GB 520 STRATEGIC HUMAN RESOURCES

Unit 3 Case Analysis

Heidrick & Struggles International Inc. Harvard Case Study
Travis Dorso

2013

KAPLAN UNIVERSITY

Introduction

Heidrick & Struggles International, Inc. is one of the largest U.S. recruiting firms. The company has 380 headhunters including the 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. provides temporary placement, management assessment, and professional development services. The revenue in 2007 was at its highest peak and all measures of productivity were up. Despite the success, however, there laid a minuet yet progressive problem that began to shift customer needs and the challenges posed by technology-driven alternatives.

Issues

The executive search business began 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 disjointed industry was dominated at the high end by five global firms. A variety of regional 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 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 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 worlds 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 of the late 1990s, which was a chaotic period for Heidrick& Struggles and the rest of the industry. During this time, HSII got careless and they did not treat their clients as valued customers. HSII also hired consultants without the

necessary skills. Many partners agreed that 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 firms 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 firms 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 consultants 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 trends that would require search firms to find and evaluate management talent faster and better than ever before.

Strategic Human Resource Management Analysis Heidrick& Struggles concentrated heavily on being the worlds 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 do not do it particularly well. Its 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; 1) The rapid changes in technology that continue to cause increasing rates of skill obsolescence.

2) 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. 3) The increase in mergers and acquisitions. 4) Employees are moving from one employer to another with far more frequency that they did in the past. 5) The globalization of business operations requires managers to acquire knowledge and skills related to language and cultural differences.

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 organizations success. It is true that technology wont 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. As the continuous advancement of technology and more and more human resource functional capabilities of clients improved to the point that many sought too 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 response to the internal and external challenges, in 2007, Kelly had begun to make changes on several fronts. Among the changes were complementing the executive search business with Heidrick leadership consulting capability; growing Heidrick own human capital through internal development and significantly enhanced recruitment activity; investing in technology to enhance productivity; and maintaining a highend brand image and creating visibility with emerging young global talent.

To extend the learning more rapidly, in 2008, Heidrick planned three changes: to add internal 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 principals case for promotion to partner. Kellys 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 technologydriven opportunities area, Heidrick invested in the similar technologies that bring companies and jobseekers together online to serve the executive community.

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 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.

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.