The value of RPO has moved far beyond basic SLAs into strategic innovation.
By Abhishek Menon and Rajesh Ranjan
Talent is clearly the true differentiator in the 21st century. Having the right talent at the right time and in the right place is even more paramount in the current economic situation. However, organizations will need to understand the megatrends impacting the talent market, including the demographic shift, generational differences, globalization, and changing workplace requirements and expectations. Organizations need to align their talent acquisition strategies to remain successful in the long run.
The success of recruitment process outsourcing (RPO) in creating value for buyers is evinced by the rapid growth of this market over the last few years. The RPO market has reached $1.4 billion in annual contract value (ACV) in 2011, and the market is expected to continue on a high-growth trajectory.
RPO has the potential to create value and impact at three levels: cost, business, and strategic. In the early stages of RPO (RPO 1.0), it addressed the cost and the business impact considerations focusing on elements that are low hanging fruits and easy to measure and quantify. The next generation of RPO (RPO 2.0) addresses the cost and business impact on a holistic basis and also starts to create strategic benefits for organizations. It calls for taking a comprehensive approach to talent acquisition—inclusion of internal and external hire management both as well as wide process inclusion—in particular and talent management in general. It requires identifying, impacting, tracking, and measuring more strategic metrics that are business-outcome oriented.
Cost impact. RPO provides scalability benefits that allow the buyers to ramp-up or ramp-down the recruiting efforts without having to maintain idle resources. It also allows organizations to rationalize and consolidate their third-party spend, achieving volume benefits from the reduced set of vendors.
RPO 2.0 incorporates all the benefits of RPO 1.0, but goes further by taking a more holistic and nuanced approach to cost impact. RPO 2.0 requires buyers to identify and build further cost benefits into their business case including:
• Increased internal hiring. RPO 2.0 increases the visibility to the current talent pool within the organization, allowing many roles to be filled through internal mobility. This leads to a decrease in the volume of external hiring required, which as a result leads to decrease in the overall hiring costs.
• Reduced new hire attrition. RPO 2.0 allows the buyer to analyze and determine the behavioral characteristics, background, and skills that are important for a hire to succeed in the organization. It ensures that the right set of candidates is hired for each position, reducing new-hire attrition. Reduced new-hire attrition leads to reduced hiring volumes and hiring costs. An additional benefit from reduced attrition, although difficult to quantify, is the overall increase in productivity as experienced employees typically have higher efficiencies than new hires, who take time to move up the learning curve.
Business impact. While key important metrics in RPO (time to hire and quality of hire) are measured in RPO 1.0, these are tracked as one-dimensional metrics at a highly aggregated level. RPO 2.0 looks to unravel the nuances by taking a deeper look at these metrics contextualized to the business outcomes.
For time to hire, in RPO 1.0, is measured as a single metric, which is the overall average time taken to hire across all the job families. By taking a single metric of time to hire, the inherent complexities across job families are ignored and averaged out.
RPO 2.0 takes a multi-layered approach to time-to-hire by creating different target metrics based on the importance of the roles for which hiring is being done. Improving the time to hire for direct revenue generating roles—like a sales position—can have direct revenue benefits. A more stringent metric is applied to business critical roles versus the less critical ones. In order to enable this quicker turn-around, organizations need to have clear visibility into internal talent pool and skill inventory for potential succession. Further, it needs to proactively create and maintain a robust pipeline of engaged external talent pool. However, factors, such as hiring geography and seniority of roles, can impact the availability of suitable candidates. Hence the buyer and service provider should set the target metrics after taking into account these contextual factors to make it pragmatic.
For quality of hire, RPO 1.0 bases it on the satisfaction of the hiring manager with the quality of the candidates presented and the hiring process. While this is an important metric, it only provides a one-sided view and is more output-based rather than outcome-based.
In addition to the hiring manager’s satisfaction, RPO 2.0 measures quality of hires by creating linkages to the performance of the hired candidates, thereby, making it outcome-based. It is a well-established fact that the productivity and output of high performing employees is significantly higher than the average performers. RPO 2.0, by providing a better process and metric to measure the quality of hires, directly contributes to improving the overall productivity and influences the topline of the buyer. High performing employees also tend to move up the learning curve faster, as a result, they can be deployed faster and ramp-up to full productivity much before average performers.
RPO 2.0 also looks to widen the talent pool as well as takes a proactive approach to candidate engagement. Creation of a talent community is a key step in this direction and effectively leveraging the rapidly growing social media enables it. It requires identification of target talent pool (both active and passive) and then, creating engagement at three levels with increasing order of impact—awareness, influence, and action.
The first level (awareness) is about making the target talent pool aware of the buyer organization and its employee value proposition. The second level (influence) requires creating a positive perception of the employer brand. And, the third level (action) ensures that the already engaged candidate applies for the position. All this requires a systematic approach and execution of a talent-specific social media strategy and associated communication.
Strategic impact. Going beyond the cost and business impact, RPO 2.0 also aims to deliver strategic impact to buyers. Some of the key strategic impact elements of RPO include:
• Better alignment of workforce planning to overall business strategy. RPO 2.0 aims to create significant value by helping businesses quicken their time to market. This could be for entry into a new geography or business segment. In order to make that happen, there are three key requirements: the ability to translate the business strategy into talent/skill requirements; an integrated and consolidated view of the existing talent and skills in the organization to identify the gaps to be filled through external market, and external talent market knowledge, intelligence, and the competition to effectively hire and bridge the gaps.
• Competitive advantage. RPO 2.0 aims to help buyers to gain competitive advantage by hiring the right people at the right place at the right time and providing up-to-date market data and intelligence. Ability to hire better talent than the competition or actually managing to hire the right talent from the competition can help buyers out perform their competitors in the market.
RPO 2.0 Challenges
Delay in realization of strategic benefits. While RPO 2.0 delivers significantly higher benefits compared to RPO 1.0, the additional benefits aren’t easy to measure. Benefits, such as quality of hires (linkage to performance) and brand/reputation improvement, take time to accrue as well as measure.
As these benefits can’t be realized or measured in the short term, buyers need to be patient and ready to invest time and effort to realize these benefits over time. Service providers also need to sensitize buyers with realistic timeframes for realizing strategic benefits and to prevent setting of unrealistic expectations.
Lack of buyer knowledge. Buyers have varying degrees of knowledge of the RPO value proposition, based on the way organizations have approached RPO. Among two mature markets, in general, buyers in the United Kingdom tend to have a higher awareness of enhanced RPO value propositions compared to the U.S. buyers. A direct result of limited understanding of RPO 2.0 is the creation of incomplete business cases that focus only on the easily measurable RPO 1.0 benefits, leaving value on the table. Additionally, it also leads organizations to select a provider based on “price/cost” rather than the overall value creation.
Service providers need to take an active role in education buyers and creating general market awareness around the enhanced value proposition of RPO 2.0. Involving service providers in the business case creation process will help buyers create a holistic business case for RPO.
Buyer-vendor mindset. An “us “and “them” approach will not help create the right outcomes in RPO. A buyer’s responsibility does not end by outsourcing recruitment processes. The buyer still needs to invest time and effort to make the RPO relationship work.
It is important to create a partnership-based approach to capture the enhanced value proposition. This would mean involving providers during business planning as well as workforce planning meetings. Additionally, providers’ recruiters need to be provided training to better understand the talent requirements/job roles being hired for and imbibe the company culture. Lastly, the internal HR and hiring managers can also benefit from the service providers’ wide experience of working with diverse set of clients and understanding best practices.
Ability to integrate RPO with broader talent management. Currently, in quite a few organizations, the recruitment and broader talent management functions work as silos. The people, processes, and technology used in recruitment and talent management do not “talk” to each other.
Some of the holistic metrics in RPO 2.0, such as quality of hire, are dependent on the integration of recruitment and broader talent management such as performance and learning. This integration significantly improves visibility and creates a feedback loop that is beneficial for the broader talent management agenda. It is important to bring the stakeholders across functions together to achieve that.
Piecemeal approach. Taking a piecemeal/selective approach limited the ability to extract maximum benefits envisaged for RPO 2.0. For example, absence of internal hiring within the scope of engagement will impact realization of several benefits described in the earlier section.
While the motivation to take a piecemeal approach is understandable, as buyers look to develop a level of comfort before taking an end-to-end approach, it is important that the buyer has the larger end goal in mind and should work with the provider to expand the relationship over a period of time to achieve that.
Stakeholder alignment. There are multiple stakeholders involved in RPO, including hiring managers, recruiters, HR, and external agencies. Different stakeholders have different and divergent priorities that can derail the RPO program.
It is important to bring everyone onboard, right from the decision-making phase, in order to get a buy-in for RPO. This also helps obtain a holistic view that helps in creating a robust business case, while preventing roadblocks in undertaking the outsourcing journey.
Transaction-based mindset. The predominant pricing model in RPO 1.0 is success fee-based (per hire) pricing. However, transitioning to RPO 2.0 requires buyers to incentivize the RPO providers to proactively foster innovation to realize broader benefits. RPO 2.0 requires transition to a hybrid-pricing model that involves a fixed management fee along with per-hire pricing coupled with gain-sharing elements.
Abhishek Menon is practice director and Rajesh Ranjan is vice president of Everest Group, and authors of the whitepaper RPO 2.0: Paradigm Shift in RPO Value Proposition, which the above was excerpted from.