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

1

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

2

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

3

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.

4

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

5

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

6

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.

7

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.

8