RPO & StaffingTalent Acquisition

Ensuring RPO Success Requires Strong Service Level Agreements

Here are the key metrics to consider when engaging an outsourced recruitment process provider.
by Hary Bottka
Recruitment process outsourcing (RPO) is one of the newest, fastest growing, and perhaps least understood forms of HRO. RPO entails turning over a strategic business process to an outside firm in return for contractual guarantees of more effective hiring.

RPO has developed a good reputation for delivering results for clients, although like any form of outsourcing, it requires strong management efforts, particularly up front.

Companies commonly leverage “point staffing” solutions such as contract recruiters, direct hire, and agencies, but these services do not have the same complexity as end-to-end RPO.

Outsourcing the entire process and improving upon internal team performance measures such as quality or cost is difficult. From a client perspective, the key to RPO success is negotiating both iron-clad service levels that ensure client needs are met and offering incentives to the provider(s) if targets are not reached.

The most common metric in RPO engagements is time to fill, which providers are willing to adopt because they can typically reduce the internal hiring period by 30 percent to 40 percent. This time savings—considered intangible rather than a hard-dollar savings—is where significant value is provided because an unfilled position can mean a loss of revenue for many organizations. RPO clients working with regional or national providers save about 5 percent to 10 percent from labor arbitrage.

Prospective RPO customers invariably ask about the quality of the candidates sourced by RPO service providers compared with those sourced by internal recruiters. Companies that have implemented RPO have not seen a drop-off in candidate quality. In fact, RPO firms often cast a wider net in the search for quality candidates and can screen through a larger labor pool.

A strong client/service provider relationship is not only established through improving the recruiting process but also by adhering to a strong set of service-level expectations. Service levels are needed in RPO agreements to ensure that the service provider meets the expectations that are critical to the welfare of a client. For example, a business development position that remains vacant for 100 to 150 days can cost a company millions.

Potential stresses in client/service provider relationships could result from not setting the service levels properly so that they are attainable by service providers yet also meet the client’s business needs. The client’s hiring managers also need to adjust to expedited service on the part of RPO recruiters. In this kind of arrangement, managers cannot wait a week to evaluate a list of viable candidates sourced by the RPO team.

RPO engagements typically feature two sets of service levels: critical and key measurements. Critical service levels are tied to financial service credits—a percent of fees are at risk if targets are unmet. For example, if a service provider fails to meet the expected time-to-fill guarantees on four occasions, it is typically on the hook for service credits or a performance penalty. These critical service levels should be established as part of a broader vendor selection process, and their governance should be clearly outlined during contract negotiations.

When setting up critical service levels, make sure they are realistic, achievable, and meet a client’s critical business needs. A client doesn’t want to be in a position of collecting service credits from its RPO partner on a regular basis. The provider also has an opportunity to earn back the service credit if it performs at or above the expected service level for a period of time, typically in one year.

Critical RPO service levels often include one or more of the following provisions and best practices:  

  • Time to fill. The number of days varies by position or employment classification (exempt vs. nonexempt). Time to fill for an engineer will be higher than for a contact center agent;
  • Hiring manager satisfaction. The average of monthly results of a hiring manager survey conducted after each hire;
  • Candidate experience and satisfaction. Survey every candidate, not just ones you hire. This reveals whether the process is effective;
  • Interview-to-offer ratio. This metric is the ratio of the number of interviews to the number of candidates that are given an offer, which points to the quality of candidates. The ratio is typically 3-to-1;
  • Diversity of candidate slate. This is the percentage of candidates considered or self-identified as “diverse.”

Although RPO engagements are often successful, it is important for clients to mitigate their own risks by establishing expectations for service delivery within their RPO agreements. The right mix of service-level controls and earnback credits can help ensure a successful partnership.  

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