Near-vertical growth and real market movement in 2007 open into another big year for RPO
As we look to 2008 across the HRO landscape, we continue to be impressed by the meteoric rise of RPO. Last year was a seminal one with record deals topping $50 million in value and the market winners more identifiable than ever.
The buyers are more ready than ever to accept that staffing processes can be outsourced. Part of the growing comfort of the practitioners is the growing sophistication of the providers. While there are some bad outcomes, RPO has been largely free of the controversial failings of the other areas of BPO. Most buyers are reasonably happy and feel they can manage the talent strategy of their company while using a vendor for sourcing and processing.
As recession looms in the Western economies, RPO growth may slow a bit but not much. More candidates in a recession does not change the need to screen and process. While less hiring means less success fees, the employers will continue to compete heavily for the best employees. This all bodes well for RPO to demonstrate it is more economically resilient than some analysts believe.
RPO providers will look to add more to their bundles. The pursuit of “turnkey” staffing solutions will lead to alliances between software and selection providers or outright mergers. In fact, consolidation will be a market factor in RPO. We have seen major acquisitions last year, and we will see more M&A transactions this year by top firms. RPO is hot, and you will see private equity firms making some heavy bets on RPO providers. The top firms have excelled in the past few years, and they will be out shopping for companies that add to scope or geographic reach.
We will continue to see small providers arise trying to win on price. These quasi-contingent firms will create confusion. I have dubbed them the “Faux-POs,” and they know who they are. The good ones will get bought and the bad ones will, hopefully, perish quickly.
We will continue to see movement toward globalization. The major staffing firms may have an edge in reach but not in true RPO delivery organizations. They have the financial strength to buy players in multiple geographies, and we saw that starting to occur last year. Many top RPO firms will evaluate the “build or buy” decision about globalization. You will also see geographic alliance announcements, but alliances almost never yield long-term market results.
As contract values grow, expect more involvement from sourcing advisors. Many have already set up RPO practices, but the RPO providers still get many deals on the power of networking and relationships. The sourcing advisors will find a harder time gaining a foothold in the RPO community than in enterprise HRO. The programs are less complex.
Staffing executives may look to RPO providers to move into the vendor management of contingent labor. The recent bankruptcy of Axium International, parent of Ensemble Chimes, scared everyone. Chimes was holding hundreds of millions of dollars of client transfer payments pending disbursement to temporary staffing firms.
Buyers may look to RPO providers to manage the relationships with contingent labor providers. They would expect this of an in-house staffing team. In this scenario, the RPO could contract the vendor management software but would not act as the “bank.” The employer would pay the contingent labor provider directly. Some RPO firms offer vendor management services already, but this will really enter their messaging around scope of services. The Chimes payments are reportedly being transferred, but even the possibility they could have been part of a bankruptcy estate may be devastating for the vendor management services industry.
Also expect many more buyers to join the RPO Alliance as a way to drive standards and practice conformity in the industry. This will discipline providers in a good way.
It’s a lot to expect, but there is a lot going on. Check back in a year and see if we were right.