Business Model of Executive Search in the Human Resources Industry

Within the human resources industry, there are large differences between the business models of temporary-employment agencies or registered employment agencies and the business models of the executive search (headhunting) industry (see Figure 1).

Figure 1: Comparison of Business Models in the Human Resources Industry

Differences in the Source of Talent Identification and Cost Structure

One aspect that differs considerably is the source of talent identification, and the cost structure accompanying this (see Figure 2).

Temporary-employment agencies and registered employment agencies identify human resources through their database of job seekers and people who are registered with the company.
In contrast, the specialist teams who carry out research in executive search companies explore candidates from the whole market.
These companies use networks of contacts, and research talented personnel by obtaining useful insights from external information providers who have expertise in an industry.

Thanks to this, the cost structure accompanying this kind of talent identification differs greatly.
Temporary-employment agencies and registered employment agencies accrue advertising expenses in order to gather human resources, who are registered in the database of registrants and job seekers, and carry out promotional activities. Conversely, executive search companies have the personnel expenses that accompany the identification of candidates, remuneration for information providers, and other expenses (communication and transport fees).

Therefore, in contrast to the remuneration structure of many registered employment agencies, which works on a contingency fee basis, a retainer system [retainer fee + interim/contingency fee (divided into multiple parts)] is used in many cases in the executive search industry.

Using temporary-employment agencies or registered employment agencies may be an effective method for businesses where it is necessary to gather greater numbers for practical business levels and middle management recruitment, but if you are considering recruiting management that is not hired en masse, or middle management that will play a central role in supporting your business, then the executive search method would be more effective.

Figure 2: Comparison of Companies' Source of Talent Identification and Cost Structure

Business Category	Employment Agency	Registered Employment Agency	Executive Search Company
Scale of Domestic Market	・Number of offices: 77,956 ・Market scale: 567.9 million yen	・Number of offices: 19,453 ・Market scale: 35.34 million yen	・Number of offices: 21 ・Market scale: 0.7 million yen
Source of Talent Identification	Overt market	Overt market	Potential market
Method of Identifying Personnel	Matching via a database of registrants	Matching via a database of registrants	・Search by a research team ・External information providers, etc.
Expense of Identifying Personnel	Advertising and promotional expenses	Advertising and promotional expenses	・Expense of investigation for identification ・Labor cost accompanying the identification of a candidate ・Remuneration for information provider ・Miscellaneous expenses (communication and transport fees, etc.)
Form of Remuneration	Hourly wage for temporary worker	Contingency fee system (assigned yearly income x % of rate)	Retainer system (retainer fee + remuneration)
Purpose of Use	Recruiting en masse at a practical business level	Recruiting from a practical business level to middle management	Recruiting from a middle managemen level to senior management

 

Even though they champion Executive Search (in the form of searching and scouting), registered employment agencies are in fact in the majority.

One way of distinguishing between these two approaches is if the fee-paying system from the client (corporation) to the agent is contingency-fee based. If it is, then you can definitely conclude that the company is basically a registered employment agency. A search-based company's business model will not be established on a contingency-fee system because the miscellaneous expenses that accompany identifying candidates are given priority.

Reference: The Most Popular Outplacement Service Companies: Dissatisfaction Due to "Employment Placement Despite Calling it Headhunting"
Article from Economic News

The Superiority of Executive Search

■ Rather than having clients choose from limited registrants (successful recruitment rate: 17.9%*1), we approach and scout potential candidates who fulfill the requirements desired by the company (successful recruitment rate: 87.2%*2)
　 *1 = FY2013 Business Report on Employment Placement Business　
　 *2 = Our company's track record (total March 31, 2017)

■ Our careful investigation of candidates does more than simply look into their past career; we introduce people who possess qualities and values considered by our client companies and managers.

■ In cases where there is a risk if a corporation directly approaches a candidate, our company can act as the representative of our client corporation, and reduce that risk.

Executive Search (headhunting) is effective when used for purposes such as:
　Senior management, reforms and rebirths, new business managers, M&As, strengthening organizations, succession issues, managers of overseas locations, establishing human resources around business successors, etc.