It’s even bigger than you think.
By Gary Bragar
Earlier this year I published my third global recruitment process outsourcing (RPO) market analysis, pleased to learn that hiring volumes and revenue were back to pre-recession levels. With double-digit growth expected over the next five years, I’m forecasting the standalone RPO market to more than double from $2.1 billion in 2010 to $4.4 billion in 2015.
For those who have been following me, you know I’m normally pretty bullish on RPO, but I must say even my expectations were exceeded in the first quarter of 2011. Why? Because we know that 2009 was a down year for hiring thanks to the global recession, including double-digit revenue decline in Q1 2009. But then there was a fairly big turnaround beginning in Q1 2010 with high single-digit to double-digit growth. So when Q1 2011 results began to be reported, I was surprised.
Let’s look at just a few examples of RPO revenue growth—but remember that as good as these are, be careful not to compare companies to each other, as then we would need to look at specific results in the prior year and relative size of each business. In Q1 2011, Kenexa’s RPO business was up 56 percent year-over-year (YoY), SourceRight Solutions RPO business was up 83 percent YoY, and SeatonCorp’s RPO business, PeopleScout, was up 103 percent YoY. Why such strong growth? Although some companies are doing a fair amount of hiring and some geographies, such as China, are gearing up for significant growth as they build out infrastructure, I think most of us would say that overall we do not yet see a significant amount of hiring. So where is this growth coming from? The answer is that more RPO contracts are being awarded than ever before, including multicountry and multicontinent contracts. Here are just a few highlights:
ManpowerGroup Solutions closed 37 RPO deals in Q1 2011, eight in APAC, nine in EMEA, two in Latin America and 19 in the United States Eight of its global clients have between two and 10 countries in-scope.
The Allegis Talent2 alliance has been awarded four multicontinent contracts since Q4 2010, Ochre House in partnership with Pinstripe has three multicontinent contracts, and SourceRight Solutions and Hays’ WorldSource alliance have 13 global deals in the pipeline, including some with a managed services program (MSP) component.
• A few announced RPO contracts awarded this year through May include
Capita’s RPO contract with EDF Energy in the United Kingdom.
PeopleScout’s multiyear RPO contract with Sauer-Danfoss in North America.
Futurestep’s five-year RPO and consulting contract with Fonterra in New Zealand and Australia.
Adecco’s RPO contract with The SI Organization in the U.S.
Advantage xPO’s RPO contract with Torex in the U.K.
Now let’s take a look at some of the key drivers of why companies are outsourcing.
1. Scalability and flexibility. Buyers are looking for a provider that can scale up and down quickly to meet their ever-changing demand for volumes of hires, while paying on a variable price for actual hires as opposed to a fixed internal headcount.
2. Cost reduction, control, and avoidance. Most would say cost is no longer the top driver. However, RPO is still saving clients an average of 30 percent off their spend on recruitment prior to outsourcing.
3. Demand for better talent. Although unemployment levels remain high, there is still a shortage of talent that clients are looking to hire.
4. Improving process effectiveness. This includes reducing time to hire, which RPO specialists typically do 20 to 50 percent faster than the client’s internal recruiting department.
5. Strategic bandwidth. Hiring managers gain time to focus on the core business and HR time to focus on more strategic issues, including helping the business with employee engagement and retention of talent.
6. Talent retention. Employer branding is improved, along with the employee value proposition, attracting and retaining top talent. For example, in February 2011 Alexander Mann Solutions was awarded a contract for employment branding and recruitment advertising by E.ON in the U.K.
7. Geographic scope. Using one provider globally is an increasing trend.
8. Better compliance. In the U.S., for example, an I-9 form must be completed and accurate within three business days of each new hire to document employment eligibility.
9. Revenue. Hiring the right candidate who will also stay, thus reducing turnover cost.
I do believe that the rest of the year will remain strong for the RPO industry globally, but find it hard to believe that RPO growth rates will remain as high as the aforementioned examples in Q1. That said, hiring will increase, and I concur with ManpowerGroup’s May press release including the statement “companies must hire again as workers are stretched to the max doing more with less.” In my view, it’s been this way long before the recession, but now we are at a tipping point.
Gary Bragar is the HRO research director at NelsonHall and can be reached at gary.bragar@nelson-hall.com
