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Heidrick & Struggles International, Inc. (Nasdaq: HSII), a firm that hails itself as the world's premier executive search and leadership consulting firm, announced financial results for its Q4 and fiscal year ended December 31, 2006. Profits are down despite huge 30% plus increases in revenues. A good portion of the disappointment is attributable to the acquisition of Highland Partners and severance costs. These guy’s should know how to negotiate a compensation package.

But management promises that 2007 will be much better. Kevin Kelly CEO mentioned

“….We also have new management in place in all three regions and they are as committed as I am to accelerating our revenue growth, while continuing to improve our operating margins. We believe that the actions taken in the fourth quarter to align the leadership, and the industry and functional teams in our global network will position us for more profitable growth in 2007."

Of course they would say that. Most CEO’s say that stuff. Recruiters talking about themselves would say nothing else. Problem is the promise has a tired common element to it leading investors to say “So what?”

The critical issue is consultant productivity. How well, how fast and how often can these high-class ponies run. Adding more consultants is exactly comparable to retailers expanding locations. Investors want to know about same store sales as a true measure of performance.

Management in their own press release slipped in this little sentence before they skipped off to talk about other issues.

“Productivity, as measured by annualized revenue per executive search consultant, remained strong at $1.2 million and the average fee per executive search was $104,600.” No comment was offered on where this number is going.

The expansion has been regional in focus. Yes more offices and more consultants will bulk up the numbers. But at this level the challenges will be in specialization. Look at www.heidrick.com and see the large range of global industry practices and global functional practices. Management has not spoken about how they are truly driving these businesses especially with the recent expansion.

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