Posted tagged ‘RPO providers’

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

February 18, 2010

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

Temporary Staffing Boon to Workers, Employers, HRO Buyers and “Smart” HRO Providers

December 10, 2009

I read with interest several recent articles, including from USA Today, which focused on hiring temporary workers. In one of these pieces, the U.S. Bureau of Labor Statistics stated that temporary staffing agencies found slots for 52,000 additional temporary workers in November 2009, the most since 2004. In another, experts predict that temporary workers could constitute up to a quarter of the workforce in a few years. While I think we’d be hard pressed to find 25 percent of our workforce comprised of contingent labor, as companies must build their core with loyal employees who feel they have a stake in the business, rather than just a paycheck for an unknown period of time, there is very real value for all parties in the temporary staffing equation.

Temporary workers are given the opportunity to showcase their talents, capabilities, drive and commitment to employers, which may lead to permanent employment status as economic fears ease.

Employers that leverage temporary workers – factory workers, office personnel and even professionals such as engineers and physicians – can reduce their hiring risk by gaining access to staff when and as needed, and for only as long as needed.

Temporary staff are typically placed by temporary staffing agencies, and their volume of placements is increasing, per the article cited above. But smart HRO and pure-play RPO providers can gain a piece of this pie, and assist their clients – existing and prospective – by offering temporary staffing services. A prime example is that of the Contingent Workforce Outsourcing Group of KellyOCG, which on November 18 was awarded by BP a multi-year global outsourced managed service provider contract. While specific details were not released, it is expected to be one of the largest such contracts in terms of size, scope and geographic reach for temporary labor.

I do believe the volume of available temporary jobs will grow for the short-term, and continue to be a portion of the overall staffing model. But I also believe that once businesses improve their balance sheets, hiring of permanent workers will return to at least somewhat “normal” levels. Thus, my recommendation for HRO and pure-play RPO providers who do not currently offer temporary staffing services is, re-think your strategy now! Doing so will not only help enhance your bottom line, but enable you to deliver a highly important additional service to existing and prospective clients.

Gary Bragar, Lead HRO Analyst, NelsonHall

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

September 10, 2009

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

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

August 13, 2009

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 – A Surfboard for the Next Hiring Wave

August 4, 2009

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