Traditional Recruiter Tries New Scouting Techniques.

One of Los Angeles' most venerated, old-school companies, Korn/Ferry International, has embraced the new economy with a vengeance. The executive recruiting firm has expanded its scope and incorporated the Internet in its scouting operations with remarkable results.

The Century City-based firm's traditional bread and butter had been recruiting the most senior executives for Fortune 500 companies. That's changing fast, however, Recently, it leveraged the Korn/Ferry name to provide a much broader range of recruiting services, targeting the middle management and college graduate markets and relying on the reach of the Internet to sign up hundreds of thousands of new candidates.

For the fiscal first quarter ended July 31, Korn/Ferry reported earnings of $10 million (26 cents per share), compared to $5.6 million (11 cents per share) for the like quarter a year ago. Revenues increased by 65.7 percent, from $104.8 millio to $21.6 million in 2000.

"What is driving the business is client demand," said Peter Dunn, chairman and acting chief executive of Futurestep. "There is strong demand for human capital, and we have developed a successful formula for meeting client needs."

Record low unemployment means that many companies are scrambling to fill positions at the middle-management level, but most of them don't have the internal resources to find suitable candidates themselves. Korn/Ferry launched Futurestep in 1998 in response to this demand, first in California, then in the rest of the United States. Finally, through the acquisition of the executive search business of PA Consulting Group in January of this year, it has expanded business with 17 offices in Europe and Asia.

"The company has been very successful in implementing a so-called click-and-mortar business model with the launch of Futurestep," said Adam Waldo, an equity analyst with investment bank Credit Suisse First Boston. "They have found a way of extending their core business into an online environment which has been a winning strategy in other industries as well."

Deep data pool

What differentiates Futurestep from other Internet-based recruitment businesses is the depth of data it is gathering on potential candidates through online profiling and assessment, said Dunn. This detailed information combined with powerful, proprietary search tools allows Futurestep to scan its database of over 800,000 candidates and narrow the pool of candidates for a given position to those most qualified.

A Futurestep consultant then conducts a 45-minute video interview with each of these candidates. The client gets excerpts from these interviews, as well as a report and assessment of each candidate by the consultant, who is also involved in setting up in-person interviews and negotiating the final job offer.

During the fiscal year ended April 30, 2000, Futurestep's resources clients paid on average $35,000 in fees for the company's services.

Nevertheless, in spite of the very impressive revenue figures, Futurestep suffers from the same malady that afflicts most Internet start-up companies: It has yet to turn a profit. For the quarter ended July 31, Futurestep's operating losses amounted to $8.5 million, compared to an operating loss of $5.7 million for the like quarter the previous year.

Dunn, however, is confident that performance will improve in the near future.

"In 18 months of being operational, Futurestep will have achieved the same level of annual revenues that it took Korn/Ferry 18 years to achieve," said "That comes at a cost, but we are targeted to be profitable by the fourth quarter of the current fiscal year."

Korn/Ferry has been more than prepared to carry the cost of expanding its headhunting business into unknown territory. The company's IPO, at the beginning of 1999, was done specifically for the purpose of financing the new corporate strategy.

"We went public to finance our future growth," said Caroline Nahas, managing director for Southern California. "We needed currency and stock to attract both people and acquisitions."

Long-term relationships

The ultimate purpose, according to Nahas, is for Korn/Ferry to build up relationships with and provide career services for professionals, from their first job out of college and onward. Futurestep is one piece in this larger scheme, another one is JobDirect, an online college recruitment company that was acquired by Korn/Ferry this summer.

The strategy is also expected to put the company in a better position to find senior executives to the extent that, over time, Korn/Ferry will amass a huge database of potential candidates for the highest-paid executive positions.

"Because of the depletion of the workforce, it is critical for us to build up strong relationships with the pool of candidates," said Nahas. "That's why we want to identify them as early as possible and move forward in lockstep with them throughout their careers."

As part of the effort to get to the best MBA candidates as quickly as possible, Futurestep has created an alignment with the Graduate Management Admission Council, the entity that administrates the GMAT which prospective MBA students must take to get into a program. Futurestep, in conjunction with the council, will create a new Web site targeted at MBA students, and those registering for the GMAT will be given the option to sign up with Futurestep at the same time.

Of course, Korn/Ferry is not the only recruiter that is targeting such sought-after job candidates as college graduates and MBA students. A number of other online recruiters, including Cruel World and Resume Link, are also after the same business.

"It's definitely a fast growing part of the options out there," said Alysa Polkes, director of the Career Management Center at the UCLA Anderson School. "There are quite a number of services on the Internet that offer resume-posting and job-matching services for our graduates."

Korn/Ferry International

Headquarters: Century City

Chief Executive: Windle Priem

Fiscal 2000 Revenue: $500.7 millian

Fiscal 2000 Net Income: $30.8 million

Earnings Per Share: $0.85

Market Cap: $1.3 billion

P/E Ratio: 37.16