Management: Executive Search
Upstarts, the Net, and fussier clients are altering the rulesThe field of executive search was long an exclusive club whose workings were shrouded. But the Net has opened this world up to far more job seekers--and a host of new rivals. Here's a look at the changes and how you can profit from them to find your next job.FOR THE OLD GUARD, PITFALLS AND POSSIBILITIES
Ask any chief executive for a laundry list of things that make him or her sweat, and you can be sure that the difficulty of attracting executive talent will rank high. Because of the buoyant job market and low unemployment, companies are more focused than ever on getting the best and brightest onto their payrolls--and keeping them there.
No one has benefited more from that shift than the executive search business, which has profited handsomely from placing itself at the nexus of this thorny management issue. Worldwide search revenues have nearly tripled of late, from $3 billion in 1993 to an estimated $8.3 billion in 2000, according to Greenwich (Conn.)-based search industry consultant Hunt-Scanlon Advisors.
Yet the search biz suddenly finds itself facing a host of ugly new problems. Growth rates are slowing at the high end even as new Internet-based job sites challenge traditional practices. The shift is putting pressure on pricing--and emboldening customers to become far more demanding. As if that weren't enough, some well-capitalized new rivals have entered the market, hoping to create recruiting businesses that encompass everything from lowly classifieds to top-of-the-line chief executive searches. That means such industry giants as Korn/Ferry International, Heidrick & Struggles International, and Spencer Stuart must adapt or risk losing their longtime dominance. "Our industry has lived a charmed existence for 50 years," says Windle B. Priem, CEO of Korn/Ferry. "Now it is changing. Clients want more service, faster, and they want it cost-effective, with a technology-driven solution."
It all makes for quite a shake-up in the traditionally clubby world of executive search. Long personified by the likes of Spencer Stuart's Thomas J. Neff and Heidrick & Struggles' Gerard R. Roche, who between them have filled some of Corporate America's most prominent CEO openings, high-end headhunting has always been the quintessential relationship business. Unlike the more populist staffing firms--which fill large numbers of low-end jobs--the big- name search firms have used their vast network of contacts to place middle- and upper-level executives. Although they start with jobs that pay upwards of $100,000, the real money comes from filling senior-level jobs, from the $250,000 a year Senior Vice-President up to the CEO. That task is neither fast nor cheap. Finding the right candidate can take up to six months, with the search firm usually pocketing a fee of one-third of the first year's salary.MERGER BLUES. The Internet-based job sites are a long way from kicking search consultants out of the corner office, but that traditional model nevertheless faces plenty of risks. For starters, growth is slowing. After accelerating 20% in 1996 and 25% in 1997, the largest 40 search firms grew at a 14% rate last year, the lowest since 1992, according to Kennedy Information Research Group, a Fitzwilliam (N.H.)-based search and consulting specialist. One reason: The recent spate of mergers is cutting executive jobs. "I have lost at least three to four significant clients recently because of M&A," says third-ranked Spencer Stuart's U.S. vice-chairman, Dennis C. Carey.
At the same time, the success of such Web sites as Monster.com and ExecUNet.com is beginning to eat at the low end of executive search. These sites typically target middle-level managers--now the fastest growing corner of the executive job market. Hunt-Scanlon estimates that the Internet recruiting business will go from $250 million this year to $5.1 billion by 2003--half the size of the traditional search industry. Hoping to take advantage of that opportunity, Korn/Ferry and others are scrambling to respond with their own Internet units (page 80). Still, making the switch is hardly a slam dunk; executive search on the Net is more transaction-oriented, and volume counts as much as selectivity and relationships.
Launching an enormous technology unit from scratch also requires a lot of capital. That's one reason Korn/Ferry, LAI Worldwide, and Heidrick have gone public in the last year and a half. So far, however, the results have hardly been stellar. LAI, after its July, 1997, initial public offering at 12, saw its stock plummet to 6 when it missed some of its 1998 earnings targets. Korn/Ferry's much-heralded February IPO has fallen below its offering price of 14 to about 12, and Heidrick hasn't gotten a bounce since its Apr. 27 IPO at 14, even as the Dow hit 11,000. John Hillenbrand of Credit Suisse First Boston thinks the failure of LAI to make its numbers "left somewhat of a bad taste in investors' mouths."
Moreover, higher competition and expenses may hurt gross margins, which Tom Rodenhauser, president of Keene (N.H.)-based Consulting Information Services, says average around 30% for large firms. Indeed, the more successful the technology-based recruiters, the more heat traditional firms will take. "I expect [search firms] to drive costs down and speed things up," says Dennis Zeleny, vice-president for human resources at AlliedSignal Inc.
Even those clients who prefer personalized executive searches are now demanding more. "The knowledge that we're expected to bring to the table. . . is increasing dramatically," says John Hawkins, managing director at Russell Reynolds Associates Inc. He says clients now want more specific industry expertise. They're also asking search firms to spend more time with them. At Finance One Group, a unit of Bank One, CEO Donald A. Winkler recently hired Paul J. Ray of Ray & Berndtson to fill several posts on the condition that Ray first spend several days getting to know its culture. "It's part of his cost of sales," says Winkler.
All of these financial pressures have helped fuel a consolidation that is bringing new entrants into the business. The most successful so far is TMP Worldwide Inc., a public company best known for Yellow Pages and classified advertising. The owner of the popular Monster.com site, it has gone on a buying spree. Using its high-flying Internet stock as a currency, it has snapped up TASA International and LAI in order to create a full-service advertising and recruiting operation. Says Samuel Marks of Marks International, a consultant to professional-service firms: "The soup-to-nuts concept has real viability."UNTOUCHABLES. Yet the strategy is a controversial one: While there are economies of scale to be had by growing larger, there are also limits. Unlike most industries, an executive search firm can actually be hurt by getting too big. The reason: Most consider employees of one client "off limits" when they search for a job candidate for another client. So the more clients a firm has, the more it shuts itself off from other talented execs.
That's why plenty of small firms think they'll prosper despite the shakeout. Robert D. Kenzer of Kenzer Corp., a small firm specializing in retail and consumer goods, says he has received some 12 feelers from interested buyers over the past two years. But he sees an opportunity to pick up business by taking advantage of the large companies' limitations. That's what happened in April, for example, when Hewlett-Packard Co. awarded its CEO search to Cleveland-based Christian & Timbers Inc. Although HP wouldn't comment, one person close to the search says Christian & Timbers got the job because employees of IBM and others were off limits to its bigger rivals. "It is a power shift in the search industry, almost a changing of the guard," says Scott A. Scanlon, CEO and chairman of Hunt-Scanlon.
Of course, the old guard scoffs at that notion. Patrick S. Pittard, CEO of Heidrick & Struggles, notes that his company has been able to reduce off-limits restrictions from two years to one with little fallout. But with so many new offerings and rivals around, he will have to be careful not to push clients too much. Today, they have options.By Jennifer Reingold in New YorkNOW SEARCHES TAKE WEEKS, NOT MONTHS
When Kelly L. Boyer needed to hire a director of compensation last year, she turned to Korn/Ferry International Inc. She had faith in the executive recruiters. After all, the firm had gotten Boyer her job as vice-president of human resources at Internet highflier GeoCities. But she didn't commission the usual search, a lengthy process in which headhunters scour their Rolodexes for candidates who aren't necessarily looking to change jobs. Instead, she turned to Futurestep Inc., Korn/Ferry's then new Internet subsidiary, which promises to help companies line up candidates in four short weeks rather than the months it typically takes. "I was very, very skeptical at first," says Boyer.
But Futurestep delivered. Within weeks, Boyer received a CD-ROM profiling three candidates screened for skills as well as personality traits likely to match the culture at GeoCities, a whirlwind Marina Del Rey (Calif.) startup that hosts free home pages in common- interest communities. The disk included video clips of interviews with the hopefuls by Futurestep recruiters. She was sold. "They save a tremendous amount of time with the online cultural assessment and the video previews," says Boyer, who has since hired a half-dozen employees through Futurestep. "I think they're fantastic."
The Net is turning traditional executive-search methods upside down. The ability to instantly reach a huge pool of candidates anywhere on the globe allows cyber-recruiters to cast a wide net. And it's cheaper than doing things the old-fashioned way. No more cold calling. No more hunting for a friend of a friend. When recruiting costs plummet, headhunters can broaden their businesses. Those, such as Korn/Ferry, which had targeted the lucrative corner office, are pushing to fill mid-management ranks. And Internet recruitment startups that had focused on the rank and file are moving up to fill top management positions.
Korn/Ferry, which set up its Futurestep site a year ago with The Wall Street Journal as its marketing partner, was only the first to move online. It was followed by the March launch of Heidrick & Struggles International Inc.'s LeadersOnline. And last month, LAI Worldwide Inc. jumped in with LAIcompass.com, which, like Futurestep, uses software licensed from assessment consultants to attempt to match candidates' personalities and ambitions to its clients' corporate cultures.
The number of job-search sites has exploded--at last count, the estimated number was more than 5,000, without counting employers' own Web sites. Most of the popular job-listing sites, such as Monster.com, CareerWeb.com, and HotJobs.com, are patterned after the newspaper classified-ad model: Recruiters pay to list job openings while candidates search them for free. Fees start at $100. That's cheap compared with the traditional approach whereby a firm charges from one-quarter to one-third of the estimated first year's paycheck of the person they place.NEW PROFILE. The proliferation of sites has led to changes in the profile of the typical online job hunter. As late as a year ago, most of the jobs posted were aimed at the high-tech crowd. These days, even managers of nail salons and fast-food outlets are landing jobs online, while high-paying jobs are also migrating to the Web. Says Stephen Ste. Marie, CEO of CareerPath: "We have jobs with compensation well above six figures, and Silicon Valley companies looking for CEOs with stock options."
The trend has some of the older firms on guard. "I think online recruiters will take share from the traditional retained search community" by eating into the low end of the executive-search business, says James M. Citrin, managing director of the communications and media practice at recruiters SpencerStuart. Korn/Ferry Chairman Richard M. Ferry disagrees: "The high end of the market continuously moves up, leaving room for Futurestep."
What will change, Ferry says, is the nature of the search process. As people get more comfortable with automated assessment and as more managers who got jobs using online services move up in the ranks, they're likely to turn to those same sites to find employees. "Search hasn't changed in 50 years. It's more intuitive than clinical, and this is a major innovation," he says.
Futurestep's service uses new technology with a touch of traditional expertise thrown in. When candidates register at the site, they fill out lengthy online questionnaires about their skills and career objectives, working their way through a 45-question case study that analyzes their decision-making style. That information is fed into a database. When the company has a job to fill, it can search that database for both skill and cultural matches, an assessment technique that's proprietary. From there, Futurestep recruiters take over, doing background and reference checks and interviewing the candidates and often their spouses. The best prospects are sent a video kit so the recruiter can do a face-to-face interview. Then, video excerpts are compiled onto a CD-ROM, which the client uses to determine who's worth flying in for interviews.FAT DATABASE. So far, the approach is paying off. With clients coughing up a third of first-year pay for each search, Futurestep will turn a profit by next year's first quarter, says CEO Man Jit Singh. It has closed 50 searches at an average annual salary of $117,000, and it has built a database of 264,000 candidates who earn an average of $104,000. Next year, Singh says, Futurestep will conduct 1,200 to 1,400 searches in the U.S. and an additional 400 or 500 in Britain, where it just opened an office.
The executive search firms' Internet ventures will never have the hundreds of thousands of jobs to fill that such sites as CareerPath and Monster.com boast--but it's more than the old way. "We'll never find 264,000 jobs," says Futurestep's Singh, referring to his current database. "But we want to mentor and manage their careers, and we'll move them up to Korn/Ferry if appropriate." Executive recruiters, with their Rolodexes and telephones and clubby, old-school ways, could never network across 264,000 candidates in the old days. With the Internet, it's a cinch.By Larry Armstrong in Los Angeles, with Wendy Zellner in Dallas and Edward C. Baig in New YorkSEARCHING THE NET FOR YOUR NEXT GIG
Landing a new job figured to be a challenge for George J. Brouder. When Polaroid Corp. downsized the marketing executive in February, 1998, he knew his age--mid-fifties--and experience level would work against him. Brouder took all the usual steps to find employment, from contacting headhunters to networking among peers. But he kept bumping into former Polaroid colleagues who were hitting up the same sources. So he decided to pound the virtual pavement.
Brouder investigated about 20 career sites on the World Wide Web. He pored over online classifieds, heard from recruiters who spotted the electronic resume he had posted, and exchanged E-mail with company honchos. In December, he accepted a top marketing position at LoJack Corp., the auto security system maker in Dedham, Mass. He found the job through Monster.com, one of the Web's largest employment sites.
Where have all the want ads gone? To the Net. CareerPath, a site co-founded by a half-dozen major newspapers, features 340,000 jobs. Monster.com carries nearly 200,000. But while only a few years ago computer and engineering positions dominated Web employment sites, you no longer need a geeky pedigree to find a job online.
Regardless of your field, it would be foolish to bypass cyberspace, whether you're between gigs, contemplating a career change or want a sense of how you stack up against your peers. Potential hires can participate in job fairs, research companies, or network online. If you want to work for a particular company, you can often search openings at their sites and apply on the spot. "We prefer that people apply electronically," says Reginald L. Barefield, a human-resources executive at Humana Inc., a managed-care company in Louisville. Nevertheless, some employers may still require you to fax or mail in a resume.
One way to attract inquiries from companies looking for help is to hang around Internet chat rooms and news groups. By using "spider" or "robot" technologies, recruiters prowl the Web for resumes on career sites and personal home pages. Rick Miller, CEO of CareerCast Inc. in San Diego, figures about 60% of the resumes in the company's database were found through the process. "If they're in the market, we invite them to our site," he says.SCHMOOZING. Executive recruiter Korn/Ferry International scouts for middle-management talent at Futurestep Inc. Candidates who come to the Futurestep.com site receive an assessment of their market value and other customized career feedback, based on a lengthy questionnaire. Besides listing job preferences and credentials, candidates indicate the kind of environment they're used to working in by clicking on such descriptions as "severe margin pressure" or "turnaround."
The Net also makes networking easy. Rather than place 50 phone calls, you can dispatch a single E-mail message alerting 50 people you're ready to make a move. At specialized sites such as BranchOut (www.branchout.com), you can enter your school affiliations, job history, and professional associations and be linked with others who share those bonds. At mbafreeagents.com, you can schmooze with people who have the same degree.
Once you take the plunge online, have a good look around. Explore major job sites such as CareerPath, CareerMosaic, Monster.com, and HotJobs.com (table). For example, Ede Clarke found her managing editor position at Chek-Chart Publications, a Sunnyvale (Calif.), producer of books and software for automotive technicians, through HotJobs. She liked the service because she could track how often a company peeked at her resume. But also look for smaller sites that cater to your field by searching at portals such as Yahoo.com. If you're an attorney, try Lawmatch.com. An underwriter? The Insurance Career Center (connectyou.com/talent), now part of CareerMosaic, can steer you.
Some sites let you enter the type of job you crave, including geographic and salary preferences. They then notify you by E-mail when an opportunity arises. But the Net job search world isn't perfect. Using a personal search agent at CareerBuilder, I typed in "journalism, journalist, editor, writer, and Internet," plus my salary demands. The E-mail I got back contained curious matches, including SQL (structured query language) programmer-analyst and receptionist. CareerBuilder operates Web job sites at several media outlets, including Business Week Online (www.businessweek.com).
Keep a few things in mind before posting an online resume. Once you put it out there, old versions may continue to circulate indefinitely. When you submit a resume to an online database, any company--even your employer--can view it. Some services let you remove your name and address. But it may be hard to mask your identity if your qualifications are unique. HotJobs publishes a list of companies that can search its resume database. If your employer is on it, you can deny it access.PLAIN AND SIMPLE. Of course, you want your resume to stand out. But while you may pep up a paper version with fancy fonts, that's a no-no in the online world. Most employers want you to prepare a document in ASCII plain text, without underlining, italics, and file attachments. Otherwise, the company may not be able to read the thing.
If you're looking for a job in Web design or the arts, you might include a link to your home page or, better still, an HTML-formatted resume, where someone can view samples of your work. Use links to other sites sparingly, cautions Mary B. Nemnich, co-author of Cyberspace Resume Kit (JIST Works Inc. $16.95). "Every time [you do so], you're taking the employer away from you."
You should also insert key words that will pull your resume to the top of the heap when an employer is searching for candidates with particular qualifications. Be specific: Listing "C++" and "Quark" is better than stating you have experience in "programming" and "desktop publishing."
Once you get an interview, bring along a "presentation resume" that's prettier to look at than your online version. Later, you can send an electronic thank-you note. Just don't be too informal. Avoid using all lowercase characters, or smiley faces. Spelling counts, too--even on the Net.By Edward C. Baig in New YorkReturn to top