The recent comprehensive study by Everest Research Institute on the global RPO market and service provider landscape clearly showed that the RPO market is booming: New deal signings doubled in 2010 compared to 2009.
By Rajesh Ranjan
Clearly, the value proposition of a cost effective, scalable option that helps organizations manage unpredictable hiring requirements is resonating well with buyers. And the future holds more promise as replacement hiring—the current trend—is augmented by net new hiring in an improving economic environment. No wonder that, beyond the existing RPO service provider base, this market continues to attract traditional multi-process HR outsourcing (HRO) service providers, technology vendors, and investors.
However, we also learned from the study that the rapid growth has strained service delivery, in some cases leading to few non-renewals or terminations. While a renewal rate of 85 percent indicates good satisfaction levels, to ensure that this relatively new market continues to expand and fulfil its value proposition, service providers must incorporate key past learnings and avoid the pitfalls experienced in the high profile, multi-process HRO marketplace earlier.
• Not all business is good business. Different buyers seek RPO support for different reasons. Some have a transactional focus, while others are looking for higher value-add in terms of improved process effectiveness and talent quality. Some focus on a specific country, while others require a multi-country solution. These differing requirements clearly call for different sets of capabilities, solutions, and investments.
Thus, although it’s tempting to grab any new business opportunity that comes their way, service providers must have a very clear understanding of what they are good at and, more importantly, what they are not. Defining the appropriate target market up front, based on a clear assessment of their own delivery strategy and capabilities—even at the cost of letting some business go—should be RPO providers’ first step to ensuring satisfied clients and profitable growth.
• Strike the right balance between customization and standardization. A number of service providers offer dedicated delivery teams for each client. On the other hand, some approach this in a highly standardized fashion, with resources leveraged across multiple clients. The former has the potential to be effective but inefficient, while the reverse is true in case of the later. To create the optimal value, service providers will have to create the right balance between customization and standardization in their delivery model. Recruitment areas that require high touch and familiarity with the client’s culture and strategy should be customized, while the back-office, non-differentiated functions should be standardized.
• Prudent partnerships. Several service providers have signed
partnerships to expand their global reach. However, opportunistic partnerships that lacked the integration and alignment sought by buyers in their global RPO solution have already started showing signs of falling apart, which in turn impacts buyers’ satisfaction. Hence, service providers should evaluate partnerships on the basis of synergies accruing out of strategic, operational, technical, and cultural alignment between two organizations to fulfil the value proposition.
• Never underestimate the importance of change management and governance. Effective change management and holistic governance are prerequisites for successful RPO implementation and subsequent delivery, especially in large and complex enterprise-wide RPO initiatives. Improper and ineffective change management often leads to friction, dissatisfaction, increased time for recruitment, and greater costs for the buyer organization. Service providers must educate and work with their clients to actively plan for change management, and create a governance structure to ensure its effective implementation. Clearly set expectations, well thought-out communications, and mandatory training are some of the mechanisms companies should use to adapt to changes when working with an RPO provider.
• Global sourcing is an important value lever. Recruitment has been historically viewed as a high-touch function that requires significant orientation to local cultures, behaviors, business environment, etc. However, there is now greater understanding that the recruitment function consists of two separate components—high-touch front-office processes (e.g., employer branding, sourcing) that require onshore presence, and low-touch back-office processes (e.g., recruitment administration) that can be delivered from offshore locations. A delivery model that encompasses “intelligent shoring” will further enhance service providers’ value proposition.
Yes, it’s definitely a good time to be in the RPO business. And with a dose of pragmatism, RPO providers and buyers will both be well served.
Rajesh Ranjan is research director with the Everest Group.
