New deals are rolling in, but overall activity is experiencing a decrease.
By Rajesh Ranjan
Although the concepts of high adoption and diluted growth may seem somewhat contradictory, these two key findings from Everest Group’s 2013 recruitment process outsourcing (RPO) annual report aren’t as diametrically opposed as they appear on the surface. The RPO Annual Report 2013: Dichotomy of Market Exuberance and Subdued Economy frames the high-level story: 2012 witnessed a record number of new deal signings, but also a dramatic decrease in hiring on both sides of the Atlantic, slowing market growth to approximately 12 percent. Here, we’ll review the report’s chief areas of focus and the multiple dynamics shaping the RPO market in 2013 and beyond.
The deals. Looking at RPO engagements that included a minimum of four recruitment processes, the number of deals signed in 2012 increased by roughly 50 percent over 2011, but the average number of hires per deal plummeted by more than 100 per deal in the same timeframe. Existing deal sizes were also affected as buyers cut down on their hiring numbers, and some contracts were terminated prior to contract expiration due to fully ceased or largely curtailed hiring activity.
On the positive side, non-renewals decreased by 5 percent between 2011 and 2012. While large enterprises were previously the strongest adopters of RPO, the mid-market is increasingly embracing the model and its intrinsic, multi-pronged value.
The research also shows that Europe, Middle East, and Africa (EMEA) and Asia Pacific are becoming increasingly popular for multi-country RPO (MCRPO) deals. Additionally, although nearly half of all RPO deals include technology bundles, the highest incidence of these was in the Asia Pacific region.
The diversity among regions is evident in not only deal volume and type, but also in drivers of RPO uptake. Indeed, there is significant disparity among North America, U.K., Australia, New Zealand, Western Continental Europe, and emerging markets on the extent to which business drivers have an impact and value. These include cost reduction, business/strategic impact, access to technology, growth management, and need for flexibility, scalability, and a variable cost structure.
The offerings. Beyond core services and cost reduction, second- and third-generation RPO buyers are increasingly seeking value- add services that create business and strategic impacts. These include employer branding, analytics, talent community, and alignment of recruitment to workforce planning.
Responding to heightened value-add requirements, third-party providers are making specific investments to support their ability to offer these types of services. However, the solution maturity and some of the key engagement constructs—for example, should they be priced separately or included as part of the ongoing fee—are still evolving.
Capitalizing on the Opportunities
In order to enhance value creation, Everest Group believes the industry must evolve to an RPO 2.0 model.
The regions. Continental Europe and Asia Pacific have
emerged as the new hot beds for RPO services. While North America continues to be the largest market, these two regions experienced significant new deal signing activity in 2012. Everest Group attributes these shifts to several factors. First, companies headquartered in Asia Pacific are becoming increasingly aware of RPO’s value propositions. Second, Continental Europe’s still challenging economic situation is forcing organizations to put in place a more scalable and flexible recruitment structure. Third, there is an increase in supply-side maturity, with a growing number of local and global service provider options and targeted local and regional solutions.
However, this evolution will not be any easy one, as many challenges must be solved and overcome before RPO 2.0 can become a reality. For example, limited buyer knowledge of RPO’s value proposition may lead to creation of an incomplete business case that focuses only on easily measurable benefits. Service providers must actively educate buyers on all that RPO can offer to help ensure a win-win engagement. Similarly, the parties must work together utilizing a partnership-based approach to capture RPO’s full value. Other issues that currently prevent movement to RPO 2.0 include lack of integrating RPO with broader talent management initiatives, poor stakeholder management, and a transaction-based mindset.
Despite the impact today’s current economic environment is having on the RPO market, the model has proven its ability to provide multiple benefits including economies of scale, economies of scope, compliance with clients’ sourcing, recruiting, and hiring processes, and dedicated focus on employer brand. RPO 2.0 and future iterations will unquestionably bring even greater value to buyers and an increasing number of opportunities to providers.
The Outlook for 2013 Key observations from Everest Group’s analysis of the report findings include:
• While the economic environment will play a significant role in the market size and growth, Everest Group expects the global RPO market to grow between 12 and 17 percent.
• RPO uptake will continue to shift from the West to the East, with Continental Europe and Asia Pacific decreasing the United States’ and the U.K.’s dominance as the traditional RPO markets.
• More than 500 existing deals will be coming up for renewal in the next three years. End-of-term decisions will likely be influenced by multiple factors including the evolution of the buyer’s business strategy, the nature of the existing RPO solution, degrees of satisfaction, alignment between the buyer and the provider, and market dynamics such as innovative technology solutions, delivery models, and pricing.
• A broader scope solution—designed to deliver business and strategic benefits beyond table stakes—will come into play in the market.
• Despite heightened interest around total talent acquisition solutions, the adoption of a blended model will be gradual.
• Low-cost technology will become a critical factor in emerging geographies, and RPO providers will scour local markets for suitable applicant tracking system (ATS) solutions.
Rajesh Ranjan is vice president of Everest Group, For more information on Everest Group’s 2013 RPO annual report, visit https://research.everestgrp.com/Product/12029.