heidrick & struggles international case analysis.pdf
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Heidrick & Struggles International, Inc.
Case Analysis
Thomas N. Bailey
2/8/2011
Kaplan UniversityGB520
Term 1101DUnit 3
1 Introduction
Heidrick & 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 it is operating in more than
25 countries in North America, Latin America, Europe and Asia Pacific. Heidrick &
Struggles International, Inc. also provides temporary placement, management
assessment, and professional development services. The company’s revenue in 2007
was at 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 recommended approach to resolve the problem.
2 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.
Up to 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 boutique 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
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basis of their ability to serve multinational 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. Heidrick & Struggles 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; and 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),
listing 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,” and 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, increased the probability of downstream work, maintained and
strengthened the Heidrick & Struggles brand, generated higher fees per search,
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 and the rest of the industry.
During this time, HSII got sloppy and they didn’t treat their clients as value customers.
They also hired consultants without the necessary skills. Many partners agreed that
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HSII management and strategy had been underdeveloped. The post IPO period saw
increased in profits but it failed to address fundamental structural issues, or instill
process discipline, a sense of trust in the leadership or pride in the firm.
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. After became the
CEO, Kevin Kelly relied informally on a small number of individuals throughout the firm
on 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 individual
billings. 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 incented consultants to accrue Fee/SOB. The compensation system makes
the consultants opportunistic and market-driven, but lacks a strategic around tradeoffs
and decisions. Once again, it pointed back to 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
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trends that would require search firms to find and evaluate management talent faster
and better than ever before.
3 Strategic Human Resource Management Analysis
Heidrick & Struggles fell into the trap of concentrating to be 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 that, “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 in
training and development refers to the effectiveness of the training and development
programs in improving the ability of employees to perform their jobs well. The better
they perform their work the higher the organization's productivity. Mello (2011) says
that employee training and development is increasingly becoming a major strategic
issue for organizations for several reasons. First are the rapid changes in technology
that continue to cause increasing rates of skill obsolescence. Second 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. Third is the increase in mergers and acquisitions. Fourth is
the fact that employees are moving from one employer to another with far more
frequency that they did in the past. Finally, the globalization of business operations
requires managers to acquire knowledge and skills related to language and cultural
differences.
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Training involves changes and that can be seen as threatening. Organizations can
benefits from training, beyond bottom-line, general efficiency and profitability measures;
they create more flexible employees and 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
thorough.
With the continuous advancement of technology and more and more human
resource functional capabilities of clients improved to the point that many sought to
much of the talent sourcing, assessment, and vetting that Heidrick & Struggles had
always done in the past. “In some cases, clients had developed their own succession
planning, coaching, leadership development and performance management
capabilities” (Eccles and Lane, 2009, p. 8). Those in-house skills threatened Heidrick &
Struggles consultants with loss of search business, so to continue to be successful,
Heidrick & Struggles had to differentiate itself from other search firms.
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; growing Heidrick’s own
human capital through internal development and significantly enhanced recruitment
activity; investing in technology to enhance productivity; and maintaining a high-end
brand image and creating visibility with emerging young global talent. In 2008, to
extend the learning more rapidly, Heidrick planned three changes: to add internal
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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 bear fruits. In the leadership consultant area, by engaging
with corporate boards and executive committees, Heidrick leadership consulting had
already lead 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 bring companies and jobseekers
together online to serve the executive community.
4 Conclusion
Mello (2011) says that training and development of employees is 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 updated all the time. 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 enough that
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employees are required to attend courses; they have to have the willingness and
readiness to learn as these are important conditions for effective learning and thus the
effectiveness of training. Changes in how work is performed and the organizational
contexts in which work is conducted mandate that organizations conduct specific,
targeted, strategic training and development initiatives as a prerequisite for continued
success.
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References
Mellow, J. A. (2011). Strategic Human Resource Management. South-Western
Cengage Learning. Chapter 9, p. 396-409.
Eccles, R. G. and Lane, D. (April 28, 2009). Heidrick & Struggles International,
Inc.. Harvard Business School.
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