Heidrick and Struggles International, Inc. is one of the largest U.S. recruiting firms. The company has approximately 380 headhunters filling Chief Executive Officer (CEO), Chief Financial Officer (CFO), director, and other high-level positions for companies. It is organized into specialized search groups by industry, and operates in more than 25 countries. Heidrick & Struggles International, Inc. also provides temporary placement, management assessment, and professional development services. The company's revenue in 2007 was at an all-time high and all measures of productivity were up. Despite the rosy picture, there lays a simmering problem of massive upheaval on the basis of demographic opportunities, shifting customer needs, and the challenges posed by technology-driven alternatives. This paper will attempt to identify the problems of Heidrick & Struggles International, Inc. and provide a recommended approach to resolve its problem.
History and Issues
The executive search business emerged in the 1940s as an offshoot of management consulting. By the late 1940s, six of the eight leading firms in the world were founded. Until the 1990s, the industry was relatively small and controlled by private partnerships with high fixed cost. In 2008, the fragmented industry was dominated at the high end by five global firms. A variety of regional and small players competed in certain domains with these industry leaders, followed by thousands of smaller search firms. The five market leaders differentiated themselves from smaller firms primarily on the basis of their ability to serve multi-national clients on a global basis, and by their focus on executive and specialist positions (Eccles and Lane, 2009).
Heidrick & Struggles International, Inc. was founded in 1953 by Gardner Heidrick and John Struggles. It quickly grew to serve national clients in 1957 and international clients in 1968. In the 1980s, all 11 of Heidrick & Struggles offices were in the U.S. and Europe. Its search consultants had never met as a single group; consultants saw the firm as a franchise business, not as a global firm. All Heidrick & Struggles consultants were considered generalists: they have no specialization by practice. In 1983, Heidrick & Struggles International was set up as a separate entity to manage the European operations, but it was later merged with the domestic operations, Heidrick & Struggles, Inc. In 1999, the company made an initial public offering (IPO), by listing itself on the NASDAQ exchange as Heidrick & Struggles International, Inc. (HSII).
In 2008, Heidrick & Struggles characterized itself as "the world's premier provider of senior-level executive search and leadership consulting services." It also focused on "building the best leadership teams in the world." Heidrick & Struggles managers believed that emphasizing senior-level search business created access and influence with top decision makers, maintained and strengthened the Heidrick & Struggles brand, established barriers to entry, and attracted consultants of the highest caliber.
The IPO occurred at the height of the technology and equities bubble of the late 1990s, which was a hectic period for Heidrick & Struggles. During this time, HSII got sloppy and they didn't treat their clients as value customers. They also hired consultants without the required skills. Many partners agreed that HSII management and strategy had been underdeveloped. The post IPO period saw an increase in profits, but it failed to address fundamental structural issues, or instill process discipline.
When Kevin Kelly took over as the CEO of HSII, "there was little in the way of structure and systems either to help manage the flow of information and issues upward to the CEO or across the firm or to organize and carry out policy and process implementation" (Eccles and Lane, 2009, p. 4). The firm's strategy was a document with little tangible impact, not a set of decisions or an action plan that it needed. After became the CEO, Kevin Kelly relied informally on a small number of individuals throughout the firm for the strategic matters. Though Kelly had begun to articulate a strategic vision of his own, Heidrick & Struggles consultants had yet to fully embrace the new direction.
As for compensation, consultants received a reasonable base salary, but earning potential was very high under the firm's bonus scheme, which was based on individualistic billing. The firm used a formula comprising of amount of business originated (source of business (SOB)) and amount of business executed (Fee). Annual individual accrued SOB and Fee credits determined each consultant's total compensation. The formula strongly pushed consultants to attain a high accrual of Fees/SOBs. The compensation system makes the consultants opportunistic and market-driven, but lacks a strategic around tradeoffs and decisions. Once again, it pointed back to a lack of strategic planning.
Heidrick & Struggles partners were not accustomed to the market and demographic developments that evolved in the late 1990s. These developments included new entrants and technology-driven services that undermined the traditional executive search model; increased client sophistication and expectations, and demographic trends that would require search firms to find and evaluate management talent faster and better than ever before.
Strategic Human Resource Management Analysis
Heidrick & Struggles fell into the trap of concentrating on being the world's premier provider and profitable executive search firm that it failed to recognize the internal challenges and foresee and adapt to the external environment impacting its industry. Even when Kevin Kelly articulated a strategic vision, the consultants resisted to embrace the new direction. As one long-serving consultant said, "The strategy process is primarily at the CEO level, and we don't do it particularly well. It's more reactive to ideas from our CEO or our CFO" (Eccles and Lane, 2009, p. 5). Strategic training and development refers to the effectiveness of training and development programs used to improve the ability of employees to perform their jobs well. The better they are at performing their work, the higher the organization's productivity. Mello (2011) says that employee training and development is becoming an increasing major strategic issue for organizations for several reasons. First, rapid changes in technology continue to cause increasing rates of skill obsolescence. The second reason is the redesign of work into jobs having broader responsibilities that require employees to assume more responsibility, take initiative, and further develop interpersonal skills to ensure their performance and success. A third challenge is the increase in mergers and acquisitions. Another factor is that employees are moving from one employer to another with far more frequency that they have in the past. Finally, the globalization of business operations requires managers to acquire knowledge and skills related to language and cultural differences.
Training involves changes and that can be seen as threatening. Organizations can benefit from training, not just from, general efficiency and profitability standpoints; training creates more flexible employees who have a more holistic understanding of what the organization does and the role they play in the organization's success. It is true that "technology won't replace the key variables of judgment, trust, peer acceptance, and value alignment between consultants and client boards and CEOs" (Eccles and Lane, 2009, p. 8), but technology can assist in providing the information faster and more thoroughly.
In 2007, in response to the internal and external challenges, Kelly begun to make changes on several fronts. Among the changes were complementing the executive search business with Heidrick's leadership consulting capability. One change included, Heidrick's own human capital through internal development which significantly enhanced recruitment activity, investing in technology to enhance productivity, and maintaining a high-end brand image. In 2008, Heidrick planned three changes: to add internal training and development for account managers, require successful key account managers to identify and pull additional consultants into a key account to participate in the new team approach, and take work on key accounts into account when reviewing a principal's case for promotion to partner.
Kelly's changes began to show dividends. In the leadership consultant area, by engaging with corporate boards and executive committees, Heidrick's leadership consulting had already led to a number of CEO searches plus global search contracts. In the growing talent and productivity area, senior search consultants were asked to become coaches and mentors to their younger colleagues. The effort resulted in over 100 new consultants added to the business. In the brand extension and enhancement area, Heidrick consultants regularly published articles and books on topics related to search and leadership consulting. Individual offices partnered with local universities on additional research publications. In the exploring technology-driven opportunities area, Heidrick invested in the similar technologies that brought companies and jobseekers together online to serve the executive community.
Mello (2011) stated that training and development of employees continues to be a key strategic issue for organizations. Because much of the return on investment in training and development may be difficult to quantify, organizations should take a holistic view of training and development. Continuous employee development is necessary to maintain or enhance their skills. People need to have their skills routinely updated. The use of strategy in training and development requires that these are aligned to your organizational needs in order to achieve its mission and objectives. It is not sufficient that employees are required to only attend courses. They have to have the willingness and readiness to learn as these are important conditions for effective learning and positive execution of training. Changes in how work is performed and the organizational contexts in which work is conducted mandate organizations to conduct specific, targeted, strategic training and development initiatives as a prerequisite for continued success.