FEW corporate recruitment and outplacement firms will look back on 1993 with pleasure.
There is a perception that this is an industry that does well in or out of recession. When times are good, recruitment operations traditionally profit from companies searching for extra staff. When times are bad, the widespread practice of softening the blow of redundancy with an outplacement package should, in theory, keep consultants in business.
But last year, the steady growth that had been maintained since the early 1980s came to an abrupt halt; profits were cut dramatically and many companies that had expanded rapidly were forced to retrench. The outlook for this year provides little reassurance; at best, the predictions are for more of the same, and at worst, for several firms to go out of business.
Those companies that had geared up for a developing market by incurring high overheads were understandably the most severely affected.
For instance, Penna, Sanders & Sidney's holding company, reported a pounds 118,000 loss for the half-year to September, and its share price dropped by more than 50 per cent. The group is now addressing its cost structure: it has reduced staff levels and is seeking to sub-let the top two floors of Orion House, its headquarters in Covent Garden.
Pauline Hyde Associates (PHA), a subsidiary of Scottish Television (STV) is expected only to break even this year, as overspending on new offices, refurbishment, and new staff wiped out all budgeted profits. STV dismissed the entire top management of PHA in August - a decision that found little favour with the outgoing personnel, including Pauline Hyde, the founder and non-executive director, who has wasted little time in setting herself up in competition as head of the British franchise of the American outplacement firm, Lee, Hecht, Harrison.
The outplacement arm of Coutts Consulting managed to generate healthy profits, thanks to its contract with the Army, but these were largely overshadowed by problems with its DC Gardner training business, which was losing money and stuck in an expensive Docklands office.
Coutts had to borrow pounds 6.4m to buy itself out of the lease, an outlay that was only partially offset by the sale of DC Gardner to Euromoney for pounds 1m and a further property, Winkfield Place, for pounds 1.3m.
Focus is known to have experienced financial difficulties prior to the completion of its purchase of Cepec, but even those firms that have been more conservative in their expansion programmes have been affected. Profits at Drake, Beam, Morin, the world's leading outplacement consultancy, are down and many other companies, including Wrights Associates, are asking some members of staff to take redundancy.
So what went wrong? Part of the problem stemmed from the industry's success. The perceived invulnerability of a supposedly recession-proof business made some complacent and attracted others into the sector. The number of outplacement businesses has doubled in the past three years and competition is fiercer. At the same time, many blue-chip clients were becoming either unwilling to fund extensive and costly outplacement programmes or thought they were experienced enough to handle their own redundancies; and there was an increasing number of second-generation clients who had been through the process once and were looking for something different.
All these trends were, to some extent, understood and anticipated by the industry; what was not was the speed with which the market contracted. Bill Pitcher, managing director of Cedar International, explains: 'It seemed to dry up almost overnight in May last year, and the volume of work we all anticipated failed to materialise.'
The consensus is that last year's unexpected problems were a one-off event, caused by client companies delaying decisions on mergers and acquisitions until they were out of recession, and that plenty of work, particularly in banking, telecommunications and the armed services still exists.
But nobody is under-estimating the seriousness of the situation. The outplacement market has changed significantly and permanently; smaller companies have been able to cut their fees and the larger ones are having to find cost-effective ways of equalling or bettering their service.
'Outplacement has become more price-sensitive, and buyers are increasingly sophisticated and unwilling to pay a large amount of money for a basic service,' says Dr Colyn Gardner, managing director of PM.
'The business has become far more client-orientated, with programmes being specially devised to meet particular needs.'
The overhaul of the industry is generally welcomed as bringing a much-needed professionalism to outplacement, but the price of the new efficiencies may be high for medium-sized companies.
WE HAVE been asked to point out that Pauline Hyde is head of a wholly owned subsidiary of Lee Hecht Harrison, the US outplacement firm, not of a franchise as reported in last week's article 'Recruitment specialists feel the pinch'.
Dr Colyn Gardner is chairman of Pauline Hyde and Associates, not managing director of PM, as stated in the article.
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