Recruitment Process Outsourcing Is the Wave of the Present

By Susan Hauser

Feb. 25, 2011

Recruitment process outsourcing, or RPO, has matured and grown quickly over the past few years, with no small help from the economy, which drove many companies to limit or even dismantle their internal recruitment efforts in cost-saving measures.

Now that the economy is beginning to pick up and companies are in a position to hire, RPO providers are bounding up to the plate wielding a heavy bat.

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   In many traditional human resources departments, recruiting skills have slipped or nearly disappeared in recent years because of budget cuts. But RPO providers have held on during rocky economic times, and many now stand to reap the benefits from their continued skill building, global expansion, and development of new recruitment tools and technology.

Analysts noted robust growth in the RPO industry in 2010, with twice as many deals signed last year as in 2009. And they predict more big gains in the coming year. According to the 2010 annual report on RPO by Everest Group, a Dallas-based consulting and research firm, the $1.1 billion RPO market is projected to grow by as much as 30 percent in 2011, reaching $1.45 billion.

Despite steady growth, however, the RPO industry has been kept at arm’s length by some wary companies. A November 2010 report by Aberdeen Group Inc., a Boston-based research organization, said top concerns of those hesitant organizations are cost and the ability of the RPO provider to represent the corporate brand well. In the survey of 200 companies, only 40 percent currently use RPO. Twelve organizations, or 6 percent of those surveyed, had returned recruiting to an in-house function after trying outsourcing. They said that RPO providers didn’t hold costs down, failed to provide enough quality candidates, and didn’t successfully communicate their culture or brand to job candidates. In some cases, companies dropped RPO because the recession brought recruiting to a virtual standstill.

“RPO is not for everyone,” says Jayson Saba, a research analyst and author of Aberdeen’s report. “One thing came clear to me and that is a lot of organizations are not ready because negative connotations associated with outsourcing outweigh the possibility of having a conversation with a senior executive at a company to get their buy-in.” Smaller companies, in particular, are reluctant to discuss RPO, and, in Saba’s opinion, need to be educated about how RPO really works and to hear a strong business case for it. Selling the idea of using an RPO is especially challenging after a small company has just laid off recruiters. The attitude, he says, is: “Now you’re telling me that we have to spend money on RPO after we just let two people go?”

But such concerns are slowly disappearing, according to industry leaders. Paul Harty, president of the Boston-based RPO firm Seven Step Recruiting, recently attended an RPO conference and noted a common observation that buyers are overcoming previously held prejudices. “The fear is loss of control, cost overruns and managing a contract well,” he says. But, he adds, more buyers are growing comfortable with the notion of partnering with RPO providers.

“The type of companies that do it well,” Saba adds, “are the companies that really nailed the partnership piece with the providers.”

But getting to that point takes time. “We saw buyers wanting to tiptoe into the RPO side of the picture, and as they move along and become more comfortable with this idea, we expect them to expand their scope,” says Rajesh Ranjan, the New Delhi-based research director for Everest Group. “They’re wanting to start because they have a need, but they don’t want to go the whole hog, and hence they’re starting small.”

At Hydro One Inc., the largest electricity transmission and distribution company in Ontario, Canada, the efficiency and scalability of its RPO provider won over the HR department after a few initial concerns. “It took a little while to get used to not having our own recruiters,” says Cedric Stevenson, leadership development and recruiting manager. There was uneasiness about not having direct control as well as concern that the RPO provider would not understand the business as well as internal staff. But, Stevenson says, “That’s a matter of time and exposure and education—on both sides, I think.”

After a trial period, the benefits of greater efficiency became clear. “The external folks held our managers a little more to datelines and timelines in order to make their service level commitments to me and the HR function,” Stevenson says. At the same time, he adds, the managers appreciated the ability of the RPO provider to quickly scale up or down recruitment according to fluctuations in hiring needs.

Buyers’ fears of cost overruns are best allayed by RPO providers that diligently measure performance. “We aggressively measure everything because our clients and our prospective clients really like the idea of being able to see the ingredients in the recipe,” Harty says. “Providing that level of transparency is something we concentrate on.” Seven Step provides data to show how clients can increase efficiency and thereby reduce costs. For example, Harty says, if the buyer’s hiring manager fails to respond in a timely manner to a candidate after an interview has been completed, the RPO can make suggestions on how to expedite the process.

Some savvy buyers have overcome the fear that an RPO firm won’t properly represent their brand by allowing it access to company operations. But for wary companies, that is easier said than done. Carolina Figoli Padron, HR director at Merrimack Pharmaceuticals in Cambridge, Massachusetts, says her company was at first reluctant to allow such access to its RPO provider, the Bowdoin Group. “When we first started working with them, we didn’t know how involved we wanted them to be,” she explains. “But we started realizing that they didn’t have all the information that they needed in order to sell the position.”

Now, with confidentiality agreements in place, Padron is comfortable with allowing Bowdoin to learn the inner workings of Merrimack in order to represent it well. “We want a close partnership,” she says. “What we are as a company depends on the people we bring in, and if they don’t bring us good people, then what are we going to become as a company?”

An additional benefit of RPO is the time it saves. “It has freed up time in our department to deal with other team issues around conflict resolution, teamwork, development or motivation, among others,” Padron says.

Terry Terhark, CEO of the RightThing Inc., considers learning the corporate culture such an important part of the partnership that he’ll send his recruiters in to load trucks or work in call centers, which increases understanding of the company. Recruiters also often sit with recent hires during orientation.
RPO firms also are branching out geographically to better meet the needs of multinational clients. A recent report on RPO by Horses for Sources, a blog and research firm, and EquaTerra advisory services, notes that many RPO providers have extended their global reach.

For example, the RightThing, based in Findlay, Ohio, and London’s Alexander Mann Solutions have been partners for three years. Between them, they pretty well cover the world. But not quite. After realizing that growing demand for candidates in Latin and Central America could no longer be handled by its offices in North America, the RightThing opened a branch last summer in Buenos Aires, Argentina.

“Most of our clients are fairly large multinational organizations,” Terhark says. “They’ve always had Central and Latin American needs, but we’ve continued to capture more and more of those openings as we’ve grown our global footprint.”

Workforce Management, February 2011, pgs. 12, 14Subscribe Now!

Susan Hauser is a freelance writer based in Portland, Oregon.

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