RPO Generation 2.0 is Ready to Go

Linda Merritt, HRO Research Analyst, NelsonHall

Recruitment Process Outsourcing (RPO) is one of the younger HRO service lines and it is both growing and maturing quickly. The March issue of HRO Today recognizes the emergence of RPO 2.0.  NelsonHall’s RPO specialist, Gary Bragar, would certainly agree. Gary’s October 2012 Targeting Recruitment Process Outsourcing market analysis highlighted many of the same developments in this rapidly growing HRO segment.

What is New in RPO 2.0?

The rapid growth and incorporation of social media for recruiting is a big part RPO 2.0, one that keeps pushing RPO to the leading edge of innovation in the HRO space.

RPO services are rapidly moving up the value chain, and changing client expectations is the key. While reducing the cost of service provision is always on the table, it is no longer the number one issue. Flexibility and scalability will always remain important as well, given how quickly hiring needs can change.

Today’s RPO 2.0 clients are looking for more value:

• Improved quality of hires
• The latest tools and technologies for social and mobile
• Expertise in accessing talent pools and passive hires
• Greater focus on candidate experience
• Analytics and insights, in addition to metrics and reports
• Improved retention
• Access to advanced services including employment branding, talent management, talent engagement, and integration with workforce planning.

Clients Simply No Longer Want To Do It

In the last few years, many buyers reduced internal recruiting staff in line with the reduced volume of hires, and they do not want to rebuild and reinvest in the rapidly evolving technologies and advanced skill sets it takes to succeed in today’s competitive, social, mobile, and global recruitment process market.

Buyer Choice is Broad

For every large staffing company that does RPO including Adecco, Kelly, Manpower, and Randstad, there are smaller vendors that specialize in RPO such as Ochre House and Pinstripe.   Most leading RPO vendors of all sizes can offer services in most of the regions of the world as they have partnered and made acquisitions to make their footprints global.

Not long ago, major multi-process HRO (MPHRO) providers either did not provide end-to-end RPO or saw it taken out of contracts. Now, more MPHRO providers have full RPO services strong enough to be offered as standalone services including ADP, Aon Hewitt, Infosys, and IBM.

With RPO 2.0 You Can Have It All

While having it all may still be a bit aspirational for most of us, we are finding evidence that successful client / provider RPO partnerships can improve process efficiencies (e.g., reduce time to hire 20% to 50%), reduce the total cost of hire (often 20% to 30% or more), along with increasing hiring manager and candidate satisfaction.

Imagine what we can achieve with RPO 2.0!

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End-to-End RPO Unplugged

New contracts awarded by RPO specialists often say end-to-end services are provided, however many times only two or three recruitment services are actually stated in the press release, which begs the question what is end-to-end RPO?  Does it really include all RPO services to the client or is it just jargon to sound good?

In my recent RPO report, I’ve defined core RPO services and identified the full suite of RPO services.  Frankly, most vendors offer pretty much all services, but who is actually providing what?

Having worked for many years on the client side, I know how difficult it can be to work through public relations for an announcement. Ultimately, when you do, how much detail you are able to provide is another story. Congratulations to Adecco for not only winning an RPO contract last month with SI, a provider of systems engineering and integration services to the U.S. Intelligence Community, Department of Defense, and other agencies, but for also defining its full suite of RPO services that includes:

• Applicant tracking system
• Employment branding
• Research
• Talent market mapping
• Social media sourcing strategy
• Candidate pipelining
• Direct, indirect, and Internet sourcing
• Candidate screening, assessment, and selection
• Job offer management
• Onboarding
• All recruitment administration.

Although you might say this is an end-to-end offering, Adecco does not call it that, but rather full lifecycle services.  I don’t really think it matters what you call it, but it’s better to spell out more than a couple of components when using robust terms.

Beyond the core services of sourcing, screening, assessment and selection, job offer, onboarding, and administration are emerging services, which include employment branding and the use of social media for recruiting. With the direction the world is headed in with the use of social media, you need to be “LinkedIn” to the appropriate social media communications to find the right talent in addition to the traditional methods such as job boards as they have not gone away yet.

There are an increasing number of clients who will look to an RPO provider for assistance in developing and communicating the right employment brand to attract and retain talent that will stay. Success in providing both basic and advanced end-to-end RPO services that deliver will also create client and vendor partnerships that last and prosper.

Gary Bragar, Lead HRO Analyst, NelsonHall

RPO Edging Toward Global

As a follow-on to my November 22 blog on the happenings at the recent HRO Europe Summit, a question posed by an audience member to me and my fellow RPO panelists Alexander Mann Solutions, SourceRight Solutions and a professor from Lancaster University deserves a deeper look. The question was, “We hear about RPO going global. How should global RPO be defined, as compared to how people are using this term, and is a shift occurring?”

NelsonHall defines global RPO as hiring in two or more continents. And in that context, on the panel I said very few global RPO contracts have been awarded to date. There have been some multi-country contracts awarded within a given region, and a few North American contracts that include some hires in Central, Latin and South America, but not much beyond that. But, in a “we’re getting there” moment, I was able to cite that just two days earlier: 1) FutureStep was awarded a truly global RPO contract by Cummins Inc. to provide RPO services in North America, Europe, Africa, Asia Pacific and South America; and 2) Allegis Group Services and Talent2, in partnership, were awarded a multi-continent RPO contract by an unnamed global financial services company to provide RPO in several locations in North America and Asia Pacific.

And just last week, Manpower was awarded a large global RPO contract by Rio Tinto to provide approximately 11,000 hires per year in North America (US, Canada), Asia Pacific (Australia, India), Europe (France, U.K.), Middle East, South Africa and South America. Granted, three is not a crowd when it comes to critical mass of contract type indicators, but I do think we’re finally beginning to see RPO edging toward global.

As I identified in my 2009 RPO report, one of RPO buyers’ top vendor selection criteria is the ability to provide global delivery, including in-region recruiters. Subsequently, my critical success factors recommendation was that if providers did not already have a global presence, it would be prudent to begin pursuing a global recruiting partnership with vendors that could provide recruiters in countries and regions where new hires are needed. Since then, we’ve seen a number of such partnerships emerge, including the December 3, 2010 announcement of Adecco and the Beijing Foreign Enterprise Human Resources Company (FESCO) establishing a joint venture to take advantage of the emerging markets growth potential in China, and provide global RPO to multi-national corporations based in China per Adecco’s presence in 60 countries.

I believe we will see continued demand by global clients to have one provider manage all of their recruitment needs, and that, in turn, we will see many more global RPO contracts signed in 2011. However, getting buy-in and cooperation from business leaders in local countries is a massive change management issue requiring significant attention, care and effort. Providers can help prospective clients during due diligence to quantify current costs, time to hire, hiring manager satisfaction, attrition and other metrics to help make the case. 

Buyers and providers will be watching the success of these new global deals; and if they are indeed successful, they will create the impetus for increased global RPO demand in 2011 and beyond.

Gary Bragar, Lead HRO Analyst, NelsonHall

“What a Difference a Day (plus 364) Makes” for Staffing and RPO

As I read Kelly Services’ Q1 2010 financial results yesterday, the song “What a Difference a Day Makes” popped into my mind. Add 364 more days (although for service providers it likely felt more like 2548 in dog days) and in year-over-year financials comparisons, staffing and RPO providers are finally seeing some rays of sunshine. And these rays – even though they don’t yet call for sun block with a 30 SFP – indicate a strengthening economy and thus good news for everyone.

While wider HRO results were mostly flat in Q1 2010, staffing and RPO provider revenues were mostly up. For example, in year-over-year comparisons, providers including SeatonCorp, Manpower, Kelly Services, SFN Group, Adecco and Kenexa all reported positive growth, with overall revenue growth ranging from single digits to a high of mid 20 percent. And specifically in the RPO space, KellyOCG’s revenue was up 13.5 percent and SourceRight Solutions’ was up 13.4 percent.

However, not all providers saw positive growth. For example, Netherlands-based Randstad’s revenues were nearly flat (down 0.5 percent) in Q1 2010 and Q1 2009 comparisons. But the company did experience strong year-over-year improvement, as its revenues decreased 28 percent in Q1 2009. Randstad’s results, as well as those from some other providers which experienced overall revenue increases in Q1 2010, indicate that staffing growth has not yet returned across Europe. Yet similar to other staffing providers, Randstad saw growth return in the U.S., Latin America and Australia.

The providers’ Q1 financial results confirm the findings of NelsonHall’s recently-released HRO Confidence Index, referenced in my April 22 blog, in which providers cited RPO revenue growth of 4.6 and 4.4 pipeline growth on a 1-5 scale.

Q2 2010 is also off to a good start. For example, KellyOCG was awarded a multi-year RPO contract by Novartis Pharma France on April 21, and Manpower and Vietnam’s Techcombank entered into a two-year end-to-end (including job profiling, on-boarding and staff development) RPO contract.

While I don’t believe we will see pre-recession hiring levels in 2010, I feel that the tide has turned and we will continue to see quarterly year-on-year growth in staffing and RPO for the remainder of 2010.

Gary Bragar, Lead HRO Analyst, NelsonHall

An RPO and MSP Combo: The Best of Both Worlds

As I read through HRO Today magazine’s recently published Baker’s Dozen Top Managed Service Program (MSP) providers, it struck me positively to see many companies such as Manpower Business Solutions, Hays, Allegis Group Services, SourceRight Solutions and Adecco on the list. That’s because those providers are also recruitment process outsourcing (RPO) providers.

In different mixes and offerings, the MSP solutions include contingent workforce management, program and vendor management, temporary staffing, employee process management and other services.

There are two primary reasons why provision of both RPO and MSP solutions from the same vendor is valuable to the marketplace.

Flexible Staffing Solutions from a Single Vendor

As NelsonHall and many others have written about quite a bit lately, permanent recruiting has largely been on hold due to the recession, replaced with utilization of temporary hires and contingent workforces. As we’ve also written about numerous times, HRO buyers are increasingly opting for service delivery consolidated under the aegis of a single provider. Thus, the ability to tailor multiple recruiting solutions to meet client’s evolving needs results in a win-win for both providers and buyers.

Employee Attrition

Per a Manpower study released earlier this week, 80 percent of 2,000 North American hiring managers surveyed believe less than five percent of their employees will voluntarily leave the company in 2010. But a survey from Manpower subsidiary Right Management revealed 60 percent of employees intend to pursue new jobs if there is improvement in the economy this year. This huge delta aside for a moment…while it’s not feasible that more than half of employees will leave their current jobs, what if it is more than the five percent employers expect? A contingent workforce must be leveraged simply to keep the business running.   

The bottom line is that vendors and buyers both gain value from a workforce solution that meets clients’ dynamically changing needs, whether it be for temporary or contingent employees through an MSP offering or permanent employees via RPO. Buy-side HR executives, are you ready to meet your company’s current and future workforce needs?

Gary Bragar, Lead HRO Analyst, NelsonHall

Can RPO Help Ease Chinese and Japanese Employees’ “I Can’t Get No Satisfaction” Woes?

What can employers in China and Japan learn from those in Denmark, Norway and Canada? Seems quite a bit, according to the results of staffing and recruiting provider Randstad’s new global Workmonitor survey released earlier this month. The online survey, administered by a third-party among minimum 400 full-time employees per country, found that only six percent of Chinese employees and seven percent of Japanese employees are “very satisfied” with their current employer, compared to more than 35 percent for those in Denmark, Norway and Canada. (FYI – The “very satisfied” levels for U.K., Australia and the U.S. were 20 percent, 24 percent and 31 percent, respectively.)

While Asia Pacific has been slower than other world regions to embrace HRO, NelsonHall research forecasts the Asia Pacific region to have the highest growth rate of HRO adoption over the next five years. Given the sobering results from the Randstad survey, China- and Japan-based employers may be well served by considering recruitment process outsourcing (RPO) services sooner than later, especially when the contracts include talent management, employee development and retention solution components. Although RPO itself is not an end-all solution to improving employee satisfaction, if it includes the aforementioned services, it will go a long way toward helping to improve it!

We’ve already seen some evidence of RPO activity in China including the Talent2/VivaKi China contract signed in November 2009, and the April 2009-announced partnership between Kenexa and R&J Management Consultants, which resulted in the creation of Shanghai Kenexa. And a variety of other RPO providers, including Manpower, Hays, Futurestep, Adecco, Hudson and Alexander Mann, are stepping up their delivery capabilities and reach into the Asia Pacific market.

My advice to RPO providers servicing (or considering doing so) the Asia Pacific region, especially China and Japan: present your local market knowledge and delivery capabilities, not only in recruiting but also in retention-related activities such as expanded on-boarding processes with linkage to learning, reaching out to new hires at periodic intervals, conducting regular employee satisfaction surveys, conducting exit interviews to find out why people are leaving and then feeding those results with recommendations to senior leaders for action, etc.

My advice to China- and Japan-based employers: with the delicate state of your workforces’ satisfaction levels, robust on-boarding, performance management, talent management, employee development and other retention solutions are very important – as they are for employers around the world. It could be highly advantageous to leverage the expertise of an RPO provider to support you in these areas.

Gary Bragar, Lead HRO Analyst, NelsonHall

Employment Optimism: Clear Signs of Increase in Temp-to-Perm and New Hires

According to a USA Today article published on March 8, 2010, a growing number of businesses are converting temporary workers to permanent employees, signaling the start of an improved job market. According to the article, temporary jobs increased by 48,000 in February 2010 to two million, and are up 284,000 since September 2009. And an increase in temporary hiring is a usually a leading indicator that permanent hiring will be on the rise.

In a normal economy, one in three temporary workers is ultimately made a full time employee. That ratio plunged to well under 10 percent during the recession, according to Jonas Prising, head of Manpower’s Americas division. But about 30 percent of the temporary workers placed by Employco’s Carlisle Staffing unit have become permanent hires in recent months. That’s up from 2 percent during the downturn. And Tig Gilliam, CEO of Adecco North America, stated the company has recently seen a whopping 50 percent rise in its temporary placements who go full time. All this bodes well for temporary workers.

In terms of new hires, a Manpower Employment Outlook Survey of 18,000 U.S. employers revealed that 16 percent anticipate increasing staff levels in 2Q 2010, 73 percent expect to keep staffing levels the same, and eight percent expect a decrease. These findings net an increase of eight percent and +five percent when seasonally adjusted. And approximately half the firms surveyed by the Society for Human Resource Management (SHRM) are boosting hiring in March 2010, the most in two years. While these findings don’t signal a rousingly positive increase, any increase in today’s job market is good. 

Globally, there is much more optimism according to the Manpower survey. Employers in most job markets expect hiring levels in 2Q 2010 to at least equal (or in some cases exceed) those in the same period last year, signaling a long-time-in-coming return to positive job growth. The Asia Pacific region has the strongest job outlook, led by India and Taiwan. While the outlook for job growth in the Americas is modest, Europe is mixed. Although European companies may not be ready to return to year-over-year-growth, the view is that hiring will at least keep pace with the Q4 2009.

What does this indication of hiring increases mean for the recruitment process outsourcing (RPO) industry? Not reason yet for providers to jump for joy, but certainly good news for them as many RPO contracts have been restructured to pay on a more variable basis, i.e., per hire. And going back to statements targeted to potential RPO buyers in a couple of my previous blogs…with staffing levels in many cases cut to the bone and with employee satisfaction at extraordinary low levels, if companies don’t step up their hiring activity – and obviously RPO can assist here – at least modestly, quality of work will suffer and top performers will jump ship to better opportunities on dry land.

Gary Bragar, Lead HRO Analyst, NelsonHall

Why We’ll See Increasing RPO Contract Activity in a Jobless Recovery

We’ve already witnessed a variety of RPO contracts with 2010 start dates, including Kenexa’s with the U.S. Air Force, PeopleScout’s with US Airways and the United States Infrastructure Corporation, and CPH Consulting’s with EEF. And I believe we’ll see an increasing number of RPO contracts announced and kicked-off in 2010, despite the jobless recovery. Why this counter-intuitive expectation? Let’s look at two factors which will contribute to an increase in RPO contract activity this year.

Soon-to-be and 2009 University Graduates

According to research conducted by U.K.-based RPO provider Alexander Mann Solutions, there will be significant competition for fewer jobs among this year’s graduates, only 26 percent of graduates feel confident of finding a position this year, 18 percent of 2009 graduates wound up applying for any job and only 37 percent are limiting their job applications to positions which are in line with their long-term career goals. Further, a full two-thirds of those fortunate enough to be offered jobs said they would accept more than one offer due to skepticism of the job actually coming to fruition until they actually start and are on the payroll. Think about the havoc this economy-driven “apply for any job/many jobs/accept several job offers” rise in quantity of applications and potential loss of selected candidates will wreak on internal recruiting departments already cut to the bone.

I’m Just Happy to Have a Job – Not

RPO provider Adecco Group North America’s annual American Workplace Insights Survey found that just 39 percent of employees feel the economic crisis has caused them to appreciate their jobs more (a steep drop from 55 percent of workers who felt that way a year ago), only 17 percent of employees accept working harder to avoid layoffs, only 19 percent are willing to work longer hours, and 93 percent of workers have less confidence in company leadership since the economic crisis started. Employee satisfaction is clearly on the decline, even worse than when I wrote about it in my September 3, 2009 blog. If companies don’t step-up their hiring activity at least a bit, work quality will suffer and top quartile employees may well jump ship and join another company which has begun hiring and has a strong employee satisfaction brand in the marketplace.

Both these scenarios point to increased RPO contract activity in 2010. In-house recruiting departments may well need assistance in handling the huge influx of incoming job applications, screening and selecting the best talent, and retaining key employees, all while reflecting a positive brand image for both talent attraction and retention purposes.

So despite the jobless recovery, I do expect to see resurgence in RPO activity this year. What do you think?                

Gary Bragar, Lead HRO Analyst, NelsonHall

HRO Provider Acquisitions Heating Up

If you thought that pure-play HRO provider acquisitions were out of vogue – as compared to the recent flurry of M&A activity among broad-based BPO providers and technology-oriented companies, ala HP/EDS, Xerox/ACS – think again, per two significant acquisitions announced this week.

First, Adecco, headquartered in Switzerland, is acquiring U.S.-based MPS Group to strengthen its professional staffing services capabilities and expand its delivery footprint, especially in the U.K., Canada and the U.S. Under the terms of the agreement, Adecco will acquire MPS Group for €782m or $13.80 per share in a cash transaction, a 24 percent premium over the October 19, 2009 closing stock price. The acquisition is to be completed Q1 2010. MPS Group will bring to Adecco professional staffing services to businesses with functional focuses in IT, F&A, law, engineering, marketing and healthcare. This is all good for Adecco, its existing clients and potential buyers. It’s also good for employees of both companies as they will benefit from increased career opportunities.

This acquisition could also be a big boost for Adecco’s RPO business and its clients, as MPS Group has its own integrated talent management platform which includes recruitment, learning and performance management systems, as well as compensation management and succession planning. Our research demonstrates clients have shown increased demand for leveraging talent management platforms, both with RPO and other single line HRO services such as payroll.

This transaction makes good sense as it eliminates the two providers from fighting for the same customers, and $50 million of synergy savings gained by combining the companies is no small potatoes.

Second, NorthgateArinso has acquired Randstad HR’s payroll outsourcing division, CIAN, to strengthen its Dutch payroll outsourcing business. CIAN reported 12 million euro in revenue in the past year. Though small in comparison to Adecco’s purchase, this acquisition is still significant in strengthening NorthgateArinso’s position in the Netherlands. With Randstad deciding to exit the payroll business in the Netherlands, CIAN’s five large and 32 mid-sized clients will gain business continuity benefits by moving to a provider that remains committed to payroll outsourcing. CIAN employees will also benefit, as they will be working for a global provider of HR and payroll services, likely resulting in increased career opportunities within and outside of the Netherlands. This acquisition also makes sense as it strengthens NorthgateArinso’s employee base, enabling it to better service its clients, and adds additional clients to its portfolio.

In my analysis, these acquisitions signal two important HRO industry trends:

•  Acquisitions will continue to support geographic expansion and service delivery capabilities

•  Partnerships between HRO providers – which far outpaced acquisitions this year – will continue for the same reasons as acquisitions, such as access to better technology. But the partnerships will be more focused on areas in which the providers are not directly competing for the same customers, e.g., to service existing multi-country clients that have employees in a country they do not currently service when building that capability organically may not make sense if there is not enough scale of clients and employees to service

What do you think will happen in the HRO acquisitions and partnerships arena?

Gary Bragar, Lead HRO Analyst, NelsonHall

RPO Acquisitions Improve Geo Reach, Economies of Scale and Overall Delivery Value

My July 22 blog focused on partnerships between RPO providers to improve multi-geo and global RPO capabilities in order to serve the needs of buyers looking for recruiting support beyond domestic regions and to boost their own revenue growth. 

And as we identified in our May 2009 Targeting Recruitment Process Outsourcing report, a growing number of providers in the RPO space are taking the acquisition route to gain the same benefits for themselves and their clients. In fact, 40 percent of all RPO providers have acquired another company, and 28 percent have completed an acquisition in the past two years.

The most recent example was yesterday’s announcement of The RightThing acquiring Capital H Group’s RPO division, based in Milwaukee, to expand its geographical reach in the upper mid-west region of the U.S. Others include Kenexa’s acquisition of Quorum International to strengthen its RPO capability in EMEA, Alexander Mann’s purchase of Capital Consulting to enhance its ability to serve the European and Asian markets, and Adecco’s acquisition of TalentTrack to strengthen its position in North America.

What benefits do acquisitions deliver to RPO providers and buyers?

•  RPO contracts often begin with the provision of services in one or two geographies. But if the relationship proves successful and the provider can service all the client’s geographies, the number of suppliers with which the client works can be reduced and the contracts can be expanded

•  The economies of scale gained by standardization of processes and technologies across geographies reduces expenses for providers and increases cost savings for buyers

•  In countries and regions outside the U.S., clients often want recruiters to be onsite for in-person requirements discussions with hiring managers, to meet candidates during interviews, and greet new hires on their first day and help with the on-boarding process

•  Even in the U.S. where provision of services is more service-center oriented, clients still want providers to be close by to accomplish similar objectives

While growing organically is important, acquisitions can help RPO providers meet revenue growth objectives and satisfy client needs. As a result, we expect further consolidation via acquisition in the RPO provider space. And this consolidation will not only be between big-name players but also with smaller providers that may be experiencing financial difficulties due to reduced hiring volumes and where most of their revenue is paid on a per hire basis.

Gary Bragar, Lead HRO Analyst, NelsonHall