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telegraph.co.uk

Are headhunters heading for the exit?

Highly expensive executive search companies could be in danger of pricing themselves out of the market place, says Colin Cottell

Companies have traditionally turned to the executive search industry as a way of ﬁlling senior positions. But many headhunters could face an uncertain future, if ﬁrms follow the example of two leading British companies.

Philip Horn, head of resourcing for Asda in the UK, says the supermarket chain is increasingly turning its back on headhunters in favour of external research companies because they are so much cheaper.

Horn says: "The cost of using an executive search company to ﬁll a senior director's position with an annual salary of £150,000 is £45,000. But using a researcher who charges £500 a day costs between £3,000 and £6,000."

He adds that last year the company saved over £400,000 through using researchers when recruiting 16 senior executives up to and including executive board level.

"The only thing researchers don't do is conduct ﬁrst interviews. They do mini telephone interviews, go through CVs, set up interviews, bring people in for second interview. The difference in the cost is so huge, and the difference in service is so small. In the past you haven't had a credible alternative that costs a lot less. But today anyone who does not want to pay over the odds will want to investigate research."

Despite these views, however, Horn says that he continues to use executive search companies for some roles.

"They are good where someone with a broad background is needed," he says. But, he adds, "I think they must be losing out. Our spend on them has gone right down. If I was an agency or a headhunter, I would be getting a bit worried."

Horn is also critical of the traditional charging arrangements, of a third of the fee up-front, a third at short listing, and a third when someone is taken on, which are used by many executive search companies.

"They only do it so they can cover their backs in case a candidate changes their mind," he says. "I won't work with anyone who wants to work in that way."

AstraZeneca is another major company that has reduced its reliance on head hunter company.

According to Richard Baggaley, a talent search partner, since it set up a specialist internal team 18 months ago and began to make use of external researchers, the company has saved "in the region of £1m" in search fees.

"The majority of searches now go to researchers," he says. The main exceptions are where a high degree of conﬁdentiality is involved, or where a search company is more experienced. However, Baggaley, a former headhunter himself, says that cost is not the only advantage.

"Time to hire is reduced," he says. "If I have the information up-front, in the majority of cases, using researchers takes three to four weeks to get to shortlist stage compared with six to eight weeks for a search ﬁrm. Why does it take seven weeks to work that out? It is embarrassing."

Mark Gilbertson, head of recruitment at Royal Mail, and until earlier this year head of recruitment at Cable & Wireless, says that he used researchers "almost exclusively" while at the telecommunications company, mainly because they are "a darn sight cheaper, with no change in quality".

"Headhunters are pricing themselves out of the marketplace because of the cost," he says. These criticisms come shortly after the release of the latest survey by Executive Grapevine, a leading directory of the executive search industry revealed that the number of assignments has dropped by 7 per cent.

Helen Barrett, chief executive at Executive Grapevine, says: "There aren’t as many assignments, but the ones there are are worth more.

"Firms are moving up the value chain. There are more senior assignments, and fee income is going up."

"DIY, and particularly having your own in-house headhunting team is quite a trend in the City. A lot of companies feel they are better ambassadors than the search ﬁrms. That is a criticism that has been made."

"But that is not something to be worried about. A good business strategy is knowing what you can't do as much as you can do."

She says there is still demand for search ﬁrms, but one that operates on a different model. This might include working more strategically.

For example, working with a client to look at "where is the next generation of leaders is coming from".

Barrett says that the way search companies charge clients has changed.

"These days there is a lot of variety," she says. "Some companies now work on a third up-front, and two-thirds on completion. But you are also likely to ﬁnd ﬁxed fees, and daily rates."

Avril Kellett, head of European Research at the Witney Group, a City-based headhunter, says it is wrong to compare the full service, which companies like hers provide with "boutique research teams".

"Research is a very small part of recruitment," she says, adding any difference in fees is entirely justiﬁed. Carol Leonard, a director of Whitehead Mann, a headhunting company, says that bringing headhunting in-house is not a new idea.

"All these things are cyclical," she says. And while she admits that saving money is important for clients, it isn't the be all and end all.

Leonard says: "It depends if they are getting the right person. If not, it could turn out to be a false economy. At board level it goes against all best practice and corporate governance rules" which require that companies "trawl the market" to get the best person