As the RPO market matures, practitioners and providers develop new models to harmonize recruitment around the world.
By Andy Teng
Companies familiar with the HRO marketplace might recognize Europe-based Logica as one of the continent’s leading providers of outsourced services. With 40,000 employees around the world, this FTSE 150 enterprise is often steering clients toward cost-effective and efficient practices by implementing myriad process improvements.
But when it comes to its own back-office recruitment, Logica only recently put best-practice measures to work, implementing a blended outsourced model that leveraged its own offshore administrative center and the recruitment expertise of an external recruitment process outsourcing (RPO) provider. By adopting such an approach, the company has been able to save significant recruitment costs, improve the quality of talent being brought into the company, and helped the business grow revenues. Furthermore, the model assures company HR leaders that as demand for its global services grows, it will be able to rapidly respond to clients’ needs. In working with hyphen Recruitment Outsourcing, Logica built a unique model that not only addressed its talent needs on a global scale but also one that leveraged the expertise of its external provider and its own internal resources.
“We’ve saved costs dramatically, we’ve professionalized recruitment, and we’ve brought some good people into the organization,” explained Mike Jones, the head of resourcing for the London-based company. “At the end of the day, we are a professional services business. The ability to staff our projects is key to our success.”
Indeed, talent management is on the lips of every savvy HR leader, and an effective recruitment strategy is a cornerstone of it. That’s why companies such as Logica and other multinationals are helping to redefine the global RPO market, carving out new paradigms and deploying outsourcing in unique ways that address their specific needs. At the same time, providers have built out their footprint, whether through organic growth, acquisitions, or partnerships. By doing so, these vendors are constructing options for their clients to either embrace single-source RPO for all of their recruitment needs around the world or employ multiple vendors in a decentralized fashion. It’s a flexibility that simply wasn’t available even a year ago.
A Dynamic Market
Indeed RPO is one of the most dynamic segments of the HRO marketplace. Although the concept has been around only a little more than a decade, some buyers have already moved on to their second- or third-generation contracts. And nowhere are the changes emerging as rapidly as on the global front, where practitioners are constantly pushing the envelope to improve their enterprise recruitment practices. In fact, a whole new crop of buyers is now engaged in true global RPO, a model in which a single provider manages most of a client’s hiring process. While most of these deals are through partnerships, it matters little to the buyer because they have only one point of contact and one party accountable for the entire engagement.
Even though the global recession has led to a sharp decline in hiring volumes, RPO remains comparatively buoyant, in part because of growing interest in adopting outsourcing on a global basis. According to research consulting firm NelsonHall, the worldwide RPO market is expected to expand 3.5 percent this year, despite a predicted contraction in the global economy. In 2008, the market was estimated to be at $2.1 billion, and NelsonHall predicted that through 2013, it will reach $3.2 billion, a compound annual growth rate of 12 percent.
By region, North America last year accounted for the largest share at $875 million, followed by Europe at $790 million, and Asia and the rest of the world at $435 million. By 2013, North America will expand its size to $1.4 billion while Europe reaches just over $1 billion. Asia and the remaining regions will account for $740 million. NelsonHall said overall growth should turn significantly higher in 2010, when annual growth will reach double digits.
Gary Bragar, the lead HRO analyst for NelsonHall, noted that the market is maturing at different rates based on regional nuances. In North America, interest in adopting RPO remains strong because of its cost benefits. Since RPO offers practitioners a variable-cost rather than a fixed-cost model, they can capture immediate savings by downsizing internal recruitment groups. Moreover, efficiency gains and IT support from providers mean buyers can reap additional savings. In Europe, RPO is also gaining popularity because employers are using it to reduce agency fees, which typically account for a higher percentage of recruitment costs in European companies than in their North American counterparts.
“A lot of the buyers were using agencies and realized, ‘I can just use one RPO provider for permanent hiring and save a lot on agency usage,” he noted, adding that European companies also tend to insist on having providers’ recruiters on site rather than have service delivered from an offshore center.
What’s becoming clear is that as the RPO market matures and grows more global in nature—evolving into new and customized models—enterprises are able to better centralize and standardize their recruitment approach. Some companies such as Logica and Open Text (see this month’s cover story on p. 56) say the ability to provide their line leaders and executives greater visibility of recruitment efforts and available talent will make a difference on the business. Robust reporting, access to global talent, and thoroughly vetted candidates mean hiring managers can fill their vacancies more quickly everywhere they operate. It’s no wonder that adoption of global RPO is on the rise.
Still, these types of engagements still account for a minority of RPO deals today. That’s because institutional barriers continue to hinder broader adoption among multinationals, industry observers point out. Recruitment is still very much a territorial function, and gaining buy-in from all stakeholders is no small feat. Furthermore, because some companies are so complex and decentralized, even when they look to realign their recruitment function through RPO, it requires massive organizational efforts before they can outsource.
“The aspirations are out there, but when they pull their workgroups together, what I have seen is that they aspire to put very large project teams to make it happen, but then they realize they don’t have the baseline data to achieve it,” explained Rosaleen Blair, the CEO of London-based Alexander Mann Solutions, a provider of global RPO services. “I’ve seen that happen a number of times, particular in EMEA and Asia. They realize they have a lot of work to do inside their organization.”
Blair said even though providers like her company would gladly embrace more buyers who want to sole-source RPO services, the fact is only a small portion actually do so today. Calling global RPO “very immature,” Blair said providers and buyers alike must collaborate closely to build out infrastructure and forge new paths to harmonization of recruitment practices around the world. In Logica’s case, it worked with hyphen to establish a blended model that leveraged the provider’s recruitment expertise and its own internal service center. Other European employers are also exploring new ways of deploying RPO within their organization, with many now considering an integrated program of contingent and permanent hiring managed by one vendor. This trend has not been isolated to Europe; even in North America, some staffing giants are discussing similar programs with U.S. customers. However, this approach seems to have gained the greatest momentum abroad.
What appeals to employers most, however, is the flexibility that vendors offer these days as part of their RPO solution. Although some global companies yearn for end-to-end, single-source RPO, others prefer a modular approach in which they can selectively outsource the services they most often grapple with. According to Paul Mallinson, managing director at Hays Resource Management in the U.K., it seems employer size often dictate which approach is preferred; larger corporations look to full-service programs while mid-market businesses seem to favor a modular solution. “Clients want choice, and this invariably means being given the option to select between an end-to-end (the sum total of sourcing, recruitment, selection and assessment, administration, and on-boarding) and a modular solution, depending on the individual requirements,” he added.
By offering such flexibility, providers are instilling greater confidence in their clients to expand scope of engagement. Neil Jones, managing director at hyphen, pointed out that a number of his clients are asking for recruitment support in additional EU markets as well as in Asia, reflecting the globalization of RPO. At the same time, European HR departments are involving their counterparts within procurement to implement recruitment strategies throughout the organization.
“Two years ago, procurement was on one side of the fence and HR was on the other side. They rarely talked to each other and had different objectives,” he said. “We’re seeing these departments moving closer together and working more closely.”
While procurement traditionally lacked an understanding of HR’s challenges, these professionals are becoming more aware of not buying services on price alone, Jones added, which should put HR decision makers at ease knowing that the cheapest solution isn’t always the one that gets picked. Furthermore, such a collaborative effort makes a compelling case to business leaders that using an outsourced recruitment solution can improve both cost of hire as well as quality of hire around the world.
Still, with the European market maturing at a slower rate than the U.S., and with the Asian market just beginning to gain momentum, the proliferation of global RPO models may be limited. While some practitioners have progressed past the proof-of-concept stage, others have not and are still evaluating RPO on a limited basis. And until these companies become comfortable with the idea of sourcing and processing their candidates through one provider, which many believe will be several years before that happens, many organizations will continue to buy recruitment outsourcing in a piecemeal fashion.
Nevertheless, there is no question that the adoption of RPO on a global basis marches on, with many large employers attracted to the idea of a single-vendor solution tending to their recruitment needs everywhere. Just as the market has evolved quickly during the past several years, you can be sure that it will continue to produce new models and establish new paradigms to meet a plethora of needs. Whether these solutions will involve one provider or a handful, the key to their success is to deliver them as integrated solutions in which end users and hiring managers experience a singular process that is that same in the U.S. as in Madrid or Singapore.