Search as an industry – growth as a trend or growth without trends?

Search and executive search as growth industries

In recent years, the search and executive search industry has grown slightly faster than the national economy both globally and in Finland. In Finland, the annual growth rates have been mainly in single digits, while the global growth rates have varied between 10 and 20 per cent. This data is from annual global surveys by AESC (the Association of Executive Search Consultants) and the Finnish industry survey commissioned by FEX (Finnish Executive Search Firms) and conducted by Taloustutkimus in early 2020. In both the global and Finnish surveys, the respondents were executives of the client companies (CEO, HR director, member or board) and executives of the search firms.

One of the reasons why the search sector has grown is that the service is no longer used only to fill top management positions, but also other roles. On the other hand, the more professional nature of board work has increased the number of board member searches. Globally, the industry has grown particularly in certain markets, such as India and Asia, and in growth sectors like digital services and health tech. In other words, increased demand has accelerated the growth of the industry. The industry itself has undergone little renewal or innovation and remains one of the industries that has not undergone a significant disruption yet. We could say that there has been an upward trend in the industry for several years, but the industry itself has not produced significant renewal trends.

What can we say about the search industry and its future based on the survey results?

1. Digital transformation

Both the global and the Finnish surveys looked at the phenomena both from the perspective of the client companies and the search industry. Both surveys identified digital transformation as a known challenge, although in slightly different ways. When the client companies were asked to name their most important challenges, digital transformation was the most common answer globally. In the global survey, the search firms also saw this as the biggest challenge facing themselves and their clients, and identified technological disruption as their biggest threat. However, the results of the Finnish survey differ: Finnish search firms see digital transformation as the biggest challenge for their clients, but they do not consider it to be an important phenomenon for their own organizations. Furthermore, Finnish clients respond just the opposite: they see developing productivity as their own biggest challenge and mention digital transformation only as one of their potential future challenges. On the other hand, the clients see digital transformation as an important challenge for search firms. In other words, Finnish respondents see digital transformation as an extremely important challenge for others, but not for their own organization!

2. Agility and flexibility

Agility and flexibility were recognized as important phenomena that need to be developed in both the global and the Finnish surveys. Both clients and search firms called for agile development in their own organizations, and the clients also hoped this would increase at the search firms. We can say that awareness of this trend is fairly good both globally and in Finland.

3. Ethical dimension and responsibility

In the global survey, client respondents named the ethical dimension as the most important challenge for boards. In the Finnish survey, the respondents chose responsibility and sustainability as the most important aspects. This was an open question, so the two responses can be interpreted to refer to the same phenomenon. Search firms, on the other hand, did not give particular attention to this in the Finnish or the global survey.

4. Diversity

The global survey gave a lot of emphasis to diversity. For example, diversity was identified as the third biggest board-level challenge, the third most important criterion for the overall success of a search (referring to the diversity of the candidates), and the primary area of development in search firms. In the Finnish survey, diversity was not selected as the most important phenomenon, but the Finnish client companies respond that they report on diversity notably more than international clients (63% vs. 26%). Slightly less than one third of both the Finnish and global client companies say that their current management has diverse representation.

5. When do companies need a search and what do they expect from it?

Around 80% of the Finnish client companies had faced difficulties finding suitable candidates. For Finnish clients, the major challenge related to attracting key personnel was location. In this context, location refers both to the remote location of Finland and its appeal in international searches and the location within Finland, unless the company is located in one of the few Finnish growth centres. In the global survey, location is not considered a primary challenge. The ability to offer sufficient compensation to candidates is seen as more important.

The respondents see employer brand as one of the key challenges, both globally and in Finland. Another challenge is roles or areas of expertise where the demand exceeds the supply, such as digitalization specialists.

The clients also use the other services provided by search firms more actively. Often, these are known as Leadership Advisory services. The most popular advisory service among global clients is the specification of remuneration policy, while Finnish clients use consultants to develop and assess the organization, its structure or management. These services make up around 10% of the search firms’ revenue globally and approximately 15% in Finland.

Both global and Finnish clients base their selection of the search partner on fairly similar criteria, only the order of priorities varies. Respondents to the global survey select their partner primarily based on the expertise and reputation of the individual consultant, while Finnish clients emphasize the expertise of the search firm and a client relationship that is based on trust. The consultant’s expertise is also important, but it is ranked in third place in Finland.

Around one in three client companies expect to purchase more search services in the next few years, and around half expect their purchases to remain at the current level. These results are fairly similar in the Finnish and global surveys. The demand for search services seems relatively good in the future, or at least this was the case before the COVID-19 crisis.

When the client companies were asked in which areas they would like search firms to develop, they mention an improved understanding of the business, sector and function. Globally, another emphasis is on the diversity of candidates, while the Finnish respondents want agility and a renewal of the operating model and process.

6. How do the managers of search firms see their own future?

The managers of search firms see their future outlook as positive. Before COVID-19, approximately 90% of Finnish search firm executives believed their revenue would increase in the future. The corresponding percentage was 60% among global respondents. Expanding the service portfolio with, in particular Leadership Advisory services, was seen as the major source of growth. Because the average price of searches has decreased slightly, growth also requires working more efficiently. The respondents are aware of this, and many see agility as an area of development within their organization.

However, both the Finnish and global respondents saw the recession as the most important threat to their business. Before the COVID-19 pandemic, the respondents expected the recession to start later, maybe after two or three years. In other words, they were expecting an economic downturn. The most important threat identified by the respondents to the global survey was, however, technological disruption, which was evident in how they underlined digital transformation as an area of development. The Finnish respondents also saw technological disruption as the third most important threat, but they did not see it as connected to their own development challenges.

7. What does the future of the search industry look like?

The current status and future outlook of the Finnish search industry can be summarized as follows: Companies in the industry have a strong belief in their growth (or at least they did before the COVID-19 pandemic) and they think they can continue growing by having confidential customer relationships and expanding the service portfolio. Technological disruption and digital transformation are not seen as affecting one’s own operations, but as challenges for the clients. This is despite the fact that the clients would like to see renewal in the industry. On the other hand, search firms see the development of agility as their own challenge.

The clients are loyal to their search partner and intend to buy their services in the future, too. They might even increase the volume or variety of their purchases. It is likely that the industry can continue its moderate growth in the future, thanks to this demand and the existing trust. However, I want to challenge the industry – which I also represent – to take the threats and opportunities of digital transformation seriously. Maybe they can be the start of something new and refreshing!

Sari Salojärvi is Senior Executive Search Consultant at MPS.

Stay tuned!