RPO Continues Its Stride in Q2 2011

If you didn’t pay attention to the news and only looked at the recent financial results reported by staffing and RPO providers, you’d think that everything is fine with the global economy.  Let’s take a look at a few of the highlights including year-over-year revenue growth in Q2 2011 compared to Q2 2010 and some numbers of contracts awarded:

• Talent2 (fiscal year 2011 for period ending June 30) +26%, RPO +57%
• Kelly Services +16%, KellyOCG + 22.5%, and RPO ~+50%
• Kenexa +59%, RPO + 45%
• Manpower + 24%, ManpowerGroup Solutions +21% with 37 RPO deals closed in Q1 and 31 new RPO contracts awarded in Q2
• Pinstripe won or extended 15 RPO contracts in H1 (revenue not reported)
• SeatonCorp +20%, PeopleScout +95% with 9 new RPO contracts signed.

Why was growth and the number of contracts awarded so high when the sad reality of the news headlines is that there are debt problems, slowdown in GDP growth, and a continually high unemployment rate?   Well, that is precisely why!  There are several reasons including:

• Organizations who have had to downsize are turning to RPO because they don’t want to invest in hiring recruiters and associated staff only to potentially downsize again (i.e., it’s better to outsource recruitment to a vendor that can provide variable pricing and who can scale up or down quicker than the client)
• Obtaining  better quality of candidates and quality of hire from an outsourcing specialist
• Allowing HR to work as a strategic partner and in-conjunction with the RPO vendor to engage employees and retain talent (instead of focusing on hiring)
• Wanting to get out of the technology management business, which isn’t usually a client’s core competency
• Reducing time to hire, improving hiring manager satisfaction, etc.

In addition to revenue growth from new contracts and renewals, growth comes from existing clients that have increased their hiring volumes. Other sources of growth are from contracts won in prior quarters that take several months before fully ramping up.

RPO does not look like it is going to slow down anytime soon.  In NelsonHall’s HR Outsourcing Confidence Index, published in June, pipeline growth reported in the prior quarter was higher for RPO than all of the other HRO services.

At NelsonHall, we’ve seen an increase from buyers wanting to know who we see as the leading RPO providers by country and region. Buyers, are you evaluating outsourcing recruitment, if you haven’t done so already?

Gary Bragar,  HR Outsourcing Research Director, NelsonHall

Staffing and RPO Surpassing 2010 Y-O-Y Results

As bullish as I’ve been on RPO, results reported to date for staffing and RPO providers have exceeded even my expectations.  As we all know, 2009 was a down year for hiring, but then there was a big turnaround in 2010 and in RPO, most vendors I interviewed for my recently published RPO report said that revenue and hiring are back to pre-recession levels. Although hiring has picked up in the U.S., I don’t think any of us would say it is going gang-busters yet.  But in comparison to overall staffing results for Q1 2010 that averaged ~12% revenue growth, Q1 2011 has about doubled thus far.  Let’s take a look at some Q1 2011 results to date and how they compare year-over-year to Q1 2010:

• Manpower up 24%
• Hays up 18%
• SeatonCorp up 25% and its RPO business PeopleScout is up 103%
• CTG up 22%
• SFN up 6% and its RPO business in SourceRight Solutions is up 83%
• Randstad up 22%
• Kenexa up 59% and its RPO business is up 56%.

I do believe that the rest of the year will be strong for staffing, but it’s hard to believe that RPO will maintain quite the same momentum.  That said, hiring will improve and I agree completely with Manpower’s findings on May 6^th stating that  U.S. companies must hire again as workers are stretched to the max doing more with less.  In my view, it’s been this way long before the recession, mostly in part to how Wall Street rewards companies for their performance, but we’ve reached a tipping point and I’m almost certain this is not just a U.S. phenomenon.

But instead of just reading about it, come join us at the HRO Forum in Las Vegas May 24 – 25 that combines the HRO, RPO, and MSP Summits along with the HR Demo Show.

As a speaker, I’ve been extended an offer to invite buy-side HR execs with a 60% discount and also an offer for a limited number of RPO buy-side practitioners to be able to attend all four Summits for free, get reimbursed for travel up to $500, and get 2 hotel nights for free. If you are interested, then send me an email at gary.bragar@nelson-hall.com and I’ll send you the info/codes to register.

Gary Bragar, Lead HRO Analyst, NelsonHall

RPO Growth Confirmed and Back on Track

Since my January 12 blog, All Signs a Go for RPO to Grow, I think it’s safe to say we are back on track with many providers stating that volumes are back to pre-recession levels.  Vendors including Kelly, SFN, Manpower, SeatonCorp, Kenexa, and Hays all reported double-digit total company revenues for the quarter ending December 31, 2010 (Talent2 were for the six months ending December 31, 2010).  RPO revenues were not reported separately, but several vendors were able to share that RPO revenues grew 50% – 70%.

That’s certainly terrific evidence that hiring volumes from existing clients has increased and that many new RPO clients were added in 2010 by all the vendors.  In Q4 announced RPO contracts included:

• Manpower’s global contract with Rio Tinto
• Hays’ contract with American Express in Europe
• Futurestep’s global contract by Cummins, Inc.
• The Talent2 and Allegis Services Group Alliance global contract with an unnamed financial services company
• PeopleScout’s contract extension by Waste Management in the U.S.
• Alexander Mann Solutions’ contract with Santander in the U.K.

For evidence of an increase in demand for job movement and hiring, I point to SFN’s Employee Confidence Index, which showed the highest employee confidence in nearly a year.  Also, four in ten workers stated that they are likely to look for a new job in the next 12 months.

What do I think?  Having recently completed twenty-seven interviews for my next global RPO market analysis (to be released within the next few weeks), I can say that 2011 will be another strong year of growth for the RPO industry.  It will be tough, but not impossible, to outdo 2010.  The report will include a revenue forecast by geography among numerous other data.

I’m bullish for several reasons including the need for scalability, and I also think a new phenomenon, expected a few years ago, will finally begin to occur in the latter part of 2011 and will ramp up over the next few years.  Baby boomers will finally begin to retire as 401(k) plans have been nicely recovering to pre-recession levels, which will increase their confidence and financial security.  This will create a huge shortage of talent in the workforce.  Employers should be wise to make sure they are doing succession planning and preparing for how they will do knowledge transfer before employees leave. This provides a great opening for staffing assistance and for all the ancillary services around workforce planning and talent management. The opportunity is coming for RPO to move up the value chain from an operational resource for staffing and recruiting to a strategic consulting partner in global talent management.

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

Early Q2 Earnings Reports Indicate Very Solid Year-Over-Year Results in Staffing and RPO

With the 2Q10 earnings reporting season underway, all to-date announcements point to a good quarter for HRO, particularly in staffing and RPO. For example:

This morning, SFN Group (formerly Spherion) announced a company-wide revenue increase of 25.6 percent in the second quarter of 2010, as compared to the same quarter a year ago. And revenues for its outsourcing business, SourceRight Solutions – which provides RPO, managed service programs and professional continent services – were up 100 percent year-over-year, with its RPO services revenue up 80 percent year-over-year.

Additionally, on July 21 Manpower reported revenue growth of 20.9 percent year-over-year for 2Q10, and SeatonCorp on July 15 announced revenues for its RPO business increased 53 percent in the first half of 2010.

While we still need to hear from the likes of Kelly Services, Adecco, Kenexa and others, results are positive thus far, and I believe they will continue. Even though unemployment is likely to remain high throughout the year, as indicated by NelsonHall’s quarterly Outsourcing Confidence Index, demand remains strong for RPO as companies look to outsource their recruitment functions for improved quality of hire, scalability and lower cost. And even with the bad unemployment numbers, there will always be pockets of hiring not only to backfill attrition, but also in high growth industries where new jobs are needed and in companies that downsized to the bone during the recession.

Further reason for optimism: the headline of a July 19 Workforce Management article read, “Workforce Staffing Could Hit Pre-Recession Levels in Two Years at Many Large U.S. Firms.” (You can read the article by registering for free at: www.workforce.com.) The article, per results of a recently-completed Accenture survey, stated that just over half of large, recently downsized U.S. companies plan to boost staffing and reach pre-recession levels by 2012. The survey also found that only 13 percent of executives plan to reduce their employee base over the next 12 months, and that the percentage of U.S. companies focused primarily on investment in growth-oriented activities, such as hiring, will rise from 24 percent today to 37 percent within the next 12 months.

Yet, the article also stated the planned growth won’t come easily, quoting David Smith, the survey’s managing director, who said, “A lack of relevant skills may present a hurdle for companies as they position themselves for growth. Companies need to rethink how they equip employees with the skills required to be competitive today.” Hmmmm….could this signal a resurgence of outsourced learning? If I were a betting man, I’d say the odds were there.

Gary Bragar, Senior HR Outsourcing 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