How the recession has created a booming market for RPO.
By Paul Harty
In his February 2011 market analysis, Targeting Recruitment Process Outsourcing, NelsonHall analyst Gary Bragar, observed that, “the Recruitment Process Outsourcing (RPO) market has bounced back strongly, with organizations both reluctant to rebuild in-house recruiting capability while economic uncertainty exists and needing to recruit more globally than before to build capability in high growth markets.”
Companies have been traumatized, and the world has changed as it relates to hiring. The year 2009 was a real turning point in how companies look at talent acquisition and employee retention. The recession forced companies to look deeper into their finances and into each of their departments to determine how to become more “lean,” achieve higher levels of efficiency, and drive greater return on investment (ROI) from shared services. Traditionally, in many companies, the C-suite has kept hands off the human resources department; before the 2009 recession, HR was often not held to the same financial and budgetary scrutiny as other departments such as IT, manufacturing, and engineering. Most organizations, even in finance, didn’t understand how HR worked, making it very difficult to determine cost per hire, for example. Some companies considered only the amount spent on advertising per hire as cost per hire, others included HR costs such as salaries and benefits. Practitioners also had temp labor and agency fees to consider, which many companies categorize as professional services.
What about considering the price of a position remaining vacant? What does it cost a company if no one is in a job that the company needs filled in order to drive the results the company wants? These are missed opportunity costs. In 2009, because so much pressure was on to save cash, companies started to pay a lot more attention to actual HR expenditure and the net yield of all of that expenditure. While the folks in finance often considered HR a fixed cost, like insurance or legal fees, HR considered itself strategic.
Seeking Real Strategy
Coming out of the 2009 recession, many companies have started to recognize that HR should be strategic but isn’t acting that way. HR wasn’t held to the same lean standards as other departments, wasn’t being held responsible for a budget, and wasn’t applying the same principles of project management to make performance improvements.
At about this time, there started to be a lot of talk about driving HR centers of excellence. Larger companies realized that their employment brand was just as important as their corporate brand. They started asking how their company was perceived by employees and contractors and by prospects who were considering working for the company. For consumer goods companies, this is even more important because employees and prospective employees are also consumers. If they have a bad experience with a company, they won’t buy its products. Cost measurement and employment brand have become very important because, after all of the massive layoffs, companies are starting to hire again, and they want to do it effectively and efficiently.
Because companies reduced staff size so drastically during the recession and had become very cost conscious, they knew that when they began hiring again, especially for hard-to-fill and in-volume positions, they had to have better HR talent. Many companies don’t believe that their existing HR team can drive this effort, because they are relying on the same old processes. So how does an organization hire the best people and adopt the latest and greatest talent acquisition processes—say, via social media or mobile devices—with the existing HR team in place?
Coming into 2010, there was massive uncertainty about how long the recovery would last. Many senior managers are still stinging from decisions they made during the recession of 2001, and its seemingly short-lived recovery. That earlier recession with the dotcom bust lasted about three or four years, followed by three or four decent economic years before the banking and real estate bust hit in 2009. With the trade deficit and deficit spending very high, executives are wondering if the recovery is sustainable, based on underlying financial stability, or if it is just another bubble getting ready to burst. Another six or seven years of growth and prosperity would be great, but many business leaders believe that another two or three years is more realistic, due to the many fault lines in the global economy.
The prospect of significant hiring, training, and development of talent acquisition staff is daunting. It involves getting them to understand the corporate brand and culture, the company’s mission and goals, all while bringing the best people in the industry into the company, along with the attendant costs. Eighteen months from now, if hiring isn’t happening at the volumes that it is today, no executive wants to saddle his or her company with those fixed costs. What executives want is to be able to scale quickly to meet current demand and have the flexibility to scale back down without incurring outplacement costs, another reduction in force, and negative public relations. At the same time, they have to continuously control costs.
The Hiring Hedge
The economic downturn and recovery have created an unprecedented opportunity for the RPO industry. One of the groups hit hardest by recession-era layoffs were internal recruiting staffs, resulting in no internal capability for re-staffing, despite a growing need to do so. On top of that, companies now have a tremendous opportunity to revamp HR processes to be much more efficient. It’s much easier to make optimization changes now with staffing at an all-time low; it’s almost like making a fresh start. It’s a golden opportunity for RPO firms to come in with a refined and simple process that is efficient, measurable, and accountable, as well as scalable and flexible, because management doesn’t have to lay off people to give work to an outsourcing company. Most companies today, if they’re starting to ramp up staffing, are facing the decision of whether to hire or outsource talent acquisition expertise.
Management should work only with an RPO firm that understands and represents the company’s brand, is accountable for reaching hiring goals quickly with high-quality candidates and improved hiring manager satisfaction, and is willing to tie its compensation to the successful delivery of results. If retained senior HR people can be assigned to strategic policy-driven projects such as succession planning, forecasting, salary analysis, and benefits and employee management, and the RPO firm can manage the end-to-end process of making sure jobs are filled, then management has succeeded in building everything they’ve been trying to build internally for years.
This is a huge opportunity for RPO companies to work with corporate strategists to drive better processes for more efficiency in a scalable and flexible way. You cannot argue with the financial, retention, and brand awareness results that an RPO company can help deliver. As companies become more strategic in their HR thinking, it’s easier for them to go to an RPO company, particularly when layoffs or massive change management don’t have to be considered.
Financial institutions are bringing the RPO solution into their strategic conversations to help navigate the volatile hiring markets in a post-recession era. SunTrust Bank partnered with Seven Step to tackle unexpected hiring surges and to address recruitment challenges including hard to fill positions. This allows SunTrust to have access to additional resources while maintaining control of talent acquisition. It also provides the flexibility to position the company’s internal resources in more strategic and high-value functions.
The NelsonHall report forecasts that the RPO market will more than double in the near future. The projection is that the demand for talent is continuing to increase and will accelerate as baby boomers begin to retire, the economy continues to recover, and dissatisfied employees move into the job market, creating a significant shortage of talent across organizations of all sizes and industries. Now companies need help not only with rapid recruiting, but also with hiring highly qualified employees, particularly as staff composition needs have changed. Lean companies are looking for scalability and flexibility, making RPO the strategic choice for HR organizations today.
Paul Harty is president of Seven Step Recruiting.
Getting Talent Aligned
Source: Manpower’s World of Work Trends report
Following a detailed analysis of the world’s shifting trends and dynamics, Manpower Inc. had identified trends critical to navigating the changing world of work. In an economic environment where organizations are pressured to do more with less, business and governments will continue to demand more specific skills and behaviors. The pressure to find the right skills in the right place at the right time will increase as working age populations decline, economies rebound, emerging markets rise, and the nature of work shifts. This new paradigm will come with a few implications:
• Organizations need an agile talent strategy to attract and retain the talent required to achieve their business strategy.
• Leadership requires a shift in definition and investment.
• Critical skill shortages will accelerate the mobility of workers and work.
• Demographic shifts will increase the pressure to keep older workers engaged in the workforce longer.
• Bifurcation of the workforce by skills and demand is accelerating.
• Continuous training and development of the workforce will be required in order to maintain a job-ready workforce.