HRO Can Help Companies Play the Employment Spread and Avoid its Pitfalls

The Consumer Confidence Index, earnings reports, unemployment rates, housing starts, inventory levels, non-farm productivity rates – we are all scanning leading and lagging surveys, reports and indexes for signs of where recovery will first start to occur and where the recession’s impact will linger longest.

To shed a little light on the outsourcing terrain, our September 2009 BPO buyer survey and 3Q09 HRO Confidence Index both indicate increased contract activity in 2010. All the providers we’ve been speaking with are excited about pipelines that are filling up with potential deals at every stage, from lookie-loo’s to those nearly ready to sign on the dotted line.

As reported this week by USA Today, more companies plan to hire rather than cut workers in the next six months. Most report no change (57 percent). Still, 24 percent said they planned to grow their workforce, up from 18 percent in July. Only 20 percent plan to trim further, down from 28 percent in July.

When hiring activity does increase, the service industries like retail, professional services and healthcare will lead with 31 percent expecting to add jobs in the next six months and only 3 percent cutting staff. Manufacturing will likely lag, with only 12 percent expecting to hire and 31 percent still anticipating further reductions, according to the National Association for Business Economics.

In our above-mentioned survey of 480 BPO buyers, the highest ranking current business metric was customer retention, followed by cutting costs and increasing revenue. Staff retention came in only 5^th out of 6 in business metric importance. The gap in importance could be because employers are still playing the productivity spread. Productivity has been rising as companies have been able to produce what they need with fewer workers. According to the Labor Department, non-farm productivity rose 6.4 percent in the second quarter, even as unit labor costs fell by 5.8 percent.

And while we need not yet prepare for a grand hiring extravaganza as employers are likely to milk the productivity spread as long as they can to put off hiring, organizations must start playing their cards right in terms of staff retention and hiring plans, or they will be one-upped by their competitors.

As my colleague Gary pointed out in his recent blog on staff retention, ignoring rising indicators of employee discontent could leave employers not only adding hires to meet increased demand, but facing a more disruptive rise in turnover in high performers and hard to replace positions.

HR’s HRO partners must be forward thinking. For sales in the pipeline, HRO providers need to show how their services will help prospects prepare for and manage workforce changes. And for current clients, providers must be proactive and help them prepare for recovery by holding early discussions on using their available centralized data and analytics to anticipate needs – needs they can then gear up to help their clients meet.

Linda Merritt, Research Director, HRO, NelsonHall

Employee Dissatisfaction = Boon to the HRO Industry?

While this headline sounds counter-intuitive, let’s look at several news pieces published in just the last week.

An August 26 article by Hudson (a recruitment and talent management services provider) stated, “The global financial crisis has had a severe and divisive impact on the sentiment of the workforce in Australia and New Zealand.” “Employees’ feelings of disaffection are already playing out in the market, more employees are now seeking new roles (jobs) compared to before the downturn, almost half of the workforce is seeking a new role (47 percent) and 56 percent said they would consider roles they previously would not have looked at. If employees are disgruntled or unhappy with their current roles, the moment a better opportunity presents itself they will leave.”

Also on August 26, Jobfox, an Internet-based job site reported, “A recent study concluded that 54 percent of employed Americans plan to look for new opportunities once the economy begins to turn around”.

According to an August 31 USA Today article, “More than eight in 10 employers feel that their workers are just happy to have a job, but just 53 percent of employees feel this way, according to Monster.com.”

17 percent of workers are thinking of changing jobs in the next 12 months, per a survey employment website SnagAJob.com released on August 27.

And in a nationwide telephone survey of 500 hiring managers and 500 workers from various sized businesses – conducted by Robert Half International and CareerBuilder between April 30 and May 31, 2009 – more than half of employees plan to make a career change or go back to school.

Now, think of the impact this employee churn will have. Many are using the term “the jobless recovery” and talk of how the return to job creation will likely lag other evidence of recovery. This could lull in-house HR departments and HRO service providers into thinking the need to gear up for greater volumes will not be needed until later in 2010. While I agree, some churn may well pick up earlier. And churn triggers so many HR transactions – in virtually all aspects of HR including administration, payroll, learning, benefits hiring and staffing – that even if jobs aren’t growing, just replacing current positions will cause HRO activity to pick-up, as in-house HR departments have been cut to the bone.

I believe the economic downturn will be an economic upturn for the HRO industry. What do you think?

Gary Bragar, Lead HRO Analyst, NelsonHall

RPO – A Surfboard for the Next Hiring Wave

Today’s corporations are facing a good news/bad news scenario. On the upside, the devastating economic rip currents of the past year and a half appear to be retreating a bit, which is driving employers to plan for at least minimal hiring growth. On the downside, many in-house recruiting departments have been nearly annihilated by the tsunami-force recession, leaving them unprepared to handle the anticipated hiring upturn, albeit likely selective, slow and sporadic.

With this gap in talent acquisition resources, rebuilding lost internal resources or excessive use of head hunters will not be timely or cost effective. But I believe RPO can help companies avoid getting stuck in the hiring undertow:

•  RPO providers can scale up quickly to meet demand and scale down when hiring softens

•  While our May 2009 RPO market analysis predicts only a 3.5 percent growth rate in 2009, we forecast an uptick to 12 percent from 2010 through 2013 due to increases in the health of the economy

•  As presented in my July 1 blog, RPO can reduce recruiting/hiring costs by 24 percent on average, and time-to-hire by an average of 43 percent

•  There are hundreds, even thousands, of candidates today for every single open position, and skimmed internal recruiting departments likely don’t have the resources or technology to vet and respond to every applicant in a timely manner. Vetting is self-obvious, and as noted in my June 24 blog, responding to all applicants is a critical component of solid employment branding

Some HRO vendors are carefully positioning themselves to be ready for the next wave, wherever the surf rises. And my conversations with RPO providers, supported by our recently published Outsourcing Confidence Index, show an increase in RPO provider pipelines for new prospective clients.

On Thursday August 6 at 12 noon eastern time, I’ll be presenting my recent RPO market analysis findings, honing in on the key question, “Is now the time for RPO?”  Afterward, Rebecca Callahan, Senior Vice President of Spherion’s RPO division, SourceRight Solutions, Frank Casale, CEO of the Outsourcing Institute and I will engage in a panel discussion to address this top-of-mind topic for buy- and sell-side HR executives. To register for this free webinar, please go to:

https://www2.gotomeeting.com/register/

Gary Bragar, Lead HRO Analyst, NelsonHall