An Executive Recruiter's New Strategy

The recession has hurt the headhunting industry, so executive search giant Heidrick & Struggles will focus more on services, says CEO L. Kevin Kelly

While some companies avoid making big changes during recessions, L. Kevin Kelly, the CEO of executive search giant Heidrick & Struggles, sees the downturn as an opportunity to restructure his business and position it for growth when the economy rebounds.

Over the next five years, Heidrick & Struggles will change its strategy dramatically. While executive search is currently more than 95% of Heidrick's business, search will shrink to 50%. Leadership advisory services will expand to roughly 40%, and developing new technology tools for consultants and clients will become the remaining 10%. With a debt-free balance sheet and $183 million in cash as of the last quarter, Kelly is looking to acquire companies with expertise in topics ranging from executive retention to succession. He is also providing additional training for his consultants cross-selling their new services and investing in closed technology networks for top executives.

Staff Editor Aili McConnon sat down with L. Kevin Kelly to talk about Heidrick & Struggles' new direction. Here is an edited version of their conversation.

How is the executive search industry evolving?

What keeps me up night is not Russell Reynolds, Korn/Ferry, Egon Zehnder, and Spencer Stuart, our direct competitors, but what is going to happen to this industry. We have a 55-year-old business model, and how many companies do you know that survive given a 55-year-old business model? How do we do something that is more transformational?

When it really [hits home] is when you look at all of these technologies today that can potentially disintermediate a search firm. Not at the high-end CEO and board level, but what's going to happen at the lower echelon of search—in the $300,000 salary range—with the advent of companies like LinkedIn?

When it struck me was a year ago when I was sitting here in New York and NASDAQ came out and said they are going to launch BoardRecruit.com, which provides a matchmaking service for candidates and boards of directors. They're charging $350 per candidate.

We took a step back and said, "How do we stay at the forefront of change?"

How are Heidrick's clients driving the new direction for the firm?

We went out and interviewed 65 clients. They said, "You're not aligned properly with us." One of our clients said "Hey, we gave away $60 million in search fees last year." We were happy with our [share], because it was a big client, until they told us they had $60 million to give out and we were just another vendor.