Outsourcing Of Recruitment On Rise At Big Firms

July 21, 2006

With a growing talent shortage expected as the baby boomers begin to retire, more large employers are adding recruiting to the list of HR processes being outsourced. Forty-one percent of large companies with HRO contracts are outsourcing some of their recruiting, according to a recent study conducted by Towers Perrin.

    This percentage is expected to rise dramatically as the costs associated with hiring increase, analysts say.

    "The talent shortage will cause recruitment process outsourcing contracts to grow in coming months," says David Rhodes, a principal at Towers Perrin and author of the study.

    Although many providers of staffing services claim to be recruitment process outsourcers, analysts say that true recruitment process outsourcing refers to the entire process of identifying, screening, hiring, and applying and providing metrics so that clients can gauge the success of their recruitment strategies. Other than attempting to cut costs on their recruiting efforts, many companies are turning to recruitment outsourcing providers to support their recruiting departments, rather than replacing them, says Lisa Rowan, an analyst at IDC.

    "In many cases companies are relying on these vendors to allow their HR staff to focus more on talent acquisition and retention," she says.

    In such cases, the providers take over the hiring of lower-level workers, like call center representatives, leaving the more strategic talent acquisition and retention of top level employees for the human resources staff to handle, she says.

    Memphis, Tennessee-based International Paper is one employer that is piloting a program by which it is outsourcing some of its recruitment processes. The company recently tapped the Right Thing, a Findlay, Ohio-based recruitment outsourcer to handle the hiring of 125 salaried employees over the next eight months for its container division, a network of plants throughout the country.

    International Paper decided to run a pilot first with only a part of its company, given the skepticism among many companies about outsourcing the recruiting function. The Towers Perrin survey, which was based on responses from the HRO Buyers Group, a consortium of large HRO buyers, found that 59 percent of the employers outsourcing their recruiting processes are not satisfied with it.

    "We want to make sure it's the right thing to do," says Mark Azzarello, director of HR operations at International Paper. "Most of the companies that have had success with recruitment process outsourcing have had a centralized recruiting approach, but we don't."

    The main grievance of companies that have outsourced their recruitment processes is that vendors do not understand their corporate culture. "Employers want something very customized," Azzarello says.

    International Paper will monitor cost of hiring and turnover to gauge the success of the pilot.

    Recruitment outsourcers believe that as these arrangements with employers mature, buyers will begin to see metrics and cost savings that will encourage them.

    "It usually takes about two years for employers to realize the cost savings of recruitment process outsourcing," says Terry Terhark, president and founder of the Right Thing.

    The Right Thing is in talks to provide recruitment process outsourcing to two large HRO providers, he says.

    Such deals between major HRO providers and niche recruitment process outsourcers are going to become more common as the market becomes more commoditized, says Michel Janssen, president of supplier solutions at Everest Group.

    "As the HR marketplace becomes all about transactional services, HR BPO providers are going to need to offer recruitment to differentiate themselves," he says. "This is one of the top three areas for HRO industry watchers to follow in 2006 and 2007."