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Running Head: Strategic Recruitment Critical to Organization Success

Unit Three: Heidrick & Struggles International, Inc. By: Katherine Moore Kaplan University GB520: Strategic Human Resources Management Professor: Dr. Andrew Klein March 27, 2012

Running Head: Strategic Recruitment Critical to Organization Success

Strategic Recruitment is critical to the success of an organization in meeting its goals and mission because an organization needs people who are able to think outside of the box and seize concepts that are not customary to the organization. In order for an organization to be successful they must be able to adapt to change. Strategic recruitment details the importance of staffing an organization. According to Mello (2011), staffing is the process of recruiting applicants and selecting potential employees remains a key strategic part of human resource management. A successful strategic recruiter will recruit employees who can help motivate and inspire current staff. This can bring bright and innovative ideas to a stagnant organization. One of the first steps that an organization needs when it is considering expanding its headcount is to make the strategic conclusion of whether to hire temporary or permanent employees. In order to do this, a manager must precisely predict how long they expect for an employee shortage to last. If an organization decides to hire permanent staff, one of the first vital questions that need to be addressed is whether they will recruit internally or externally. Recruiting from an organization current employee pool can be beneficial in a number of ways: (1) Performance data is already available on the employees; (2) Employees are motivated from promotions within a business; (3) Education and socialization time is reduced and lastly, internal recruitment is often much faster and less expensive than hiring outside of the organization. (Mello, 2011). Although there are some advantages there are also some disadvantages to hiring internally. Internal recruitment can become very cutthroat and biased which can promote dysfunctional variance and tense interpersonal relationships. Secondly, the employees who are not chosen for the position can experience diminished confidence and performance, especially if they felt that they were more qualified for the position. Thirdly, ongoing promotions from within can support maintaining the

Running Head: Strategic Recruitment Critical to Organization Success

status quo. On the other hand, external recruiting also has its advantages and disadvantages. Not shockingly, the advantages of external recruiting are consistent with the disadvantages of internal recruiting. External recruitment tends to facilitate change and more useful within an organization. It can allow an organization to expand their knowledge base and expertise from the employees within the organization and help bring in many new innovative ways of thinking. Also, the external employees may have a better approach of solving problems that have overwhelmed the organization for years. On the contrary, external recruitment can be very expensive and time consuming. There is also a chance of more tension in the workplace from the internal employees who applied for the position but the organization chose someone externally instead. (Mello, 2011). In February 2008, 18 months into his position of chief executive of the Chicago-based administrative search firm Heidrick & Struggles (Heidrick), Kevin Kelly had very good reasons to be proud of his accomplishments thus far. The 2007 revenues had approached $620 million and the operational margin was 12%, which were both at an all time high. All of the revenue came from outside the United States and was up 30% of the revenue from just three years prior. Every aspect of their productivity was up: Heidrick search consultants had fulfilled a record of 5,102 searches in 2007 and had an average fee of $114,000 per search, which had increased 13.6%, from the previous year. Also, the average revenue per consultant had increased in comparable magnitude on 2006, to $1.5 million in 2007. Their operating earnings were up by 58.9% to 79.5 million and they had a steady decline in their administrative and general expenses to 19.6% revenue from a high of 34.6% in 2001. (Eccles & Lane, 2008). Nevertheless, in spite of the glowing statistics, Kelly, was concerned that the executive search industry faced immense turmoil based on the demographic opportunities that were shifting from the customer

Running Head: Strategic Recruitment Critical to Organization Success

requirements and the challenges that technology-driven alternatives posed to the conventional executive search models. Kelly worked hard to develop opportunities that he foresaw for new contributions but desired that Heidricks 386 consultants be more enthused and motivated for the need to transform as he did. Some of the chief issues surrounding the organization were that Kelly reached the chief executive role at Heidrick partly based on how he turned the operations around in Asia and Europe. He actually came into the search business unexpectedly while he was job hunting in Tokyo after being in the mortgage banking industry for two years in the U.S. As a matter of fact, the search industry was the farthest occupation in his mind. But amazingly, after a few months in the industry, he developed a love for the work involved. Kelly was recruited in 1997, after he had been with search organizations in both New York and Tokyo, to run the financial services in Tokyo. He was quickly promoted and by 2000, he was in charge of both Heidricks Toyoto office and the firms financial services business in the Asia-Pacific region. (Eccles & Lane, 2008). In September 2002, Kelly took on additional responsibility for all of Heidricks Asia-Pacific business. He stated that despite the regions vivid profitable projection, it was only a $21 million business and had the entire international customers; they still had to do minor streamlining. In one particular location, he had to decipher through bad acquisition and associates who were underperforming. The Asia-Pacific region generated $78.6 million in 2007. In 2005, Kelly was put in charge of Heidricks European operations, which had not yielded a profit since the beginning. His budget was $26 million and he had to reduce headcount by 70 positions and developed the virtual office concept. What Kelly discovered was that the country managers were hesitant in the past to recruit new consultants due to their low production

Running Head: Strategic Recruitment Critical to Organization Success

drained the office P & Ls and their partners annual bonuses. In order to break the trend, he proposed that they recruit new staff to expand the business. He also insisted that they count the additional revenue at a regional level and treat the new hires as regional virtual offices and he invested a significant amount of energy into this new expansion. (Eccles & Lane, 2008). After the CEO Thomas Friel announced his retirement plans in 2006, Kelly was one of three candidates listed to succeed him after thorough internal and external search. Kelly was ultimately chosen to start his new position on September 15, 2006, and took over an organization, that despite its strong brand and constructive presentation, nevertheless, had lost their market control. It was Kellys responsibility to recover that headship. (Eccles & Lane, 2008). Another major issue surrounding the organization was that the executive search business emerged in the 1940s as a subsidiary consulting management firm. Six of the worlds leading eight firms were founded in the late 1940s. Until the 1990s, the business remained relatively undersized and slow to change. They were controlled by private partnerships with high fixed expenditures. In 2008, the fragmented industry was dominated at the high end by five worldwide firms. The five market leaders separated themselves from smaller firms primarily based on the fact that they could serve multinational client companies on a universal basis. Another differentiation was that they focused on expert and managerial positions which paid $300,000 or more a year. Another key issue surrounding the organization was that Heidrick & Struggles were founded by Gardner Heidrick and John Struggles in 1953. They rapidly grew beyond its Midwestern roots to serve national clients beginning in 1957 and international clients with the launching of a London office in 1968. All of the 11 Heidricks offices were in the U.S. and London. Only two Heidricks consultants were female. They had never met as a single group and

Running Head: Strategic Recruitment Critical to Organization Success

the consultants did not see the firm globally but as a franchise firm. All of Heidricks consultants were considered generalist and they had no specialized practices or functions existed. Heidrick & Struggles International was set up as a separate unit to supervise Europes operations but merged with the domestic operations, Heidricks & Struggles, Inc. before the company made an initial public contribution in 1999 and listed its shares on the NASDAQ exchange as Heidrick & Struggles International, Inc. (Eccles & Lane, 2008). In 2007, the board, CEO and other senior level searches contributed half of Heidricks total revenue. The management team of Heidrick believed that their emphasis on senior-level search business created influential access to their top decision makers and also increased the probability of downstream employment and assisted in the maintenance and strength of their Heidrick brand. It also was their belief that this strategic approach generated superior fees per searches, established barriers to entry and also attracted consultants of a higher quality. In 2008, Heidrick classified itself as the worlds premier provider of senior-level executive search and leadership consulting services. (Eccles & Lane, 2008). A decade after the IPO, few Heidrick consultants argued that being a publicly listed organization was an unalloyed advantage. One of the consultants stated that a problem was with their risen success they began to slack due to their success. After their bubble burst, they went back to customers who didnt feel that the organization cared about them any longer. Despite their improvements, many of the partners were in agreement that Heidricks strategic management had been undersized for some time before Kelly took over as CEO. Some felt that with respect to their management, when Kelly took over the firm, that there was little structure in their operational system to help handle the flow of information and the issues that were upward to the CEO or even across the firm to carryout their guidelines and procedure implementation. Heidrick began to organize the operations by well-designed and production groups and

Running Head: Strategic Recruitment Critical to Organization Success

embedded the functional practices the board, C-suite executives, financial officers, legal, research and development along with the human resource management team. (Eccles & Lane, 2008). Another issue was with respect to their strategy, Friel had hired both strategic experts as well as chief innovative officers in the latter to investigate potential new service contributions and business models. Nevertheless, strategic documentation that was presented to the board had very insignificant tangible force. To a degree, after Kelly was appointed CEO, he chose to hire a monitor company, a boutique strategic consulting firm in order to develop strategic assessment of the firm. Although, Kelly had began to develop his own strategic image his firm did not entirely embrace his innovative approach. Another issue with Heidrick organization was their compensation plan. The consultants received a reasonable base salary but their earning was considerably elevated under their bonus system. They had two formulas comprising of two chief elements: amount of business (termed SOB or source of business) and amount of business executed, (termed Fee). Compensation is a major issue at all search firms, especially Heidrick & Struggles. They believed in order to have the best they needed to have the best people. To make matters worse their model was complex and created a tense environment where employees had to work harder to earn the same income elsewhere. This created an excessive overhead for their size. Another issue surrounding the organization was that Kelly enthusiastically supported a selection of new technology driven initiatives in order to boost Heidricks competitive edge in order to increase their revenue. He worked with Jeffrey Hunter to research the market impact of a range of online communities in order to network their business and social networking sites

Running Head: Strategic Recruitment Critical to Organization Success

such as facebook, LinkedIn and MySpace to name a few. He even paid $3 million for 19.9% of Visual Careers which was a startup combination of LinkedIn and MySpace capabilities designed to target business managers. Some of the alternative courses of action that Heidrick could have taken were to have better investments with an established financial path. Perhaps Heidrick would have gotten more reverence from his team if they were assured that his financial decisions were wise. ((Eccles & Lane, 2008). Another alternative course that Heidrick could have made was to determine if the time and money that he spent on companies with technology-based solutions the right path to take. Even though he had very innovative ideas he could have taken more cautious steps in maintaining the companys momentum. (Eccles & Lane, 2008). Another course of action that Heidrick could have taken was to invest more in their employee engagement. Many employees are apprehensive to change. His management team was mostly generalists and therefore he could have used more specialized training in order to promote unity within his organization. (Eccles & Lane, 2008). In conclusion, strategic recruitment is very important to an organization. The approach that the executive uses will determine the success of its organization. The staff and the manager must come together as a whole in order for the business to have a healthy environment where the company can thrive.

Running Head: Strategic Recruitment Critical to Organization Success References:

Eccles, R. & Lane, D. (2008). Heidrick & Struggles International, Inc. Retrieved from http://harvardbusinessonline.hbsp.harvard.edu/b01/en/common/item/detail.jtml? id=408066&referral=8636&requested=78872.

Mello, J. (2011). Strategic Human Resource Management. Mason, OH: South-Western Cengage Learning.