RPO & StaffingTalent Acquisition

Is RPO a Mature Market?

Employers are more willing than ever to outsource all recruitment functions, but only if a world-class recruitment organization comes with the deal. The era of $50 million deals has arrived.

by Brett Gerard

Is recruitment process outsourcing a mature market? Not quite, but it is definitely maturing and gaining a significant foothold in the evolution of the fast-growing HRO market. When we refer to this market as “emerging” in front of RPO service providers, we may need to duck, as several of them have delivered RPO for a few years now in some form or fashion. In 2006, we saw a huge increase in the number of formal RFPs in this area.

The activity thus far in 2007 indicates that RPO will be what many organizations will consider the future model for recruiting, and we’re expecting to soon see the first of several deals worth more than $50 million. Currently, most RPO relationships are being structured on a regional level, but some providers
are working on creating an infrastructure to deliver globally.

So is cost for hire maturing? We really haven’t seen the fees or level of competition change in this area. In most cases, this is still a fee-based model and customized by the client. Our mark-to-market database, which represents nearly half of the recruiting and staffing relationships in the large market, indicates that these services are not a commodity and service pricing—no matter how many data points are available—is not necessarily consistent.

An apples-to-apples comparison of different contracts is difficult to generate as the scope is usually somewhat different. We are constantly challenged by the average cost per hire. We can always get to this number for our clients and for the business case, but it must always be adjusted for the industry, types of positions, level of positions, geography, and scope.

Grown out of mass purchasing of recruiting services or project recruiting, RPO is now showing a solid growth record and maturing in terms of size, scope, and duration of contracts. The reason for this growth is clear: We are facing a shortage of skilled professionals, and quickly acquiring a world-class recruiting organization through one of these providers can deliver a real competitive advantage.

A prominent reason for outsourcing is to gain expertise. And this expertise can be found within several RPO providers in terms of professional and seasoned recruiters, a strong heritage in the ability to heavily recruit professional positions, and recruitment process engineering.

In the early RPO years, we saw these transactions consisting of mostly non-exempt, high-volume recruiting, where good process and technology could solve your hiring challenges. However, the market and the challenges have changed, and we are now seeing the inclusion of exempt, mid-level professional hiring structured into the relationship. In fact, nearly 90 percent of the newly structured relationships include this level of hiring. The business mindset has changed dramatically from outsourcing non-core recruiting functions to absolute critical recruiting activities … if we can quickly acquire a world-class recruiting organization through RPO. We’ve been tracking several key market trends in RPO including:

• Increase in large-scale, standalone relationships;

• A movement for organizations to outsource the entire recruiting function;

• Implementation of centralized hubs to drive optimal performance;

• Heavy investment in Six Sigma and lean process expertise;

• The build-out of vendor management services to support contingency and retained hiring and temporary staffing;

• Minimum three-year contracts with flexibility to scale;

• An increase in the number of contractual SLAs tied to fees at risk

These market trends are demonstrated by the number of recently announced second-generation RPO deals. These relationships are more complex because of the learning achieved through the first relationship. This trend also tells us that clients believe in this model and that RPO is not just a quick fix.

Another trend is the ability to partner with full-scale HRO providers. These partnerships can add significant value in terms of the talent management function. Today, 42 percent of the HRO contracts include recruiting and staffing, but the administration services-only structure is dominant. We predict that during the next several years, a significant focus will be on the ability to deliver outsourced talent management services, and RPO will play a major role in future of HRO delivery. We think this is a trend worth watching.

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