Larger recruiting firms have pivoted away from a primary focus on staffing
Heidrick and Struggles announced in their April 28th press release that they had matched their record 2019 revenue targets. They did this not by maintaining their search revenue, but through a 20% increase in consulting revenue. This follows the trend towards offering solutions instead of staffing signaled by Korn Ferry in 2018 when they announced that their non-search revenue had exceeded their search revenue.
Do you have something else to offer now that your clients are not hiring?
In 2001, Korn Ferry cut 500 jobs (20% of its workforce) at about the same time that Heidrick & Struggles cut 300 jobs (13% of its workforce). This week Korn Ferry announced another set of layoffs and furloughs, but insiders have told us that the majority of those being released are recruiters and not consultants. Additionally, a quick search of the Heidrick & Struggles career page indicates that they are still hiring consultants despite the economy. Both are clearly committed to a broader scope of offerings than headhunting.
There is no doubt that large recruiting firms have changed their strategy and have put smaller firms at a disadvantage. Is it inevitable that smaller firms will lose more and more market share, possibly becoming irrelevant? Maybe not.
The Problem: Adding Consulting Services from Scratch Would Take Years and Resources
If diversifying offerings is clearly a part of the largest firms’ strategies, smaller firms are faced with a dilemma — either place your company at risk by investing heavily in building out a consulting practice, or allow their firms to die slowly as the larger firms capture more and more market share.
Option 1: Take the Risk and Invest in Hiring Seasoned Consultants
This allows firms to hire brain power and provides some credibility. However, this option is very expensive given that seasoned consultants expect a high compensation package and the cost of an infrastructure start up is extremely high. Therefore, this option makes the most sense for firms with a lot of cash on hand and who have a commitment from stakeholders to shift strategy.
This solution also comes with a downside. Many hiring managers believe that it is impossible to avoid the conflict of interest for a recruiting firm that provides assessments. They worry that a recruiter will use assessments to identify candidates, store data, and poach the hiring managers’ best people. This mistrust results in clients regularly using Psynet Group to assess candidates presented by the major firms even though they have in-house assessment capabilities.
We are not accusing larger firms of this conflict of interest, but our clients’ statements and actions indicate this perception exists.
Option 2: Do Nothing
Many successful smaller firms have deep relationships with their clients. They will continue to succeed as long as those relationships stay intact. They will lose the low to mid level recruiting opportunities to automation like Linkedin but will still make some money on high touch recruiting opportunities at the top of the organization. For firms with a short horizon and an aging team, this is likely the best option unless they expect to sell the firm.
Option 3: Pair With a Trusted Partner
There is a third way beyond the false choice between the slow and expensive process of building a consulting practice and the slow death associated with doing nothing. We have spoken with recruiting firms who are seeking a partnership that allows them to promote a broader range of services almost immediately. As a third party, it is also easy to manage the perceived conflicts of interest inherent in having everything under the same roof.
The ability to solve these two issues is why many recruiting firms are looking to partner with well established firms such as Psynet Group who employ highly educated and experienced consultants and have worked with a broad range of clients. Our partners compete credibly and ethically with the large recruiting firms and are building a new revenue stream quickly.
Psynet Group, being a boutique consulting firm, tends to identify with the clever and more agile “David” organizations while taking on the Goliaths. Unlike this epic battle, our joint venture partnerships are a win-win. Our partners instantly broaden their scope and we have access to companies that we may have never had the opportunity to serve.