Korn/Ferry’s CEO on Transforming the Company in Mid-Crisis

The Idea: Gary Burnison’s faith in the strength of Korn/Ferry’s brand led him to put the firm on a new strategic path—one that would expand its sources of revenue as well as its talent management services for clients. I first bought stock in Korn/Ferry International in 2001. Over the prior 20 years I’d worked as a partner at an accounting firm, as an investment banker, and as a technology consultant. But at that moment I was between gigs, and as I looked at opportunities, I looked at Korn/Ferry. This was right after the dot-com bust, so it was a difficult time for many American companies and especially difficult for Korn/Ferry. Its stock had dropped sharply. But I was taken by the brand, which I thought was very powerful. So I made a significant investment. After a few months as a shareholder, I called the CEO. I told him that I’d been following the company and I thought I could help. The culture at Korn/Ferry was very similar to that of the investment bank I’d worked at. I wanted to help drive change. I went in to talk. Management put me through my paces and agreed to hire me as the CFO. Two weeks later I was heading in for my first day on the job when an industry analyst called my cell phone. “I hear you’re starting at Korn/Ferry today,” he said. “Do you know they’re going to file for bankruptcy?” I said, “Thanks for letting me know,” and continued driving to the office. The company didn’t file for bankruptcy, but it came close. Korn/Ferry was 32 years old at the time, and its entire business was in executive recruiting—placing people in midlevel to senior positions for a fee that’s typically equal to one-third of the first year’s salary. Recruiting is a hyper-cyclical business. When the economy weakens, companies stop hiring, and recruiting firms can do nothing to change that. Since World War II the industry’s revenue has dropped by more than 20% every five years or so. The market for executive recruiting is also relatively small—it’s really a cottage industry. In the United States the total market for senior-level executives is $3 billion or $4 billion, and it’s dominated by five companies. By the time I became CEO, in 2007, I’d grown determined to put the company on a different strategic path. My ambition was to move it beyond recruiting—to help our clients with other aspects of their talent strategy, and to reduce our dependence on recruiting fees as the sole source of revenue. Accomplishing that proved quite a challenge, partly because of the Great Recession. But six years later we’ve begun to see the fruits of this work. Buying into New Lines of Business Even during hard times, Korn/Ferry pursued its strategy of moving into adjacent spaces. 1969: Korn/Ferry founded in Los Angeles by Lester B. Korn and Richard M. Ferry 1977: Hazzard & Asociados (Mexico) executive search 1993: Carré/Orban (Europe) executive search 1998: Launch of Futurestep talent acquisition, consulting, and communications 1999: Amrop International (Australasia) executive search; PA Consulting Group executive search and selection 2000: Hofmann Herbold (Germany) executive search 2006: Lominger leadership development tools 2007: Newman Group talent acquisition and management consulting; LeaderSource leadership development, executive coaching, and team effectiveness consulting 2008: Lore International Institute executive education and coaching 2009: Whitehead Mann (UK) executive search 2010: Sensa Solutions management consulting, experience with U.S. federal agencies 2012: Global Novations diversity, inclusion, and leadership development 2013: PDI Ninth House assessment, development, and coaching Source: Korn/Ferry The ER Analogy When I arrived at Korn/Ferry, it wasn’t just the dot-com bust that had hurt its business. In 1999 the company had done an IPO. It went public at $14 and shot up to $43, so a lot of people were suddenly rich, including partners at the firm. Everyone was buying a vacation home. But it was mostly paper wealth, and it quickly evaporated. The company had used the IPO money to develop a dot-com strategy, but the strategy hadn’t worked. Korn/Ferry had burned through its excess capital. The company was losing tens of millions of dollars a year, and it had very little cash on hand. When I joined, the stock was down to about $6.50 a share. The psyche of the organization had really been hurt—the place felt emotionally drained. Over the next few years I worked as part of the executive team to lead a turnaround. We downsized the workforce by almost 50%. We repaid the banks and decreased our debt. We closed offices and sublet 400,000 square feet of space. We found it difficult to think about creating a dramatic new strategy for Korn/Ferry—we were concerned mostly with surviving. Still, I was convinced that we needed to think more broadly about how we approached our business. There’s an analogy between an executive recruiting firm and a hospital emergency room. Clients come to recruiters only when there’s a big problem, in the same way that people go to the ER only for emergencies. In recruiting we get a call because a CEO dies, or a CFO suddenly needs to be replaced, or a company is launching a new division, or someone is retiring unexpectedly. An emergency room isn’t very relevant to people who aren’t in the middle of an emergency, and recruiters are in a similar position. In medicine, big businesses are built around wellness and prevention; I wanted to diversify Korn/Ferry in the same way—to enable us to help clients with all their talent needs, so they wouldn’t think of us only in moments of crisis. I believed that the time had come to pursue this broader strategy. A Threat and an Opportunity In recent years the economy has shifted. CEOs are reluctant to hire, and they’re asking a workforce of fewer people to do more. They need employees who wake up early without an alarm clock—who are excited about the coming day. As talent has become more portable, and companies have adapted to the idea that nobody sticks around any longer to get that gold watch after 30 years, talent management has increased in importance. Onboarding employees is expensive, and turnover can have a significant effect on productivity and customer service. If we could help clients manage their talent so that employees who might normally have stayed for three years instead stayed for four or five or six, the impact on the bottom line would be dramatic. Talent Management’s Growing Share of Revenue Before 2002, Korn/Ferry revenue came almost exclusively from executive recruiting. Since then the percentage from expanded client services has more than tripled. Source: Korn/Ferry As we were developing our strategy, we began to look at the growth of LinkedIn and its implications for the recruiting business. They weren’t entirely new: When Google started to become popular, locating people online became much easier, and that, of course, had an effect on recruiting. But LinkedIn is an incredible tool; for recruiters, it’s both a threat and an opportunity. The threat is obvious: Unquestionably, some companies have taken their recruiting in-house by having HR people troll for candidates on LinkedIn. But we saw the opportunity as well. As we began creating talent assessments, we began pushing some of them out through LinkedIn’s platform. LinkedIn and other social networks gave us an additional channel for gathering rich and individualized data, which we could use to match professionals with appropriate roles and cultures. LinkedIn is an incredible tool; for recruiters, it’s both a threat and an opportunity. The threat is obvious. But we saw the opportunity as well. Enhancing Our Capabilities To expand beyond our core, we needed to make acquisitions. We bought Lominger, a leadership development firm, in 2006. And even as the recession hit, we acquired companies. Over a six-month period starting in the fall of 2008, we saw our top-line revenue drop by 50%; but we went ahead anyway with a deal to buy another leadership development company, called Lore International Institute. At the depth of the crisis we also bought Whitehead Mann, a European firm, which enhanced our ability to do leadership consulting and executive recruiting in the UK. These deals weren’t easy: They came at a time when we were laying people off, instituting furloughs, and asking employees to take pay cuts. But they were essential to our future. A lot of people expressed doubt about this strategy, even within the company. Some felt there was no need to change. They asked, “Why are we doing this? Why are we making these investments?” But in my view, the Korn/Ferry brand provided clear permission for us to move into adjacent solutions. In business circles everyone knows Korn/Ferry, and because of what we do, people are willing to take our calls. They recognize that our recruiters can change their lives, and they’re very curious when they hear from someone at our company. But the flip side of our brand recognition is that because we spent four decades focused on recruiting, some people don’t know the breadth of our current capabilities. We’ve had to work to make our very powerful brand more elastic. Although other talent management firms have also tried to diversify their offerings, Korn/Ferry is uniquely aligned for success, in part because of its close relationships in the C-suite. The company’s intellectual property is unparalleled—we have more intelligence on more leaders than anyone else in history. We know what makes these executives tick—their strengths, potential derailers, where they want to take their careers. We sometimes feel that we know them almost better than they know themselves. We also have a strong financial position: A prudent approach with the resources generated by our search business has opened up some opportunities for us that others are in no position to pursue. And we are fully committed to our strategy—not testing the waters but driving change and to some extent trying to create a new industry. Despite the challenges of communicating our strategy, we’re convinced it’s the right one. A piecemeal approach to talent-oriented services is not best practice. It’s not even viable anymore. Companies need a true partner that can connect the dots across the entire talent continuum and address the needs of the whole workforce. It’s clear that the war for talent has changed. The top 20% of executives—the elite—are in high demand. How can a company attract them? Engage them? Retain them? These issues are a priority for every CEO. Korn/Ferry can now offer a diversified portfolio of talent management assistance—almost none of which even existed 10 years ago. The flip side of our brand recognition is that after our four decades focused on recruiting, some people don’t know about our broader capabilities. Although labor markets have been slow to recover from the recession, we’ve continued with our acquisitions. Since September 2012 we’ve bought both PDI Ninth House, a leadership development company, which has $100 million in revenue and 500-plus employees and has given us much more depth and scale, and Global Novations, a consulting firm, which helps companies achieve cultural dexterity—an increasingly valuable skill as employees navigate global businesses. Korn/Ferry Facts & Figures Founded: 1969 Headquarters: Los Angeles, California Employees: 3,200 Source: Korn/Ferry As a result, Korn/Ferry is no longer just one of the world’s dominant executive search firms. It is rapidly becoming the world’s most relevant leadership and talent organization, helping to link companies’ business strategies to their people strategies and to unlock talent as a true competitive differentiator. Partnering with Our Clients Our clients have responded positively to the metamorphosis. One of them is a multinational food and beverage company that came on as a client in 2007, utilized Korn/Ferry only for executive searches, and provided revenue of $300,000 a year. Through a strong relationship we developed with its chief human resources officers, who embraced our broader solutions and the impact they could have on the business, the company began using Korn/Ferry for a wider variety of its needs, including leadership and talent consulting in regions around the globe. Today that company spends $6 million a year with us. A pharma client chose us as a key partner in developing its talent, driving its annual billing from $700,000 to $10 million. We work with a regional bank whose billing has grown by a factor of 16 since it engaged us to do integrated succession development, create comprehensive development plans for its executives, and help with its internal 360-degree evaluations. In the fourth quarter of FY2013 more than 40% of our revenue was generated outside the company’s core recruiting business. One out of every five Korn/Ferry employees has joined the firm within the past year. We’ve amassed an array of intellectual property and talent management offerings that allow our clients to take a comprehensive approach to talent. Instead of fighting for a share of the $3 billion or $4 billion U.S. recruitment market, we’re aiming at a global market opportunity of $20 billion. At times we didn’t know whether we could pull off our reinvention—we were just concerned with survival. Now we feel that we’ve found a path toward revenue growth as well as greater relevance to our clients.

Korn/Ferry’s CEO on Transforming the Company in Mid-Crisis

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