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Going for Global RPO

September 12, 2006
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Related Topics: Global Business Issues, Candidate Sourcing, Featured Article, Staffing Management
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Sydney-based St. George Bank, one of the top 15 publicly listed companies in Australia, just outsourced its recruiting process to Los Angeles-based Futurestep under a three-year contract that will add 1,000 new hires a year to the bank’s current workforce of 7,500. Futurestep CEO Robert McNabb recently returned from Australia, where he finalized the agreement.

    "The Australian market is very astute, and some gifted people work in client companies there," McNabb reports.

    Futurestep, a Korn/Ferry International company, runs two offices in Australia and 70 offices in 20 countries worldwide. The company’s global database contains information on more than 1 million prescreened professionals.

    "Global RPO is an explosive market," McNabb says. "It’s not just about talent acquisition but about end-to-end solutions."

    For decades, companies have outsourced one or two elements of recruiting or sourcing for specific positions, but RPO means handing the process itself over to the provider and, most important, using the provider’s expertise and scale to re-engineer the process for greater efficiencies.

    "It’s difficult to gauge the size of the RPO market because providers are coming in from all different areas--ATS and contingent search, for example--with what they call RPO products, but they may really be offering little more than project recruiting," says Brett Gerard, project director and RPO practice leader at Houston-based TPI, a global outsourcing advisory firm.

    End-to-end or full-service RPO is still in the early stages of development, with the greatest growth occurring in North America, followed by Europe and the Asia/Pacific region. The emerging model is assuming a global form, but global RPO is still in its infancy, with no dominant provider.

    "Most RPO providers are national or regional in their reach and don’t have the capacity to go out into global markets or to source on a global basis," McNabb notes.

Growth drivers
    Many of the early adopters of end-to-end global RPO are multinationals that turn to providers to manage recruiting for all locations and facilitate cross-border staffing. Futurestep, for example, is under contract with a large energy company based in Madrid, Spain, with major recruiting needs in both Europe and Latin America. The company wanted a single recruiting strategy for all its locations, with the ability to recruit effectively within each region and to source across borders when necessary.

    Futurestep now pulls almost 30 percent of its global revenues from full-service RPO.

    "In the not too distant future, we expect to pull 50 percent of our revenues from global long-term end-to-end RPO contracts and 25 percent from large shorter-term end-to-end projects," McNabb notes. "The global RPO market is a strategic segment for Korn/Ferry because it addresses an emerging challenge in workforce management."

    The demand for global end-to-end RPO is growing as multinationals move deeper into a wider range of markets and step up hiring.

    "Multinational companies may receive 1,000 résumés a day, and they also need to tap good passive candidates who may be entertaining four or five offers," McNabb says. "But even the largest global companies may not know how to care for candidates and manage internal talent. Companies with big world-class brands have discovered that the perception in the marketplace is that their recruiting process is broken."

    RPO growth is also a function of the continued growth of multi-process HRO contracts.

    "End-to-end or enterprise RPO is gaining momentum globally, driven by HRO providers who make comprehensive commitments and then struggle to meet them," McNabb says. "These providers are negotiating huge enterprise HRO agreements. Each provider has its own core capabilities, such as technology or compensation and benefits, with other services added on. Recruitment is clearly a key portion of the total HR package, but none of the big HRO providers have a core competency in recruiting."

    Consequently, RPO has boomed, in part because HRO providers are calling on RPO firms to take on the recruiting piece as subcontractors. In addition, client companies that are not satisfied with HRO recruiting capabilities are turning directly to RPO providers for full-service recruiting.

    Another force driving global RPO growth is the tight labor market for key positions such as engineering and R&D.

    "Companies are predicting their talent gaps three years out and then looking at where the talent is located and how they can best tap it," Gerard says. "Companies are using a RPO or a knowledge process outsourcing (KPO) model or some combination to meet these needs."

    RPO provides a strong engine to bring in candidates, while KPO brings in the highest levels of talent in engineering and science. According to Gerard, there are only are four pure KPO firms--all Indian-owned companies based in India. These four firms supply talent primarily to multinationals operating in India but are moving quickly to broaden their reach.

    "Huge cost savings are available through the KPO model because the provider can bring in talent at much lower costs from locations such as India," he says.

Structuring the agreement
    End-to-end RPO is commonly a long-term commitment. Most recruiting functions are highly decentralized, with great variation in how managers and recruiters at different sites pursue candidates and move them through the recruiting process to an offer. Part of the purpose of RPO is to bring consistency and discipline to the process.

    "The three key elements of full-scale RPO include managing the people resources for recruiting and staffing; managing the technology, especially for reporting purposes; and, perhaps most importantly, managing the external vendors--for example, contingent recruiting agencies," Gerard says.

    He advises employers and their RPO providers to structure an agreement only after the provider has received detailed data from the client company.

    "The provider needs to get a clean look at the client’s existing recruiting process and hiring needs, the client’s technical capabilities, and its use of third-party providers such as search firms and staffing agencies," he says.

    The client company and the RPO provider then review this information and construct a strict service-level agreement.

    "The best arrangements occur when the agreement includes provisions for the implementation of a required change management plan, so that the provider re-engineers the client’s recruiting process for optimal performance and efficiency," Gerard notes.

    Gerard reports that resistance from hiring managers is not uncommon because they may not have had what they felt was adequate internal support in recruiting and hiring, and may have turned to outside recruiting agencies.

    "The point is to create a high-quality recruiting process so that hiring managers are not tempted to go outside to agencies for candidates," he says.

    To engage hiring managers in a more efficient process, the client company and the RPO provider must put together a change management plan that communicates to hiring managers exactly how the recruiting process will be altered and what will be expected of them.

    "RPO will fail without implementing a change management plan," Gerard warns.

    One of the most critical areas in RPO is managing outside vendors.

    "The RPO provider should never get rid of the key external agencies that supply talent to the client company, but the RPO provider must consolidate and manage these vendors and should have full control over them," Gerard says.

    Gerard advises companies to build realistic expectations for their RPO agreement by establishing a detailed baseline that describes current recruiting practices, including how many external recruiting agencies the company uses and how much they cost. In addition, the baseline should define each step in the existing recruiting process and the timeframe and cost for each step.

    "For cost reductions through RPO, the sky is the limit," Gerard says.

    The biggest savings often come from managing the outside recruiting agencies and cutting the number of positions these agencies handle.

    "This can generate cost savings or 35 percent to 40 percent," Gerard says. "The RPO provider becomes part of the client company’s organization and consolidates and drives efficiencies among the vendors."

    This approach does not apply to executive search firms, which typically remain outside the scope of RPO.

    Futurestep’s goal with its RPO clients is to create long-term multi-year contracts, with a Futurestep team on site and seamless work with the client. Futurestep may handle all recruiting with its own staff or use outside vendors.

    "We manage the process tightly to meet the company’s goals, achieve its business objectives and build a better image for it in the marketplace," McNabb says.

    McNabb identifies both hard and soft cost savings available through RPO.

    "Purely from a recruitment standpoint, it’s easy to guarantee minimum hard-cost savings of 10 percent," he says. "But the larger savings come from reducing soft costs by drawing in better candidates, improving the image of the firm and building a database of pre-assessed candidates. As a CEO myself, I worry less about costs and more about finding better talent."

    Gerard believes that the quality of RPO services is improving as the size and scale of RPO deals grow. Companies will increasingly turn to RPO to gain access to better-quality talent, construct a better recruiting process and create greater recruiting efficiencies.

    "This leaves HR free to focus on the absolutely critical function of strategic workforce forecasting--looking at where the CEO and CFO want to go and leveraging the RPO provider to take on the tasks of recruiting," he says.

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