Make sure you go in with eyes wide open, big bucks and a meticulous plan detailing the best and worst outcomes before offering RPO
By Kay Colson
After more than 10 years in the game, recruitment process outsourcing (RPO) has fully matured and is here to stay. Staffing suppliers are offering and clients are buying all types of RPO, with variations of the model coming into existence. As this complex staffing solution takes root, many staffing firms are considering adding RPO to their portfolio of services.
Why Offer RPO
RPO represents a viable business strategy that can enable you to accomplish the following:
- Improved Margins. Contingent hiring fees are constantly under pressure because they are sometimes treated as a commodity. RPO programs, on the other hand, are generally dedicated (70 percent to 80 percent of staﬀ don’t work on any other account) and pricing includes all of your costs. Adding RPO can increase your proﬁt margins appreciably.
- Business Growth. RPO is one of the fastest-growing segments in staffing. Demand is likely available to you from within your current client base.
- Competitive Edge. Your ability to leverage existing recruiting expertise in a variety of ways provides you distinct market diﬀerentiation.
- Revenue Base Preservation. Direct hire placement fees are also under pressure as clients seek ways to reduce costs. An established head-hunting relationship or ancillary permanent placement fees that currently feed your bottom line can be erased by a client’s decision to outsource recruiting — to your competitor.
But be careful before you pursue RPO. As with all new business strategies, you must plan for the best and the worst outcomes. Some of the challenges will come from within your own business structure and leadership/management style. Others are speciﬁcally related to the industry, the markets and the limitations any business owner faces. The challenges are manageable. Here are a few that you would need to navigate if you decide to take this route.
- Do your homework. Be sure you understand what this is all about and don’t fall victim to “not knowing what you don’t know.” The information contained in this article is very high level — you will need to drill down to fully understand the nuts and bolts.
- Understand the impact of culture. Whatever segment of the business you currently command, recognize that your organization has a culture built on, and within, that segment. Changing culture is difficult and you don’t want the current culture to get in the way of developing a new RPO service that requires its own.
- Understand the “big house” advantage. The big staffing ﬁrms have been at this for 10 or more years. They have a ginormous client base, are well known, have lots of successful case studies to rely on and are outsourced process management experts. At the same time, they also have dirty laundry and some not-so-happy customers and other former customers. Plot a strategy to leverage your strengths and their weaknesses.
- Go for the gusto. Remember the enthusiasm, creativity and drive you brought to bear on your current successful business — RPO will require the same zeal. Ambivalence will be a barrier to success.
- Separate business/operational model. Set up RPO as a business and operating model separate from contingent staffing, executive search, opportunistic direct hire, etc. RPO requires dedicated staﬀ and does not work within a delivery model completely leveraged by other parts of your business.
- Recognize investment is required. RPO requires investment and you will need access to both the funds and the knowledgeable resources those funds can buy.
This is not just about dollars and cents. Yes, you will need cash. As a rule of thumb, it takes anywhere from $200,000 to $1 million to launch a new practice from scratch. Money apart, you also will need knowledge to make informed decisions. The RPO process requires consultative services, the ability to lead change and listen to the client, assessment of delivery staﬀ, better understanding of recruiting technology and metrics, creative marketing and much more. Here’s a list of requirements that you need to pay attention to.
- Dedicated sales staﬀ. This is a complex product with a very long sales cycle. Leads can be driven through current relationships but this product is not sold through “working a desk” or telemarketing. You may be the sales person starting out … but if you’re good at selling RPO, very quickly you will ﬁnd that you need a competent sales staﬀ to continue to grow your eﬀorts and deliver eﬀectively.
- Technology. Larger clients frequently want to use their own; smaller clients frequently ask you to make recommendations or have you bring the technology infrastructure. The bottom line is that RPO, and the inherent complex pricing and SLAs that are common to RPO contracts, cannot be eﬀectively managed without efficient process management technology and reporting.
- Compensation plans. Your current recruiting compensation program likely won’t work. Once you sign on for RPO, recruiters don’t get to “pick and choose” which requisitions to work. You have signed up for all of them and “dedicated” recruiting teams must be motivated to successfully ﬁll all the requisitions, according to customer guidelines and within contractual SLA requirements.
- Contracts. Your existing contracts won’t work, either. You will need to develop a more comprehensive standard agreement as well as new statements of work, pricing agreements and service level agreement provisions.
- Rollout costs. Client rollout costs can be substantial, especially for end-to-end RPO. These are generally incurred up front and built into pricing over the life of the contract. For all engagements, factors critical to strong start include competent project management, process analysis and design, due diligence, training development, technology and much more. Project RPO requires less of this … End-to-End requires a whole lot more of this. Adding signiﬁcant recruiter headcount to staﬀ up new client engagements also results in frontend costs to be covered before revenues start coming in.
- Knowledgeable leadership. Selling, designing, rolling out and delivering this product are somewhat similar, but also very diﬀerent from other staffing service structures. You will likely have to acquire this leadership externally.
- Pricing. RPO pricing is generally built on a myriad of assumptions. Some of these educated guesses will end up being faulty or incomplete. Mistakes in pricing, built on many variables that can lead to increased risk, are common and must be accounted for — especially in the beginning.
To sum it all up, required investment dollars will vary based on the current size and state of your organization, which type of RPO you decide to pursue, and how much risk you are willing to take.
A word of caution: It is not uncommon for an existing client to ask for RPO services, presenting a temptation to put a toe in the water and see how it goes. But this is dangerous, because RPO requires a very diﬀerent service delivery model and imposes substantial contractual requirements. On-demand work is easier to deliver and manage without significant investment, but end-to-end is highly susceptible to increased risk without the infrastructure to support it.
Assessing RPO Readiness
How you deﬁne RPO and your role in that marketplace is the foremost consideration in deciding whether to add RPO to your portfolio of services. On-demand RPO has many variations, is generally smaller in scope and requires less investment; but a diﬀerent operating model is still a requirement for signiﬁcant success. End-to-end RPO requires more change and greater investment but is likely to yield signiﬁcantly higher return. Which is for you?
You also need to assess the current state of your existing business. Are you ready culturally, operationally and ﬁnancially to take on this type of strategic decision?
To help you assess your ﬁrm’s readiness, we suggest 10 considerations for launching a new RPO practice (see above). Answer each question realistically before moving forward.
Assessing Your Score
Add up your score.
- If your answer to No. 10 was Small Ball and your score was 10 or more, you are likely ready to prepare your staﬀ for selling and delivering on– demand, functional RPO. It can be a very proﬁtable new service for your portfolio.
- If your answer to No. 10 was Major League Ball and your score was 15 or more, roll up your sleeves and start working on the investment and infrastructure needed to become ready for end-to-end RPO. Remember, it is more difficult and takes a lot more change management and investment than on-demand RPO.
The RPO market is hot, compelling and risky, but also proﬁtable. It provides a great way to protect your installed base and increase your business. But do not pursue RPO unprepared. With the appropriate preparation and investment, it can increase both your market reach and your proﬁts. How you deﬁne the right type of RPO for your company dictates the required readiness and investment for a successful launch.
Kay Colson is president of Resource Business Service, a specialty consulting firm. firstname.lastname@example.org