The growing trend of centralized recruiting
By Greg Palmer
Reengineering models is a fact of business life. Pivoting and morphing are some terms that are commonly used for the process. The staffing market has had its share of developments. Over the last decade, one adaptation that has gained momentum in the U.S. staffing market is the centralized recruiting model. Here’s why.
Margin pressures — along with the recession and other developments — have caused the industry to examine costs. But at its core, a centralized model is where a staffing firm either begins with a more centralized hub approach or migrates its recruiting and fulfillment functions away from a branch model to the centralized model. There are two typical versions of the model.
First is the pure Centralized Recruiting Model, where 100 percent of the recruiting and fulfillment is done in a single hub. There are several information technology and healthcare staffing firms that started out with this approach.
The second and most common is the Hybrid Hub Model, where there is a central hub but there are also compatible and often complementary recruiting and fulfillment functions within a local branch network or even an off shore component.
One of the best examples of the hub approach is that of Kforce Inc., a publicly traded billion-dollar professional staffing firm headquartered in Tampa, Fla. Kforce has been a leader in centralized recruiting and has often commented publicly regarding the productivity, cost reductions, quality improvement and time to fill benefits of its model. In 2008, Kforce’s sales, general and administrative costs (SG&A) were running between 29 percent and 29.5 percent of revenue. By the third quarter of 2011, the company managed to lower its SG&A expenses to approximately 27 percent, a whopping 2 to 2.5 percentage-point improvement! Kforce has gone as far as promoting its National Recruiting Center (NRC), which is a hybrid hub housing approximately 300 associates in Tampa, with another team in the Philippines, as a strategic advantage and clear differentiator to clients and investors.
The hubs can be located near the corporate offices, such as Kforce (Tampa) or SeatonCorp (Chicago), or in a remote, lower-cost location (Adecco – upstate New York).
Planning the Process
When first considering moving your operations to a centralized or hybrid hub recruiting model, you should break down your current model into functions, including research, recruiting, fulfillment and administration. Some companies have even gone so far as to add a sales component to their hub. Breaking the functions down enables companies to define, map and streamline processes, track costs accurately and hold their teams more accountable. Training can also be more position appropriate; KPIs can be established and clearly benchmarked. Usually as the final consideration in the planning phase IT and communication systems can be designed to leverage the operation. All this adds up to more productivity per FTE and lower costs to staffing firms. The old adage, “If you can measure it, you can manage it,” definitely applies here.
Players. It makes sense that the billion-dollar national firms such as Kforce, Adecco, Kelly and CDI (recently announced) and others are making investments in this area, especially those servicing large accounts, VMS, MSP and those with RPO models where either margin pressure is fierce or client requirements lend themselves to centralization.
Additionally, niche firms large and small are learning to leverage the model, such as SeatonCorp (a $400 million national industrial MSP), PlaneTech (tech positions, division of TrueBlue), Locum Tenens (physician placement), Staff Rehab (therapists), Lumen Legal (paralegal and attorney) and many, many others, especially in the IT, professional and healthcare segments.
Whether you are thinking of starting a hub from scratch or transitioning your firm to a centralized model, there are some critical steps that you will need to carefully consider before you begin. Without proper planning and analysis you will run into some unexpected pitfalls that could cost you time, money and valuable client relationships.
- Set clear high-level goals, expectations and time frames.
- Define and process map your current functions and positions (redefine if needed).
- Measure current KPIs by function.
- Measure costs associated with each function and position.
- Measure current productivity by function and position.
- Determine what parts can be taken offshore.
- Review and assess current IT infrastructure to determine if it will provide what you need. Also, review your communication infrastructure, phone systems and cloud computing options. The centralized approach will lend itself to leverage these areas and can yield substantial benefits.
- Appoint an internal champion who has CEO sponsorship.
- Hire outside resource(s) if you don’t have the talent and experience internally.
- Start small with a pilot, refine before you roll out.
- Adjust the plan as needed but execute with unwavering determination and commitment
Offshoring will Follow
It’s likely that somewhere along the line you will ask yourself how off shoring some or all of the functions fits in. In my opinion, if you can centralize functions and positions in the United States, you can seriously begin to consider offshoring some or all of the pieces. Kforce began in the U.S. with its NRC in Tampa and today it also has a team in the Philippines, enabling the company to recruit 24/7.
India and the Philippines are the two most popular countries being used for offshoring. Meanwhile countries in central Europe and the Ukraine are picking up some momentum. Language skill and U.S. cultural understanding should be a key component in your evaluation, especially if you design any aspect of your off shore effort to have direct client or candidate interface.
It’s important to emphasize that it’s very difficult to off shore an undefined process. There will likely be a great amount of frustration with your results unless you go through the effort of process mapping your functions and positions.
Moving too fast without a well thought-out plan for success is a recipe for disaster. In my experience, the extra time, effort and cost spent to create a well-defined and clearly measureable plan will absolutely pay off .
The marketplace is moving in this direction and without some type of effort to create a lower cost recruiting and fulfillment model, you could be left behind. This could mean severe reduction in company profits as centralized recruiting takes off.
But it’s not just about costs.
There are other benefits to centralized recruiting, such as improved fill ratios and happier clients. At the same time, there are also many risks associated with such an effort if not properly planned by an experienced team. Centralized recruiting is a fast-growing trend that is not going away. But do your due diligence before jumping in the hub.
Greg Palmer is the former CEO of Remedy Temp Inc. and founder of GPalmer and Associates, a management-consulting firm focused on the staffing industry. You can find the recently published GPalmer temp labor forecasts and related material on the GPalmer website www.GPalmerandassociates.com.
Why It’s Growing
It’s been widely reported that gross profit margins have come under attack over the last 10 to 15 years. For example, gross profit percentages for the top 25 largest public staffing firms have gone from 24.8 percent in 1998 to 21.5 percent in 2010, according to data from Staffing Industry Analysts, which publishes this magazine. This margin pressure has been caused by the adoption of VMS and MSP models in the marketplace, increases in statutory costs (SUI and workers’ comp.), and pricing pressure due to the added effects of the recession.
The combination of these effects has forced firms with branch office networks to take a hard look at their operating models and cost structures. As gross profits have eroded by approximately 3.3 percentage points, so have net profits. That 3.3-point drop will typically represent anywhere from 25 percent to 50 percent of a company’s net profits. This has forced firms with office networks to reengineer their business models.
Today, these models are being used across all service lines — commercial, IT, healthcare, professional, contract, direct hire, RPO, VMS and MSP. There is not a skill category or service delivery model where staffing firms are not utilizing either a centralized or hybrid hub.