Critical Analysis and Retained Executive Firms
According to Maylor and Blackmon (2005), the purpose of business and management research is ‘to create better and more widely applicable theories that will help other people to solve a similar practical problem or understand a research problem better’. The main purpose of this dissertation was to investigate the relevancy of executive search firms (ESF) as external recruitment tool in Human resource management (HRM) and its contribution to business performance. Moreover, I would be focussing on two nations where C-level staffing is been handed over to Search consultants at large, namely India and the UK, Am also confident that this study would address the significance of filling positions that exceeds $100,000 as they have vast impact on the organisation as a whole which implies that this investigation specifically and deliberately concentrates on the upper end of the search market.
Trends and their impact on Organisations: The following trends will justify the topic of this search assignment as they seem to have a significant impact on numerous levels on a organisation, including HRM and Executive search (ES). Especially since there has been a shift from tangible to intangible and more and more companies state “Our people are our greatest assets” it becomes obvious that the following changes and trends become inevitable.
- Globalisation has been one of the undisputable buzzword from the past decade. There are several consequences of globalisation that have caused changes as well as challenges in HRM. One of them is technology. But is its not only the fact that communication technology seems to link the world, but also the technological development that increases competition. Another trend concerning globalisation that cannot be ignored refers to emerging market and lower tariff barriers. These have to be taken into account from an organisations point of view when strategic decisions are to be made.
-Ever since Mckinsey’s landmark study ‘The war of talent’ in 1997, the relationship of talented staff and business performance of an organisation cannot be denied anymore, especially among senior level positions where people have to adapt and respond quickly (Mckinsey, 2008). It is also to be mentioned that the demand for talented people is still increasing due to the emergence of markets like India, UK, Russia and China.
Resulting from the above aspects, it can be claimed that problems within organisations are growing in terms of complexity. This implies that the people who are in charge of solving these problems and their capabilities need to grow as well.
2- Literature review:
This chapter aims to critically review literature in the chosen subject area. The crucial function of this part can be justified by the fact that this chapter provides the foundation on which the research is based. The first serious discussions about headhunting emerged during the 1980’s. McKinnon (1982), Cole (1985), Byrne (1986) and Jones (1989) first provide an insight into the world of headhunting whereas my main focus is on the British and Indian market. This in turn can be justified by looking at the origins of the first headhunting firms in the post-war era, such as Heidrick & Struggles and Korn/Ferry (Jones, 1989).
In 1994, ‘Business Week’ reported that “the executive search business is having its biggest boom since the glory days of economic expansion in the 1970’s and early ‘80s” (Byrne, 1994). Later, the media took again notice of the industry and announced that “Search-firm revenues fell down by 25%, on average – the first decline in a decade” (Wahlgren, 2002). Today the industry can exhale again according to the state of the Industry Year-End report of the AESC (2009) that reveals that “net revenues for the global executive search industry rose 22% from Q4 2007 to Q42008. Nevertheless, the research showed that the executive search business has been given little attention in contemporary literature, with the exception of the insightful research of Finlay and Coverdill (2002) and Fish and Macklin (2004).
The first part of this chapter helps the reader to get an overview of terms and involved parties in executive search, since there are numerous terms and definitions regarding executive search firms (ESF).
2.1 Key Definitions and Delimitations of Relevant terms.
2.1.1 Executive Search/Headhunting
Both Heery and Moon (2001) and Sutherland and Canwell (2004) agree that executive search is concerned with finding suitable candidates for senior-level positions. Further, the authors describe executive search consultants also as Headhunters and use them interchangeably. Sutherland and Canwell (2004) refer to headhunting as a method of external recruitment. Headhunting in turn has been described by the authors as “a form of recruitment process, carried out either by the organisation itself or by use of an outside organisation, known as a headhunter”.
Moreover, attention should be drawn to the fact that “unlike employment agencies, executive search firms do not find jobs for individuals who contact them” (Peters et al. 1997, p107). The difference between traditional employment agencies and headhunters was succinctly summarised by one headhunter: An employment agency is in the business of finding jobs for people; we’re a recruiting firm, so we’re in the business of finding people for jobs.” (Finlay and Coverdill, 2002, p. 4). What is more, it has been generally accepted that a headhunter is “ a Third party to the employment or staffing process, who earns his (her) fee by performing employment or staffing services for corporations (or other firms or organisations) or individuals” (Cole, 1985). In comparison to recruitment agencies and selection consultants, ESFs apply rather strategic and focussed recruitment and selection tools within their search for the perfect match (Fish and Macklin, 2004).
But the most relevant distinction that has been referred to in the literature reviewed (Jones, 1989; Cole, 1985; Hacker, 1996; Gill, 2001; Finlay and Coverdill, 2002; McCool, 2007; Skinner, 2007:2) describes the difference between two categories of ESF’s: retainer and contingency. Headhunter that charge their clients retainer-based fees receive them “in stages within the search process” (Jones, 1989, p. 266). However, considering the latter, fees are paid “dependant on the success of the assignment” (Jones, 1989, p. 258) and “only when a candidate is actually hired” (Skinner, 2007:1).
2.1.2 Executive Search Consultants
Regarding the recruitment through third parties Billsberry (2000) lists two main types that a company can use: executive selection consultants and executive search consultants (ESC). Fish and Macklin (2004), on the other hand, name three types of recruitment companies: recruitment agency, Selection consultant and headhunter/ESF. This investigation, however, would exclusively focus on the latter type of each case. In order to gain a broader picture of the importance of ESCs or headhunters, tasks and requirements will be discussed the following passage. It is of important necessity to discuss this, since ESC’s play a major role in the recruitment of C-level staff, such as Chief executive officer (CEO) or Chief financial officer (CFO), which can be considered as a “complex consulting activity with a variety of requirements” (AESC, 2007:1).
McKinnon (1982) claims that the consultant should have some basic characteristics, such as extensive experience in terms of management, industry and broad-level communication; mental maturity along with an analytical and objective attitude. From Fish and Macklin’s (2004) “five principle-consultant success indicators” (p. 34), it becomes obvious that some basic criteria for ESC’s seem to exist. They actually include the “ability to listen and comprehend client; quality of service; client-consultant communication; integrity and honesty; and technical knowledge” in their list. According to the AESC (2007:1) website, the search manager should also have the ability to ask the right questions towards the client and candidate. What is more, he or she should have adequate problem solving skills and “staying power to accomplish challenging and difficult tasks” (AESC, 2007:1).
2.1.3 Executive search from a broader perspective
Fish and Macklin (2004) suggest stepping back and approaching the topic from a broader perspective which leads one to headhunting a part of a company’s outsourcing strategy. Three different terms have been indentified: business process outsourcing (BPO) which can be used as an umbrella term for the remaining terms of Human resource outsourcing (HRO) and recruiting process outsourcing (RPO), according to Lawler III et al. (2004), Reddington et al. (2005), Scott-Jackson et al. (2005), and Sako and Tierney (2007). They will become relevant for this investigation when advantages and disadvantages of ESFs are being discussed. However, there appears to be the need of clarification whether executive search can be considered as outsourcing tool or not since Fish and Macklin (2004) and Skinner (2007:2) have been identified as the only authors.
2.2 In-house Vs. External
The make-or-buy decision of whether to keep the task of recruiting candidates in-house or externalise the process to a third party requires in many instances little deliberation according to Finlay and Coverdill (2002). But prior to these companies have to consider whether they have the resources to conduct such a complex search and an adequate network. Shulman and Chiang (2007) express reservations about the composition of HR departments since they are mostly specialised in fields such as benefits, compensation and other HR-related areas. On the other hand, there are also reasons that plead for in-house performance of executive search and recruitment which will be addressed in the last part.
2.3 Rationale for Outsourcing
Regardless of the particular process, authors such as Belcourt (2006), Simms (2006) and HRfocus (2007) agree on three main advantages of outsourcing. They refer to financial savings, efficiency through increased ability to focus on strategic issues and core businesses, and the access to specialised expertise. These factors can be easily adapted to executive search which will be demonstrated in the following section, as it will provide clear evidence that the approaches and outcomes of outsourcing and ES undoubtedly overlap.
2.4 The input of headhunters to a Company
Finlay and Coverdill (2002) developed four key advantages of headhunters over Human Resource (HR) departments. Firstly, the authors refer to ‘Search’. The main search tools of headhunters are the telephone and computer which they use to build up and maintain their network for current and future projects. According to Jones (1989) their methods can be regarded as proactive search in comparison to companies that use advertisement, which is rather reactive search. Another valuable perception in terms of changing search culture has been demonstrated by McCool (2008), yet he explains that over the last decades search were primarily directed towards possible candidates from outside and it “became a reflex action for too many companies looking to fill the most senior positions” rather than looking through the own ranks.
Generally, it can be said that “effective searching [for headhunters] means cultivating networks, monitoring information flows, mining companies for the names of up-and-coming stars, paying attention to the gossip and rumour that characterize all industries, and, most important of all, stocking and restocking their pools of actual and potential candidates. Therefore, it is also the clients responsibility to become familiar with used methods in order to avoid misunderstandings regarding the services provided (AESC, 2007:1).
The second advantage is concerned with ‘Specialisation’. Specialisation allows headhunters to acquire detailed knowledge and focus on a particular area of expertise. Moreover, Finlay and Coverdill (2002) contend that “Specialisation enables headhunters to achieve economies of scale in recruitment” (p. 43). In broader terms, one of the main reasons why companies seek out for a consultant is that headhunters could compensate the company’s lack of in-house expertise (McKinnon, 1982; Fish and Macklin, 2004).
Thirdly, ‘speed’ or rather the time factor has been accepted by numerous authors (McKinnon, 1982; Jones, 1989; Kneeland, 1999; Fish and Macklin, 2004) as a factor of vital importance, if not the most important one. Companies that turn to headhunters needs to decide whether this effort is compensated by speed and therefore by the savings in time. Since companies mostly reach out for external help in times of a changing environment such as mergers and acquisition, or even in a recession, time can be the nub of the matter (Jones, 1985).
Finally yet importantly, the author refers to the ‘service’ delivered by headhunters. What adds an advantage in this scenario is the fact that headhunters have different incentives in filling a position compared to HR departments. Additionally, headhunters work as outsiders and get a rather objective picture of the position to be filled which can be indeed identified as an advantage since internal parties might have personal sets of intentions. Other aspects regarding the service of ESF’s have been identified within a survey conducted by the Association of executive search Consultants (AESC) in 2004. This survey of more than 150 executives who are clients of ESF’s revealed that the following attributes were deemed as critical by the majority of respondents: confidential treatment of information; clear understanding of the company’s culture and the position to be filled; market intelligence; and, comprehensive knowledge of the industry. Eventually, they can all be considered as part of the service an ESF aims to deliver.
Another valuable point has been brought up by Fish and Macklin (2004). They argue that working tighter with an ESF increases the quality of selected candidates considerably which can be mainly ascribed to the specialisation factor. Quality becomes in particular a matter of vital importance when a senior position needs to be filled (Finlay and Coverdill, 2002; Fish and Macklin, 2004; Hoffman et al., 2004). Generally, quality could result in ‘employer branding’ i.e. than an image or an organisation soars and the ‘good brand image’ increases the number and quality of applications from potential future employees (Torrington et al., 2008).
Cole’s (1985) approach seems to provide a new perspective and a good summary for this part since he alleges that 75% of all parties involved in executive search win. In the first instance the hired candidate has been placed in a better position; then, the headhunter receives the agreed fee and finally the company achieved its goal of filling the position. The remaining 25% will discussed later. In addition to that, it has been generally agreed (Peters et al., 1997; Fish and Macklin, 2004; Shulman and Chiang, 2007) that the use of ESF’s is lucrative for companies that lack in-house expertise.
The preceding chapters provided background information about the executive search industry and its importance in today’s knowledge oriented and talent-seeking economy. The critical reviewed literature given in chapter two formed the basis for the qualitative research described in this chapter.
This chapter would focus on empirical procedures selected to gather data in order to attempt to answer the research question. The overall research design can be described as exploratory since the researcher has merely limited expertise. Consequently, it is imperative to gain deeper insight and background information on the chosen subject.
3.2 Research Method
Deciding on a research method depends on the way the investigator approaches theory. For this research the deductive approach has been chosen, which “entails the development of a conceptual and theoretical structure prior to its testing” (Gill and Johnson, 2002, p.34) through empirical scrutiny. Bryman and Bell (2007) indicate that this approach has a linear process as follows:
Hypothesis confirmed or rejected
Revision of the theory
3.3 Data Collection
After having outlined clearly the overall approach, the research effort logically turns towards data collection, whereas it should be generally distinguished between primary and secondary data. The following chapter would explain as to how data would be collected in order to achieve all set objectives.
3.3.1 Primary data collection through Qualitative research
According to Burns and Bush (2005) primary data “refers to information that is developed by the researcher specifically for the research project at hand” (p. 146), whereas the research methods regarding this kind of data collection can either be qualitative or quantitative. In this investigation we would rely on qualitative data.
Generally, the researcher would aim to gather credible and valuable information about the practices of executive search and its industry. Therefore, it has been decided that conducting primary research will include interviews with companies and organisations in India and the UK that are apparently involved in executive search. Bryan and Bell (2007) outline that the qualitative research approach describes the technique of collecting data and adequate tools regarding information based on meanings of people. In this case in-depth interviews appear to be the most appropriate tool since this model would allow the researcher to gain detailed information about activities that cannot be observed and rely chiefly on experience (Minichiello et al., 1995). By and large, there are three types of interviews: structured, unstructured and semi-structured interviews (Minichiello et al., 1995; Thomas, 2004; Maylor and Blackmon, 2005; Cooper and Schindler, 2006).
220.127.116.11 In-depth interviews
Considering the mentioned types of interviews, Minichiello et al (1995) argue that there are only two ways of conducting in-depth interviews: unstructured and semi-structured. I found the semi-structured schedule to be the most appropriate. In compliance with the mentioned format I would create a questionnaire containing a set of fixed as well as individual questions. The fixed question partially referred to biographical information of the interviewee. With regard to the individual questions, it would be mentioned in a customised manner considering the individuals experience and background. Generally this format would give me the freedom in view of interfering and asking interposed questions. The questions directed towards the interviewees can all be described as ‘open questions’ by which the respondents could answer in “their own terms and [were] not forced to answer in the same term as they foisted on them by the closed answer” (Bryman and Bell, 2007, p. 259).
18.104.22.168 Procedure and Choice of respondents
Due to the geographic dispersion of participating organisations, the interviews would be conducted via telephone, whereas different time zones had to be considered. The time frame of the interviews would range between 30-60 mins which will allow me to get a deeper insight of things. All the respondents would be sent some few material in advance so that they comfortable with the wide and broad ranging research questions, which I would design. By this, the interviewee will have the chance to completely familiar with the schedule and the topic (Maylor and Blackmon, 2005).
The phone calls would be made through internet and recorded with the help of a digital recorder which I feel would be the most cost efficient way. The choice of respondents would be a mix representing both the organisations and the ESF side where all chosen individuals will possess industry experience of over 8 years.
Though am confident enough in carrying out a successful research these are some inevitable hurdles which I would come across. Because of the nature of the research objective I would be able to interview only a low number of respondents, where the information arising can only be generalised to a certain extent. Secondly, the information concerning the industry and ES itself can be described as highly sensitive, which brings out a possibility that interviewees might hide certain valuable information. Furthermore, it is been recognised that there are hardly any data about companies that use ESFs. This can be ascribed to the fact that there are different descriptions for this particular service. All in all one huge limitation refers to the fact that there is lack of contemporary literature available.
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