Historically, many companies have used external search firms for their Executive hiring for two reasons. First, they assume that the retained firms have an existing network of Leaders who they can quickly call to make the search move quickly. Second, they don't have the internal capability or capacity to do it themselves. Although it may be true that the retained firms have an existing network, this has shown to be less effective as it used to be. The market has changed and it is now saturated with emerging leaders who are not a part of this existing rolodex. The amount of time spent on a search externally is now the same as what it would require internally. Therefore, building an internal capability or function may be the right choice for many organizations.
With over 20 years of Corporate Executive Search experience, I would love to share my experience on how building an internal capability could strengthen your talent pipeline, diversify your leadership team, ensure longer-term success, and should be a part of your corporate strategy.
First, the Business Case
Writing the business case is actually a pretty straight forward process in this scenario. Although each case will vary based on the organization's current situation, needs, budget, and hiring forecast, there are a few components that should be considered for all.
Financials
The most common reason why companies want to build an internal function is for cost savings. With most Executive Search firms, the fee is based on the new Leader's annual compensation. If you're looking at hiring someone within a compensation range of $400,000 to $500,000 then the fee could range from $120,000 - $175,000 (plus travel and administrative expenses). And this is for only one hire. So if your company tends to hire more than one new Leader during the course of a year, this expense can be quite high.
It's important to also recognize the number of searches that don't get completed due to various unexpected situations. I can't tell you how many times I have seen a search start but then only end up being paused or cancelled because the business needs changed or the company ended up hiring someone internal for the role. In these scenarios, the retained firm will have likely already received their fee so it's a sunk cost for the organization.
The average compensation for an internal Executive Recruiter could be made up after 1 or 2 searches (depending on level). In addition, however, there's a lot work that this Recruiter can provide throughout the rest of the year that is incredibly valuable and contributes to the company's long-term success. There is so much that we will cover later. But, if this is done well, the Executive Recruiter will basically pay for him/herself within a few months of work which makes the internal function more cost effective. For demonstration purposes, I have personally saved clients approximately $1.5M - $2M per year by bringing their Executive Search in-house.
Quality
External Recruiters will not understand the true needs of an organization like an internal Executive Recruiter will. By being internal, the Recruiter will have ongoing exposure and knowledge that is likely too sensitive to share with external partners. A few examples include:
Business challenges - what needs to be solved for and any potential barriers.
Talent gaps - what capabilities beyond this role does the company need to bring in.
Leadership gaps - what dynamics and styles will be most effective.
Executive team dynamics - how does everyone work with one another.
Egos and politics - what's really happening behind the scenes.
Performance gaps - potential issues that are on the radar.
Retention issues - potential turnover that should be planned for.
There are additional aspects of the process that tend to be lost when working with an external Recruiter such as:
Relationship building - the relationship and trust developed between candidate and Recruiter should be internal in order to carry over into the time after they're hired.
Retention - retention tends to be higher when represented by an internal Recruiter because they have likely represented the opportunity more accurately.
Close rate - due to more direct interaction with the internal Recruiter, the close rate tends to be higher because nothing has been lost or misinterpreted in compensation discussions.
Diversity and Succession Planning
I can't emphasize enough how critical this part is when building an effective Executive Search function. This is key and contributes to the overall strategy and success of the organization. Executive Search is not just about filling the needs as they occur. It's about looking ahead, anticipating tends, forecasting needs, and developing a strong readiness to avoid any gaps in key talent. This is where a strategic team would focus the bulk of their time on.
The type of work that is involved here includes building a strong market research capability, a consistent external succession plan, and an active role in the talent management process to anticipate talent gaps.
Building the Internal Function
While designing an internal structure, a lot of time should be spent understanding the organization on a deeper level. Consider the current situation (needs, openings, gaps, spend) as well as forecasted situation (needs, changes, budget, long-term strategy). Build the function to meet the long-term goals as well as have the ability to flex along with the organization's changes. Below are a few initial questions to consider.
Define Executive Search
Determine what roles are considered "executive" level roles. Each organization is structured differently so it's not necessarily about the level of the position. I have seen various structures that determine what differentiates the Executive Search team from the Talent Acquisition team.
By Title: Typically done with larger organizations. They consider the title of the position such as "SVP and above".
By Title and Function: Also done within very large organizations and this is a niche approach where they have each Executive Recruiter focusing on a specific function such as Product, Sales, etc. This is usually used when the volume is very high.
By Reporting Level: This is a more focused approach and considers reporting structure such as "2 levels down from CEO".
By Critical Position: Sometimes organizations will determine which roles are considered critical to the business' success and/or have great impact and assign these to the Executive Search team.
Organizational Structure
Each organization has a unique structure which will determine where the Search function should sit. Here are a few examples.
Part of Talent Acquisition: A peer group to the traditional TA function but reporting into the Head of Global Talent Acquisition. They share systems and processes and are primarily differentiated by the level of the searches.
Part of Talent Management: A peer function to the traditional TA team but part of the overall Talent Management function and reports to Head of Talent. They are more involved with talent management and succession planning processes.
Part of HR Leadership Team: Reports directly to the CHRO or Chief People Officer and works on a different system and process from the traditional TA function. They are involved with Talent Management, Succession Planning, as well as other Organizational Leadership processes.
Part of Executive Leadership Team: Reports directly to the CEO or COO and are heavily involved in organizational strategy discussions.
Metrics to Measure
Executive Search is not about the volume of searches, the time-to-hire, nor the source of hire (which are all traditional metrics used within Recruiting). Executive Search is a long-term strategic function that should be measured on quality and cost effectiveness.
Business Performance
ROI
Candidate and Client Experience
Diversity
Quality of Research
Cost Savings
Succession Planning and Readiness
Search Model
Based on the current and forecasted needs, you may want to consider various search models. This model should be able to flex as the organization shifts.
Comprehensive Model - Internal Search team manages the entire search process from end-to-end.
Hybrid Model - Internal Search team can work with external partner on aspects of the search (I.e. research, sourcing, or the higher volume/lower impact searches)
Inverted Model - While historically companies used internal resources for lower level searches and outsourced for the Executive searches, this model flips that retains the higher impact / senior level searches internally and outsources the lower level searches to external partners.
Other Key Considerations
There are other important aspects to discuss as you build an effective Executive Search capability.
Make sure you hire the right Executive Search Leader. This person needs to have strong business strategy knowledge, strong intuition and emotional intelligence, remain highly professional and instill confidence, while also have strong ability to forecast and anticipate needs.
Strong involvement with Executive Succession Planning and Talent Management is important. The function is not just to hire when the need arises but to plan, strategize, and anticipate the needs of the organization in order to position the Leadership Team for success. So as you consider the structure of the organization, make sure it will enhance and encourage a strong partnership here.
Executive Onboarding should be differentiated from traditional onboarding processes. Setting up the Leader for success as they transition is important and should be designed on a case-by-case basis while individualizing and honoring the new Leader's style and needs.
About An McLeod
An McLeod is Founder of HEXA Executive Search. She is an experienced Executive Search Leader and Certified Coach who helps high-growth companies build their leadership teams and bench strength.
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