RPO, A Bright Future on the Path to Business Impact

Linda Merritt, HRO Research Analyst, NelsonHall

The future of RPO is bright with growth opportunities in every area of the world. According to NelsonHall’s “HRO Market Forecast 2012 – 2013,” RPO will remain the fastest growing area within HRO.

RPO is still evolving as a service line, moving from back-office paperwork administration to the front lines of recruiting, predictive assessment, and employer brand management. Contract renewals and extensions are now a regular part of the RPO news stream. Among those with announcements of renewals and extensions are:

• Alexander Mann Services
• Capita
• Manpower Group
• Novotus
• Pinstripe.

RPO is not for the faint of heart

With great opportunity comes increased risk. Growth is seldom in a straight path upwards and RPO is also on the leading edge of any business downturn that impacts hiring. It is not uncommon to see up and down swings in revenues of 20% or more between good and bad years. RPO providers need to be ready to rock and roll incredibly fast and be flexible in responding to changes in demand while balancing its own core of subject matter expertise.

RPO is the trail blazer

It is hard for any business including HRO service lines to keep up with new technologies, global service delivery networks, social media, and open device access. To recruit highly skilled multi-generational talent anywhere on the planet, RPO needs the latest tools and technologies to bring capabilities to employers they could not easily and affordably duplicate.

RPO has a direct path to business impact

Dr. John Sullivan, a respected HR thought leader, recently said that RPO has the greatest business impact of any HR function. Dr. Sullivan is referring to The Boston Consulting Group’s (BCG) “Realizing the Value of People Management from Capability to Profitability” research that rates the relative business impact of different HR functions on growth and profitability.

This was a major study of over 4,000 respondents across 102 countries, comparing the difference in revenue growth and profit margins at firms with “very high capability” individual HR functions to the business impacts of “low capability” HR functions. The firms studied had been named to Fortune’s “100 Best Places to Work For” list at least three times in the last ten years; their stock price growth was then compared to the stock price growth of the S&P 500. The “best companies” with great HR saw their stock price increase an average of 109% when the S&P 500 rose only 10% over the last 10 years, up to 10 times higher. Wow!

BCG found that the top ten performing HR functions in rank order were:

• Recruiting
• Onboarding and retention
• Managing talent
• Employer branding
• Performance management and rewards
• Leadership development
• Mastering HR process
• Global people management and global expansion
• Enhancing employee engagement
• Providing HR shared services and outsourcing.

In addition to the good news for RPO, the broader picture is the need for integrated talent management and the boost for HR outsourcing. Great HR can and does directly support great business results, and great RPO and HRO can be a part of that success story.

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Does HRO Help or Hurt in Achieving Human Capital Leadership?

Can employers be recognized as leadership development advocates and a great place to work and still take advantage of HRO services? Yes—and recent “best companies” announcements provide plenty of examples.

Fortune’s annual 100 Best Companies to Work For list includes a number of companies known to use HRO services. RPO examples include: American Express (Hays RPO), Edward Jones and Intuit (Manpower Group), Microsoft and Novartis (Alexander Mann Solutions), and SAS and Telefonica (Ochre House). Accenture, which provides HRO services, is on the list as an employer.

HRO clients are also among the recognized companies in the 2011 Top Companies for Leaders, another recent Fortune study in association with Aon Hewitt. PepsiCo (Aon Hewitt) and Unilever (Accenture, IBM) are among the multinationals taking the lead in developing leaders. Again we see RPO as a common talent management service selection; Eli Lily and Novartis AG (The Right Thing, An ADP Company), GE and Siemens AG (KellyOCG), and Whirlpool (Kenexa). IBM, another major HRO player, is recognized, as is Wipro. Accenture is noted on the U.S. list and Infosys is on the Asia Pacific list. ADP is included in the 2012 list of 10 Best  Companies for Leaders rankings by the Chief Executive.

Business Today has just released its 11th annual “Best Companies to Work for” in India and top companies include HRO providers such as Accenture, IBM, Infosys, Wipro, and TCS. Honeywell International (SourceRight Solutions) also made the list and is on the U.S. list for Leaders as well.

The lists go on and on and you will find companies that use HRO as well as HRO providers among the best of the best. You can be a pioneer in leadership development and use HRO in critical talent management areas. You can achieve greatness in any region of the world. You can even look to some of the HRO providers to share their own expertise as a “best company” in the human capital leadership arena.

Will HRO automatically make you the best company? No. However, HRO will not slow you down and may even provide a committed partner in accelerating your success.

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

U.S. Jobs Grow – How Will It Impact HRO

By now, most have heard last Friday’s favorable jobs news.

In the U.S., 243,000 jobs were added in January, bringing the unemployment rate down to 8.3%, and as noted on one of the staffing provider’s earnings calls last week, down to 4.2% for college graduates. Government jobs have contracted as expected, while the private sector had the gains in the services industry, specifically in leisure, hospitality, education, healthcare, and retail, and in manufacturing, including construction.

Also last February 3, Randstad reported a five-point rise in its U.S. Employee Confidence Index.  The index measures the workers’ confidence in their personal employment situation and optimism in the economic environment. This is the biggest increase since the survey started seven years ago.

With good reason to be optimistic, many RPO providers are realizing the gains with increased hiring volumes by existing clients. Even before this welcome employment news, 2011 had been a good year for HRO. In RPO, many vendors achieved significant growth, including Kelly OCG, whose RPO revenue was up 40% year-over-year from 2010; Pinstripe was up 58% y-o-y with 21 new contracts and extensions; and for Q4, Kenexa reported an RPO growth of 54% y-o-y.

But the benefits go far beyond RPO. Increased hiring bodes well for providers of payroll, benefits, and learning as the number of employees they serve increases. For example, ADP, who already pays 1 of 6 U.S. employees, announced the number of employees on its U.S. client payroll increased by 2.8% in fiscal Q2 2012, for the period ending December 31, 2011. Benefits administration providers including Aon Hewitt, Fidelity, and Mercer reported numerous contract awards in 2011. In MPHRO, in North America, ADP won several new contracts, while IBM was awarded a large MPHRO contract with Air Canada and NorthgateArinso awarded a seven-year MPHRO renewal by Fifth Third Bank. In learning, vendors including Raytheon, Xerox, and Accenture won several contracts. There are more updates to follow on learning as NelsonHall is currently conducting a global learning BPO market analysis.

However, a few words of caution by ManpowerGroup were given last February 3 that demand is expected to continue to fluctuate and it would be prudent for employers to adopt flexible workforce models that include: full-time, contingent, and virtual-skilled workers to ensure productivity.

There are a few key implications here:

• Providers who haven’t yet provided recruitment services that include RPO, MSP, and Contingent Workforce services would be prudent to evaluate doing so and/or consider partnering with a vendor that does
• Given the ManpowerGroup statistic that 52% of U.S. companies are struggling to fill key jobs, focus on the development and retention of talent is more paramount than ever. Buy-side organizations should be continuously monitoring employee satisfaction, reviewing attrition rates, conducting exit interviews to find out why people leave, and developing action plans to improve organizational effectiveness. If buyers do not have this capability, they may want to consider a talent management vendor who can help them, which has become a key HRO vendor focus and for good reason!

Gary Bragar, HRO Research Director, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.