To RPO or Not?

How Do You Decide To Go RPO?

1. Define the business problems you’re trying to solve
2. Compare your current model versus an RPO for your specific needs
3. Develop a cost-focused business case
4. Compare the baseline (current approach) to RPO models

Throughout my career in corporate talent acquisition, I’ve generally been agnostic as to which is better, in-house TA teams or RPO hiring models. I would typically respond, “Well, It depends.” I’d cite the many variables involved, including the complexity of positions, volume, readiness for change, cost, etc. In most cases also, that’s the right answer. Now that I’m working in RPO, I still answer the same way. Here’s why: any decision on engaging a RPO model should be based on a well-articulated business case that outlines the business impact, costs, risks, challenges and expected outcomes which, if done well, will present a TA/HR team with a clear path toward the right conclusion.

For the sake of clarity, let’s define Recruitment Process Outsourcing (RPO): RPO comprises the operational responsibility for one or more recruiting functions, from the client to a services provider where the provider essentially takes on all or part of the role of the client’s recruiting department. Pricing is based on the process, usually at volume rates that could be per hire or a monthly retainer.

Originally, RPO was viewed principally as a resource for staffing and research, but it has evolved into a full-cycle service that can include everything from sourcing to onboarding supported by data management, applicant tracking systems and integration with social media, mobile and even Big Data.

The RPO Landscape

The RPO market is very dynamic and growing fast. The Technavio Global Recruitment Process Outsourcing Market 2017-2021 report puts the 2016 global RPO market value at $3.5 billion with a 2021 projected value of $6.7 billion. The same report also predicts that the market will grow at 17.66% CAGR for the years 2017-2021. With that level of growth, it’s no wonder that RPO is the fastest growing area of all HR outsourcing practices.

A listing of the top RPO Performers of 2016 from Workforce.com shows us the true scale of the success of RPO companies in terms of their total annual hires. It is estimated to be at least one million jobs with approximately 75 percent of that total produced by only seven companies.

There are many raw numbers that don’t tell us, such as client satisfaction, turnover for the positions hired, and the savings realized by their clients over the cost of internal models. Still, an annual total of more than three-quarters of a million hires across only seven RPO companies shows the real power of the practice and why every company facing hiring challenges should consider it.

Step 1: Define Your Business Problem

Overall, I see the RPO-or-not decision as a three-step process, the first step of which is defining your business problem. Are you trying to solve for short-term turnover? Do you need to improve time-to-fill? Are your agency costs too high?

There are numerous examples of RPOs helping to solve such problems. Hays saved £2m by reducing reliance on temp workers for a major investment bank. Right Thing (ADP), through a rigorous standardized hiring process, reduced >90 day turnover for Wal-Mart from 54% to 30% in various regions.

After you define your problems, you should calculate the total cost of the problem. I’ve always included cost-of-turnover in my analyses. At a private US education firm, there was a 48% turnover for teachers resulting in the need to hire 12,000 teachers annually at a cost at approx. $1K per teacher. We also determined that 3% of parents didn’t renew primarily due to teacher turnover, which resulted in more than $5M of lost sales. This is a compelling problem. I encourage all TA/HR leaders to work with their internal finance teams to determine the cost of the problem.

Step 2: Compare the Models

When to Use RPO?

While there are no absolutes, some of the key factors to consider when deciding the RPO question include:

• Cost management
• Scalable solutions (especially with global growth)
• Demand for quality talent

RPOs are generally known for being scalable, cost-effective, and for process standardization with high-volume replicable positions, resulting in better hires. They represent the company as well but are not employees of the company and typically have multiple clients.

Examples include hiring for retail, finance, call centers, and health care. Aberdeen Group research shows that 43% of Healthcare organizations are investing in RPO as a way to improve efficiencies and stay compliant.

There are exceptions to these generalities. Starbucks and Chipotle are great examples of large-volume retail hiring that have made investments in their in-house capabilities, yielding positive results. HSBC lowered its agency costs by 60% a few years ago with an internal sourcing team.

When Not to Use RPO

In my experience as a TA leader, there are situations in which I would not consider an RPO solution, including:

• When hiring for complex, niche-based positions (e.g., senior-level statisticians)
• When hiring VPs and above (Building an internal executive recruiting function is the better choice. Apple & Intuit are good examples)
• When the RPO has large clients in the same industry resulting in questions of loyalty and conflicts of interest
• When the RPO is not willing to put fees at risk if they don’t achieve critical Service Level Agreement metrics (SLAs)

Industries with strong internal employment brands and strongly established cultures such as high-tech Silicon Valley companies tend to be hostile to RPO. Examples include Google, Facebook, Cisco, Disney, and Bain Consulting. Their cultures just don’t align with RPO (not yet, anyway).

Finally, the Business Case

A business case provides a common point of measurement for comparing service provider pricing to the internal cost of providing the in-scope activities and should be an apples-to-apples comparison (generally with a moderate amount of normalization). To clarify, while I recommend that the business case should be compared across multiple service providers, the business template should be the same.  Here is an example below:

The example above shows hiring 12,000 employees for the same role (replicable positions). The cost is quoted at $350 per hire and involves some transition expenses with technology. Hiring costs (Training and EA are administration expenses you’ll incur with or without an RPO). There is an assumption that the client firm is covering some level of sourcing, which needs to be considered (lowering costs of job boards). In this case, posting costs were reduced by an estimated 40%. Here, we factor in interview time for hiring managers as a soft cost. The RPO should reduce HM time (hiring managers were doing the bulk of the screening).

Any RPO deal should have fees at risk negotiated. In this case, the goal was to reduce > 90-day turnover by 5%. If the RPO delivers on that promise, the result should be 600 fewer hires with the turnover cost saved and should be factored in. We call this a normalization and here, a turnover reduction benefit

It’s important to partner with your internal teams to get the right data. The variances will tell you about the costs. I recommend comparing three years of data to determine if RPO really is a good idea. In this example, the company would save approximately $1.8M with a standardized process, the technology it didn’t have prior, and resources to interview candidates usually handled by the hiring manager. This is clearly a compelling business case.

Also, if you bundle RPO services into a pricing model, you have leverage. For large companies, while it’s not advisable to put all your eggs in one basket, synergy makes sense. It’s not just about cost; it’s more efficient to have one partner if the data is all in one place. This could apply in cases where the RPO is offering its own applicant tracking system and-or Vendor Service Programs (VSP) as part of the service package. Although there are no absolutes (death, taxes and need for hiring great talent notwithstanding), a good business case will help guide your RPO-or-not decision-making.