The Executive Search Business Model and the fable of the Emperor’s New Clothes
July 29, 2011 by Harvey Wigder · Leave a Comment
If talk to any executive search firm about filling your opening, they will tell you that they will do an awesome job. They might assert the value of their contacts, the skill of their research department or their ability to fit people to your company. You should consider these claims carefully.
In other blogs we have documented the sad truth that less than forty per cent of executive candidates last 18 months, and have shown you that one of the leading and a most respected search firm admits this is true. Given these statistics, you might ask, “What is going on and why is successful search so difficult?”
The executive search firm’s business model is straightforward in its simplicity. There are three major elements:
- Client tells the search firm the position it wants to fill and skills and personality desired,
- Search firm finds excellent qualified candidates, and
- Client selects the candidate it thinks is best, and hires him or her.
The first step in the process, the client setting the specification, sets up a fantasy situation that can be likened to the fable of the Executive’s New Clothes in that the Emperor’s vanity gets in the way of his discerning the simple truth that the garment he was promised couldn’t be produced.
The success and failure of an executive placement is not only about whether the right executive is hired! It depends on many factors including:
- Realistic understanding of what the new executive should accomplish to be successful,
- Particular challenges posed by the hiring company and the way it operates in achieving that result, and
- Hiring executive and organization’s being willing to accept flaws in their processes and take some of the responsibility for making the new executive successful.
When search firms join their client in the belief that they only variable making for success is the candidate, they are buying in to the client’s fantasy of his or her omnipotence in understanding the needs of the organization, because they benefit from it. They don’t risk alienating the client by telling that he should dig deeper to understand what is needed for success; they deliver strong candidates, let the client chose, and collect their fee and leave. This is a safe and profitable business.
We don’t want to overstate and say that the traditional executive search model is never appropriate or that search firms never do a good job. That clearly isn’t the case. However, we believe that every search should start with an assessment that helps the organization dig deep and understand what is most important for the success of a new executive and what needs to be done to ensure that the executive isn’t in a job that can’t be done. Only then, we believe, should the focus turn to the hiring specification.
Heidrick & Struggles Opens Its Kimono
July 29, 2010 by Harvey Wigder · Leave a Comment
In a recent article in the Financial Times, the new CEO of Heidrick & Struggles, one of the nation’s leading executive search firms, tells about changes resulting from a recent internal study of the results of 20,000 searches.
“We’ve found that 40 per cent of executives hired at the senior level are pushed out, fail or quit within 18 months.”
Some industry observers who saw that quote used it to bash the firm. For example, Staffing Advisor says “Astonishing. He’s describing a 40% failure rate by one of the most trusted and reputable brands in the executive search business. (If that statistic is true, I’m glad they didn’t build my house or service the breaks on my car.)”
Staffing Advisor was being disingenuous because they know that Kelly is only admitting what other observers have known for years. It is hard to find and integrate executives into a new company. Failure rates are high and the reason is cultural fit, not skills.
Kelly is a young CEO who earned his recent promotion because of his successes building revenue in the Heidrick regions he managed. He is using this research as a basis for introducing new services and income streams to the company. To continue quoting the Financial Times article: “The firm now offers companies everything from initial training and early feedback for their new recruits to regular assessments of current executives and succession planning and staff development programs.” The article then quotes a killer analogy. “Mr. Kelly likens the services to the work of an organ transplant team, which not only locate and attaches the new heart or liver but also follows up with the patient to make sure the transplant is not rejected. Such “leadership and advisory services” now account for 10 per cent of Heidrick’s revenue. Mr. Kelly hopes to push that number to 40 per cent over the next five years….”
I am sure these new services will be attractive to the Fortune 1000 firms who are most apt to use the services of Heidrick & Struggles and the other big brand search firms. This is the CYA mentality immortalized in the phrase, “You can’t go wrong with IBM!”
If Heidrick and the other big search firms had the courage to take a deeper look, they might take a Deming approach and consider the failure rate as having something to do with their processes and business model and tackle the question: What can we do to improve our processes?
At Fulcrum, we have recognized the problems in the big-company search model for years. We improved our processes several years ago and we provide a 100% satisfaction guarantee. We are happy to see that a giant like Heidrick and Struggles is beginning to get it, and is offering (for an additional fee) many of the services we already provide as part of our stand search package.
If you go to Heidrick’s website, you will see the array of services they offer and learn about the many experts who provide them. On the other hand, if you go to the Fulcrum web site, you will see a simple promise: a guarantee that we will get it right. Let the clients decide which firm gets it right.
What does the BP oil spill have to do with executive recruiting?
June 21, 2010 by Harvey Wigder · 3 Comments
Every night on the evening news, we see oil soaked animals and witness interviews with unfortunate and hardworking people who can’t make their mortgage payments. Then we cut to the underwater camera which shows the continued rapid flow of oil and finally we switch to a map that shows us a bigger and bigger area of destruction. Recently, ABC Evening News superimposed a map of Nebraska over the Gulf. Maybe by now, they are showing Alaska. Last weekend, in acts of PR “genius” BP’s Chairman sympathized with the “little people” and its President attended a yacht race,
As this goes on we get angrier and feel more hopeless. We wonder how and why the parties could have done what they did, why we can’t fix it faster, and last, who exactly is responsible.
Assigning responsibility is tricky. Certainly BP underestimated risks and cut corners and deserves its current prominence for malfeasance. But, the responsibility is broader. The oil industry wasn’t prepared and this isn’t the first leaking rig. The government structure for regulation was in place, but the people who did the regulating didn’t act in the public interest. Despite the warning signs, our appetite for petroleum fuels remains unabated. The consequence seems to be riskier and riskier drilling. Should we hold successive administrations responsible for insufficiently dealing with this potential crisis?
Besides bail out, the solutions that are now being proposed address responsibility and punishment. The mechanisms are increased penalties and better regulation. Given the current malaise in Washington, the Congressional debate on how exactly what to enact will go on for years and will end with the public having little confidence in the final result.
Last week the news also brought the story of a Tylenol recall because bottles manufactured in Mexico gave off an offensive, and to some, sickening odor. Before BP took them off the top half of the page, Toyota also showed offensive irresponsibility. The problems caused by the Greek governments irresponsible stewardship of the country’s economy have also impacted us all. The sources of threat are everywhere! If you believe that global warming is in progress, that ups your level of concern about the fate of our earth.
Our ability to cope hasn’t kept up with our ability to manage global interdependency. National governments are now dealing with issues of international impact with agreement between nations almost impossible because of diverging interests.
Dealing with these issues will require systems thinking on an international scale with a corresponding recognition of the problems and a will to deal with them. The track record isn’t good so this is highly unlikely. I can only anticipate a long series of unanticipated disasters. These issues don’t have a single culprit or even a root cause. The problem is that we can’t manage a diverse system. Fortunately a company is a smaller entity than the world economy and some are managed very well.
Executive recruiting is more problematic than the search industry wants to publicize. Just to get you oriented, recent surveys have shown that 40% of newly hired CEOs don’t last 18 months. For more metrics that show how dismal executive retention rates are, click here.
When you are an owner who sees that a hiring mistake has been made, you are seeing an oil leak on a smaller scale as the business makes bad decisions, looses market credibility, experiences drops in profits and morale, and begins to lose its best people. The cause can be summarized by this phrase: people get hired based on their resumes and get fired because of their personalities and their failure to provide leadership in the right way in an organization with a specific culture.
A non-systems oriented search will list the skills and experience that the resume of the new executive should contain. On the other hand, a systems perspective would consider the culture of the organization, its strategic plan, the role a new executive can play in implementing it and the obstacles the new executive would have to overcome to be effective. The specification would go beyond the resume and consider personality, character and ability to fit into the culture while simultaneously being a change agent.
The systems view would then go broader still: It would consider that the organization and its current leadership need to collaborate for success and therefore will have as much or more responsibility for achieving the organizations goals as the new executive. That is follow up and integration is included as an important step for success. Both the organization and the new executive need feedback to ensure they stay on track to achieve the larger goals of the organization.
Conclusion
The time for limited, non-systems thinking has past. Those who are engaged in executive search can continue to make the mistake of seeing the responsibility for success as only being in the hands of the person hired (e.g. if that person doesn’t work out, we hired the wrong person) and begin to take a broader systems look at what the organization wants to achieve and the responsibility of the whole for achieving it.
Six Keys to Successful Hiring in Private Businesses
May 4, 2010 by Harvey Wigder · 1 Comment
Companies have traditionally defined successful executive hiring as finding and hiring an executive with the requisite skills, experience and personality for the position. From this perspective, if the executive fails, it is because the wrong executive was hired. Unfortunately, over 40% of executives leave within the first 18 months, proving time and again, that hiring the ‘right’ executive does not necessarily guarantee success.
At Fulcrum, we take the common sense view that success is not achieved the day an executive is hired, it is achieved over time. We define success as hiring an executive who helps a company achieve its objectives and the company becoming stronger after the executive is hired.
It is easy to blame performance failure on a new executive when it is clear that objectives were not achieved and the person and situation did not match as well as hoped. A more honest view looks at the executive and the organization to diagnose the causes of failure.
At Fulcrum, we believe that the owner and new executive must collaborate and plan for success. We list the six keys to successful executive hiring below.
1. Prepare Yourself for Change
One of the saddest failed executive hiring I witnessed was by an owner who hated running his company, and was unsuccessful selling it because his asking price was too high. Rather than improve his business to increase its value, the owner decided to hire an executive to run the company for him. Unfortunately, since the owner did not understand the need to build value, he set out to hire an executive with the contrary objectives of: 1) having significant talent and 2) behaving like a clone by operating the business the same way he did.
A proactive person was hired and every idea for change was knocked down. The relationship lasted six months. It was a disaster for both the company and new executive.
The truth is there are opportunities for change in any organization. Sometimes the important opportunities will be in sales and marketing: what is sold, how it is sold and to whom. Other times change will be in capitalization, improving internal operations or building a strong management team.
The hiring owner or CEO should understand that hiring a seasoned, proactive executive implies change. During the hiring process, the owner needs to understand: 1) what the executive candidate will seek to change, and 2) buy into how the company might be different as a result. If not, the relationship starts off with a basis for conflict and failure in place.
2. Gain Commitment of Management Team Early On
Too often, an owner or CEO decides to hire and then postpones getting the balance of the management team involved in the process. Whether this is due to lack of management skill or impatience to get the job done, this is a crucial mistake for two reasons. First, the wisdom of the team is not utilized to define needs and objectives, the skills to achieve them, or evaluate executive candidates. Second, the team loses an opportunity to gain a consensus on the problems that the candidate will seek to solve, and a commitment to any of the programs the candidate will seek to initiate. A lack of consensus forces the new executive to work in an environment in which the balance of the organization does not understand their mandate, or the role they need to play in achieving the company’s objectives.
It is essential for owners to channel the insights of their management team and key employees when initiating the hiring process and engaging them in the selection process.
3. Commit to Each Other’s Goals
Both the hiring executive and the new executive bet an important part of their future on the success of their new working relationship. Often, the hiring executive focuses on their own goals, without understanding that the goals of the new executive will drive their own actions and/or satisfaction with results.
Both parties need to understand what the other wants to accomplish, and be committed to achieving mutual success. This implies a literal contract and a psychological contract with fair and proper terms built on a foundation of mutual respect.
Owner-Managed Companies Have an Advantage in the War for Talent
May 4, 2010 by Harvey Wigder · 1 Comment
In more than 20 years of advising business owners of private companies on hiring and retaining top talent, I’ve witnessed unique problems they face in building their management teams as they grow their companies.
In his seminal book Good to Great, Jim Collins stresses that getting the right people on the bus is paramount to building a great organization. While hiring the best people is a challenge for both private and public companies, it’s a more daunting task for smaller, privately owned companies that must compete with larger, public companies for the same talent pool. Smaller, private companies are at a competitive disadvantage when it comes to hiring top talent for three reasons:
1. Lack of large recruiting budgets to find top talent;
2. Lack of brand name recognition and prestige to woo top talent; and
3. Lack of competitive compensation and benefits packages to hire top talent.
That said, I’m about to contradict myself and argue that these hiring challenges are no longer hurdles. This exact point in time — the early years of the 21st century — offers the greatest opportunity in modern business history for private companies to find, hire, and retain top talent. In fact, I’d wager that as a result of a dramatic and fundamental shift in the world of work, private companies are in an increasingly powerful position to attract top talent. Two phenomena are bearing out this prediction.
First, members of Generations X and Y are seeking alternative employment to large, publicly traded corporations because they are suspicious of corporate America: Not only did they grow up in a world rife with corporate scandals, but many of them experienced first-hand how their baby-boomer parents were scorched by big corporations – they’ve either seen their parents suffer the financial and psychological blows of being laid off, or watched their parents practically work themselves into their graves to obtain the corner office. In this regard, the younger generations are redefining work and what it means to them. Instead of adopting the work ethic of their parents, they are seeking a quality of life and work/life balance that go beyond monetary compensation, fancy-sounding corporate titles, and climbing the corporate ladder.
Second, in an ironic twist, many baby boomers who have been successful in corporate America are growing tired of the corporate rat race. Since many of them want to continue working, they’re turning to the private sector as a place where they can add value and have a more profound and an immediate impact on a company’s bottom line. For many baby boomers, being a big fish in the small pond of a private company is more appealing and satisfying by mid-career; they no longer have to prove to themselves that they’ve made it.
My predictions are already being supported by a recent survey conducted by Burson-Marsteller, a leading public relations firm. The survey, 2005 CEO Capital™, reveals that “64 percent of workers from around the world say that a poor work/life balance is their top reason for not wanting to become a chief executive or other corporate bigwig.” Lesley Gaines-Ross, chief knowledge and research officer at Burson-Marsteller, further commented that “recent college graduates looking for jobs say that balancing work and home is important to them and work/life balance in general is a big issue that might give [them] pause before taking advantage of an opportunity.”
As a hiring consultant to privately owned companies, this survey is music to my ears and may be the most exciting time in my career because, as I’ve said before, the opportunities for private companies to grow by hiring top talent have never been greater than they are now. Thus, I’m motivated more than ever by the challenge of helping business owners “get the right people on the bus,” so they can take advantage of this shift in attitude and mindset.
Looking Outside the Family for New Leaders
May 4, 2010 by Harvey Wigder · Leave a Comment
When executive members of a family-owned business decide that the time has come to hire an executive from outside the family, the reason for doing so is usually precipitated by a significant disruptive event such as increased marketplace competition, a changing business model, a financial crisis, foundering leadership within the family ranks, lack of a succession plan, lack of vision or strategic direction, or simply the need for new blood and a new way of doing business.
It’s one thing, however, to arrive at this decision, it’s quite another to have the will and courage to execute what will inevitably become one of the most profound decisions in the history of the family’s business. For this reason, it is critical that the family executives take the time to understand the implications and ramifications of making this decision. Below are important issues that should be addressed before the family business owners set the hiring process in motion.
Put Business Matters Before Family Relations
Unlike other types of businesses, a family business is a complex, dual system that consists of two distinct and often contradictory parts: the family and the business. Thus, before a family business owner can set out to hire, he or she must come to terms with the fact that a new hire will fundamentally change both the family and business dynamics.
In effect, the decision to hire outside the family suggests that the business owner has already made a conscious decision to not only separate business goals from family relations, but also to put the goals of the business first and foremost. In other words, with this decision, the overarching goal to maintain family harmony or at least family order has shifted to promoting the business, knowing the risk of disrupting or altering the family dynamics. At this point, some family stakeholders may object and try to thwart the hiring process. One way of dealing with a family crisis is to bring in a family business therapist who has experience dealing with just this type of situation and who is able to provide useful third-party perspective to avoid long-term family dysfunction while still meeting the business needs.
Step Back and Reassess the Situation Before Proceeding
Not rushing into the hiring process is the first rule of thumb. While hiring mistakes are costly for any business in terms of time and resources spent, a bad hire in a family-owned business comes with an emotional cost, and it takes doubly the time for a family-owned business to regroup and begin the process again. Thus, time and care should be taken upfront to analyze the business operations, the business objectives, and goals to ascertain what skills, experience, and expertise are needed to bring the family business to the next level.
Come Face-to-Face with Your Blind Spots
Also at this stage, it’s important that the family business owners be aware that they may have professional and personal blind spots that they must address in order to understand the kind of executive capabilities that will be required to move the family business forward. For example, while the family business owners may know the mechanics of their trade, they may not have a good understanding of how to run a business, especially a business that is on the cusp of change. Even though the business has been operating in a certain way for a period of time and has achieved a certain level of success, the operations may need to be re-examined and overhauled to make way for the new talent who will be brought in to implement new processes and systems.
Obviously, the best and probably the only way to come to terms with one’s blind spots is through the help of an outside expert who can work with you to determine how the new hire will compensate for your shortcomings.
Understand That Executive Power Comes with the New Position
The decision to hire an outside executive must also come with the realization and an acceptance that the new position has to have a level of executive power that is unprecedented in the history of the family business. For this to happen, the business owners must be willing to relinquish the reins of authority to the new executive. Without this willingness, the case to hire an outside executive will be closed. What executive would be willing to come into an organization without the authority to make decisions that would effect change in the business operations? This is, by far, the most difficult decision that family-owned business members will have to face when making the decision to hire outside the family.
Accept That a New Executive Hire Will Change the Organizational and Personnel Dynamics
Family business owners must understand and accept that when a new executive is brought on board, the organizational structure, from day-to-day operations to personnel, will undergo fundamental changes. In particular, the business owners must realize that their existing relationships with their employees, including family and non-family employees, are not sacrosanct. The new executive will invariably form his or her opinion on how competent and effective the staff is and make adjustments accordingly, which will surely result in staff restructurings.
Making a successful executive hire in any business is a challenge under the best of circumstances. But for a family-owned business, the challenge is even greater: The hiring decision is compounded by the fact that the executive not only understand the business, but he or she must also mesh with the family dynamics. At the end of the day, what’s most required when making the decision to hire outside the family is the courage to do what is best for the business’s long-term success. It all begins and ends courage to act.
Hiring Executives to Run an Owner-Managed Business
April 26, 2010 by Harvey Wigder · 1 Comment
Several years ago, when beginning the process that resulted in the methodologies I now use for search, I took the time to interview owners who had hired executives to run their businesses to understand the issues and challenges from their point of view. My objective was to gain insight that might add depth to my practice and to communicate conclusions that might be helpful to others.
I conducted sixteen in-depth discussions with business owners who had attempted to replace themselves. We talked about why they made the decision to find someone, how difficult it was to find the right person, what difficulties they experienced in turning over the business, and whether they considered the result a success. As you would imagine, the answers were as varied as the personalities of these hard working people.
The Results
The interviews made the highly personal nature of the decision very clear. Each of these businesses was established with a viable future. In the vast majority of cases, the decision to make the change was driven more by personal and lifestyle goals than financial considerations.
Therefore, I concluded that a successful transition has two elements. First, business performance had to be enhanced. Second, the owner had to be satisfied with how the business was run, and the quality of their life after the change. They needed to feel that the business would be in good hands under the new leadership.
The first, and perhaps most important conclusion, is how hard it is to do this right. Only 25 percent of the participants were able to achieve success with the first executive person hired. Another 25% were successful the second time with a second generation of hired executives.
The factors that appeared to be most significant in the successes were:
• The owner drove the process and did not react to outside pressure. (When outsiders drove the change, ..failure was very likely.) In the successful cases, the owner made the decision to find someone new ..and controlled who was selected for the position.
• The person selected fit the job specification and understood that the job was to take charge of day-to- ..day operations. The person’s ego didn’t go beyond that domain. They saw themselves working to ..achieve the owner’s objectives. These people also had relevant, solid business experience and ..management credentials.
• In all of the cases, there were transition issues where the owner had to exercise self-control and give ..the person hired an opportunity to take charge. It was never easy for the owner (or for the person hired) ..on day one.
• In all of the successful cases the business owner relied upon advisors, to help with selection and for ..guidance in the transition process.
I found the last conclusion most interesting. Is this a recommendation for advisors? Advisors can be very useful but that isn’t the principal point. I think it is because the owners who were successful had the self confidence to realize that they didn’t have the ability to do everything themselves. They were open to the input of others and to trusting others abilities. That made them, more than the ones who failed, ready to share authority.