Posted tagged ‘RPO providers’

An RPO and MSP Combo: The Best of Both Worlds

April 16, 2010

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

Conflicting Job Growth/Job Loss Reports – What are HR and HRO to Do?

April 1, 2010

As reported in the March 31, 2010 edition of USA Today, a just-released ADP report said employers slashed 23,000 private sector jobs in March 2010, while the median of estimates from 35 economists surveyed by Reuters for the ADP report was for a rise of 40,000 private sector jobs during the month. Economists expect The Labor Department’s closely watched month employment report, due out on April 2, to show employers added 190,000 jobs in March.

While the ADP report only covers private sector jobs and the Labor Department numbers could be somewhat inflated as many temporary workers were hired to conduct the 2010 census, this is still a huge delta. Did we lose jobs in March? Did we gain jobs in March? What will happen in Q2, Q3 and Q4 2010 in terms of hiring? The answer is…there doesn’t appear to be much more than murky answers.

What is clear, however, is that we all know job growth is coming, even if we’re not certain when it will really begin and then stabilize. And apologies for this focus in another of my blog postings, but it is so important to the health of the economy, the job market and indeed the survival of many organizations…astute companies know they will need to begin hiring again to meet demand as consumers start spending more. But really smart organizations, particularly mid- and large-sized companies, are starting to prepare now by seeking the help of external recruiting process outsourcing providers that can build a ready talent bank to fill jobs when requisitions are approved. These forward-thinking companies know one of the keys to competitive advantage is an ongoing search for top quartile talent to tap when they are ready.

Evidence of this proactive and front-loaded talent search is demonstrated in The RightThing’s March 29 announcement of seven new RPO contracts Q1 2010 with companies including Homesite, Nationwide and CUNA Mutual. And there indeed has already been hiring in some pre-Q1 2010-signed contracts. For example, The RightThing hired 500 employees in North America, South America and the U.K. for five existing pharmaceutical clients during Q1, and 2,100 new hires in Q1 for seven clients expanding call center operations.

And additional recruitment contracts were awarded during the last quarter to companies including Hays, Kenexa, Manpower, OchreHouse, PeopleScout, Pinstripe, CPH Consulting, Capita and Kelly Government Solutions.

So while there are conflicting reports on job growth or job loss today and into the near future, we know the growth will come. As a buyer, are you ready now?

Gary Bragar, Lead HRO Analyst, NelsonHall

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

March 10, 2010

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

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