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

Randstad Acquisition Frenzy… This Time in North America Acquiring SFN Group

A pretty big acquisition happened last week in the staffing and recruiting industry. Here is the backdrop.

On July 20, 2011, Randstad announced that it is going to acquire SFN Group to expand in North America. Randstad is headquartered in the Netherlands and SFN Group in the United States. It is a cash tender offer at $14 per share. Approved by both boards, the acquisition, now subject to regulatory approvals and a tender offer of at least 50% of SFN Group’s outstanding shares, equates to ~$771m. This is a premium of 53% over SFN Group’s closing share on July 19, 2011. The acquisition is expected to close in September 2011.

The Randstad Group will have combined revenues of ~$22bn / €17bn (pro forma as of March 31, 2011). In North America, the combined company will have $4.6bn in revenues (pro forma as of March 31, 2011) from the following service segments:

• 52% Staffing
• 39% Professionals
•   9% HR Services including payroll, managed services, and RPO.

Randstad, who already has sizeable revenue in North America, now becomes a major force. Randstad, which had full year 2010 revenues of €14,179m, obtained 13% of its revenues (or €1,848m) from North America, which equates to over $2.6Bn. The SFN Group had full full year revenues of $2,053m. Approximately 80% of Randstad’s 2010 revenues were in Europe.

So, is Randstad trying to conquer the staffing world via acquisitions? Its last acquisition was in August 2010, acquiring FujiStaff Holdings to strengthen its presence in the Japanese staffing market. Since 2006, Randstad has merged and partnered with five other companies in Japan to provide staffing services that include temporary and permanent hires, contract staffing, and internal recruiting for industries that include healthcare, real estate, and construction. Since 2005, Randstad has been acquisitive elsewhere  in growing its staffing business including in:

• U.K.
• Germany (3)
• Netherlands
• China
• Switzerland.

Randstad now also picks up SourceRight Solutions’ RPO business, which NelsonHall estimated as the third largest RPO provider in North America in its 2011 RPO market analysis report. SourceRight’s RPO business has had significant year-over year revenue growth in H1 2011. Its RPO business has primarily been in North America, but expect for it to expand into Europe by 2012. More to follow in a future blog…

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

Employee Engagement, High Performance, and HRO

Employee engagement is down to the lowest levels seen in many years. Low engagement makes it hard to be high performing and can later raise turnover as employment opportunities improve.

• In early 2010, The Conference Board found that only 45% of employees were satisfied with their job, the lowest rate seen in the 22 years of the survey.
• This year, the 2011 Aon Hewitt Trends in Global Employee Engagement survey found that 56% of employees are engaged on average, down from 60% in the prior year, the largest year-over-year drop seen in 15 years. Declines were seen across Asia-Pacific, Europe, and North America, with only Latin America showing improvement.

My colleague, Gary Bragar, has consistently brought attention to the engagement topic because it is important and makes a difference for all: employers, employees, and HRO service providers. It can also make quite a difference! Aon Hewitt’s research indicates there is a strong correlation between employee engagement and financial performance. Organizations with high levels of engagement (65% or more) outperformed the total stock market index and had shareholder returns 22% higher than average in 2010. Companies with low engagement (45% or less) had shareholder returns 28% lower than the average.

Naturally, employee engagement that contributes to high performance business results is first and foremost a critical issue for C-level and management teams and there is a myriad of advice available, including consulting services from many of the HRO providers. Every organization, industry, and market has a life cycle and the management challenges will vary depending upon the stage. Accenture’s new book, “Jumping the S-Curve,” identifies three s-curves and outlines the critical issues for each cycle, including the importance of transitioning from one stage to another.

I see within the very insightful Accenture management advice opportunities for HRO contributions. For example, to climb the cycle of business success based on a winning idea, you need to reach a threshold of capabilities and competence and to attract and keep top talent in critical areas to maximize growth without collapse. As the cycle of achieving business success begins to end, new talent problems can arise as turnover increases due to fewer advancement opportunities and talent poaching. As a new cycle starts, a change may be needed in leadership and business competencies at the executive and other levels. Talent needs to be continually monitored, nurtured, and refreshed – all appropriate to the current and next cycle of the enterprise and what is happening in the broader market and economy.

Layering talent management services (e.g., recruiting, staffing, performance management, succession and career planning, and workforce planning) on top of a capable HR system for employee data management that’s supported by HR analytics can go a long way in helping clients see where they are now, identify gaps and emerging issues, and use HRO services and support to achieve a truly high performance-based business transformation.

Linda Merritt, Research Director, HRO, NelsonHall

HRO Staffing – A Balancing Act

Fast and flexible scaling is one of the major benefits of HRO. Scaling up is a lot more fun than scaling down, but both are important, take time, and consume resources. One of the toughest challenges in HRO is maintaining staffing and margins at the same time through the ups and downs of client demand and the overall economy.

Recent times required painful and expensive downscaling as HRO client demand and employment levels dropped, reducing volumes and overall spend. Significant expenses were allocated for staff severance and consolidation of real estate. Even in periods of growth, merger and acquisition “savings” targets are based largely on staff downsizing to reduce overlap, followed by real estate consolidation. Whether a service provider is growing organically or via acquisition, or responding to reduced demand, maintaining appropriate staffing capability, capacity, and expense is critical.

HRO is slowly recovering with RPO leading the way while some areas are still waiting for their upturn including learning and MPHRO. New deals are occurring, renewals are going well, and existing clients are once again increasing scale and scope, at least at a modest level. All good and welcome news!

HRO service providers are confident enough to prepare for a return to growth and make select expansions. At the same time, they know they need to add client load with a minimum of new hiring as pricing pressure is still intense. And this is not even mentioning the need for maintaining an experienced and qualified staff to satisfy client employees and other end-users in the ever changing world of HR.

On the upside, clients are growing in sophistication and understanding of HR outsourcing options. While onshore delivery still leads, especially for voice, acceptance of offshoring has reached the expectation that HRO vendors should offer multi-shore delivery options. Nearshore options and the use of non-voice channels like chat allow leveraging more work to selected centers, increasing the need for and the value of a truly global service delivery network.

Recent HRO service provider expansions include:

• TriNet – Added three new U.S. offices
• CPH – Opened a new office in Sydney
• Futurestep – Added a global recruitment operations center in Houston
• NorthgateArinso – Invested in a new global HR delivery center in Hyderabad, India; opened offices in Russia, the Czech Republic, and Istanbul; partnering with ICAP Group in Greece
• Edvantage Group – New e-learning production center in Denmark.

Expanding the coverage of service locations helps avoid the war for talent and damaging attrition rates in the hottest spots as well as providing increased options for clients.

Buyers, do more than look for an SLA on turnover. Ask about the vendor’s current and future plans for managing staffing and service flexible coverage. Does your service provider show that they are at least as, or more, sophisticated as you are in workforce planning and management? They should be.

Linda Merritt, Research Director, HRO, NelsonHall

Employee Dissatisfaction = Boon to the HRO Industry?

While this headline sounds counter-intuitive, let’s look at several news pieces published in just the last week.

An August 26 article by Hudson (a recruitment and talent management services provider) stated, “The global financial crisis has had a severe and divisive impact on the sentiment of the workforce in Australia and New Zealand.” “Employees’ feelings of disaffection are already playing out in the market, more employees are now seeking new roles (jobs) compared to before the downturn, almost half of the workforce is seeking a new role (47 percent) and 56 percent said they would consider roles they previously would not have looked at. If employees are disgruntled or unhappy with their current roles, the moment a better opportunity presents itself they will leave.”

Also on August 26, Jobfox, an Internet-based job site reported, “A recent study concluded that 54 percent of employed Americans plan to look for new opportunities once the economy begins to turn around”.

According to an August 31 USA Today article, “More than eight in 10 employers feel that their workers are just happy to have a job, but just 53 percent of employees feel this way, according to Monster.com.”

17 percent of workers are thinking of changing jobs in the next 12 months, per a survey employment website SnagAJob.com released on August 27.

And in a nationwide telephone survey of 500 hiring managers and 500 workers from various sized businesses – conducted by Robert Half International and CareerBuilder between April 30 and May 31, 2009 – more than half of employees plan to make a career change or go back to school.

Now, think of the impact this employee churn will have. Many are using the term “the jobless recovery” and talk of how the return to job creation will likely lag other evidence of recovery. This could lull in-house HR departments and HRO service providers into thinking the need to gear up for greater volumes will not be needed until later in 2010. While I agree, some churn may well pick up earlier. And churn triggers so many HR transactions – in virtually all aspects of HR including administration, payroll, learning, benefits hiring and staffing – that even if jobs aren’t growing, just replacing current positions will cause HRO activity to pick-up, as in-house HR departments have been cut to the bone.

I believe the economic downturn will be an economic upturn for the HRO industry. What do you think?

Gary Bragar, Lead HRO Analyst, NelsonHall