All Signs a Go for RPO to Grow

RPO recovered quite nicely in 2010, back to pre-recession levels.  But will clients do much hiring in 2011 and will this growth continue?  All signs I see point to yes.

The January 7 USA Today article titled “For Jobs, Signs of a Recovery” stated: “For the first time since the Great Recession began more than three years ago, the job market is expected to show strong gains this year as consumers spend more and businesses cast off their hesitancy to hire.”

Also, the SFN Group Employee Confidence Index increased in December showing that “…more workers are confident in the strength of the economy and more are likely to make a job transition in the next 12 months.”

Opinions are coalescing that there will likely be increased hiring in 2011, generating more revenue for RPO providers from current clients who pay for services largely on a variable basis, i.e. per hire.  Why are new clients outsourcing RPO, which is also fostering growth?  I recently conveyed my thoughts in an RPO article for the December 2010 issue of HRO Today based on RPO interviews I’ve recently conducted for my third global RPO market report to be published Q1 2011.  Here are a couple of the key points:

• Internal client recruiting HR departments have drastically reduced their HR and recruiting staffs during the last recession, yet again.  Thus, clients do not want to reinvest in rebuilding their recruiting departments only to downsize again.  Buyers are finding it is better to outsource to a provider that can quickly scale up and down to meet fluctuations in hiring needs, while helping clients to better control expenses by not incurring the fixed costs of an internal recruiting department; especially during slow hiring periods.
• Even with high unemployment levels, there is still a shortage of talent.  With an increased number of candidates searching for jobs, how does a limited recruiting staff go through all of those resumes to discover the best talent and be responsive to applicants who may someday be potential clients if they’re not already?  RPO is a great way to get access to the latest selection and assessment tools when there is no money to invest in capital expenditures.

As the hiring market improves, voluntary turnover is also likely to increase, further creating opportunities for RPO.  As the war for talent picks up, auxiliary services like employment brand management will increase, creating more revenue opportunities.  Expect overall RPO revenues to be nicely higher in 2011.

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

“What a Difference a Day (plus 364) Makes” for Staffing and RPO

As I read Kelly Services’ Q1 2010 financial results yesterday, the song “What a Difference a Day Makes” popped into my mind. Add 364 more days (although for service providers it likely felt more like 2548 in dog days) and in year-over-year financials comparisons, staffing and RPO providers are finally seeing some rays of sunshine. And these rays – even though they don’t yet call for sun block with a 30 SFP – indicate a strengthening economy and thus good news for everyone.

While wider HRO results were mostly flat in Q1 2010, staffing and RPO provider revenues were mostly up. For example, in year-over-year comparisons, providers including SeatonCorp, Manpower, Kelly Services, SFN Group, Adecco and Kenexa all reported positive growth, with overall revenue growth ranging from single digits to a high of mid 20 percent. And specifically in the RPO space, KellyOCG’s revenue was up 13.5 percent and SourceRight Solutions’ was up 13.4 percent.

However, not all providers saw positive growth. For example, Netherlands-based Randstad’s revenues were nearly flat (down 0.5 percent) in Q1 2010 and Q1 2009 comparisons. But the company did experience strong year-over-year improvement, as its revenues decreased 28 percent in Q1 2009. Randstad’s results, as well as those from some other providers which experienced overall revenue increases in Q1 2010, indicate that staffing growth has not yet returned across Europe. Yet similar to other staffing providers, Randstad saw growth return in the U.S., Latin America and Australia.

The providers’ Q1 financial results confirm the findings of NelsonHall’s recently-released HRO Confidence Index, referenced in my April 22 blog, in which providers cited RPO revenue growth of 4.6 and 4.4 pipeline growth on a 1-5 scale.

Q2 2010 is also off to a good start. For example, KellyOCG was awarded a multi-year RPO contract by Novartis Pharma France on April 21, and Manpower and Vietnam’s Techcombank entered into a two-year end-to-end (including job profiling, on-boarding and staff development) RPO contract.

While I don’t believe we will see pre-recession hiring levels in 2010, I feel that the tide has turned and we will continue to see quarterly year-on-year growth in staffing and RPO for the remainder of 2010.

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

Multi-Country, Single Provider RPO Contracts Gaining Traction

Recruitment Process Outsourcing (RPO), just like all other HRO process areas, has been impacted by the recession and lower hiring volumes. And revenue recovery and growth will be further impacted by the lagging nature of hiring after a recession. However, those RPO providers with multi-country capabilities are better positioned to tap into today’s limited opportunities, and will have the opportunity to fare better than their single-country counterparts when hiring volumes return.

NelsonHall’s 2007 and 2009 RPO Market Analysis studies found that multi-national buyer organizations are increasingly seeking single-provider RPO solutions for reasons including: 1) Standardized technology and consistent processes, which results in increased efficiencies and reduced cost; 2) Consolidated reporting from one system, which results in better data quality; and 3) Reduced provider management efforts.

While RPO providers can gain global delivery capabilities via partnerships, as discussed in my July 22 blog, we are also seeing individual providers win multi-national RPO deals. Their ability to win these contracts are due to a number of factors including increased local presence and knowledge of where and how to attract local talent, technology to support multi-country recruiting efforts and ability to provide onsite support.

Examples of recent multi-country RPO deals include:

•  Kenexa on October 26 announced it was awarded an RPO contract by LSG Sky Chefs, a corporation with 30,000 employees in 49 countries. Using a hybrid model of onsite and service center delivery, Kenexa will provide LSG with global recruitment services which are expected to reduced costs due to centralized recruiting and deliver a better candidate hiring process.

•  PeopleScout on November 2 announced it won a multi-million RPO contract with Covance, a global drug development company with 9,600 employees in 20 countries. PeopleScout will perform hiring services for professional and hourly positions for Covance in North America, South America, Australia and Asia.

•  Pinstripe on August 18 was awarded an RPO contract by Agilent Technologies for the provision of complete end-to-end RPO services from job requisition through on-boarding for exempt and non-exempt employees in the U.S., Canada, Mexico and Brazil.

To underscore providers’ acknowledgement of the importance of single provider multi-country and global RPO capabilities, Manpower on October 30 announced a realignment which combines its HRO and RPO groups into a dedicated business unit, Manpower Business Solutions (MBS), to strengthen its outsourcing service offerings. RPO services are delivered in 20 countries today. As part of the combined group, MBS can further leverage Manpower’s reach, in 80 countries today, to increase its RPO delivery footprint.

I believe this is the tip of the iceberg in that we will see more global RPO contracts being awarded over the next several years. Providers with the capability to support multi-country RPO will see increased opportunities to win new business and expand existing domestic-only hiring contracts for multi-national and global clients.

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

Social Networking Sites: An Increasingly Bountiful Boon for Recruiters and Job Searchers

As revealed in NelsonHall’s latest recruitment process outsourcing (RPO) market analysis, social networking sites are the most rapidly emerging source of job candidates, and were identified as the third top hiring sourcing channel, preceded only by job boards and employee referrals. Further, according to the results of a recently released Social Recruitment Survey conducted by a provider of next-generation recruitment solutions, 80 percent of companies use or are planning to use social networking to find and attract candidates this year. And those looking for jobs are increasingly leveraging these sites for networking, connections, job referrals and marketing methods.

Let’s look at why social networking sites are proliferating as a tool for both RPO providers and job searchers.

RPO Providers

The top business-oriented social networking sites, LinkedIn and Plaxo, respectively cite over 41 million and 40 million members. Massive candidate bases! Further, search capabilities and these sites’ special interest-focused Groups can assist recruiters in drilling down to a smaller group of potential candidates for a specific job to be filled. Additionally, LinkedIn referrals can serve as an initial vetting point for RPO providers looking for specific qualities and characteristics in a potential candidate. While these referrals may be viewed as a bit biased as they are often from personal or work friends, no referrer will risk damaging his or her reputation by stretching a referral too far. Given all this, an increasing number of RPO providers are leveraging their recruitment technology and Applicant Tracking Systems to search for both active and passive candidates on these sites.

A lesser known job networking site is JobAngels.org, a non-profit founded in January 2009 whose stated mission is, “To help bring people together in a community setting where each person commits to a single goal: to help just one person find gainful employment.” With more than 6,000 members in its Linkedin Group, 4,000 members in its Facebook Group and nearly 10,000 Twitter followers, JobAngels is another candidate sourcing site ripe for recruiters.

Note to RPO clients: If your RPO provider isn’t using social networking sites to source candidates for you, it should be.

Candidates

As recruiters – both in-house and from RPO firms – are increasingly using social networking sites as a sourcing channel, candidates both active and passive should up their game in this realm as well. If you don’t yet have a profile on these types of sites, establish one. It’s not only a solid way to create your own enhanced business network, but could also lead to a potential job opportunity (even if you’re not actively looking for one.) Your comprehensive profile should include your background, specific achievements, key capabilities, education, etc., as well as some referrals if you can obtain them. But a quick word of caution here: be careful how you respond to incoming emails and of the content in the postings you may make directly on these sites. Assume whatever you say resides in the public domain.

And let’s not forget the Groups on these sites. Once you’ve created your profile, join Groups in your industry and your areas of interest, and interact with the other members by posting or responding to posts. They are a great place to “see and be seen.”

The bottom line is that social networks are an increasingly useful channel for recruiters to find candidates and candidates to be found.  As a result, they are an opportunity both sides of the equation should exploit.

Gary Bragar, Lead HRO Analyst, NelsonHall

Show Your RPO Mojo

On drill-down discussions and research, we’ve verified that RPO providers’ pipelines are quite strong right now, in some cases never stronger, but deals are taking longer than ever to close. Why this prolonged decision-making process, when RPO offers such an impressive value proposition – average 43 percent reduced time-to-hire and average 24 percent reduced recruitment costs?

Our just released “Targeting Recruitment Process Outsourcing” research study found that two of the major factors inhibiting buyers from putting pen to paper are: 1) change management issues, e.g., lack of buy-in and commitment from senior management, internal politics, etc.; and 2) lack of baseline data to make the business case for RPO. And of course, let’s not downplay business uncertainty, and consequently workforce uncertainty, and their contribution to RPO contract signing delays.

 Given RPO’s value prop, we recommend:

Buyers put aside fears while gathering the baseline data to evaluate the RPO business case for their unique organization (and providers will help with the baselining), understand that new flexible pricing structures allow for “pay per hire” contract terms to reduce financial output risk, and realize that, once the economy turns around and hiring volumes increase, internal recruiting departments will not be able to ramp up and hire the right people quickly enough…they’ll likely need assistance.

Providers actively adopt a variable cost model, offer prospects support in obtaining baseline data (at minimum on current recruitment costs and time-to-hire), and provide solid evidence of results achieved for other clients. Our research found that the number one selection criteria for an RPO provider is experience, reputation and client references. If you reduced a telecommunications company’s time-to-hire from 90 to 27 days, shout it out. If you beat time-to-hire targets for engineers at a global manufacturer by 30 days, tout it. If you reduced talent sourcing costs by 60 percent for a U.K. financial services company or by 50 percent in just six months for a consumer food product company, highlight it as a case study for prospects. In other words, show your RPO mojo!

Gary Bragar, Lead HRO Analyst, NelsonHall