Four Lessons from the Feeding Frenzy In the RPO Market

Recruitment process outsourcing, or RPO, is the hottest segment of the HRO market. In talking with dozens of buyers and even more providers, here are four lessons for anyone who touches RPO.

by Harry Feinberg, Jay Whitehead

Oh, for the good ol’ days of recruiting. When you needed an executive then, you would call mega-retained-fee search firms Spencer Stuart or Korn/Ferry or Russell Reynolds, write a check for a $75,000 retainer, and get ready to pay a success fee on top of that. And after 4 to 9 months of searching, you would have your person, probably.

When you needed to hire a whole raft of customer service or technical or logistics people, you would first hire a team of mercenary recruiters, pay them handsomely, and put them up in your expensive offices until the job was done. It usually took twice as long as you wanted, and the recruiters would defy accountability. Then, when the job was mercifully complete, you would lay the whole squad off, paying severance on the way out the door.

As it turns out, the good ol’ days were, well, bad.

Sure, you can still hire one of those retained-fee search firms if you want. And you can still feel free to fill a boiler room full of costly hired guns to fill your empty jobs. But anyone with half a brain is going to a new set of options.

And all of them are much better than the bad old days. The HRO Today Resource Guide boasts more than 100 different vendors who claim to offer some level of IT-enabled RPO services that cut costs and time to fill by 30 to 80 percent over the old-style approaches.

In this issue, you will find a fine piece from the RPO Alliance—thanks to Jason Berkowitz and Anne Nimke in particular—that covers some of the fine points of RPO today. If you have anything to do with recruiting, you definitely need to spend some time with that article.

We thought that while we’re on the RPO theme, we’d offer some practical, unfiltered advice that will also serve you well as you navigate this new world of lower costs and faster and more accurately calibrated hires.

There is a lot of choice, and costs keep dropping—shop often, shop a lot. Ask any power shopper what the secret to getting good deals is, and she will tell you: shop until you drop. Nowhere is this more true than in RPO. The vendor offerings are evolving monthly. And the downward pricing pressure of competitive bidding is pushing prices lower by the quarter. The best deals are going to buyers most in touch with the market and who cast their nets widely to more than the usual three vendors.

Define terms up front, and don’t let anyone confuse you with jargon or acronyms. As you will note quickly, RPO has several flavors. There are the temp companies who have one type, the pure-play guys with another, and the all-in-one, enterprise-level HRO shops who offer quite another. Before you buy anything, make sure you ask your provider to tightly define the service levels. There are dozens of acronyms and pieces of jargon out there. Be on jargon-watch.

Cost is not everything, it’s the only thing. Cost to fill, time to fill, and cost per hire all add up to one thing: cash money. The whole reason RPO exists is to tackle the way-too-costly old ways of doing things. But even in lower-cost solutions like RPO, there are always hidden costs. So know all of them—including little-discussed costs such as hiring the wrong person for the job.

There will be consolidation. Any market in which the number of providers has swelled from five in 2002 to more than 100 in 2007 is ripe for consolidation. The public companies are relatively safe bets. To date, there is only one pure-play public company in the space—Kenexa. And then there are the multi-line staffing firms such as Kelly, Adecco, Manpower, and Volt and the technology-based companies such as Taleo. But there are at least a dozen other privately held, pure-play service providers who are financially strong, technologically advanced, and talent-and-client-heavy. These will be the winners.

Posted March 10, 2007 in Engaged Workforce

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