin Kelly, CEO of high-cost headhunter Heidrick & Struggles, recently said the industry’s 55-year-old business model is “broken” and leadership advisory services will represent “the evolution of the search business going forward.” Competitor Korn Ferry’s CEO, Gary Burnison, echoed this comment when, in a recent earnings call, he said his company would emphasize “integrated revenue growth.”

A quick read between the lines, however, shows the real story. Facts tell us both CEOs simply are trying to offset the recent steep decline in search revenue by finding other revenue sources. While expanding services to include consulting may appease shareholders and pad partner wallets, it will not fix their broken executive search value proposition.

Big Search Firm Dilemma
Large, international executive recruiting agencies hold the dubious reputation for charging excessive expenses on top of their already hefty fees for search projects. In some cases, clients are forced to pay for a search in full before a candidate is hired. Further, it’s common for the senior partner to land a search project only to delegate the work to a junior, less-qualified, associate while he or she continues on with business development endeavors. This bait-and-switch move most likely will not change even if these agencies expand their services to include consulting work.

Herein lies the inherent problem with large headhunter groups. Their organizational and operational structures inhibit them from providing true, strategic value for clients and thoroughly understanding the company, culture and organizational needs. Pressure on earnings has placed a premium on partner productivity at the expense of quality. Add that to a limited talent pool resulting from big search firms’ common policy and practice not recruit the best and brightest talent away from their clients, and it’s no wonder 40 to 60 percent of leaders placed in new companies fail within the first 18 months, as reported by Fortune magazine. This represents an extraordinary cost and negative impact to an organization’s bottom line.

Metrics Matter
Some boutique and regional executive search agencies recognized ages ago that metrics matter above all else. Headhunters that hold themselves accountable to these results and execute proven methodologies while sharing the results of their efforts in complete transparency will not only succeed, but thrive.

The most effective results require search firms and their teams to possess operational and human resources expertise, and comprehensively understand a client’s needs, expectations, culture and values. Agencies that concern themselves more with highest-quality candidate placement, process efficiency, transparency, values and cultural fit alignment, reasonable fees and placement effectiveness will find their search practices will remain valuable to organizations.

For example, leadership strength and continuity are essential for economic recovery and long-term company success. And the skills sets required to successfully orchestrate a turnaround are much different than those needed for sustained growth or to start up an organization. Unique economic conditions require executives to quickly integrate and assimilate into companies with high expectations for immediate results.

Headhunters have to recognize and respond to these needs and determine a candidate’s potential by using behavioral models and assessments to effectively evaluate candidate leadership qualities. Focusing on these unique circumstances can’t come about by passing off work to junior associates or charging exorbitant fees. Rather, they come from a comprehensive approach to proven executive search methodologies and a keen, detailed understanding of each company.

Focus on Value, Not Services
It’s easier for large international executive search agencies to blame their fortunes on a changing industry landscape instead of focusing on their own shortcomings, but that doesn’t address the problem. Headhunters, like all other service providers, must start demonstrating their worth and deep knowledge of their clients at all operational and talent management levels. In doing so, they will discover greater success and recognize their business model was never broken, just their value proposition.

Carrie Stone, Talent Management (www.talentmgt.com)