The news that the global search industry was hit by a massive downturn last
year will not come as a major surprise to anybody who follows the sector
closely.
A report by the Economist Intelligence Unit says that some search companies
lost up to 40 per cent of their revenues last year.
The report also contains some pretty uncomfortable reading for the major
global players. For example, Heidrick & Struggles, Korn/Ferry and Egon
Zehnder were forced to bite the bullet of over-expansion in 1999 and 2000
and cut staff back last year.
Heidrick & Struggles revealed that revenue for the year was down by nearly a
quarter to $455.5 million and that it had fallen from a $28.6 million
profit to a $2.8 million loss. Fourth quarter results meanwhile were little
short of disastrous, with year-on-year revenues dropping by 40 per cent
and net losses standing at $5.6 million.
Managing partner for the UK office Peter Lever says: "We have gone through
the painful exercise of downsizing the business during the course of last
year and are now ready to weather these tough market conditions." He adds:
"We are well placed for the time when growth returns to the market."
Blip or correction?
The report's findings pose a more interesting question however: Do
headhunters view last year as a correction of a market that had grown too
much in
the previous few years, or was 2001 a blip before the good times roll again?
Lever says: "The current correction of the market is undoubtedly a result of
the dotcom bubble, compounded by a slowdown in the IT and telecom market.
If one looks at performance by established executive research consultants
in the 'bricks and mortar' economy over the course of 2001, it has held up
extremely well compared to the previous year.
"Even if there is no major fallout from Enron, this year will continue to be
tough ? although there will be growth compared to the level seen in the
second half of 2001. And beyond 2002, the corporate focus on human capital
and leadership development means that executive search will continue to be
a growth market."
Managing director of Hux Executive Recruitment Steve Huxham agrees: "The
market was inflated by the dotcom and telecommunication booms. When they
were
hit, it was inevitable that the search industry was going to suffer as
well. The recruitment freezes that are in place at the moment will not last
forever, though ? probably six to seven months maximum. I think you will
see a pick up in the second half of the year."
Dose of reality
But not everyone is that sure. Simon Collyer-Bristow, executive director of
London-based Sheffield Haworth, says: "There's been a large dose of
reality in the market in the last 12 months following a period when banks
and other financial institutions were taking on staff constantly. It was a
classic case of over-hiring.
"If the market returns to the levels that it enjoyed before last year, it
won't be for some time and even then, it is more likely to be in niche areas
rather than across the board."
Collyer-Bristow, whose company headhunts in the finance and banking sectors
in the UK, Germany and France, adds: "2002 will be a difficult year for
search firms ? particularly if they are among those that took on too many
staff. Some of the big players were simply too gung-ho opening offices all
over the globe and hiring consultants, and have fallen down because of it."
He also feels that it is the niche players like Sheffield-Haworth that are
best placed to pick up any new business that emerges over the next 12
months.
"It's about good client management," he says. "As a smaller search firm, we
can offer much better partner relationships with clients than the big
players can.
"Take Germany and France. While the really big institutional banks have got
headcount freezes on, smaller niche banks see this as an excellent
opportunity to pick up good people, and they are the ones that we are
developing relationships with. Credite Agricole, a French bank for example,
has
picked up a lot of people from DZ Bank in Frankfurt recently."
Early signs of recovery
Where does this leave the future? Huxham says: "The UK is in a slighter
better position than Germany in terms of being ready for a recovery. In the
US, the messages are very mixed ? there are some good signals emerging, but
I don't yet see enough confidence there to see a dramatic pick-up."
Lever too is optimistic: "Early signs are encouraging in terms of activity,
both in the UK and continental Europe. However ongoing uncertainty
surrounding Enron and the impact on the financial services sector mean that
it will be a tough year."
Certainly it seems that this year can't be as bad
as 2001. Can it?
This article first appeared in Inside Recruitment: www.insiderecruitment.co.uk