Headhunters feel the pinch

The economic crisis has seen leading headhunters watch their revenue
plummet. Now they are turning themselves into corporate mentors, writes Stephen
Overell

For those of you who missed the annual results of Whitehead Mann, the UK’s
biggest headhunter, published this month, here they are. Group turnover is up
11 per cent to £64.6m, while operating profit has risen by 33 per cent to
£11.5m1.

How nice. But what makes the results intriguing is that executive search is
officially in the doldrums. Last year was the annus horribilis of the sanguine
world of headhunting. Between 1993 and 2000, worldwide search revenues tripled
from $3bn to an estimated $8.3bn2, while the number of search firms in Europe
and the US swelled to more than 175,000. The war for talent sent demand sky
high.

In 2001, revenues plummeted by a third, dragged down by the bursting of the
dotcom bubble, the global recruitment freeze and the psychological fall-out of
11 September. Loyalty, stability and retention became the new currency – words
which don’t sit easily with the headhunter’s craft.

According to analyst Hunt Scanlon, the top six firms in the world bore
losses of $600m in the year to May 2002 after making $2.4bn the previous year.

TMP Worldwide, the sixth largest by revenue and owner of the online
recruitment network monster.com, posted a drop in revenue of 38.7 per cent in
20013.

The happy, heady days when whole teams of executives cheerfully jumped ship
and headhunters bragged of their latest well-connected scalps – former health
secretary Virginia Bottomley to Odgers International, top spook Dame Stella
Rimington to GKN – suddenly seemed a distant memory.

So how has Whitehead Mann bucked the trend? Partly because the UK was never
as badly affected by the downturn as the US. But also because it backed
wholeheartedly an accelerating trend that has taken hold in executive search:
the move into headhunters seeing themselves as being in ‘the talent business’
in the widest sense and offering leadership services, such as management
development and audit, coaching, mentoring, assessment and succession planning.

In February 2001, Whitehead Mann acquired the Change Partnership, one of the
country’s best-known coaching practices. Twenty per cent of the firm’s income
now comes from non-search work. Coaching revenue is up by 50 per cent.

"Coaching is being used more and more as a retention tool for senior
executives," says Gerard Clery-Melin, the company’s chief executive.
"It is getting people to feel loved and developed, and proving very
effective."

It is far from being alone in feeling this way. Many others are hoping new
services will bring about a renaissance. At Norman Broadbent, as blue-chip a
firm as ever existed, 40 per cent of its work does not involve headhunting.
Clients now want "diverse human capital solutions", according to
chief executive Doug Bugie.

"Historically, search has been transactional. But now it is more about
long-term relationships in which we look at a company’s current and future
leadership needs," he says. "We are moving down the organisation
looking at succession issues."

The company does all the assessment and development work for Microsoft and
the Royal Bank of Scotland, while even the Learning and Skills Council has now
outsourced all its hiring to Norman Broadbent.

At the world’s second biggest headhunter, Heidrick and Struggles, now
tagging itself ‘the leadership firm’, UK managing partner Peter Lever says:
"People are one of the biggest investments any company makes and it has
become apparent they are being treated as assets, rather than costs."

The firm uses what Lever calls "the Jack Welch model" of human
capital. "You have the solid 70 per cent in the middle, the top 20 per
cent of stars and the 10 per cent who are underperforming and need to be
managed out. We benchmark management teams against the best in the
marketplace," he says.

The irony of this poacher-turned-gamekeeper make-over is probably lost on
headhunters. Ever since some far-sighted souls realised that one of the
consequences of the war for talent in the late 1990s was the ‘commoditising’ of
executive search, top firms have been engaged in strategic repositioning to
protect their margins.

From being seen as the ultimate well-groomed executive pimps, sleuthing bums
to fill seats, they now want to be seen as strategically involved in their client
organisations; corporate talent agents concerned as much with retaining and
developing in-house star-performers as with poaching somebody else’s. The
knowledge of what tempts someone to jump ship transfers easily enough into what
will make them stay put. After all, many headhunters have long fostered the
image of avuncular sage to career-focused youngsters.

Just like all rebranding exercises, and especially those that follow
corporate gloom, there is doubtless a degree of hot air in all this. Nevertheless,
the re-branding of executive search is a telling sign of the times.

First, it seems that providing a ‘transactional’ service is no longer
perceived as a viable model for the long-term – something the HR profession
foresaw some time ago. It has to be ‘transformational’ and ‘strategic’. Of
course, delivering the right person into the right role is of immense value.
But it is no longer acceptable to be quite so hands-off as executive search
traditionally has been; value is about delivery, involvement and results over
time.

Second, it entrenches a move towards organisations having a very small pool
of close, trusted partners, who they call on for a diverse range of services
and who know the business intimately, rather than lengthy lists of contingent
suppliers. One service is a gateway to others.

And third, it says a lot about our reputation-obsessed times. Headhunters
always had something of the rascally middleman about them, with their networks,
pretext approaches and target-stalking. Positioning themselves as leadership
experts, talent agents, coaches and mentors fits with the snowy-white
zeitgeist.

Maybe the war for talent had more profound effects than anyone realised.
"The principles of the war for talent still hold true," claims Bernd
Uhe, a partner with the McKinsey consultancy. "Making sure great people
are joining and then creating jobs for them may be the model which headhunters
increasingly move into."

References

1 Annual results press release, 11 June

2 The Association of Executive Search Consultants: www.aesc.org

3 Figures from State of the Industry Report 2002, Hunt Scanlon:
www.hunt-scanlon.com

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