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The Future of RPO? 3 Predictions for 2013 and Beyond

by
Shanil Kaderali
Jan 31, 2013, 6:12 am ET

2010_itsp_world_laptops_340_1I don’t have a crystal ball. Nate Silver, who wrote a bestseller and predicted the outcome of presidential election better than any other pollster, said that his goal is to get 80-85% of his predictions right, not 100%. To get the right predictions, he says, test your hypothesis in the real world. I’m aiming for that here.

I’ve tested what we call RPO in a global setting since 2006. I’ve built business cases which supported or negated moving forward with RPOs and I’ve implemented them at some large Fortune 100 firms. In addition, having worked as a talent acquisition leader for an RPO firm responsible for more than 25,000 hires in a year, I’ve seen the internal challenges faced by RPO firms and been able to stay current on challenges for the RPO industry today.

I don’t currently work for the RPO industry so I have no vested interest in sharing my views. I don’t advocate for any specific company. But below I’ll look at some trends in outsourcing and add my predictions.

First, let’s look at the big picture: The state of employment and the workforce.

State of employment:

  • Annually, there are about 1.4 billion applications in the U.S.
  • At the current pace of job creation, the economy won’t return to full employment until 2018 — this means we’ll get more applications with fewer jobs to fill in the U.S.
  • Average turnover is estimated at 18% in the U.S.
  • Hiring is globalizing. Big U.S. firms are shipping more hires abroad. More of the customers are oversees and the era of cheap labor is coming to an end (at least in U.S.).

The workforce:

We all know the demographics of the workforce are shifting:

  • Hispanics accounted for 56% of the U.S. population growth between 2000 and 2010. We are growing into a more diverse workforce.
  • Almost 30% of U.S. workers already fall into contingent categories.
  • Contingent workers are expected to grow at 3-4 times the rate of the traditional workforce.

In a 2010 IBM report surveying CHRO’s globally:

When asked about labor flexibility models for the next 3 years: 50% indicated they would increase using contingent labor; 53% would hire more part-time workers, and 56% would increase outsourcing.

The RPO World:

RPO is the fastest growing sector of HR outsourcing. By RPO, I mean mean transfer of ownership of all or part of recruitment processes or activities on an ongoing basis. Pricing is based on the process, usually at volume rates.

The RPO standalone industry is estimated to be about $5 billion in size. It is expected to grow. The level of sophistication for RPO has evolved in the last five years.

The Future for RPO

The RPO landscape will be very dynamic and changing. IBM acquired Kenexa. ADP acquired The RightThing. Legacy staffing firms (Kelly, AppleOne) continue to grow their RPO practices and are marketing blended solutions. Small & medium sized recruitment/RPO firms are partnering more to be competitive. PierPoint is a small, tech-focused sourcing company that has evolved to RPO and has formed partner networks in the high tech space.

2013 Prediction: RPO is on the radar for the big money investors. I’ve had five calls in 2012 from hedge funds/private equity wanting to better understand the market. Based on one of those calls, a major player was acquired by a private equity. There will be at least one large RPO acquisition and/or merger this year with smaller acquisitions being more active.  There will be more strategic partnerships, especially for global deals. The market will continue to expand. RPO firms will have to invest in their infrastructure and marketing. They’ll need their own organizational development strategy internally to build the right core competencies for their future workforces and leaders.

Globalization is not a fad. It is the reality. RPO firms will continue to expand globally. Kenexa and The RightThing have large global deals and are well prepared for the future. Firms like Pinstripe have partnered with global firms like Ochre House.  Alexander Mann Solutions, one of the largest players in Europe, opened up a U.S. office.

2013 Prediction: U.S. hiring in 2013 will not be robust. Global hiring will continue to grow. Given this, we’ll see more global RPO deals in 2013. RPO firms will focus on hiring global talent. There’ll be modest growth in Argentina, India, and Eastern European countries (Poland, Estonia, etc). U.S. RPO firms will need to partner with local companies in countries like Brazil where there is a tremendous labor shortage, especially at senior levels. Russia is a newer ground to expand companies’ footprint. China is expected to double its economic growth in next eight years but there are tremendous nuances culturally and with complex labor laws so local partners are essential. Understanding culture will become a more important core competency for RPO firms.

HR and talent acquisition leaders will demand greater sophistication and creative solutions from RPO firms. This has been happening for some time but will be even more critical. The sophistication and creative solutions will come from technology, creative sourcing and pricing.

With the Kenexa acquisition, IBM now has Brassring. ADP now has the RightThing applicant tracking system, along with Virtual Edge which it acquired prior. If technology becomes bundled into the RPO service model, at discounted prices, it becomes much more attractive to look at the holistic solution than a stand-alone ATS. Taleo is not worried today, but as a talent acquisition, I’ve seen preferential pricing when technology gets bundled as part of ATS. Other RPOs have their technology, some proprietary and some with partnerships. RPO firms are also focusing on talent communities and social media and more creative sourcing.

2013 Prediction: Greater sophistication with technology being bundled into pricing models for RPOs will grow — not quickly, but it will happen, resulting in greater opportunities for RPO firms. Taleo/Oracle is still the major player for now.

There will be ongoing improvements in metrics reporting.

There’ll be more focus on talent communities and social media. Big Data, cloud, SaaS, and mobile will be all areas of opportunities for RPO and technology firms.

Also, given the hiring of fewer full-time, more contingent, employees we’re seeing more blended solutions being marketed by legacy staffing firms. Manpower, Kelly, Agile 1, and others are well positioned. We’re also seeing more deals outsource parts of the recruitment process (sourcing, recruitment administration, etc).

What’s lacking today with some RPOs is workforce planning, employment branding, and creative sourcing with talent communities/social media/mobile, and assessment, particularly on a global level. Solutions that focus on these gaps and maximize existing strengths of RPOs will be the winners.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  1. Roland Behm

    Thoughtful article. What is the source for your big picture hiring statistics(e.g., 1.4 billion applications per year)?

  2. Keith Halperin

    Thank you, Shanil. I have been involved in RPO in some capacity for ~ 8 years.,and have long maintained that staffing functions which aren’t worth paying someone at least $50/hr (or a 30%) fee can and usually should be no-sourced (eliminated), through-sourced (automated) or out-sourced) for under $10/hr/person. However, I have seen a “stickiness” in the market to move rapidly in this direction, and attribute this to a number of factors:

    1) Lack of a clear, standardized definition of RPO. (In my book, a 3PR firm getting multiple reqs. is NOT doing RPO, though they sometimes say they are.)

    2) RPO sometimes being sold as an easy panacea to hiring: as if money would go out one end and perfect hires would come out the other with no further work required by the client. In fact, I have found that projects almost always require an onsite, on-demand liaison or RPO Project Manager (as I have occasionally been) between the client and the remote resources.

    3) Proceeding too rapidly and on to large a scale. There is a (possibly anecdotal) story of a fairly small RPO firm that had recruited for medium-sized operations and was suddenly put in charge of staffing for a corporate division of over 10,000 people. That operation crashed and burned. Instead, I think companies should proceed cautiously and conservatively with small pilot projects if they have never done it before.

    4) Bureaucratic resistance and the GAFI (Greed, Arrogance, Fear, and Ignorance/Incompetence) Principles at work, An example would be the case of the “employer of choice” I contracted for who wasted (and probably continues to wastes) millions of dollars through hiring large numbers of sourcers at up to $55/hr (plus markup) and scheduler/coordinators at $20-$25/hr (plus markup), when the same work could be effectively performed at less than *1/8 the cost for the sourcers and *1/10 the cost for the scheduler/coordinators?
    This also faces resistance from large numbers of staffing folks who currently perform these low-touch, low value-add services and may not be able to perform higher-touch, higher-value add recruiting activities and would be put out of work.

    Cheers,

    Keith keithsrj@sbcglobal.net

    *Offshore

  3. Jay Fritzke

    Interesting perspective on this problem of hiring, however, you never mention hiring the right person. All of these RPO solutions may be a great idea on paper but do they solve the real issue of turnover? Keith makes a good point in that you could work yourself out of business if you filled positions with people that stick. The future of RPO should be more dependent on the quality that they provided their client and not the quantity. Does anyone out their guarantee that their placements will stay more than a year? We often guarantee ours with a 2 year free replacement.

  4. Shanil Kaderali

    Roland – per email I sent, Corporate Leadership Council & Taleo White Paper were the majority of the stats. I also used a 2010 IBM Survey of CHROs from Fortune 200 firms

    Keith: Totally agree with your comments. RPO is not a panacea and for its success, it does require an internal dedicated staff member. We did this at my prior employer, WellPoint. It allowed us to adjust to challenges quickly. The future of Recruitment at AXEX is interesting with serious consideration given to internal strategy with emphasis on Workforce Planning, Assessment technology and outsourcing the rest of the transactional parts of recruitment. Look forward to connecting with you.

    Jay: Quality is key. One step I’ve taken is to negotiate fees at risk to ensure SLAs are targeted. One SLA being hiring manager satisifaction with recruitment process and quality of slate. We likely agree that a gap for many RPOs today is the lack of definitive embedded assessment technology in their solutions. I do think over time, this will change and more partnerships with preferential pricing/discounts will be done. No game changers but incremental progress.

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  6. Tim Taylor

    Shanil, interesting article, although I have to say I disagree with your third point, about bundling technology in – I think the opposite will happen. I think there’s a tendency for an RPO provider to be seen as transformational in the early days but then lack innovation as time goes by. I believe that this is because clients are signing long term deals which either prescribe a service description or a set of KPI’s. Either way, with technology advancing at the speed it does, what seemed like good performance at the point of engagement is rapidly seen as mediocre. I think clients are therefore more likely to stick with transactional services in their RPO deals and take responsibility for innovation and new technologies over the lifespan of the agreement, back in-house.

  7. Jacque Vilet

    I agree with Tim.

    And at the risk of being viewed as “nit-picky” would like to correct one of your statememts: “Hiring is globalizing. Big U.S. firms are shipping more hires abroad.” Jobs are not being “shipped” overseas. Companies are hiring locals overseas to begin with.

    There are no jobs in the U.S. at risk. This is business. Companies are getting 30-50% of revenues overseas and that is where they are hiring. My example: If 90% of your customers are in Kansas you don’t do much hiring in Maine or Oregon. So jobs in Maine and Oregon are not being”shipped” to Kansas — you are hiring in Kansas.

    You might think this is pure semantics. But I live in the international world and get very tired of people using words like outsourcing, offshoring, shipping, etc. interchangeably. There — I’m done with my rant.

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