A new study from outsourcing research firm Everest Global suggests that while the recession is reducing the size of RPO contracts, interest is growing, especially among employers with 8,00-15,000 employees.

“RPO buyers are attracted to a value proposition with cost reduction and scalability elevated due to the current economic climate, followed by improvement of recruitment processes, access to best-of-breed options and technologies, and enhanced employer branding,” said Katrina Menzigian, Global’s VP of  Research.

Growth has been strongest among high tech and telecom firms, with the largest employers — those with more than 15,000 employees — accounting for about 60 percent of the business. North America and Europe are the focal points, but employers with a global presence are adopting RPO for their overseas operations.

In the report — Recruitment Process Outsourcing (RPO) – Moving Beyond the Pioneer Stage — Menzigian and her co-authors observe that one of the challenges buyers and RPO suppliers have is confusion over just what recruitment process outsourcing is. The report notes that buyers consider RPO to be “synonymous” with staffing and headhunting. Though there are certainly significant similarities, RPO, say the authors, “is a much more strategic decision that requires buy-in from senior executives and a long-term partnership with the supplier to achieve business output and outcome.”

Because of the lack of clarity, RPO market entry by staffing and recruiting firms is common, though many lack the expertise, the report says. It cautions buyers and counsels suppliers that they must educate their customers about the differences between RPO and other types of recruitment outsourcing.

Perhaps the broadest message in the report is that RPO is not a niche, interim service to address a short term recruiting problem, but an increasingly important part of a company’s recruitment strategy that depends on a close working relationship between buyer and supplier.

“There are multiple drivers moving this forward,” Menzigian told me. While the anemic recovery has gotten more employers looking at outsourced recruiting, rather than adding in-house recruiters, Menzigian said another consideration is the technology. Not all companies necessarily want to manage an ATS or invest in upgrades or replacements.

The technology, therefore, is an ingredient in the strategic recruitment decision process.

If, though, there is one point to emphasize, Menzigian says it’s that the RPO space is a dynamic one, with more companies entering the space as the business grows.

This part of the solution is called a “Recruiting Project Manager.” Recruitment Process Outsourcing has often failed when the client believed it to be a wondrous pipeline, where money flows out and perfectly qualified employees flow in, without effort or oversight necessary on the part of hiring managers. As in other areas of business process outsourcing, RPO requires considerable upfront planning and the provision of adequate onsite project managers. Because of this, I believe that the development of a new kind of employee — the Recruiting Project Manager — will be a significant milestone in the evolution of corporate recruiting.

As segments of the recruiting process are outsourced, it will become increasingly important to hire individuals who are capable of acting as liaisons between onsite enterprise clients (including hiring and recruiting managers) and offsite RPO resources. These recruiting project managers will oversee different functional groups (such as Internet sourcing, phone sourcing, candidate development and recruiting, coordinating and scheduling), often in dispersed locations. The skills required to be successful in this role are considered to be “high-touch” and “high value-added” in that they require a great deal of direct contact. They also are considered to be of greater value than other skills that are more routine.

While a number of these skills can be taught, many members of recruiting organizations who are highly competent in the traditional roles will not possess the necessary skills to function in a new recruiting environment. These newly required skills include competencies in the following areas:

• Formulating business strategies and goals
• Outlining the competencies needed to achieve those goals
• Identifying core competencies — those competencies that the organization must have in-house
• Analyzing current competencies and identifying gaps
• Formulating hiring strategy for addressing the gaps, including bringing in new skills and developing competencies of current staff
• Monitoring and managing ongoing requirements for organizational capability
• Interpreting and analyzing explicit and implicit social communication
• Articulating and representing diverse organizational interests

Some of the competencies in this list are common to many types of project management. However, I have included the last two competencies that are based on managing social relationships because of the greater interpersonal requirements of the hiring process.

Recruiting Project Managers will be critical in the new recruiting environment because they will serve as necessary bridges between hiring companies and outsourced providers of services.

But I am not so sure that a contract recruiter should want to be an employee. While the functions that HR performs may be essential, they don’t necessarily have to be performed by an employee. Organizations are realizing that they have more employees than they need — and very often in the wrong place. Why should any organization spend salary, development, and retention dollars on employees who do not generate new products or revenue? What does a recruiter contribute that an contractor could not? There are already hundreds of companies that have replaced their recruiting team with contractors and third-party recruiters and have had success. Unfortunately, most HR professionals are convinced that their organization could not function without them as employees, but I think they are wrong.

Given what is happening in business strategy, HR is about to undergo the biggest reduction in workforce it has ever seen.

In an article written just a few days ago, Cowan analyst Peter Goldmacher says “. . . large companies will outsource an increasing amount of HR functions. . .” and raised his predictions for Kenexa stock. The Human Resource Outsourcing Association’s membership is growing rapidly, and more organizations are finding that they can successfully outsource large portions of the HR function and enjoy good service with lower costs. Over the next decade, outsourcing and automation will accelerate and other administrative functions such as IT, finance, and legal will also be outsourced. I am fairly certain that over the next decade, self-service, automation, and outsourced services will replace the majority of HR jobs within corporations.

That puts any independent professional in a good position. Outsourcing firms as well as corporations will be looking for people willing to work on fixed contracts with performance clauses. This will panic many HR professionals, but recruiters are in a good place. Except for the ATS, they are able to perform with little other internal support. Sure it will require recruiters to develop marketing skills, invest in some branding, and learn to negotiate, but it will pay back with many dividends.

Here are seven reasons that being a contract recruiter is better than being an internal employee.

Reason #1: Job Security. There is no job security working as an employee. I think anyone in a job that does not generate revenue, invent new products or services, or interact with customers in a strategic way is in jeopardy of being laid off in the next year or so, as I indicated above. There is no better security than that you create for yourself. If you build the networks, skills and put aside the resources to weather the downtimes, you will find much greater security in working for yourself.

Reason #2: You Do More and Do it Better. As an entrepreneurial recruiter, you will have to develop more cost-effective, and efficient recruiting methods, lower costs, and improve customer satisfaction. These have been elusive goals for corporate recruiters, who struggle with internal bureaucracy, an HR leadership team that does not understand or appreciate what a recruiting function needs to be successful, and few dollars for investment. There is almost no benefit to a corporate recruiter in being more efficient or cost effective. If they try to do so, they will lose budget dollars and staff. Contract recruiters can make prompt decisions and invest where they need to and therefore better serve their customers, and reap the greater profits.

Reason #3: You get more respect. As an independent professional you automatically get more respect from clients. If your demeanor and attitude are also professional, you will be listened to and hiring managers will take your advice. Contrary to the experience of many corporate recruiters, managers will solicit your opinions and market knowledge. The expert contract recruiter understands the labor market and can explain it to hiring managers. They can give examples of what other clients are doing and can apply the best practices of many. These are benefits that are hard for a corporate recruiter to offer.

Reason #4: You are rewarded for your performance. No one keeps a contract recruiter because they are nice people or because they have been loyal. Contract recruiters are rewarded for performing well — no matter the circumstances. You are always paid the amount you convince and show managers that you are worth. That’s why internal recruiters are often jealous of contract recruiters: they are only paid according to some general HR pay scale that has very little or nothing to be with how well they perform.

Reason #5: You can have more fun and be more flexible. Being on your own is scary at times, but it has its rewards. You get to take on the work that excites you and interests you. You can say no. You work where you want, you work your own hours, and you take vacations when they suit you. You can adjust your work load to match your energy levels, abilities, and motivation. This flexibility and freedom to enter new markets can be enough reason to go independent.

Reason #6: Candidates and employers will trust you more. Independence is associated with neutrality. Providing you give honest opinions and represent both employers and candidates fairly, you will gain a reputation as someone who fairly assesses candidates and employers. Candidates value that above almost anything else, in my experience. If you can let a candidate know that they are not a good fit for a particular employer, both appreciate it. Hiring managers often turn to outside recruiters when they wish to keep searches private and when they are seeking the widest reach and most objectivity. These are powerful assets for a contract recruiter.

Reason #7: You are cheaper. No matter what your hourly rate, assuming it is market competitive, you cost an organization less than the loaded salary of an employee. You also do not require internal promotions and you pay for your own training. There are no pension requirements or expectations of continued employment.

It is challenging to learn new behaviors. Working for corporations is a very established way of behavior that takes time to “unlearn.” Over the past decade the number of independent workers has grown faster than any other type and lots of people who were laid off in past recessions have learned to love being independent.

You may be asking what the difference is between a contract recruiter and a head hunter? It’s really about how you work and market yourself. Contract recruiters usually work for a particular corporation or other recruiting firm and do not own their own business. It’s a fine line and you may decide to become a third-party recruiter. Either way, you maintain your independence.

The time you spend looking for a new job can probably be better used to develop the marketing, selling, and negotiating skills that you will need as an independent. Hopefully these are challenges that you are willing to face. Even though you must face the consequences of your choices, nothing is better than being free to make those choices.

“Maybe it is a crazy time,” laughs Mark DeChant. “But our clients were asking us for this. There might even be a bigger need now, with HR departments handling so many other things.”

DeChant is managing director of Worklight, LLC, Bayard’s new RPO subsidiary. He comes to the company from CareerBuilder, where he was an area sales manager. His background includes a stint as business development manager at staffing firm Ranstad.

Although Bayard is only the second large recruitment ad agency to branch into RPO (the other is Bernard Hodes) DeChant says it’s a natural extension of the business. “The deliverable at Bayard, without an RPO, is an electronic version of a person,” he explains. Adding the recruiter between the sourcing and delivery to the client simplifies the process for an employer.

It also gives Bayard another service to offer its 1,100 clients. DeChant says Bayard reps are routinely asked to recommend screeners, sourcing firms, RPOs and the like. “This allows us to keep the revenue in house and makes it easier for the client since we already know them and helped them plan their recruiting strategy,” he adds.

Worklight is offering a complete RPO menu from screening of resumes to the complete sourcing and vetting of candidates. Worklight also provides HCM consulting and training. “Sourcing, interview techniques, OFCCP compliance,” are part of the training curriculum DeChant notes.

“Now,” he adds, “with this set of services, when a client asks, we can say, ‘Yes, we can help with that’.”

The staffing and RPO company’s 4th quarter revenues were $507.5 million, down $74 million over the same period in 2007. For the year, Spherion reported revenue of $2.19 billion versus $2.02 billion the previous year.

“Challenging economic conditions adversely impacted our company’s performance during the fourth quarter,” Spherion President and Chief Executive Officer Roy Krause says in the financial release announcing the results. “Our focus on cash flow and containment of operating costs continues to improve our financial stability and flexibility during these challenging economic times.”

The revenue figures were below Wall Street’s expectations. Analysts estimated 4th quarter revenue between $518 million and $522 million.

The news, however, didn’t negatively affect the already battered stock price. Spherion was up 3 cents on the day to $1.37. The stock price has been as high as $7.08 in the last year, but began a downward slide in April before dropping precipitously in October as the extent of economic crisis made headlines.

In releasing its numbers, Spherion said, “The continuing economic volatility makes it difficult to predict with any certainty the amount of demand that will be seen in the market, and therefore management has elected not to provide revenue and earnings guidance for the first quarter of 2009. The company believes that a combination of existing cash balances, operating cash flows, and existing revolving lines of credit, taken together, provide adequate resources to fund ongoing operations.”

Listen here

Like so many other executives faced with poor sales and a slow economy, Tom had to reduce staff or find some other way to reduce costs. The CEO was a traditional guy and assumed that the first cuts should come from administrative areas — particularly human resources. But he left the final decision up to Tom.

Tom has already decided to reduce the number of human resource generalists and to find an outsource provider for payroll, benefits administration, and some other similar functions. But those changes were not enough. He needed to find additional savings and recruiting was the most expensive function that remained.

Tom realized that recruiting was an essential function and even in tough times, they needed to recruit certain key people and replace those who decided to leave. He respected the head of recruiting and wanted to ensure that he stayed with the company. But he was also a good businessman and he wasn’t certain they really needed the number of recruiters they had, given the lower levels of hiring. He was also thinking about outsourcing the function — or parts of it — to reduce costs.

Great Company was located in a coastal area with 4,000 employees globally — most of them in this location. It produced medical devices that were fairly recession-proof, but growth had slowed tremendously. The CEO wanted to trim costs and improve efficiency, but he wanted to emerge from the slow economy ready to grow immediately.

John Tully, the Director of Recruiting, led a team of 15 people. Four sourced candidates and maintained the CRM tools and communication processes, another four were administrative and scheduled interviews and did reporting and other tasks, and the remainder were general recruiters with a broad range of skills. John was an exceptional contributor. Tom had praised him at a recent communication meeting in a rousing speech about how HR could actually deliver if they had more people like John on board.

Tom was somewhat upset that events had led to this.

The staff of 15 handled all the requisitions for the company worldwide. Their cost per hire was steady and reasonable. They recruited internally for every position first and then went to the outside. Normally they filled about 20% of all requisitions with internal transfers or promotions. They had developed a successful referral program. Their success in better dealing with internal candidates and in engaging the employees in recruiting had led to higher employee engagement scores.

John had changed everything over the 18 months he had been at the company. His very first act had been to develop a reasonably good recruiting site. He had involved the internal marketing folks who were amazed that he had asked them to help on an HR project. Together with some of these marketing experts, John had laid out a campaign to improve candidate awareness of the company. John had also developed a candidate relationship management tool that allowed recruiters to communicate with potential candidates as well as screen them more thoroughly.

In his 18 months, he had taken a very inefficient function and turned it into a team that was respected throughout the company. He had added automation, built a strong sourcing capability, and trained the recruiters to be better at candidate relationship development.

Tom realized that it would be hard to maintain that level of involvement if they outsourced the recruiting function, but he was looking at perhaps keeping one recruiter to look internally and outsource the remainder.

After spending days agonizing over what to do, Tom decided to involve John in his decision. He laid out the problem and candidly shared the issues and solutions he was considering. And then he asked John to come back to him with his recommendations on how he should proceed within a week.

My questions to you: What should John recommend? What are his options and why would one be better than the other?

Within hours of BusinessWeek posting the story about the loss of 533,000 jobs in November, posters were complaining about the number of H-1B visas and other work permits the government is issuing. The Huffington Post’s special recession site has a give and take on the subject with the dishers outnumbering the defenders of temporary workers.

The criticism of U.S. foreign worker policy ebbs and flows with the economy, but it never entirely goes away. Witness the furor a year ago over the illegal immigration bill debated in Congress and eventually killed in the House of Representatives, despite the support of President Bush.

In 2005, in the midst of the national recovery that was especially strong in the IT sector, the USA president of the IEEE (Institute of Electrical and Electronics Engineers) warned, “The drop in computer programmers and rise in managers reflects the trend toward offshoring of programming jobs and the resulting need for professionals to manage outsourced projects.” Gerard A. Alphonse added, “…offshoring not only contributes significantly to U.S. high-tech unemployment, but also suppresses wages.”

The issue even came up early in the presidential election when both Hillary Clinton and Barack Obama signaled they weren’t sold on outsourcing and might end tax breaks for companies that offshore.

And the debate about outsourcing and what it is doing to the U.S. continues; pro and con. The challenge however, is that there is no reliable source of data on how many jobs are in question. Plunkett Research offers some guidance concerning the size of the market economically, while two Canadian researchers found a small, but positive impact on the U.S. from service sector offshoring.

Only when it comes to temporary workers are there any reliable numbers. In the report for fiscal 2007, the Office of Immigration Statistics said 1.1 million temporary workers were admitted to the country. That number is merely the number of times individuals with some form of work visa passed through customs. It excludes those with green cards (permanent resident status), but includes all other form of work permits. However, the report shows that the number of admissions has been growing steadily, with the largest increase coming in two areas: seasonal agricultural workers and H-1B holders.

U.S. Citizenship and Immigration Services approved just over 126,000 H-1B visa petitions in fiscal 2007 (which ended Sept. 30) despite a supposed cap of 65,000 plus 20,000 supplemental for persons with advanced degrees from U.S. schools.

Companies like Microsoft, Cisco, Oracle, and Infosys are among the biggest users of the H-1B visa process.

The process for 2009 visas is already underway and there is no reason to believe the quota won’t be filled as early as it was last year. Nor is it likely that the cap will be reduced, despite President-elect Obama’s avowed desire to overhaul the immigration process.

Speaking to an Indian newspaper following a conference of the Federation of Indian Chambers of Commerce and Industry, the U.S. consul general in Chennai, Andrew T. Simkin, said a change in the visa numbers was “Not likely.” “It is a serious thing requiring legal amendments and I do not think this could be a priority,” he was quoted as saying.

The findings (full report available) are interesting. For example:

• 95% of organizations are operating without a dedicated sourcing function. Further, 28% of organizations reported that their recruiters are performing all of the sourcing.
• 44% of organizations are engaged in some level of recruitment outsourcing. However, 82% of these organizations outsource less than 25% of their total positions.
• The biggest impediments to recruitment success are the ability to find quality candidates and process delays caused by hiring managers.
• Only 21% of organizations are using Web 2.0 tools for recruiting, with only 1% considering themselves experts. LinkedIn and industry-specific sites were reported as being the most effective.
• The most commonly tracked recruiting metrics are time-to-fill, time-to-start, first-year turnover, manager satisfaction, and cost-per-hire. Few organizations reported tracking more sophisticated measures.

The survey’s overall results show that recruiting is a function in transition from older practices to more modern ones.

First, with 44% of companies engaged in some degree of outsourced partnerships for recruitment services, RPO is gaining increasing traction as a viable option for solving recruitment challenges. In most (82%) cases, companies are outsourcing less than 25% of their openings, showing a trend to move slowly into outsourcing partnerships. With 62% of companies reporting that they intend to maintain that level of outsourcing within the next 12 months, it seems likely that companies will continue to adopt RPO solutions in select areas but on a somewhat limited basis.

This data also points out just how much room there is in the marketplace for the RPO industry to expand.

With 47% of companies reporting all of their recruiting work is still executed by direct employees, it will be telling to watch over the next two years how much of that work moves to outsourced partners, and how fast.

Secondly, it is clear that talent management is in its formative years as a function, with implementations ranging from fully formed, to partially formed, to unformed. Interestingly, there is little integration (only 13%) of the external recruiting function within talent management. It seems to us that knowing the external talent landscape is a critical data input for making informed, accurate internal talent management decisions, and we are surprised that many firms are making critical internal decisions with seemingly little or no regard to the external talent market.

We expect that as talent management matures and grows more robust, we will see companies move to models that fully integrate internal talent movement, talent management, and external recruitment, and that data from all sources will be considered fundamental to forming effective and accurate workforce planning strategies.

There are interesting paradoxes in some of the recruiting staff deployment data. For example, the No. 1 challenge that inhibits recruitment success is the inability to source and find qualified candidates for critical, hard-to-fill positions. These positions, in most cases, account for 25-50% of a recruiter’s workload.
Yet, nearly all companies have recruiters working on positions that are filled with internal and external candidates. On the face, time spent handling internal movement takes away valuable time for external sourcing and relationship development that is critical for finding high-demand talent. So, in a very real sense, recruiting functions are architecting their way into delivery problems.

Another paradoxical finding was that although sourcing was cited as the No. 1 issue, only 5% of companies have dedicated sourcing functions. It seems obvious that if sourcing is the number one issue, but no staff is dedicated to sourcing, then the problem will persist, and perhaps worsen. This is especially true when recruiters are unable to focus 100% on the external market.

The data also revealed a relatively slow adaptation of Web 2.0 tools and methods, with less than a quarter of companies regularly using any Web 2.0 or social networking tool in their recruiting solution. Additionally, most companies report that they are measuring only the most fundamental of staffing metrics. This could be due in large part to the fact that most of recruiting’s key systems come with difficult-to-use or very limited reporting capabilities. The effective adaptation of Web 2.0 technologies and better analytics tools into daily recruiting delivery practice looks like the next significant technology challenge for recruiting functions.

Overall, the data seems to reflect that recruiting is experiencing an unsettled period. With RPO and Talent Management in their infancy, increasing competition for top talent creating sourcing issues, a lack of clarity around the best resourcing approaches to address the sourcing challenges, and the continuing need to adapt new technologies, leaders of recruiting functions are juggling a host of moving parts.

The companies that most accurately tie their recruiting functions to their business goals and build the solution set that enables efficient and effective recruitment delivery will fair well in this changing environment.

But demonstrating the value of recruiting is difficult. The reasons are simple enough — recruiting costs are tangible; the benefits less so. It takes time for new hires to become productive, and their contributions are difficult to measure with any precision. Furthermore, it is impossible to attribute an employee’s performance to the recruiter’s skill at getting the right fit, in the right place and time. Consequently, tying recruiting results to cost is nearly impossible. Few even try. So recruiting managers usually find themselves under pressure to “manage” costs better — which usually means do more with less. Some companies have just given up trying and handed over their recruiting to an RPO vendor.

RPO has its own issues, but one benefit of RPO may just be that recruiting managers begin to understand costs, and how to manage them to their advantage. I don’t mean “manage” as in “limit” (although that’s a very fine thing), I mean structuring costs to maximize flexibility, leverage in-house expertise, and limit cutbacks during down cycles. This is the “manage” they teach in B-school.

Fixed and Variable Costs

The key to managing cost structure begins by distinguishing between fixed and variable costs. Fixed costs are infrastructure costs that are necessary to participate in a business. Once incurred, they are fairly stable. They include things like office rents, recruiter salaries, hardware, and software costs. They are part of the price of entry. Management and organizational theorists have an old saying: structure follows strategy, and strategy is constrained by structure. In English, this means that organizations acquire resources to support their strategy and goals. But once acquired, be it people, buildings, or equipment, it’s hard to change. Your organization’s infrastructure is a fixed cost. It can’t be reduced easily.

Variable costs on the other hand, fluctuate with activity. As activity rises, so do variable costs — things like advertisements, commissions, and travel costs tend to be variable.

CFOs hate fixed costs, and hate increases in fixed costs even more. Most of us can deal with high costs during peak production. But, when activity is low, reducing costs is a struggle. This is because so many of them are fixed, and cutting fixed costs is painful — as anyone who has laid off staff can attest. Unfortunately, layoffs are the fastest way to cut fixed costs. Variable costs, on the other hand, lower themselves during slowdowns, and are infinitely preferable on accounting reports. Not only are layoffs painful, but after laying off core talent, it can be hard to replace them when demand picks up later. Many organizations are slow to ramp up recruiting staff, having been burned earlier. It is much easier if you can keep your core expertise intact. The way to achieve this is to increase variable costs relative to fixed costs. This is done through something called Selective RPO.

Now You See It…Now You Don’t

How does one convert fixed costs to variable costs? The answer comes to us as a variation of Recruitment Process Outsourcing. The initial reviews of RPO indicate that wholesale RPO is risky. Client companies aren’t happy and vendors aren’t profitable. It seems that keeping some expertise in-house (read: recruiters who understand the company) has real value. Didn’t we already know that? Apparently, the market did not. The key is to retain aspects that add higher value, and outsource the simpler, repetitive work. In other words, recognize what you do well and keep those activities in-house, then selectively outsource the other processes.

This Selective RPO allows you to affix costs where you add the highest value, leaving costs for all outsourced processes variable.

As importantly, you leverage valuable recruiting expertise, supporting your talented people with outside vendors to handle repetitive and menial tasks. You’re less likely to cut headcount during a downturn. This combination of managing costs, leveraging expertise, and reducing layoffs is a management trifecta. It is a direct result of carefully structuring fixed and variable costs.

Getting it Right and Wrong

I’ve recently dealt with a company that is making the effort to structure its recruiting costs to maximum advantage. The recruiting organization is small relative to the organizations’ needs. But their processes are well defined and managed. Fed by an external sourcing team, it has reliable and repeatable processes. Because the sourcing team is external, its processes are also modular. This modular structure ensures their recruiters can handle a higher number of requisitions when needed, by outsourcing the (repetitive) sourcing component. And because the relationship with sourcers is ongoing, not transactional, constant feedback flows through the process, allowing a small number of well-qualified candidates to reach hiring managers.

By monitoring individual recruiter workload, the sourcing is turned on or off, ensuring no bottlenecks develop. The organization also requires hiring managers to provide feedback very quickly, and holds them accountable for delays in the interview process. Despite the external nature of the sourcing team, measurement and feedback processes are shared the length of the process in a partnership, rather than in a typical vendor, or transactional relationship. By virtue of strong execution, this recruiting team has managed to convert previously fixed sourcing costs into variable costs.

By contrast, another organization I’ve worked with adopted a similar approach, but without sufficient attention to process. In this case, its brand is very well known — so much so that they rely on it almost exclusively. In an effort to convert fixed costs to variable costs, they too have contracted with outside vendors for sourcing. But they have paid little attention to process.

After months of frustration it became clear that the strength of its brand has enabled it to hire at volume without establishing any regularity in sourcing processes. Feedback is irregular (I’m being kind), and the external sourcers are treated as vendors (read: poorly). Everyone is scrambling to put bodies forth and hoping to get lucky. The outside vendors are servants, not partners, with the expectation that vendors should be grateful for the association. This arrogance has destroyed any likelihood of a partnership, and without decent processes, there are no reliable, repeatable results. The external sourcers, given little feedback, continue to generate large volumes of candidates, clogging the system. Worse yet, they have become fixed costs.

In response, the leadership is trying to bring in a “headhunting mentality,” hiring more outside vendors, throwing more money at the problem. While it is unfortunate, those in charge (at least for now) are so taken with their brand, they are currently incapable of learning. Here, despite an incredibly strong brand, virtually unlimited resources, and one of the best compensation packages in history, costs are rising while results decline. So, even a smart plan to convert fixed costs into variable will fail without attention to execution.

The Take-Away

Managing the ratio between fixed and variable costs is one of the few opportunities a recruiting manager has to demonstrate business acumen. This cost structure lends a number of advantages and becomes even more important when demand cycles are unpredictable. Any process not requiring essential company knowledge that can be removed from fixed costs and converted to a variable cost is a winner.

To ensure success beyond accounting reports, the relationship with outsourced partners needs to be a partnership, not transactional in nature. Feedback must flow freely in order to create reliable, repeatable processes. HR leaders who combine strong processes with this type of fiscal discipline tend to be treated as line managers, with all the right and obligations that go with executive offices.

Both CEOs also acknowledged that some existing RPO customers have ceased hiring or have opted to take recruiting back in-house, causing a decrease in RPO revenues for both companies during the recent period.

Despite what he called a severe pullback from two clients, one in telecommunications and the other in the airline industry, Spherion CEO Roy Krause said the company will continue to invest in RPO, adding that while proposal activity has increased, it’s taking longer to close new deals.

Jon Chait, chairman and chief executive officer for Hudson Highland Group, said that so far, the company’s 2008 revenues have been bolstered by a strong global economy which offset declining demand for staffing services at U.S. customers. Now, he says the slowing economy appears to be spreading, most notably to parts of the U.K.

Chait also noted that the current economic cycle differs from prior recessions, resulting in a change in many of the classic recessionary patterns experienced by staffing firms. In previous recessions, economic contraction led to a recession, which resulted in more full-time employee layoffs, reduced demand for direct-hire placements, and finally a reduction in temp workers later in the cycle. The current cycle is similar to the 1995-1996 era, where slower economic growth produced an initial reduction in temp workers and slower direct-hire decision processes, but not the large numbers of layoffs or the recessionary decrease in permanent hiring activity. He said that skill shortages are continuing to fuel the demand for full-time workers in specific jobs and industries; however, candidates are reluctant to change jobs.

“We see candidates exercising caution,” says Chait. “They are wary of being the last one in the door and then the first one out, if things get worse.”

Both companies also announced recent SG&A cuts in response to the weakening economy.

Monster and CareerBuilder- Do You Need Both?

Interesting…this was actually a topic of discussion at this month’s ERE happy hour in Atlanta. Matt Faskamp wants to know if his company can save costs by using only one job board subscription instead of two. Do Monster and CareerBuilder really have unique visitors? Mike Jenkins says you only need one but not to forget to add Yahoo! Hot Jobs to that list. He recommends looking at your companies’ specific needs (i.e., international capabilities, board that provides more candidates for critical positions, user feedback, and capabilities of your ATS). Chandra Bodapati is the first to recommend Internet search instead. Kristin Gissaro and Sam Morse agree that Matt might want to take a different approach and turn toward niche boards and social networking sites. Kelly Dingee wisely advises Matt to run stats from his ATS and ask candidates what they use. She has personally had success with all three big boards…it depends on the reqs. She agrees with others that Matt should consider niche boards, Internet search, and social networking sites. Good luck, Matt. Let us know what you decide to do!

Is Outsourcing Outrageous or the Natural Way of Things?

This topic first posted by Maureen Sharib on July 15 continues to dominate the ERE discussion boards a week later. Maureen addresses the “biggest boogeyman” in today’s campaigns…outsourcing. More specifically Maureen argues that U.S. companies are motivated to outsource their call centers because of worker productivity and efficiency not necessarily lower costs. One reason might be that these employees receive a defined career path with opportunities not available for U.S. call centers. T Tallis believes that “part of the problem is unions.” Charles Hillman disagrees, defending unions, and focusing on the negative impact outsourcing has on American workers, families, and the economy. Amanda Blazo can sympathize with both sides having managed operations for two offshore Internet research centers. Whether offshoring or not, Amanda says it boils down to the fact that “some companies do certain jobs better than others.” I am not sure Jeff Weidner would agree; he believes these efficiencies are a result of the low cost-to-hire allowing for more employees to work on one job. Mike Johnson refers to a study by Booz Allen Hamilton and Duke University reminding us that “off-shoring high-skilled functions does not replace jobs offshore.” Joshua Letourneau also refers to an article he wrote that “takes a deeper dive into the globalization and commoditization of names sourcing today,” including issues with telephone name generation training and competition. Deborah Jones agrees with Amanda that outsourcing is not outrageous but natural since these centers in the Philippines and India offer more opportunitites and agrees with T Tallis that unions are to blame. She draws a parallel to the automotive industry. Maureen Sharib shares the news the GM has cut health care benefits for its employees. Joshua Letourneau and Paul Davenport empathize with employees but defend GM’s position. Joshua reminds us that “the point of a publicly traded company is to create shareholder value — nothing more, nothing less.”

The conversation has continued to heat up this week…you might want to check it out!

5 Recession-Proof Jobs

Sam Medalie includes Research Business Analysts, Administrative Assistants, Accounting/Finance Executives, and Sales Representatives/Business Development on his list from CNBC.com. I questioned these jobs since I have read several articles stating Energy, Environment, Health Care, Education, and Security are the five recession-resilient industries. Sam was clear when arguing that the jobs on his list are necessary for companies to grow, not going anywhere, and can help drive revenue. David Rees questioned the list of five industries, particularly security and energy. Energy — because in the 1980’s the price of oil in Alaska was so low and families had to relocate. Security — because it is too broad of a topic. “The common denominator is that demand for those services is less volatile and based on needs that we have very little control over.”

Monday’s Question of the Day

I wanted to know if corporate recruiters care more about OFCCP compliance than TPRs. If so, why? Manoj Tiwari is not a recruiter but understands this debate from an OFCCP compliance point of view. According to Manoj, corporations are responsible for compliance so it doesn’t matter WHO does the hiring; it just matters that it follows the guidelines. The cost to the organization is huge, both financially and in branding and reputation. “Not necessarily a good practice but TPRs are not affected beyond losing one business and hardly ever mentioned anywhere in the media or public forum.” OFCCP also is not concerned with where you collect the data as long as it is documented. I also posted this discussion on the Fordyce Letter.

Niche vs. Generalist Recruiting

Shawn Schantz works in the Pharmaceutical and Medical Device industry and wants to rebrand the recruiting model for niche recruiters instead of generalists. Does anyone have advice? Nick Cobb warns recruiters that they are expendable and when moving to this model, the best thing a recruiter can do is to “know everything about every industry and description they can” in order to survive. Kevin O’Malley warns Shawn to inform his recruiters that change is around the corner and that recruiters could suffer from boredom as niche recruiters and leave the company. Steve Myers is more optimistic. He supports this model but suggests a strong marketing plan to back it up. According to Steve, Shawn should not be concerned with hiring recruiters because “newbies” are easier to train. Bob Thompson agrees. I’m curious to see how this plays out…

Becoming Independent

Katie Bielke left a full-time position for a large staffing company, moved to a contract position for a small staffing company, and now wants to go independent. Does she need to get funding or can she start right away. Katie rethought this post and before anyone responded, decided that she did need to plan first but wanted to hear feedback and advice. Pam Claughton recommended 6 to 12 months of saved living expenses first so Katie can focus on the business without stressing out about cashflow. Joseph Ray agrees and advises Katie to take her time when investing in her website, ATS, job boards, and computer expenses. Becoming independent is “more complicated than most expect.” Sam McCord had success going independent with no additional funds and sought guidance from trainers like Doug Beabout, an attorney, CPA, and business consultant. Good luck, Katie!

A more selective outsourcing approach allows vendors and employers to tackle each function independently, understand the requirements, and then customize the implementation and refine the processes before moving on. At least for now, that’s the direction managers are taking.

“Comprehensive outsourcing of HR administration hasn’t worked out as expected for either party,” says Mark Marcon, senior research analyst and director for Robert W. Baird & Company, Inc. “I think most of the vendors under-estimated the costs and the profitability of these contracts, so there’s been significant pull-back and a more selective adoption approach.”

A survey of 182 U.S. companies by consulting firm Watson Wyatt Worldwide validates that selective, rather than comprehensive H.R. outsourcing is the clear preference among employers, with 6% of the respondents indicating they plan to outsource recruiting in the near future.

Recruitment process outsourcing is increasing, despite the macro outsourcing trends, according to Marcon. More staffing providers are offering outsourced recruiting solutions to customers, and many have made acquisitions of existing RPO firms to enter the market. Because RPO is still a fairly new concept, a standard service model has yet to emerge. The flexibility to customize services under the contracts, such as only outsourcing hiring processes for hourly workers or contracting strictly for exempt personnel sourcing, is enticing early adopters and easing the trauma of handing over the services to an outside provider.

Software as a Service

With as much as 80% of the early adopter market already penetrated, HR technology firms, including applicant tracking system and talent management providers, are consolidating and offering new products for mid-size companies in order to boost revenues. Employers have been waiting for leaders to emerge in the highly fragmented space, and thanks to a slowing economy, the process seems to be well underway.

“What’s hot is software as a service and talent management suites via SaaS,” says Marcon. “Everything else is cooling.”

Software as a service, which consists of hosted software solutions accessible via the Web for monthly subscription fees, reduces the financial barriers to entrance and opens the door for medium and small companies to manage talent through automated solutions. Access to more sophisticated tools may level the recruiting playing field between large and small employers. Taleo’s new product release is further validation that solution providers are looking for growth outside the enterprise marketplace. Taleo Edge was unveiled at the SHRM conference and is targeted toward the mid-size market, which Taleo defines as employers with 2,500 to less than 10,000 employees.

While industry consolidation may be a good thing in the long run because the surviving vendors will be financially stable, and customers may finally receive the comprehensive talent management suites they’ve been seeking, Marcon cautions talent acquisition leaders to review a prospective vendor’s financial strength before committing.

Says Marcon: “Right now talent acquisition managers should absolutely select vendors based upon their ability to withstand a protracted downturn.”

The reasons are obvious: a perception by hiring managers of poor quality candidates and long delays in presenting candidates. His two recruiters and most of the HR team were not pleased with this decision and felt that they understood the company and its needs better than any agency. They also felt that hiring managers were unrealistic in their expectations and that they were a bargain compared to the costs of outsourcing. This situation is increasingly common. I find that many organizations are turning to outsourcing as a solution to either the problem of too many requisitions and too few recruiters, or to that of too many hard-to-fill positions and no talent pool or legitimate candidate sources.

There’s nothing wrong with outsourcing the recruiting function (I’m on the board of the Recruitment Process Outsourcing Association), and many organizations have done so with great success. Kellogg’s has outsourced recruiting for a number of years and has been pleased with the results. Some organizations have outsourced recruiting for one or two functions only, and leave the internal recruiters to do the rest. Given the scarcity of many types of talent, more organizations are turning to outsourcing as a last resort. Historically, there have been few options available to organizations, outside of keeping an internal recruiting function. Most agencies cannot (and don’t want to) recruit for all positions. They tend to focus on a market segment or a particular function and do less well at recruiting outside that. They are also expensive. But with the rise of recruitment process outsourcing organizations and the creation of broadly-skilled and capable agencies, there are a variety of choices. However, if your goal is to not be outsourced, here are a few things that you will have to do to remain successful.

Know What You Offer That Is Unique

What makes you better than a recruiter at an agency? What do you know and do that is unique or different enough to be difficult for an outside recruiter to reproduce or learn? Perhaps your recruiters have in-depth knowledge of the services or products you sell and can use that knowledge to better evaluate potential candidates and to sell the organization to these candidates. Or, maybe your team has the capability to evaluate both internal and external candidates together and make more useful recommendations. Whatever it is, you need to be very aware of it and communicate that uniqueness to everyone. If managers feel that you are a commodity, then anyone can do your job as well as you can. It is your responsibility to communicate your unique contributions in any way that you can. This includes face-to-face conversations, discussions, email, or whatever else can help hiring managers understand you better.

Learn to Build Internal Relationships

Most of the time internal functions are outsourced because hiring managers or senior managers are unhappy with the speed with which candidates are presented, or with candidate quality. They also believe that an external group can provide faster and better service. The only solution to these issues is to have built good relationships with the management team. Managers have to believe that you are not only well-qualified and capable, but also that you are trustworthy and deeply understand their needs. You can only attain that trust by, over time, getting to know these managers and letting them know you. You will need to spend time educating them about the talent pipeline and your sourcing activities, and you will need to present them with believable and quantified data when their expectations are unrealistic. I have found that in recruiting functions where the recruiters are physically close to the hiring managers and who spend time with those managers on an almost daily basis, there is no talk of outsourcing.

Suggest Outsourcing When it Is Appropriate

Sometimes, it makes a lot of sense to outsource some part of the recruiting function. This happens when there are large numbers to recruit and you have a limited staff, or when there are just a few very open positions that require hard-to-find skills. When these are the case, it is better if the proactive suggestion to outsource comes from the recruiting team and is supported with data, numbers, and facts to show the savings and to show why quality will not decrease.

Improve Your Recruiting Processes

Do you know that recruiting remains one of the least efficient processes in an organization? Transaction costs (cost per hire) are large, and there is almost no effort being made to connect that cost with delivering value (quality of hire). At conference after conference, I hear the same old measures being touted proudly: cost per hire, time to fill, number of interviews to offer, and so forth. It seems like no one is measuring the effects of our recruiting activities. Senior executives are starting to ask what value we are delivering to them, and sadly, few of us have any answers. You need to establish some time and cost reduction goals (once you have clearly determined what your current numbers are), and then set out to achieve them as quickly as possible. At the same time, you should be open about what you are doing and why, and be accountable for the results. Let hiring managers know that you are working hard to bring in better candidates and enlist their help to do so. They can be great allies once they are part of the team and understand how what they do affects what you do.

As mentioned above, the relationship between the recruiter and the hiring authority is the most important factor in the success equation. Your goal should be to be seen as contributing to the success of the organization. By acting openly, getting data and facts to support your arguments, improving your recruiting process in a systematic way, and accepting accountability for your results, you should be able to remain productively employed for a long time to come.