SI Review: February 2012

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Destination RPO

A growing talent sourcing solution requires careful navigation, expertise

By Stephen M. Clancy

Over the last decade or so, many staffing organizations have carefully considered the business prospects in the recruitment process outsourcing (RPO) arena. On the surface, RPO engagements may look fairly promising and profitable, but they can be very complex undertakings before they deliver on that promise. Managing a client’s internal recruiting process involves specialized expertise and skill sets. A client’s talent acquisition process will involve a chain of command with organizational- specific dependencies, diverse technologies and systems with which the staffing firm might not be readily familiar with.

Change management experience and process realignment/re-engineering are key ingredients to running a full-fledged RPO business successfully. So while it may seem natural to a staffing firm to leverage its core competency into a new business venture, success is not necessarily guaranteed.

At the same time, the growing RPO marketplace is a potential competitive threat to segments of the “direct hire” business that many contingent staffing organizations have incorporated seamlessly into their business services portfolio. When a successful, comprehensive RPO engagement captures a client’s hiring process, the only hiring opportunities left in the account are the difficult, “purple squirrel” positions with comparatively depressed fee levels. That’s a competitive market trend staffing organizations will have to address as the RPO business continues to develop and expand into the mid-market.

Before staffing firms decide whether to pursue RPO business, let’s take a look at what RPO really means.

The Evolving Definition

Simply stated, RPO is a subset of HR outsourcing. It is the professional practice of helping buyer organizations effectively manage their full-time talent acquisition process with the primary goal of acquiring the talent their organizations require. It is the delegation of the recruitment process to an external provider that is responsible for the process from the time the requisition is approved through onboarding. The solution administers and manages each step of the process.

So what is not RPO? While there is no standard definition either way, there is general agreement that RPO is not agency recruitment; using cheaper labor to accomplish a task; just taking on a task and managing the employees; or, traditional direct hire services. These models are not RPO because of the limited actual enhancement/management of the client’s talent acquisition process.

Today’s RPO value proposition is leveraged by buyers in multiple forms, solutions and services. Ultimately, RPO solutions/ services can be segmented into three broad categories: comprehensive RPO, selective RPO and project/recruiting services. Comprehensive RPO incorporates the end-to-end management of the entire acquisition process from sourcing strategy to onboarding. In selective RPO, the provider manages part of the process or sometimes the engagement is a limited, but focused scope of the client’s hiring volume. And finally, project RPO/recruiting services includes a combination of multiple point services that offer process management engagements for short periods of time or are fairly limited in hiring volume scope. Today, RPO recruiting solutions/services have evolved into multiple engagement frameworks.

Leading RPO providers, and their solutions, are fairly robust in their leveraging of recruitment process optimization methods and talent acquisition process management technologies. At this point in time, a sizable portion of RPO clients are engaged in second- and even third-generation RPO solutions/strategies and some are even taking those solutions global. Hence, there are a significant amount of RPO clients that are very educated in leveraging outsourcing services and solutions to enhance their talent acquisition strategies and competitiveness.

Another important fundamental of RPO engagements is that the business scope is dedicated to a specific provider. Clients can and do engage with multiple RPO providers, but each provider has dedicated RPO responsibilities. For example, one RPO provider may manage the non-exempt talent acquisition process, while another manages the process for professional, exempt positions. The key here is that a specific process management is not naturally allocated simultaneously to multiple providers unless a client decides to allocate components of the process and even in that circumstance, the relationship will incorporate a dedicated piece of the business. In a co-sourcing RPO engagement, multiple providers can be using the same process, but the client is ultimately responsible for the overall performance of that process infrastructure.

One of the core reasons for this dedicated scope in RPO engagements is the “pay-as-you-go” funding model. A majority of RPO engagements are designed to pay for a result: The RPO provider receives compensation only when the hire is made or the point service process has been successfully transacted. However, the recent turbulent economy and its adverse impact on workforce demand forecast has led some providers to develop some RPO engagement management fees to smooth out volume gaps that can negatively impact a provider’s dedicated account teams and resources.

Adoption Rate

In a recent 2011 Staffing Industry Analysts’ contingent buyer survey, 30 percent of respondents already engage an RPO in some way, while another 23 percent are seriously considering it within two years. This response rate represents a consistent and steady rise in the market adoption of this talent acquisition solution over the last three to five years. This adoption respondent population leverages RPO in diverse forms from scalability projects to the comprehensive outsourcing of the entire full-time, talent acquisition process.

The adoption penetration rate of RPO in the marketplace today is rising to similar levels found in other business process outsourcing (BPO) solutions offerings. The 47 percent of the survey respondents who indicate that they have no plans to engage an RPO solution/service is in line with other BPO market research results; it is not uncommon to run into buyers who aggressively use the word “never” to describe their view of RPO.

Despite passionate detractors, RPO is becoming a significant competitive talent acquisition strategy within the buyer community; hence, staffing organizations are giving it a serious review as a business opportunity, with large staffing organizations presently operating very mature and growing RPO businesses. In other related market research findings, RPO has been reported to be the fastest growing work stream of HR outsourcing engagements.

The Whole Package

In the last decade, managed services providers (MSPs) and vendor management systems have experienced rapid growth and market adoption. Buyers are becoming very successful in optimizing their leverage of traditional contingent workers across their organizations. Some of these buyers are now taking their contingent workforce management programs globally and/or seeking to incorporate the management of other forms of on-demand workers in their current programs, such as independent contractors and statement of work consultants.

With the growth and maturation of MSP and RPO workforce acquisition program management, an emerging phenomenon in the marketplace today is to integrate these multiple talent acquisition processes into one integrated total talent acquisition process/governance. Presently, the seamless integration of facilitating process technologies is not available and one workforce management program primarily manages vendors (MSP) while the other primarily manages a hiring process (RPO). But with the significant percentage growth of the on-demand workers in organizations’ workforce, an integrated, total workforce management view is required to competitively leverage today’s diverse workforce talent engagements. So while one is considering RPO business opportunities, the next evolution of workforce talent acquisition management might be just right around the corner.

At the end of day, staffing providers are going to have to react to the growing presence of the RPO business. In some cases, the direct hire business has already been negatively affected within larger client organizations and the aggressive low cost per hire pricing in RPO engagements contributes to generally lower fees in the direct hire market as a whole. For those staffing companies that have successfully developed their direct hire service business, at a minimum, an offering enhancement might be in order to retain their competitive position versus RPO service alternatives.

Stephen Clancy is director of contingent workforce strategies and research at Staffing Industry Analysts. He can be reached at sclancy@staffingindustry.com.

[SIDEBAR]

What Piece Do I Eat?

In choosing which piece of the RPO business your company should pursue, you must perform the standard blocking and tackling that you would in developing a new line of business, because of the level of resources, expertise, investments, risks and time commitment that will be deployed.

The opportunity is ample, but the role needs to be carefully defined before seeking out clients. Evaluate the competitive role that can be established in the RPO marketplace among your natural client base and determine whether you can deliver a sustainable, profitable solution with highly variable talent acquisition, process management needs and requirements. It’s tough to build a repeatable RPO solution when dealing with individual client organizational process cultures and internal company process dependencies.

While the contingent workforce buyer can range from business unit hiring manager to purchasing/HR workforce program manager, in many cases these client contacts do not control or even influence the internal full-time hiring process. Full-time talent acquisition can be a completely different customer audience from the known contingent workforce clientele. This is an important business development consideration, though close contingent client relationships will most probably and opportunistically jumpstart your role in the RPO business. Why? Because in these relationships clients trust you can effectively manage an internal process/sub-processes within their organization, especially if you are administering any MSP/master vendor workforce management solution. Entering the marketplace in the project and/or selective RPO solutions segment might offer an initial leverage of recruiting strengths and then provide a successful progression path to more comprehensive process management engagements. But being a talent sourcing expert and managing a client’s talent acquisition process are two completely different competencies.

Leveraging direct hire capabilities can help define initial solutions and service offerings, but you will need to develop dedicated RPO resources fairly quickly to meet clients’ ongoing needs and requirements. Long ago, the marketplace tried leveraging established branch infrastructure and resources and failed to provide the dedicated, focused experience required in these process management engagements. Additionally, process management solution expertise is going to require knowledge in facilitating recruiting technologies, process production tracking and performance analysis, implementation and change management, ongoing continuous improvement methodologies and effectively/precisely scaling engagement resources. Of course, being great recruiters of a diverse talent skill set under defined performance level agreements and reduced per-hire fees is also a standard RPO engagement practice.

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