The move, which comes on the heels Korn/Ferry's August purchase of Lominger Ltd., a provider of leadership development tools, allows the company to extend its reach beyond its traditional executive search capabilities.
"We are in the process of creating a diversified HR firm," says Gary Burnison, president of Korn/Ferry's Leadership Development Solutions. The company launched its strategic efforts five years ago to meet growing demand from clients.
Terms of the LeaderSource deal, which was announced Wednesday, January 10, were not disclosed. Korn/Ferry paid $24 million in cash last year to acquire 100 percent of Lominger.
"Workforce leaders are recognizing that solely managing the end points of employment just isn't good enough," Burnison says.
Until recently, Korn/Ferry's transformation took place exclusively by developing in-house capabilities in various fields, including executive leadership development and coaching. The acquisitions of LeaderSource and Lominger, however, were made to gain ground quickly.
"Developing the competencies that LeaderSource and Lominger have would take many years," Burnison said. "We can catapult ahead by making careful acquisitions."
Other search firms have rolled out similar diversification strategies. Manpower bought Right Management in 2004 to capitalize on the company's expertise in coaching, succession planning and outplacement.
Search firms are realizing that finding a job candidate is just the beginning of a long and complex process, says Kevin Cashman, who founded LeaderSource in 1977. Teaming up with experts in the fields of executive coaching, leadership development and succession planning enables search firms to improve the chances of success for a job candidate that they pitch to a client.
"It is in the interest of a search firm to have candidates not only be hired by a company but also to have them stay employed because it speaks volumes about the quality of employees they are recommending," says Allison Cheston, chief marketing officer for the Association of Executive Search Consultants in New York.
One of the first tasks for the newly formed entity, whose full name is now LeaderSource, a Korn/Ferry Company, is to create a fresh onboarding initiative. The program will integrate Korn/Ferry's search expertise with LeaderSource's coaching and leadership development capabilities.
"We will not only find the right job candidate but we will help them thrive in their new environment," Cashman explains. The onboarding program will give newly hired employees a 12-month assimilation process that includes coaching and development.
The acquisition boosts Korn/Ferry's network of executive coaches to about 200. LeaderSource has 50 executive coaches, 15 of whom are full-time employees, and posted revenue of $3.5 million in 2006. Some of its clients include General Mills and pharmaceutical giant Novartis. This deal makes it one of the largest players in the highly fragmented coaching industry, Cashman says.
Cheston anticipates that search firms will continue to diversify their lines of business.
"Clients are increasingly looking for a one-stop shop," she says. "And in today's bullish market, companies are more likely to take on challenges that will make them more competitive."
The stakes are high in the field. A recent survey from the Association of Executive Search Consultants forecasts a positive outlook. Some 80 percent of the 186 retained executive search consultants that participated in the study indicate that competition for executive talent is at an all-time high, and 85 percent of respondents expect that the search industry will grow in 2007. Almost 70 percent of the survey respondents plan to increase their staff.
Besides the synergistic gains and the enhancements to client services capabilities, another element that makes business diversification attractive to search firms is the potential for growth. The coaching industry brings in about $2.4 billion and is expanding at a rate of 18 percent per year, according to Cashman. Getting in on the game could produce a new source of revenue for search firms. About 20 percent of Korn/Ferry’s $600 million in revenue for 2006 stemmed from business other than its traditional recruitment services.
Throughout LeaderSource's 30-year history, Cashman says he has declined dozens of acquisition offers. He decided to join forces with Korn/Ferry, however, because of its core competencies and strong brand. In addition, joining forces with the search firm will allow the company to expand outside of North America and Europe, where it already has a strong presence. Korn/Ferry has 70 offices in 40 countries.
LeaderSource will continue to be based in Minneapolis and retain its workforce. Cashman's title will be president of LeaderSource.