An Action Plan for Moving Executive Search Inside Corporations

For many organizations the time is right to build capability within the talent acquisition function to recruit executive level talent. Globalization combined with aging leadership demographics imply that a majority of organizations will need to recruit a record number of external leadership candidates in years to come, the cost of which would be prohibitive if traditional third party executive recruiters were widely used. If your organization is contemplating bringing executive search in-house, you need to develop a plan that covers several key elements. Those elements include assessing various executive recruiting models, making the business case to senior leaders, identifying potential problems, and putting together metrics to measure/demonstrate the effectiveness of your executive search function.

For more information on the benefits of building an executive search function internally, see my article from last week entitled “The Benefits of Internal Executive Search and Why Now Is the Perfect Time to Make the Move.“

Selecting the Appropriate Strategy or Model

Models abound in talent acquisition, so when it comes to recruiting executive level talent it should come as no surprise that organizations can pursue a wide range of approaches. In addition to the major approaches listed below, some organizations opt to position the executive search function outside of the core talent acquisition function or HR, opting instead to have it report directly to the executive committee. The six major models used by organizations with established executive search practices include:

The comprehensive model — this model establishes a full life-cycle recruiting process focused on executive hiring within the organization. The individual/team charged with executive recruiting is responsible for all aspects of competitive intelligence gathering, sourcing, screening, assessment, and closing.
The hybrid model — this model consolidates responsibility for recruiting higher volume executive roles with an internal function while continuing to use external service providers for lower volume roles or roles requiring a unique expertise.
The final stage model — executive recruiting is a process, and like all processes different stages consume varied resources. The final stage model offloads the resource intensive stages of the recruiting lifecycle to research organizations willing to unbundle sourcing from the rest of the process, freeing up internal resources to focus on relationship building, screening, assessment, and closing.
The inverted model — outsourcing isn’t new to the recruiting profession; a majority of corporate functions outsource some aspect or another of the process already. However, for many organizations executive recruiting has always been outsourced while non-executive recruiting was executed internally. The inverted model flips those conditions, outsourcing the recruitment of lower-level professional and wage-labor roles to service providers while transitioning the core talent acquisition function to focus on high level professional, managerial, and executive leadership roles.
The competition model — under this model, searches for executive level roles are allocated to a selected mix of internal and external recruiters at the hiring manager’s discretion on the premise that the competition will more rapidly strengthen the internal team.
The TA specialist (gradual change) model — this model, by far the most common, allocates a portion of executive searches to specialists within the core talent acquisition team who have prior executive search experience, or that possess a unique combination of skills and knowledge relevant to the search. As more and more searches are executed internally, the TA function gradually assumes responsibility for internal executive search.

Benchmark the Best Firms
The second step should be to benchmark some of the major corporations that have in the past used internal executive search. This research should include understanding how they made the business case, what benefits they anticipated, and what outcomes were both in line and out of line with expectations. A list of potential problems and characteristics of an outstanding internal search function should also be put together. Some firms know to execute executive searches internally include:

Cardinal Health
PepsiCo
Keane, Inc.
Research in Motion
Key Bank
Sodexo
Kohl’s Department Stores
Target
MetLife
VMware
Microsoft
Wachovia

Build the Business Case for Internal Executive Search

The next stage in developing your plan should be to build a convincing business case that convinces the executive committee that the internal function would be capable of producing superior results, not only from a financial perspective, but also qualitatively. Work with CEO players within the executive committee including the CEO, CFO, COO, and CHRO to develop a long list of potential benefits and drawbacks of bringing the function in-house. With the list developed, work with the CFO to monetize those list items he/she determines to be the most financially relevant. Elements of the business case should include estimates of:

The program’s projected ROI
The performance differential i.e. a prediction of the difference in quality the internal function will produce compared to that of external service providers (measured via the candidates post hire on-the-job performance)
The cycle time differential between internal and external searches. Where possible, work with the CFO’s office to monetize the value of any predicted time savings.
The candidate diversity differential — i.e. a prediction of the difference in diversity rates the internal function will produce compared to that of external service providers.
The retention differential — i.e. a prediction of the difference in retention the internal function will produce compared to that of external service providers
The process success rate — i.e. the improved position fill rate as a result of dropping external firms.

Note that this strongest business cases converts typical HR results measures into dollars. For example, if you state that the turnover rate will be 5% lower, it won’t be as powerful as stating that the higher retention rates increase revenue by $17 million.

To build a strong business case you will need access to real data that is difficult for critics of your solution to criticize. The best way to garner such data is a pilot study that uses a “split sample” approach (like in drug testing). Leveraging this type of pilot would require that an equal distribution of searches be allocated to an internal and external service provider simultaneously. You then compare to see which one produced the best results. You can also do a side-by-side comparison, where both providers are used to source candidates for the same position.

Compile a List of the Top Arguments for Sticking With External Executive Search
It’s important to compare the positive aspects of moving the function inside with arguments for maintaining the status quo. Do your research with benchmark firms and work with your current vendors to compile a list of counterarguments for sticking with the current external approach either completely or in special cases.

Some of those arguments should include:

They are more aggressive — there’s just no question here: executive search recruiters are at least 50% more aggressive than the average corporate recruiter. Of course you can hire executive search types for your internal team, but if that isn’t an option, you might find it impossible to convert most corporate recruiters into executive search experts.
Privacy capability — executive search firms have a long history of protecting the names of potential candidates from people who don’t need to know. Obviously, a well-designed internal search function can also have privacy process that allows candidates to drop out of consideration without public record.
Hire just when you need them — rather than retaining a continuous staff of internal executive recruiters, you need only pay for these services when you have an opening. It’s also hard to maintain recruiter skill level internally if you have infrequent openings.
More global capability — some larger firms have a much broader global capability than you could ever develop internally. If you truly need to do a significant amount of global hiring, you’ll find that using agencies will continue to be the norm in many regions. Many of the top candidates only know that system, so using another one might confuse them.
Superior closing abilities — in my experience, executive search professionals are markedly better at selling difficult candidates and closing the deal. In the same light, if your firm has a bad external employer brand image, external professionals also excel at overcoming that issue.
You only pay with a placement — if you use contingent firms, there’s no fee unless you hire someone the provider introduces.
Manager relationships — whether you like or not, executive search firms are good at building relationships with managers. It’s important not to be naïve: if you try to drop a major executive search firm, be aware that they will put tremendous pressure on your executives to stop HR in their tracks.
Candidate relationships — if you need candidates immediately but they require a long-term trust relationship in order to be sold, executive recruiters with their long-established relationships may be the only option.
A mixed approach is possible — obviously you can build and maintain an internal search function but still occasionally hire an external search firm when their unique capabilities are needed.

Compile a List of Potential Problems with Operating an Internal Search Function
One of the key practices that distinguish individuals’ great at execution versus the average performer is the time they spend identifying potential problems they may encounter and devising potential solutions in advance. Executive searches play out in a high-stakes world where political maneuvering is the norm, so recruiting leaders attempting to move executive search in-house need to be even more aware than ever before what problems they may encounter and be able to enact feasible solutions in rapid succession.

Possible issues include:

Quality of recruiters — executive sourcing and search requires recruiters of much higher caliber than most corporate functions are built on today. This will create political issues between this function and the broader talent acquisition function. Great executive recruiters leverage tons of competitive intelligence about the business and the industry to become business experts first, recruiters second. Maintaining recruiter aggressiveness may also be difficult once external executive recruiters are brought in house.
Political issues within HR — the nature of executive recruiting will create a close connection between the individuals executing internal executive search and the executive team, often a stronger connection than that between the operating committee and the HR leadership. This can create jealousies within HR.
Sufficient compensation — executive recruiting requires a compensation model that can be difficult for those outside the function to tolerate. Imagine an executive recruiter two layers deeper in the organization than the VP earning three times the VP’s annual income.
Managing recruiters — executive recruiting isn’t a routine activity, which can make those managing the function suspicious as to what those in the function are up to. Executive recruiters may disappear for weeks while sourcing and gathering competitive intelligence, producing little to no visible activity, and then dump a mass of activity all at once. Traditional recruiting managers and your regular recruiters might not understand this process.
Budgeting — budgeting for executive search is not as simple as budgeting for a defined systematic process. Great recruiters tailor the process and candidate experience to the search. While broad parameters can be established, traditional analytics and budgeting processes may prove to be woefully inadequate.

Select Program Metrics to Demonstrate Performance
Metrics are simply measures that help you and others determine if your actions have led to a situation where you have accomplished your goals. For each program goal you establish in your plan, you need at least one metric that all parties involved agree is indicative of performance related to that goal. The top internal executive search metrics that I recommend include:

Quality of candidates presented — what percentage of all candidates introduced meet or exceed the defined requirements. Alternate measures could include the diversity rate of candidates introduced and the percentage introduced that have previous experience at “targeted” benchmark firms.
Quality of hire — as measured over three years by job performance scores, number of new products developed or projects completed, amount of bonuses (as a % of salary), number of promotions, 360-degree evaluations, or other job-related measures.
User satisfaction — ratings of both candidates and the executive committee.
Average tenure — the average tenure of executives sourced via the internal function.
Time to fill — the time it takes to fill the position in days from the initial contact.
Improved candidate information — the quality of the information provided on the candidate (job switching decision criteria, interests, and dream job requirements).
Legal issues — the number and the cost of legal issues related to executive search.

Each of these metrics should be compared to the past performance record of external search firms.

Final Thoughts
Recruiting managers are always seeking the “Holy Grail” when it comes to being more strategic. It doesn’t take a rocket scientist to figure out that recruiting for higher-level positions like the CFO and the director of product development will have a strategic impact on the firm and make the TA function more visible among the executive committee. With that in mind, the decision to move the most impactful recruiting inside is an easy one. Of course there are some risks involved, but taking large risks and acting proactively are part of being a strategic leader.