What a difference a year makes!

By Nigel Harse & Rod Hore

This month we have skipped our normal Q&A session to allow focus on the improving industry performance highlighted by the RIB Report.

The RIB Report collects financial data each month from 92 privately owned recruitment companies and we are pleased to share information from the 2009-2010 RIB Review (full report available for purchase).

Another reporting season is now behind us and a few positive boxes have been ticked, but the outstanding and most notable indicator of the past year’s performance was gross profit growth, or to be precise, the lack of it. The recruitment sector as with many other industry sectors has turned around and profits and dividends have started to recover but this has happened primarily on the back of cost and debt reduction.

Markets have clearly improved across the majority of sectors; however those companies that failed to address their lack of temp/contract market share are still feeling the pinch and this will again leave them vulnerable should the economy falter. As expected after any economic crisis the temp/contract sectors were the fi rst to recover and are now reaching levels that are the BEST since the RIB Report commenced. Chart 1 shows the RIB Average performance of both sectors.

With the heat off the perm market the demand for flexible temp and contract staff has returned once again. The RIB Average of Temp and Contractor Hours Processed per Income Producer during the year recorded a sensational 49% improvement in productivity (across all income producers).

RIB Average Gross Profit per hour has fallen in value by 18% compared to the prior year; a clear indication of lower pricing either through service mix or market pressure. Results over recent months suggest that this negative trend is continuing and that Average Gross Profit per hour is under pressure, but on the back of higher volumes.

How do you compare?

It’s good to see such healthy improvements in the volumes of business being conducted, however it’s important to reflect on the overall impact this has on the business. The RIB Average Temp/Contract Sales grew by 25% (that’s a huge demand on cashflow and collections), the hours processed grew by 31% while average charge rates fell 5% and gross profit fell to a 15.5% return. The outcome for all this additional work was an average 4% growth in Temp/Contract Gross Profit. The RIB Report Top Performing firms all achieved Temp/Contractor Gross Profit growth in excess of 40%.

The RIB Average was down 4% in the number of perm placements invoiced per participating firm for the year and is equal to volumes experienced back in 2004/2005. The improvement in performance in the second half of the financial year is very notable and a great sign of employer hiring confidence returning and this is clearly seen in Q3 and Q4.

The RIB Average value in perm sales fell by 4% on the prior year. The volume has dropped out of the market but the quality of the average placement fee has been relatively healthy and for some it’s softened the financial impact.
Productivity and efficiency

RIB Average Gross Profit returned for each $1 spent on TOTAL staffing (total package cost) for the year improved by 12% from $1.9 to $2.1 or, as some like to think of it, as a 2.1 multiple. Participants unable to achieve a return of more than $1.60 sustained a LOSS for the year. The RIB Report TOP PERFORMERS were at least 40% more productive than the RIB Average.

RIB Average Management and Staff expenditure was significantly reduced in volume and decreased from an unacceptable 60% to a more manageable 52% of gross profit.

RIB Average Profit before Tax for the 2009-2010 year increased by a staggering 258% on the prior year. 72% of participants achieved improved profitability, 14% recorded a decline in profitability and 14% traded at a loss for the year.

Curtsy: http://sites.thomsonreuters.com.au/recruitment-extra/

RPO Market Drivers

The emergence of the KPO/RPO industry
A more recent trend, albeit similar to that in the overall IT and Business Process Outsourcing (BPO) industry, is the emergence of off- shoring high-value-added processes, namely business and financial research support services and intellectual property-related support services. This represents a new emerging area: Knowledge Process Outsourcing (KPO). Market research, competitive intelligence and data search, and integration will be the fastest-growing segments of all the various research activities.

Research Process Outsourcing (RPO) is a part of the overall KPO industry. In the recent few years, this market has witnessed tremendous transformation. From the administration of telephonic surveys and questionnaires using call centers in the early years of the 21st century, the industry has progressively moved to handling information search and compilation activities on various business, technology and economic aspects. At present, high-end tasks such as competitive intelligence, preparation of company profiles, and financial analysis and modeling, are being handled by companies in India.

In line with this evolution, the RPO market has also seen the emergence of a diverse range of players across a wide range of services. The financial research area for instance is dominated by captives set by large global players such as Goldman Sachs, Lehman Brothers and JP Morgan. In case of other areas, such as business research, data analytics, legal and IP services, there is a mix of captive and third-party providers such as Scope eKnowledge Center and Office Tiger.
Predominant growth drivers for the RPO industry.

Given below are the prominent growth drivers for the RPO industry:
• Technology and content related.
• Economic and market related.
• Organizational related.

Key benefits of RPO
Some of the major benefits of RPO include:
• Cost savings (about 30 per cent to 40 per cent, depending on the research deliverable being outsourced)
• Access to a large talented workforce
• Improved scale of operations (a typical investment banking analyst can increase the coverage of stocks several fold)
• Free up critical resources to focus on core competencies
• Leverage specialized knowledge and expertise
• Enhance innovation and productivity levels creating stronger intellectual property (this smoothes out fluctuations in resource demand and reduces time to market)
• 24×7 operations.

Off-shoring: the lessons learnt
Based on the experience of many companies working with global clients in the research space, some of the key points to bear in mind include:
• Benefits are linked to scale of the project: the bigger the project, the better the benefits
• Outsourcing involves time and effort from your side too, especially in the initial stages
• Be wary of outsourcing processes that you are not familiar with or that are not working internally
• Always carry out a pilot project first and start with low-risk projects
• Have realistic savings estimates: 70 per cent is not possible; 30 per cent to 40 per cent is possible
• Productivity gains will stem from a learning curve, albeit with time
• Be clear on the final deliverable, including its structure and nature
• Define quality parameters and delivery schedules
• Look at the offshore company as a long-term partner not a vendor
• Finally, communicate, communicate, and communicate!

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