Managing the Search Firm

May 19, 2006
Search firms crippled by the 2001 recession are nearing full recovery as client companies resume hiring and labor markets tighten for specific occupational groups. With more employers ready to spend part of their staffing budget on outside recruiters, vendor management issues are back on the table.

    "There is no rule book for clients or recruiters," says Jeff Kaye, CEO of Kaye Bassman International Corp., a Dallas-based search firm with 80 recruiters.

    To complicate matters, the search industry itself is in the middle of a substantial transformation, with the lines between retained, contingent, container and contract recruiting increasingly blurred.

    Two-thirds of the top 25 U.S. recruiting firms are reporting double-digit revenue growth this year on top of a 21 percent increase in 2005, according to Hunt-Scanlon, a market research firm. Fee revenue for Korn/Ferry International, the industry heavyweight, jumped 38 percent last year to $452 million, with 474 recruiters conducting more than 8,000 searches worldwide.

    The search industry is expecting a 27 percent increase in the number of assignments received from corporate clients in Q2 and Q3 2006, according to the survey of 145 executive recruiters by Execunet, a recruiting network. To prepare for sustained growth in the employment market, 55 percent of search firms plan to hire additional professional staff in Q2, a significant increase from the 32 percent that added staff in Q1.

    The emerging trend in the search firm industry is to create more vertical capability, with executive search firms moving into middle management and technical recruiting. Korn/Ferry is part of this emerging trend. Its new Futurestep entity is moving into middle management recruiting and recruitment process outsourcing (RPO), the logical next step in building broad, cost-effective relationships.

    "RPO is one of our fastest-growing segments," reports Peri Hansen, senior client partner at Korn/Ferry headquarters in Los Angeles.

    This enlargement in search firm offerings creates the possibility for more significant and nuanced relationships between the firms and their client companies. As employers not only increase their use of search firms but also expand the range of positions placed with them, effectively managing the relationship becomes even more central to overall recruiting success.

Selecting the firm
Managing the relationship begins with selecting the right firm. The first essential criterion is the search firm’s areas of specialization.

    "In today’s marketplace, knowledge is critical," Kaye says.

    "Any good recruiter knows how to conduct a search. The more specialized the search firm, the more its recruiters know about the industry, the companies and the labor market. With that knowledge they can ensure that they are covering the marketplace for the client."

    Kaye advises companies to choose search firms by following the FIG acronym: function, industry and geography.

    "Pick a firm that specializes in your industry, and within that firm, look for the recruiters who specialize in the functions and geographies you need," he says.

    Large employers may need to pull from a cluster of search firms to cover specialized functions.

    The second critical issue in the selection process is the search firm’s flexibility in meeting client needs.

    "No two searches are the same," Kaye says. "Some firms have a defined process that they attempt to impose, but a healthy number of organizations adapt their approach to the client’s needs."

    The search firm should be willing to offer a customized blend that might include retained searches to fill urgent critical needs and positions above a certain level, contingent searches for lower-level positions, contract searches for specific jobs and container searches--a contingent/retainer hybrid--for others.

    "The lines that existed between positions that required a retained or a contingent search were destroyed in the early 1990s, but the industry terminology has not adjusted," Kaye says.

    His firm uses the term "customer-focused" to cover all the possible relationships that might be negotiated.

    In addition, a flexible search firm not only offers different contractual arrangements to meet the client’s needs, but also demonstrates the ability to place candidates up and down the client’s organization, including high-level executives and lower positions.

    The third selection issue is the search firm’s track record.

    "You need to know how many successful searches for a specific position the recruiter has conducted for the past two years, and for who," Kaye says.

    Recruiters may be reluctant to name their clients, and confidentiality may be a legitimate issue in some cases.

    "There’s no bright line, but if a recruiter claims that more than half of his or her clients must remain unnamed, that should raise a flag," Kaye says. "If the search firm or the recruiter brags about 10 placements but will only name two, run for the hills."

    The client company needs a firm that has done enough work for some of the client’s competitors to demonstrate competency in the industry, but not so much that the search firm is essentially unable to recruit from any of the competitor companies.

    "This is a blockage issue that can lead to the big no-no in recruiting, which is recruiting in the front door and pulling out the back door," Kaye warns.

    To avoid blockage, a search firm should limit its market share within an industry and be prepared to divulge whom it works for. Ideally, the search firm will do a large amount of business for a relatively small number of companies within each sector.

    The final element is connectivity with the recruiter.

    "Look for competency first, and then the potential for establishing a solid relationship," Kaye advises. "You want a partnership for the future."

    Information about the tenure of the recruiter and the search firm’s retention rate is also critical. High turnover at the search firm may raise questions about its ability to perform.

The most important aspect of vendor management hinges on human resources’ ability to view the search firm’s responsibilities as an extension of its own work, according to Brian Drum, CEO of Drum Associates, an executive and middle management search firm based in New York City.

    "Expectations should be clearly outlined in an engagement letter or agreement for each project. The agreement should specify the hierarchical and functional specifics of the open positions, including the scope and key responsibilities and the required qualifications and compensation," he says.

    The agreement should also set the timeframe for the search, including milestones such as the first flow of candidates for review, the prequalifying phase and interviewing process. In addition, it should note the communications and reporting relationship between the client and the search firm and the fees and payment schedule. For repeat clients, the search firm may use an overall contract to set parameters, Drum notes.

    Process issues must be addressed during the planning stage. Kaye counsels staffing executives to schedule an integration meeting with the recruiter and the line manager--and the human resources manager, if relevant--to establish goals and accountabilities.

    "You need crystal-clear expectations on both sides on a detailed basis," he says.

    For a large recruiting assignment involving a national or international search, the integration meeting should include the entire team and may take place on a virtual basis.

    "There should not be a systemic process that the search firm does not deviate from," Kaye says.

    The search firm should remain flexible on issues such as the method and timing of updating the client company on results, the interview and offer process, and the timeline for filling the position.

    The integration meeting should also define the roles that human resources, line managers and the search firm will play during each part of the hiring process. Any issues about the responsibilities of the parties should be settled at this stage.

    "Establish on the front end how the client wants to work with the recruiter and all the factors that will affect the results of the search," Kaye says.

Gauging results
   At Korn/Ferry, Hansen tells clients to invest in weekly or biweekly phone calls to create a "deep, ongoing dialogue" about the search firm’s results. The discussion should include updates on meeting the timetable for steps in the recruiting process, potential delays, any gaps between the candidates’ qualifications and the job specifications, and feedback from the marketplace about the position and its terms.

    "Short-term performance issues hinge on whether the search firm met agreed-upon dates for presenting slates of candidates and produced candidates with the qualifications specified," Hansen says. "But the best measure of true success is the long-term performance of the search firm for multiple searches over three or four years."

    To evaluate recruiting results, the client company should look at the quality of the hires over time, including their track record for promotions and their contributions to the company’s success. This long-term approach allows search firms to adopt a "trusted advisor" role in the client company’s staffing function.

    As client companies hand over more parts of the recruitment process to create greater efficiencies, RPO may become the logical next step, with the search firm taking on the entire recruiting and onboarding process for a range of positions. RPO is most likely to become the new model for recruiting at the manager and director levels, Hansen says.

    Drum believes that retained searches will remain the preferred approach for filling C-level positions and contingent arrangements will continue to dominate lower-level searches. Hybrid arrangements will increasingly become the preferred method for filling the vast range of jobs in the middle.

    As the search firm industry continues to generate new arrangements for larger numbers of jobs, managing the relationship takes on the more nuanced tones of partnership. Workforce management executives can exploit the more flexible approach to produce increasingly targeted searches and greater efficiencies from outside recruiters.