CEO’s Letter: The High Cost of Not Knowing and the Myth of Internal Recruiting Teams

I have been hearing from a number of talent acquisition leaders recently about their efforts to move away from “costly RPO and MSP providers” to internal resources. Huh?

Almost invariably it sounds like internal resources are wholesome, efficient, and help you have healthy teeth and bones. If that were only true. I am NOT saying that RPO and MSP are less expensive than internal resources. BUT I am also not saying the opposite.

The ugly truth is most companies do not know. I am so irked by this topic; I am going to do an upcoming podcast on it, and I am going to invite a provider executive to join me to discuss what they find when they analyze an implementation. RPO and MSP firms come in multiple flavors and those include both “good” and “bad,” but there is not blanket pronouncement to be made about their cost premium.

The real issue that most internal HR executive teams are grappling with is that the current level of employee attrition is down in many western economies. I am speculating here, but this may be due to the level of economic uncertainty and employees being afraid to change jobs in the midst of a potentially slowing economic cycle. In these slower hiring times, requisition volume drops and may even drop below the level that can be accommodated by the retained internal recruitment organization. In a period of low requisitions, staff augmentation-type RPO programs are no longer essential. Internal recruiting teams can handle it, but that does not mean that they are more efficient. In fact, each time I asked how the company analytically came to the decision to drop their RPO partner, I was met with a shocked expression as though everyone just KNOWS CHEAPER MUST BE TRUE.

It is not “true.” It may be true, but none of the firms had conducted a financial and operational analysis on the true cost of ownership. For the external RPO provider knowing the answer is easy. They tell you, and you have some infrastructure cost for monitoring them. But that is it. Done.

There are not many great models for reviewing internal costs, which includes total comp and rewards but also training, certification, travel, technology tools (many RPO providers include them in their cost), and the cost of technology maintenance and integration. The efficiency of the teams should also be compared. If your internal team of 40 recruiters can fill 100 requisitions per month, but the SLA and performance of the RPO firm is that they can do that with 30 recruiters, they are probably less expensive. In addition, none of the executives I spoke to had factored in the turnover costs of their own recruiting team except for one. The organization had one out of every six recruiters leave the prior year. Their model did not include the cost of refilling those jobs, the estimated cost of knowledge transfer, and the ramp up in efficiency of a dozen or more new hires that year. Contrary to Greek mythology, recruiters do not sprout full grown from the head of Zeus. Most take more than a year to become optimally effective.

So to the list of deeply held myths such as Santa Claus, the Easter Bunny, and the “Economic Soft Landing,” we can now add the unrivaled efficiency and savings of internal recruiting. They are all just myths.

Organizations have to do disciplined analysis of the comparison and if you are a great HR executive who measures your importance by the scale of results, not the scale of your direct reports, you would not care how that analysis concludes. Whatever is more economically and operationally efficient will be the direction you will go.

So, remember this quote from Confucius before you decide anything of this magnitude: “To know what you know and what you do not know, that is true knowledge.” And then go do the math to make sure you actually do know.

Elliot S. Clark

Tags: June 2024

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