November 10, 2010 Leave a comment
By Wade Pierson October 1st, 2010
Part 1 of this article ended with the following position;
“So I think that 2011 will look a lot like 1999, when RPO firms were called “project recruitment” or “staff augmentation” firms. We seem have come full circle. In the end, is this a good thing or a bad thing? Stay tuned for part 2 of this series….”
Into 2011 – RPO
The above stated, I would offer that we will in fact look more like 1999, but I think that is a very good thing, and here are some reasons why on both (the 1999 and the good):
Technology today is cheaper, faster, more accessible, and better than it was in 1999. Specific to an RPO model, as the model gained popularity, it did so because there was a movement to find scalable solutions as opposed to the “one size fits all” solution that was a “global one”. With the fact that technology is now becoming more specialized vs. the ERP type platform and thus has become much more affordable via the SaaS model, you can now purchase only what you need (even if it is multiple systems) vs. having to purchase everything at a very high “point of purchase” cost, and then a significant integration cost. So, you can purchase 3-4 “best of breed” Talent/HR/Workforce Analytic Software tools vs. having to implement the RPO vendors “globally based” ERP system that may only represent a 35% fit for your specific needs and may not fully address some of your most acute business needs.
Emerging market economies:
The emerging market business economies are much larger, more important/impactful, and much more specialized vs. what they were as the RPO model was growing in utilization rate and popularity. So, for example, when GE (just using a large multinational company as a name only example) in 2003 adopted a RPO model, it was based and operated from the US and serviced from the US. GE was and is doing business in most countries around the world, so in 2003 when maybe there were 100 openings in Brazil, or 200 openings in China, you could “get away with” operating from the US under a “US based style” of RPO service delivery. Currently and into 2011, Brazil GE may have 5,000 openings and China GE may have 10,000 openings, and because of the larger number of business critical openings, very specific and diverse local employment laws, and country (and within countries, regional) specific hiring and HR practices, it is much more important to have a more imbedded local presence onsite vs. trying to deliver a US styled RPO service offering from across the world
Scalability in reverse:
As the RPO model grew, it did so as large (and small alike) companies went through significantly large and cyclical hiring needs with low visibility/predictability throughout the course of a calendar year. Because the economy was booming and corporate profits were as well, it was hard to forecast how many people should and can be hired, which made it difficult to determine how to build an internal recruitment organization. In simple terms, companies decided to have a “presence” internally, and then “outsource the rest” to fill in the gaps that would occur. Now, we are seeing that in reverse. Companies are slowly building their internal teams, but careful not to grow them too large. Since the hiring needs are not as large and not as sporadic as in the past, they have an easier time figuring out how large to build their internal team, and when the “spurts” do appear in the hiring cycles, they just outsource to those acute and specific needs on a project basis that is attached to a pre-defined start and end date (i.e. engage a firm to hire 50 sales executives in 100 days, or engage a firm to hire 100 R&D people in 5 months), vs. “outsourcing it all”.
RPO was supposed to be more efficient and therefore represent a quicker path to hires. Because many RPO firms have adopted a purely transactional model, this model may still be efficient for the lowest level of bulk hire positions, but it is certainly not efficient (just the opposite) for positions that require a more in depth and behaviorally based interview. Because total hiring needs are much fewer and can be accomplished over a longer period of time, it is more efficient (in many cases) for an internal recruiter who knows the company and its culture to hire to these new needs vs. and out-of-touch and offsite RPO recruiter.
When you are hiring 2,000 of the same position and you have to do it in 3 months, it may be more cost effective to outsource this task to an RPO firm. When you are now hiring 100 “one off” positions, it is probably more cost efficient to have your internal corporate team work on these needs.
Where are we now and what next?
We are back to 1999, but with much better (and cheaper) technology systems and a significantly more accurate ability to forecast hiring needs. As such, companies (small and large) are engaging firms on a “project” or “staff augmentation” basis to fill niche needs or fill a niche centric demand within a specific time frame, and they are doing this with a much more localized and “onsite” based presence vs. what we have seen over the last 6-7 years.
RPO is not unlike any other business model or cycle though, in that I think it is here to stay, but the size of the combined market share will be reduced for the next couple of years (as compared to the “growth years” of 2003 – 2007), and the model will adapt a bit to better “fit the times”, but somewhere down the road, we will once again see the mammoth globally-focused RPO model rear its head, much like (unfortunate for all of us) the 100% financing and interest only loans will re-appear in the housing markets. It’s only a matter of time for better or worse…