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

Earnings Reports Point to Global RPO Growth

In confirmation of NelsonHall’s past several quarterly HRO Confidence Indexes, this season’s earnings reports demonstrate that RPO is continuing to make a nice comeback compared to a year ago. For example, SeatonCorp’s PeopleScout RPO business reported 88 percent year on year revenue growth, with its best quarter ever (11 new contracts), Manpower total company achieved 19 percent growth and 24 percent in constant currency, and Hays total company reported 21 percent growth in net fees and 18 percent in constant currency.

From this representative sampling of RPO providers’ reported quarterly earnings, not too shoddy from the doldrums of a year ago. And the additional good news is that this growth is global. Looking at different world regions:

In the U.S.

90 percent of PeopleScout’s revenue came from North America, including RPO contracts with United Road and Chicago Career Tech. And Manpower grew its revenues by 84 percent in the U.S., in part due to an RPO contract with AIR-serv.

In Asia Pacific

Manpower increased its revenues in this region by 30 percent, led by Australia with 80 percent growth, and Hays increased net fees by 59 percent, with Australia and New Zealand permanent placement net fee growth up 60 percent, and Asia up 76 percent.

In Continental Europe

Hays and Manpower both experienced strong growth in several countries, including Germany, as Continental Europe’s economy has started to demonstrate signs of recovery.

In The Americas (outside the U.S.)

Manpower achieved growth of 31 percent in Mexico and 33 percent in Argentina, and Hays grew revenue by 35 percent in Brazil.

It’s important to note here that this increased hiring is not just patchwork quilting to plug short-term gaps. For example, Manpower reported that permanent recruitment was up across all regions, and Hays’ growth by segment was 34 percent permanent and 12 percent temporary.

So why the increase in hiring and use of RPO? Buy-side companies around the world are again acknowledging that it is not enough to improve earnings results by cost cutting, but rather that they must grow top line revenue and increase sales. As a result, they are beginning to reinvest in and grow their businesses, and thus are again facing the build versus buy dilemma when it comes to the recruiting process. But having lived through two drastic economic downturns in just this decade alone, many companies are recognizing the value of leveraging the expertise, scale and technological capabilities of third-party recruiting organizations, rather than rebuilding their internal recruiting departments only to potentially need to downsize them again someday. 

NelsonHall is initiating its third global RPO study of leading providers next month. When the results are in, I’ll share deep dive insights on how recruitment services are evolving and what lies ahead.

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

RPO Ends 2009 with a Big Bang and Begins 2010 on a High Note

To state the painfully obvious, 2009 for the most part wasn’t by any stretch of the imagination a banner year for job seekers, employers or recruitment process outsourcing (RPO) providers. But if you use two RPO contracts, one signed in the last days of 2009 and one in the very beginning of 2010, as a barometer, we are poised for a trend in increased hiring volumes and the use of RPO to assist in sourcing appropriate candidates for open jobs. Yes…open jobs!

On December 21, 2009, Manpower was awarded by the Australian Defence Force (ADF) the world’s largest RPO contract to date – worth a whopping $200 million. Under the terms of the contact (which is 27 months with a nine month extension option), Manpower will provide ADF with full end-to-end RPO services, from marketing to sourcing through on-boarding.

And on January 4, 2010, the United States Infrastructure Corporation (USIC) awarded PeopleScout a three-year, end-to-end RPO contract which includes employment branding, applicant sourcing and implementation of PeopleScout’s proprietary Applicant Tracking System.

I firmly believe RPO activity will increase in 2010 as the economy continues to ease and organizations in both the public and private sectors seek its benefits, which include:

• Reduced hiring costs

• Ability to recruit the best talent

• Reduced time-to-hire

• Enabled focus on core business

• Better talent sourcing technology

In addition to more RPO contracts being awarded in-country in 2010, I predict we will also see more global/multi-country RPO contracts and RPO contracts awarded by companies to providers in countries outside their home origin/headquarters location. This is due to providers’ increasingly global footprint, and buyers’ increasing desire to work with single providers. I also predict we will see further RPO growth in the public sector – which, including the federal government, accounted for approximately 25 percent of HRO contracts in 2009 – as it looks to reduce cost and improve service. One particular growth area, as evidenced by the Manpower contract noted above, will be the defense sector as countries around the globe review their talent requirements and capabilities for hiring the needed personnel.

To all, a happy, safe and healthy New Year!

Gary Bragar, Lead HRO Analyst, NelsonHall

Avoid Getting Stung: Pre-Contract Due Diligence on RPO Providers’ Financial Stability and Pricing Methodologies

As I’ve noted in previous blogs, RPO can lower the cost of recruitment by 24 percent on average and reduce time-to-hire by an average of 43 percent. Beauty! But what if your provider goes bust or eliminates its RPO offering due to lack of financial stability and you get caught mid-contract up the proverbial creek without a paddle?

Without naming names, at least a couple of providers have ceased delivering RPO services, primarily due to multiple large contracts based on pay-per-hire pricing schemas. This is a solid provider pricing strategy when business is booming and hundreds, even thousands, of positions are being hired for each client. But when recessionary times hit and hiring demand drops to a slow to null crawl, the provider is stuck holding the bag with fixed costs for technology and resources, which may force them out of the RPO business line. Granted, one of the benefits of outsourcing is to be able to scale up quickly as well as down to meet demand, but scale to zero, without being burned? My words to the wise buyer here are to carefully vet the financial stability and long-term commitment to delivering RPO services prior to signing a contract.

Which brings us to RPO pricing methodologies. Our 2009 “Targeting RPO” market analysis found that 84 percent are paid per hire, of which 72 percent have a monthly fixed cost, sometimes known as a program management fee. This 84 percent is broken down as follows:

•  64 percent are in conjunction with monthly program management fees

•  8 percent are 100 percent variable (only paid when there is a hire)

•  8 percent are in conjunction with the number of provider FTEs supporting the contract

•  4 percent are per hire only, but with a guaranteed minimum number of hires

Further, risk/reward is used by 56 percent of vendors for SLA performance (but only in approximately 25 percent of contracts as clients don’t want to pay when providers exceed targets), pricing by number of FTE support is a relatively new pricing method, and gain-sharing is not common, but could be a move to benefitting both sides when client costs are reduced below those anticipated in the contract.

But there are, of course, risks associated with any pricing model. Looking specifically at variable and fixed costs:

Variable – If the contract states 100 percent variable and volumes are low, or if demand drops too sharply, providers risk recovering fixed costs, e.g. technology investments, core team, etc., which could up-end their ability to continue providing RPO services

Fixed – If fixed costs are too high, clients risk paying too much for low volumes or if demand drops steeply

We’re beginning to see an emerging trend whereby both clients and providers agree to a more variable cost structure. But to reduce risk, providers should gain some assurance of a minimum level of volumes clients are willing to pay for, or a minimal level of dedicated FTE support the client requires. And buyers can mitigate risk by committing to some minimum volume of hires or some minimum fixed level of support, with lower cost-per-hire fees, and still reduce costs from what they could internally provide.

Gary Bragar, Lead HRO Analyst, NelsonHall

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