Most companies with more than 1,000 employees are outsourcing at least some parts of recruitment. As employers jump on the bandwagon, can the market sustain its tremendous growth for much longer?
Every HR manager has faced the same quandary: the department VP calls or comes to your office to request an IT position be filled ASAP. The problem is you have other vacancies to fill from the past three months. What’s a hiring manager to do?
Finding the best employees is never as simple as posting a job listing online, sending out an internal memo, or even calling up professional contacts. As every company looks to hire the best, competition is heating up in the labor market. Whether they are small, niche hires or massive, group staffing efforts, meeting labor needs is increasingly difficult. Planning and executing a recruitment program takes expertise, time commitment, and a sizeable team that many companies don’t have.
Moreover, HR professionals have a slew of other responsibilities. Smart businesses have realized the value of outsourcing recruitment goals. From sourcing, screening, testing, interviewing, issuing offer letters, and training recruitment process outsourcing (RPO) providers can handle all aspects of the hiring process. As the HRO market matures, RPO is becoming bigger than ever. With a spike in the number of providers entering the market, much has changed since we last covered RPO. Although some issues such as labor shortages never go away, the RPO market is growing to address them.
With more coverage in the media about RPO, interest in outsourcing recruitment continues to grow. According to Geoff Dubiski, director of operations, Yoh HR Solutions, “More and more companies are doing investigations and either pilot or full RPO programs, so there is more market share to be had. Companies are also doing more hiring, which has bolstered the RPO companies that already have clients.”
The RPO Alliance, a trade group for RPO providers, has recorded markedly higher levels of activity. Jason Berkowitz, chairman of the RPO Alliance and president of Hyrian, added, “The velocity of the market has definitely increased. There is a significantly higher interest in exploring RPO than we have ever seen. It’s starting to seem like for companies with over a couple thousand employees that it’s no longer a question of should you look at RPO, it’s more a question of which RPO model makes the most sense.”
A recent RPO Alliance survey found that the majority of businesses with more than 1,000 employees are outsourcing at least some of their recruitment functions. The mid-market is especially eager to work with RPO providers.
“In the past I think that there was a perception that unless you were one of the Fortune 100 companies with more than 10,000 employees and had tremendous hiring volumes then recruitment outsourcing wouldn’t be a viable solution. But the mid-market is finding that, in fact, it is, because certainly there are cost savings, efficiencies, and all the other benefits associated with RPO,” stated Pam Berklich, group leader and vice president, Kelly Services’ Outsourcing and Consulting Services Group. “If their core business is pharmaceutical development or if their core business is automobile manufacturing, they’re recognizing that recruitment and hiring is not.”
Small companies might not face the same issues, but they do need help. Many do not have the bandwidth to dedicate themselves to implementing an internal hiring strategy. However getting smaller companies with fewer than 1,000 employees involved in RPO has proved to be a challenge. Many have heard of RPO but are still unfamiliar with how it can help them. From cost savings and higher quality hires to shorter hiring cycles and longer retention, the benefits can’t be denied.
Cost savings have been one reason for RPO’s success. Many organizations are unaware of their recruitment costs until they partner with an RPO provider. By implementing a tailored strategy, they can save in a number of ways. HR managers that turn to third-party search firms can spend an enormous amount of money. RPO providers are capable of issuing requisitions internally, which cuts out the middleman—the staffing firms.
Other times HR uses the Internet to find candidates, posting employment listings on online job boards, but which is the best to use? Job board fees vary and sometimes require a year-long commitment. RPO eliminates this cost as well.
Another way to cut costs is on candidate travel expenses. Typically, a hiring manager will sift through a pile of resumes, find four or five prospective candidates, and set up a face-to-face interview, which can involve travel costs. If none of those hires are made an offer, HR ends up wasting money. An RPO provider’s goal is to find the best fit and most qualified candidate by narrowing down the pool.
“We can typically cut the cost-per-hire. Even with a client that has a good hiring process, we know that we can save them 20 percent in their overall annual recruitment costs. For clients that have a disorganized process, we oftentimes save them 50 percent the first year,” Berklich explained.
Hiring managers pondering RPO are looking for true partnerships that are long-term and highly engaged. They know that their shortcomings can be addressed by a recruitment expert—an experienced provider selling not only tools such as drug testing or ATS but is also offering a true recruitment solution.
HR wants an RPO partner that delivers on the metrics hammered out early in the negotiation phase such as time to fill, cost per hire, cost reduction, and quality of hire. It is imperative that the provider remains accountable to service-level agreements. Hiring managers also expect flexibility—an RPO partner needs to be experienced enough to understand the ebbs and flows of the industry. At one moment, call center representatives may be the most requested fill; a year later, it may be a pharmaceutical sales position.
All of the providers we spoke with indicated that engineering, IT, R&D, and finance are the hottest hiring areas. These positions are also the hardest to fill. Using an RPO provider can make the process a lot more manageable. Passive candidate searches and global sourcing are two methods providers implement for hard-to-fill positions.
Berklich refers to this as “cross-border recruitment.” As the market continues to globalize, companies are looking for providers who can span the globe.
“We are able to do the market research to find out where the talent is anywhere around the world and then develop the recruitment and sourcing strategy to go after that talent and know all of the HR employment practices and the techniques to be able to attract that top talent to the place where the talent is needed,” said Berklich.
A key reason that companies are looking offshore has to do with the labor shortage at home. For the past five years, there have been constant reports in print, on TV, and online about the upcoming labor shortage. It may seem like media hype, but many observers say it is real. With baby boomers set for retirement during the next 10 years, experts predict a brain drain for the U.S. labor force. Dubiski, however, refers to this as a talent—not labor—pool shortage. The difference, he points out, is that even as the workforce population shrink, a greater concern is in the drop in the number of qualified, skilled candidates in the workforce.
With engineering and other science programs graduating fewer students, the staffing industry will have to think of new ways to resolve this problem.
“One of the reasons people are so worried is not necessarily just bodies or people doing the work; it’s the knowledge that people are retiring with,” Dubiski added. “There hasn’t been the planning to make sure there is a solid knowledge transfer.”
Some companies are either offering incentives to older workers to keep them on longer or to work on a part-time basis. The most immediate solution is training.
“You are going to have to start investing more heavily on their training and development functions to take new hires with little more than great potential and turn them into employees who can really make an impact,” according to Berkowitz.
RPO NUMBERS GROWING
These trends have led to changes in the RPO industry during the past year. With more companies calling themselves RPO providers, organizations will have to be more selective in their outsourcing decisions. According to Dubiski, a flurry of mergers and acquisitions in the hiring industry has created the convergence of staffing and tech firms.
“You have pure RPO providers that do nothing but staffing and have partners in the technology and ancillary services space such as background or reference checking. Then you have providers that are pure technology and ATS that partner with recruiting,” he said.
Because of the influx of so many RPO providers, Dubiski said he expects in a year or two there will be significant consolidation via acquisitions or partnering among providers to gain market share. Berklich has a slightly different view.
“In order to really compete in this space, not only do you have to have the expertise but you have to have the resources, the bandwidth, the scalability, the financial support, global scaling—those are the trends for the future,” she said. “And if you can’t accompany a client who needs you in multiple countries outside the U.S, you’re limiting your ability to be a viable, global player in the space. You will see small RPO competitors ‘come and go’ in the future.”
Another noticeable trend that Kelly HRfirst is experiencing is the expansion of RPO in Europe and Asia. Berklich noted that clients want more complex solutions such as workforce planning and vendor management. She sees the industry moving toward offering total workforce management solutions with RPO as the core.
Berkowitz’s most important trend relates to the client as well. “The trend we are seeing is that companies are recognizing that in a tightening labor market, recruitment is a real competitive advantage, and having a world-class recruitment department gives them a real edge,” he said.
For Dubiski the majority of queries he receives are for hiring drives with compressed time lines, such as assembling a new sales team to coincide with a product launch scheduled later in the year. He added that companies are more focused on vacancy costs, “especially for revenue-generating positions because every day the job is unfilled the company loses money.” Another interesting trend he pointed out was the decline in the number of candidates willing to relocate.
Before a hiring manager decides to take the plunge into RPO, she should understand what recruitment process outsourcing is, determine her company’s needs, why outsourcing will or won’t work, how to select an experienced partner, and define the benchmarks to meet. There is a lot of noise surrounding RPO, and HR professionals will have to tune into who will make the experience best for them. RPO is not simply about cost reduction, it’s about transforming your entire hiring process. In the end, not only does management need to be satisfied, but future employee should have a positive experience as well.