RPO Contract Lengths Increasing in Recessionary Times?
According to the results of our May 2009 “Targeting RPO” research study, there has been a 15 percent increase in the length of pureplay RPO contracts since early 4Q07, up from 2.7 years to 3.1 years. Given that the current economic recession “officially” began in December 2007, why have RPO contract lengths increased when it’s generally acknowledged that the HRO industry is experiencing a significant downturn and 89 percent of respondents to our April 2009 “HRO Confidence Index” study stated overall HRO contract lengths were unchanged?
The reasons are actually pretty straightforward:
• As RPO processes and the providers which deliver them have matured, the buyer community has more confidence and faces less risk
• Due to maturation, the RPO value proposition has increased. For example, our above-mentioned “Targeting RPO” study found that RPO engagements can on average reduce time-to-hire by 43 percent, and on average reduce recruitment costs by 24 percent
• Some risk-averse buyers have agreed to longer-term contracts with the provision they can terminate for convenience without penalty
We predict RPO contracts will mostly stabilize with a 10 percent length increase expected by 2011. The reason for the prediction of a further, albeit smaller, increase is that although significant benefits can be achieved in the first year, it is often in the second year and beyond in which buyers and providers truly sync-up. Further, after Year One of an RPO relationship is when the focus moves beyond metrics to business analytics to deliver value-add to the business.
Gary Bragar, Lead HRO Analyst, NelsonHall