As the market matures and becomes more competitive, RPO buyers are seeking industry-specific solutions.
By Avinish Mittal and Rajesh Ranjan
Everest Group’s latest RPO Annual Report reveals that the market is maturing. In fact, the 22 leading RPO service providers that Everest Group covers in its research have amassed quite a large portfolio. The group has more than 1,000 clients cumulatively, implying that the value proposition of RPO and its services is well established. The report found that U.S.-based enterprises are still the biggest adopters of RPO, but adoption continues to spread across other geographies (see Figure 1). This is true of industries as well. Industries including manufacturing, services, and high-tech and telecom are mature in their adoption of RPO. Emerging markets include healthcare and pharmaceuticals and oil and gas, both experiencing increased adoption rates. All of these factors converge to produce a competitive intensity that is at an all-time high -very few RPO service providers have a dominant market share.
In the past, RPO was generally considered a horizontal offering with more or less the same approach for different industries. However, with increasing market, client, and service provider maturity, there is a gradual movement toward industry-specific solutions. Buyers expect their RPO to provide better access to scarce talent, especially within the niche job segments. In a recent Everest Group survey of buyer organizations, close to 80 percent of the respondents stated that access to scarce talent is a key expectation from RPO. While organizations have always sought client references and experience serving other businesses in the same industry and job family, evaluation of providers on industry-specific domain expertise is a newer phenomenon.
To drive greater penetration, RPO service providers are also focusing on specific industries both in terms of service offerings as well as sales strategy. Some service providers are creating specialized industry teams for sales and delivery, hiring industry experts who design the sales strategy and are responsible for end-to-end delivery of contracts.
There are three forces that are together driving the interest in industry-specific RPO solutions.
1. Inherent industry-specific RPO requirements. There are some industries where the candidate pool is small and skill-set requirements are unique. In this case, RPO and specifically the candidate sourcing process, extends beyond the traditional method. For example, finding drilling experts within the oil and gas vertical is difficult and traditional recruitment methods are often not successful. Recruiters need to utilize innovative techniques to find candidates within these job segments. This requires acute knowledge of the talent dynamics within the industry, and expertise in engaging and attracting target candidates.
The increasing role of analytics in RPO solutions is also driving the need for greater understanding of industry dynamics. Everest Group research shows that 53 percent of the new RPO contracts signed in 2013 had some form of recruitment analytics in scope. This percentage is even higher for mature buyers in second and third generation engagement. As analytics evolves from reporting analytics to more predictive analytics, the need for industry-specificity to identify the appropriate sourcing, engagement, and hiring strategy will increase further.
2. Changing macro-economic conditions. Coming out of the economic downturn witnessed in recent times, the war for talent has reached a new high. There is higher cost and competitive pressure within industries, and enterprises are looking to hire the best possible talent in the most optimal way. Organizations’ ability to hire the best candidates in the shortest time possible is likely to become an important differentiator. To expedite access to this expertise, organizations are increasingly looking at RPO providers who have invested into and have proven capabilities in specific job families and industries. A typical recruitment generalist does not have the expertise to identify the best sources and channels for such talent pools. And there is an ever-increasing demand for a specialist service provider that has strong capabilities in attracting and hiring the desired talent, especially in hard-to-reach skill-sets.
3. Highly competitive RPO landscape. Given the increasing demand for RPO offerings and the increasing competitive intensity, more service providers are investing into industry-specific offerings to create a differentiation in the maturing RPO market. This has translated into an increasingly industry-oriented go-to-market approach in which both sales and delivery organization structures are aligned by industry. From a delivery standpoint, service providers are investing into solutions that cater to industry-specific RPO requirements across both process and people.
The three forces highlighted above are also enhancing the value proposition for RPO. Cost reduction and scalability are still important but have become tablestakes. Both buyers and service providers are expanding the boundaries of traditional RPO value proposition. Now, RPO service providers are increasingly focused on improving the quality of hires, providing better access to scarce talent, reducing time-to-hire for critical talent, and minimizing new-hire attrition (see Figure 2).
Considerations
Notwithstanding the enhanced value proposition, implementing industry-specific solutions is more complex as:
- The criticality of outsourced hires is greater;
- In addition to the HR manager, the contract requires higher involvement of business units;
- Managing multiple stakeholders requires a higher level of change management;
- Buyers expect outcomes beyond cost reduction and scalability; and
- Industry-specific solutions carry premium prices as compared to traditional RPO.
While these challenges exist, they are not insurmountable. Here are some best practices that directly impact the success of any industry-specific RPO solution:
1. Build a holistic business case. Industry-specific RPO can be justified only if the business case goes beyond cost reduction and scalability, and considers the potential impact of higher quality talent and low attrition on business outcomes. A potential framework to leverage in business case creation is:
• Direct cost impact (full-time employee cost reduction, vendor consolidation, and improved process efficiency);
• Business impact (time-to-hire reduction for business critical roles, improved quality of hire, increased candidate engagement, and increased visibility and compliance); and
• Strategic impact (Faster time-to-market and competitive advantage).
Organizations need to collaborate with service providers to develop a solution that delivers a holistic business case as against a traditional RPO based on a templatized solution.
2. Give appropriate weighing to industry-expertise. The pool of RPO service providers with specific industry expertise is different from the overall market leaders. As the service provider landscape becomes more competitive, the provider selection process needs to become more robust. Organizations need to evaluate service providers on their industry-specific domain expertise as part of the overall selection process.
3. Involve business leaders upfront. Involving business leaders in scope identification, service provider selection, and solution development will help in procuring the right service provider and creating the ideal solution model.
4. Evaluate the criticality of hires and complexity involved. Industry-specific solutions usually carry a premium over traditional RPO solutions. As a result, buyers need to evaluate the criticality of hires, and difficulty involved in hiring them before selecting an industry-specific RPO solution. A higher involvement of business units in the evaluation stage, hence, is highly important.
5. Utilize outcome-based pricing. Given the criticality of hires outsourced to the RPO service provider, it is beneficial to have service provider’s skin in the game and create a right combination of risk and reward for the service provider. Moreover, given the high level of complexity involved in hiring, outcome-based pricing will incentivize the provider to invest into the relationship in terms of both people and technology.
Avinish Mittal is a senior analyst at Everest Group and Rajesh Ranjan is a partner of the research organization.
