Recruiters Cash In on Demand for High-Tech Talent
As the demand for high-tech talent increases, executive search firms have discovered that high-tech industry is a rich source of opportunity
Spurred by intense competition for a limited talent pool, high-tech companies are increasingly seeking outside help from executive search firms to secure top management.
The high-tech industry, with its rapid growth and change, is proving to be a rich source of opportunities for executive recruiters in the Washington area. As revenues grow, many small executive search firms have cropped up to cater to this industry, and larger firms have increased their efforts in the market.
Information technology, for example, over the past decade has experienced "explosive growth," said Mike Christy, managing partner of the international technology practice at Heidrick & Struggles, an executive search firm. The companies "are constantly evolving, reflecting the nature of technology itself, with new applications creating more business opportunities. Witness the Internet," he said.
"This is a real boon to executive search firms," he added. As new companies evolve from "founder... to mature companies, they need a different kind of manager," he said. "It is the rare founder that can take a company from $500 million to $1 billion."
These conditions are generating opportunities for many executive search firms, which have been able to establish a sizable and lucrative niche in the high-tech market. The Association of Executive Search Consultants, representing 125 of the major U.S. firms, reports that more than half their members list high-technology as a specialty area. In the last quarter, members of the association completed 2,716 searches, of which 13 percent or about 350 were for high-technology firms. Of the 350 or so searchers, 90 percent involved salaries exceeding $100,000. Three percent were in the $500,000 and above range.
Salaries are only part of the compensation as most positions come with sizable signing bonuses and other incentives for the employee. The search firm routinely charges one-third of the first year's cash compensation. Clients for the these high-level recruiters include both large and small companies.
For example, executive search firms brought IBM Corp. together with its current Chairman and CEO Louis Gerstner Jr. However, the search firms provide most of their services for smaller, start-up companies such as Network Imaging Corp., Herndon, Va., which through the aid of executive recruiters boosted its management acumen in April, appointing Jim Leto president and CEO. Leto brought with him a great deal of experience from PRC Inc., McLean, Va., where he had served as chief executive.
These publicized cases are just the tip of the iceberg as most high-level recruitment occurs discretely, outside the public eye. "It's just considered good form to let your clients and the candidate take credit for their own appointments," said Robert Brudno, managing director of Savoy Partners, Washington, D.C.
Executive search firms come in a number of shapes and sizes filling a variety of roles. Though not always the case, firms relying on contingent fees tend to concentrate on mid-level management placement, while retainer operations focus on the upper range. Firms in the latter group also differ in size and focus, ranging from small, specialized boutique firms to large international concerns.
Savoy Partners is one of a growing number of small, "boutique" firms. With a single office in Washington and three employees, the firm focuses on a few select clients in the Washington area. More than 80 percent of its clients are high-technology firms, said Brudno. Many of the firm's other placements are technical positions in non-technology companies, adds Elizabeth A. Clausen, Savoy's senior vice president.
"Large firms get lots of attention," Brudno said, noting that Savoy was spun off of another larger firm, Leon A. Farley Associates, in 1990. "The reality is that boutiques like ours do a heck of a lot more senior-level searches than most people realize," Brudno said. In fact, more than a quarter of the nation's top 40 search firms that work on retainer had 10 or fewer recruiters and many had only one or two offices, according to figures in the July/August edition of Executive Recruiter News.
"The problem that the large search firms have is they become factories relying on databases, layered staffs, associates and researchers... and the professionals with the most experience end up handling as many as 16 to 18 searches at one time," Brudno said. "We typically handle five each, and our involvement with a CEO as an adviser is absolutely one on one," he said. Offering this hands-on attention, Savoy's services often extend beyond just the placement, offering business advice to clients that include Computer Services Corp., Coherent Communications and Network Imaging Corp.
"Networking Imaging Corp. is... a very interesting story because it demonstrates the value of executive search," he said.
"We worked hand and glove with the management to bring in the talent to totally change their direction from being an acquirer of companies -- a strategy that failed -- to being a product company. It resulted in eight placements including a new CEO -- Jim Leto. Now the market will tell them whether we did well," he said, noting that the stock has been up 25 percent to 30 percent since the changes.
Savoy has reaped considerable reward for its work. In 1995, the firm made 16 placements for about $1.2 million in revenues. With expectations of doing just as well this year, Brudno is considering expansion, but has made no decision yet. With 38 offices worldwide and two offices in the Washington area, Heidrick and Struggles is at the other end of the spectrum. The company took in $161 million in revenues last year. Of that total, 25 percent, or $40 million, came from the information technology area, said Christy. It is the largest segment of the firm and growing very rapidly, both internationally and in the Washington area, he said.
"We are by far the largest in local firms in the technology practice," he added, noting the company created in 1993 a new office in Tysons Corner, Va., to specifically address the technology market. With 18 people and four search teams, that office has by itself generated $4 million in revenue per year.
"We greatly respect the boutique firms... and try to emulate [them]," Christy said. A key advantage for Heidrick & Struggles is its worldwide technology practice. The firm has 60 recruiters dedicated to technology.
"They have better access to senior management because they are in the market every day," Christy said, adding the firm's name and reputation is also a big plus. The firm is a partnership "with 70 of us owning the company," he said, and people are willing to cooperate with each other on a search if needed.
Christy said the company has "been fortunate to assist high-performing companies in getting leadership," including CyberCash Co., Reston, Va.; America Online, Dulles, Va.; and Computer Sciences Corp., El Segundo, Calif. In the past, the firm played a role in attracting Gerstner to IBM, George Fisher to Kodak, Michael Jordan to Westinghouse and Stephen Wolf to USAir.
Russell Reynolds Associates is another large, international firm with a significant technology business and Washington presence. The company earned more than $132 million in 1995 and has 29 offices worldwide.
"We're having the best year we've ever had this year... in every measure, and the primary measure for us is [search] completions," said R. Stuart Burch, executive director at the firm's office in Washington. "We have 200 professionals globally and... 40 are dedicated to technology," Burch said.
According to Burch, the company's technology practice has doubled in size every year for the last three years. Originally devoted to the financial services industry, the company in the past few years has diversified into seven focus areas. High-technology "is the second or third largest practice in the firm."
Unlike the boutique firms, Russell Reynolds eschews ancillary services such as management audits," said Burch.
"We feel it's a little bit of a conflict to come in and evaluate someone's management team and say, 'Here's three guys you need to replace and we'd be happy to do it for you,'" he said. The company tries to focus on its core business, placing managers in the high end of the market.
A key goal of Russell Reynolds' is to develop ongoing relationships with certain clients. "There's not a lot of value in doing a bunch of [one-time] search work," he said. In the ongoing relationships, we can grow with the company, he said.
The company is now working with a lot of emerging companies that are looking to expand globally, focusing on computing software, information systems, computing and the telecommunications industry. It recently placed Chris McCleary of American Mobile Satellite Corp. as president of Digex, an Internet service provider in Beltsville, Md., which is scheduled to go public this month. The firm also is working with a software company in the Netherlands to establish a presence in the United States. Russell Reynolds has also worked with Apple Computer Inc., General Motors Corp. and T. Rowe Price.