RPO World Keeps on Turning
Companies are finding it tougher to lure top candidates, so many are turning to RPOs — on a global basis.
The tight labor market may be a pain for companies struggling to hire hard-to-find talent, but it has been a boon for RPOs.
For years recruitment process outsourcing was viewed as a transactional service to help companies quickly attract and screen lots of recruits to fill low-level positions. But when the recession ended, and talent became harder to find, companies started rethinking the role RPOs can play in the overall recruiting process. According to research firm Aberdeen Group, fully 41 percent of companies say they are using their RPOs to fill specific roles and job families that are closely tied to organizational performance and productivity, compared with just 11 percent in 2011.
This shift in the talent marketplace is changing the way clients and RPO vendors work together, said Christine Nichlos, CEO of People Science Inc., an RPO provider. “In the beginning of the RPO industry, there wasn’t a lot of ‘talent’ in talent acquisition,” she said. “It was more about taking work off their hands.” But companies are getting more educated about the services RPOs provide and the benefits they derive from these vendors, including reductions in the time and cost of recruiting and increased retention. “That has led to more strategic relationships,” she said.
Companies are also beginning to understand the value of the more proactive hiring services, including social, mobile and analytics tools that bolster their long-term recruiting goals. LinkedIn Corp.’s “Global Recruiting Trends 2016” report shows 59 percent of companies are investing more in their employer brand compared with last year. “With the job market so tight, many companies are looking for ways to get a leg up on identifying talent and creating a differentiated candidate experience,” said Stacey Cadigan, director at Information Services Group, or ISG, a technology research, advisory and services firm in Stamford, Connecticut. In response, RPOs are expanding the services they offer to provide a more robust proactive recruiting deliverable.
“We are seeing a lot more focus on front-end processes, like attracting candidates, sourcing and building pipelines,” Cadigan said. Her team has also seen increasing interest in proactive talent management services, like brand development and building talent communities to build a pipeline of talent for future openings. “Companies are looking to RPOs to help them align recruiting with the company brand in an effort to attract higher-quality candidates with the right culture fit,” she said.
That’s driving RPOs to roll out a host of new technologies and services to entice these clients, particularly around predictive analytics, branding and social recruiting tools. Such services are transforming the RPO model, but they are also giving companies a more holistic view of their recruiting needs and challenges, especially when it comes to branding, and helping companies understand what they can do to be more attractive to passive candidates.
Many of the RPOs today, including Cielo, Futurestep, People Science and Randstad Sourceright have all made significant investments in analytics capabilities in recent years, along with social recruiting, branding and other technology tools to hasten the recruiting process. “Reporting and analytics is where we are seeing a lot of interest right now,” said Bob Lopes, president, RPO Americas, at Randstad Sourceright, a global RPO, which has invested heavily in its data analytics solution in recent years. “It’s not just transactional data, it’s what the data tells us that they value.” For example, if an open requisition to recruit is going to be difficult to fill, the analytics will tell them that on Day One rather than Day 90.
“As our analytics capabilities mature, it is creating incredible transparency,” said Angela Hills, executive vice president and managing director of the RPO Cielo. “It’s allowing us to deepen our partnerships and focus more strategically on the future.”
M&A Creates Global Giants
All of these trends have driven steady growth in the RPO industry in recent years. In 2014, the industry grew 13 percent, pushing it over the $2 billion mark, and indicators suggest it will continue to expand at a projected rate of nearly 9 percent through 2018.
But that isn’t all good news for RPO leaders. The steady growth rate has also spurred increased competition, with new players entering the market while existing RPOs are merging with or acquiring companies to rapidly expand their global footprint in areas such as Asia, Europe and Latin America to meet their clients’ global hiring needs. Indeed, the largest growth in the industry is now coming from Europe, the Middle East and Africa, and Asia-Pacific countries, which grew at 21 percent and 31 percent, respectively, in 2014 compared with just 6 percent growth in North America, according to research from Everest Group. That led to several acquisition deals in the past few years, including Seven Step RPOs’ 2014 acquisition of U.K.-based RPO BlueGlue; Wilson HCG’s 2015 acquisition of Head2Head, a Canadian recruitment services firm; and staffing solution provider, CDI Corp’s August 2015 announcement that it would acquire ScaleneWorks People Solutions, an RPO in India. And industry analysts expect 2016 to bring in a host of new global acquisition deals in this space.
“Having a global reach is very important for RPOs right now,” Lopes said. “You need centers of excellence in all of these regions to prove to clients that you have global expertise and that you can integrate their global needs into your business model.” Cielo’s Hills agreed. “You have to understand the local market, the culture and the legal environment to do well in these markets,” she said. “You can’t achieve that through offshoring.”
The industry has also seen acquisitions to expand its service offerings and technology capabilities, most notably Monster Worldwide’s 2014 acquisition of RPO TalentFusion, which brought together TalentFusion’s RPO expertise with Monster’s extensive infrastructure and social recruiting technology, to create a powerful position in the RPO space. Cadigan expects the acquisition trend to heat up in 2016, as RPOs rush to deliver a more robust portfolio of services. “RPOs are struggling with the need to be constantly innovative,” she said. These acquisitions will allow them to add new services to their lineups more quickly.
Creating a rich service offering will be vital going forward, as these vendors are feeling pressure to differentiate themselves, particularly as 70 percent of total active RPO deals are expected to end in the next three years, according the Everest data. “Fierce competition is compelling market evolution: advanced pricing constructs and value-added services, including analytics, are coming into play, and service providers are expanding their capabilities across all types of hires to increase their market share,” the report said.
You Get What You Pay For
There is still a gap between what customers want and what they will pay for. Even with all the new technology and strategic service offerings, the transition of the industry from recruiter to partner is far from complete, Cadigan said. “Clients are still looking for scale, speed and low-cost solutions from their RPO providers,” she said. “That trend will continue for a while.”
They also still rely on more traditional RPO metrics, such as time to hire, source of hire and the quality of the candidate pool, to judge the success of their RPO relationships even as they transition to more strategic forward-looking services. While these are all relevant statistics, they don’t factor in long-term planning and more qualitative measures such as brand perception. And while companies are drawn to the idea of talent communities, branding and predictive analytics, they still expect a transactional payment model. “They like the idea of investing in the future, but they want to pay per hire,” Hills said. “It is a disconnect that requires more education.”
Though these old perceptions are changing. Lopes noted that he has seen more clients purchasing end-to-end RPO services, in which the entire recruitment process is outsourced to the RPO than they have in the past, and he expects the trend to continue as these clients get more comfortable with RPO as a full recruiting service provider, and not just a stopgap measure. “It is part of the maturity curve,” he said. “Buyers become more familiar with RPOs, and they like having the ability to scale recruiting up and down to meet their needs.”
When companies and RPOs can get past the transactional relationship to develop deep strategic partnerships, they can generate real business benefits, but it will only happen if RPOs can quantify that value. That means that, along with rolling out new services, they have to define clear measures of success, Cadigan said. “The better you can quantify business impact, the easier it will be for clients to prove the benefit of these relationships to the organization.”
People Science’s Nichlos agreed. “To affect change, we have to be able to tie recruiting to productivity,” she said. “And metrics are the only way to do it.”