A brief history lesson in RPO.
By Michael Beygelman
The concept of outsourcing some or all aspects of recruitment was greeted with a lot of hope nearly two decades ago. The market then went through more than a decade of superfluous hype, before coming full circle in the past 12 months. Companies are finally buying reality and expecting measurable results instead of aspirations scribed in PowerPoint decks that pontificated recruitment virtue.
We should expect to see a slight repositioning in the provider landscape over the next 12 to 24 months because current buyers of recruitment services are savvier; they have higher expectations from their RPO partners to deliver on what they were promised. Procurement and sourcing advisors are also now more actively engaged, which helps HR buyers gain a broader perspective.
The Premise and Promise
What makes RPO different than other forms of outsourcing is that at its roots, it was a result of being a derivative of staffing—be it permanent or contingent—and not a derivative of outsourcing. Even basic research will reveal that a number of early founders of RPO companies were former staffing executives who saw how the world of recruitment could evolve to provide different service delivery models other than those that were being offered by traditional staffing companies at the time. In essence, the competency of recruitment was forged into the business model of outsourcing to give birth to what became know as recruitment process outsourcing, or RPO.
There were key differentiators between an RPO firm and a staffing agency. A RPO firm contracted with a client to assume the ongoing operations and responsibilities of a specific business function, recruitment, while a staffing agency primarily supplemented the client’s existing recruitment team’s efforts or provided contingent workers. Simply put: A RPO firm was selling work while a staffing company was selling workers.
In theory, applying an outsourcing business model to recruitment promised to help a company become more flexible by having a variable cost structure, not requiring them to invest in costly assets—employees or technology. Plus it nearly eliminated the need for resource management, presumably reducing the time and cost for a company to quickly adjust to economic changes.
The Allure of Success
RPO experienced some immediate success due to rapid client adoption during economic prosperity. Clients were able to outsource their recruitment operations to a provider at a lower total cost of ownership with a better outcome. Plus, these new startup RPO companies didn’t have to compete with the large outsourcing providers (some of them being offshore) or staffing companies. It stood to reason that eventually outsourcing providers, staffing companies, and other newly created startups would flock to participate in the burgeoning RPO marketplace.
But some of the new entrants didn’t have either the sophistication to build sustainable business models. As a result, the most overused term of the past decade, hybrid RPO, was manufactured. For some providers, this meant marketing their existing services—contingent staffing, consulting, candidate sourcing—in this new RPO marketplace with less competition. To some buyers of services, hybrid RPO meant saving money while experiencing little change and risk—and results.
And while these two examples are by design at opposite ends of the spectrum, what essentially happened is massive buyer confusion because buyers seeking real outsourcing or cheap staffing received a solution aligned with their expectations.
Reality Wins in the End
As with all the bubbles, it is difficult to know when you’re in one. To some extent the RPO bubble is beginning to burst, which is great news for providers and buyers alike. In the past 12 months, there have been a number of true recruitment business process outsourcing engagements consummated, and even a larger number of recruitment ramp-up projects, contract recruiting, and also deals where clients transitioned their internal recruiters to the payroll of the provider to get the salary costs off their books.
Coming to terms with reality is great news for the marketplace because it will continue to create transparency for buyers and equal footing for provider competition. As you review research analyst results in the coming calendar year, don’t be surprised if you notice some service providers being repositioned, and make sure that you understand what you are reading. Some providers might move up or down in the rankings because their clients are getting better at articulating what they bought, and how well it has been delivered. Seldom will movement happen because a provider mysteriously became far better or far worse at what they do. What the research might be telling you is which provider is better at performing what kind of services.
Michael Beygelman is North America RPO president at Pontoon. He can be reached at email@example.com.