• Patrick Littorin

Headhunters fight for survival

Svensk version

Headhunters began to appear in the United States in the early 1960s. They were quickly established in Europe and from the end of the 1960s until the mid-1980s, a few executive consultants handled basically all recruitment to our large companies and governments. They made big money and "the old boy network" often met on the Grand Hotel's "French porch" in Stockholm to tell each other about candidates, while they ate and drank well.


The industry was highly profitable and competitors popped up like "mushrooms out of the ground". In addition, the staffing industry became legal in the early 1990s and began to compete with a combination of recruitment and staffing.



But for a long time, the biggest international executive search firms - Korn Ferry, Spencer Stuart, Russell Reynolds, Egon Zehnder and Heidrick & Struggles - could still live undisturbed. Their customers were among large international companies that were willing to pay well over SEK 1 million per assignment to find good managers somewhere in the world.

In the early 2000s, however, they were forced to review their business model. On the one hand, staffing companies had gained market share through their wide range of services.


But above all, the Internet and social media had changed the conditions of the industry. Today, basically all key people are traceable online. Today's recruitment consultants no longer need to save listed companies' annual reports or collect old newspaper clippings to find potential executive candidates. Above all, American LinkedIn, which started in 2003, has changed the way it works. Then the problems for the international executive search firms also began, both turnover and profits dropped drastically.


In recent years, the international executive recruitment companies have tried to find new ways to make money. By acquiring smaller companies that work in various ways to improve the performance of existing staff, they offer several additional services. This can be coaching of new employees, evaluation of boards, internal surveys to identify "high potentials" and analysis of the business climate. The world's largest company in the industry, KornFerry, for example, has acquired the test company TalentQ, and the multi-billion company Aon, which mainly works with risk management and outsourcing of personnel, has acquired the test company Cut-e.


The acquisitions and diversification has paid off. 2019 has been one of the industry's most profitable ever, according to the magazine ”The Economist”. KornFerry alone, by far the largest company with over 1,100 consultants around the world, had revenues of almost SEK 20 billion. Almost half (43%) of the revenue now comes from additional services that have nothing to do with pure recruitment.


The next step in the development will probably be research on how artificial intelligence, AI, can improve companies' selection and assessment processes. At least we at Psykometrika are now actively working with some of our customers to utilize machine learning, with the aim of streamlining, simplifying and improving their selection processes.


Sources:

  • The Economist, 2020, February 8th.

  • Psykometrika, 2020.

  • The Economist, 2018, November 24th.

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