Surprise, surprise… HR still hates outsourcing. Is its next victim RPO, or will it get trumped this time?

I feel like we’ve been here before.  Oh wait – we have!  Remember the heady old days of HR BPO, when a couple of hundred enterprises shifted multiple HR functions over to service providers, with the hope of saving money and – perhaps - find a few smidgens of improvement with their HR strategy?

While a couple of service providers failed to get their delivery model right and ended up losing money, HR executives screamed from the rooftops to ensure every single negative view of HR BPO was expounded in all the HR media, and anyone else who would listen.  They got their wish, as firms such as Convergys and Hewitt got crucified by Wall St, and most of the providers made a hasty retreat from the business.  In fact, it proved such a grueling experience for Convergys, it recently jettisoned one the industry’s largest HRO businesses for loose change.

Now enter the latest threat to HR:  Recruitment Process Outsourcing.  And this time, our HR friends will have to try a lot harder to throw this one under the bus. 

Firstly, most of the providers in this space have been dealing with recruiting for years, and, secondly, the newer providers have been getting their feet wet with a host of successful pilots and early client engagements, which our forthcoming HfS Research report will discuss at greater length.  And thirdly, these providers are fulfilling a badly-needed service for many enterprises today:  helping them source new pools talent, get a handle on managing the talent pipeline, access new recruiting technology and social networks, while helping drive out cost by running various back office recruiting tasks offshore.  

HfS Research’s latest study, conducted in conjunction with Human Resources Executive Online, gleaned the views and dynamics of 238 HR executives towards RPO, of which 34 percent were senior VPs or VPs of HR.  And the first factor that was apparent, was that RPO was low down the list of recruiting services HR executives are going to take a look at this year.  Let’s examine this further… 

HR’s major recruiting concerns

Quite simply, HR executives are struggling to cope with the demands of developing and nurturing their organization’s talent pipeline, while trying to avoid the exorbitant fees of headhunters and staffing agencies. Our new study illustrates these elements of recruiting new talent are proving to be a “great concern” to organizations:

HR executives need help and should consider transferring part of its recruitment function to an external service provider.  The more leg-work they can offload, and the more help they can receive to develop the talent pipeline, and the more time they can actually devote to strategic functions, such as spending more time understanding the needs of their internal hiring managers and facilitating ongoing  staff development initiatives. 

HR executives are highly resistant towards outsourcing any of their recruiting processes

Seven-out-of-ten HR executives claim they won’t looking into RPO because it “does not fit” with their corporate culture or ethos, which is consistent across all sizes of organization.  And if you examine that datapoint further, you’ll find that attitude running at 80% for the SVPs /VPs of HR:

Recruiting smartly is about engaging outside help that can infiltrate marketplaces effectively to get the best results – not too far removed from a PR agency which can engage markets with added expertise, technology and canny use of social media.  HR trying to perform all of its recruiting inhouse is like marketing doing all their PR work internally.  No CMO worth his/her salt would really contemplate running all of its PR internally these days, unless it was a very small activity that didn’t warrant outside help.  So why should the SVP of HR be any different, when it comes to running recruiting?

Other business functions have all resisted outsourcing in the past:  IT, finance, procurement, claims processing, clinical data analysis etc.  However, once staff and managers got used to working with outside help and expertise, and realized it was a vital part of their team, most have accepted that it is a way of life for today’s organization.  So why is HR so different that it has to try and run everything itself? 

The HfS Viewpoint:  If HR continues to resist RPO, key decisions over talent management will like be made for them in the future

Emerging from the Recession, the focus on developing new talent has never been so intense – especially in increasingly globalized markets where it’s getting harder and harder to manage the recruiting pipeline on tightening budgets. If HR leadership fails to seek the help it needs soon, it may find decisions being made in corporate meetings, where the SVP of HR isn’t even invited.  The challenge for RPO providers is clearly to find avenues of communication with operational leaders outside of the HR department.

This little outsourcing saga has a few cycles yet to run, and is likely to have a major impact on the way companies approach their talent management in the future.

HfS Research’s coverage of RPO will be featured for research clients in an upcoming new market landscape report, in addition to a forthcoming featured article in Human Resource Executive magazine

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17 Comments

  1. Posted June 22, 2010 at 8:40 am | Permalink

    Phil,

    I can’t see HR wanting to implement RPO given that having a recruitment process outsourcer removes some 20-50% of the reason that companies have HR in the first place.

    It’s a bit like the financial manager outsourcing finance and then being surprised when his team gets fired,

    Richard Freeman

  2. Posted June 22, 2010 at 8:44 am | Permalink

    @Richard: finance managers don’t outsourcing finance, the outsourcing the administrative, routine accounting work that allows them to focus on higher-level value-add tasks, such as financial analysis and strategy. Same applies to RPO – outsource the routine day-to-day pipeline management, sourcing, screening etc., and have HR focus on talent development, profiling, aligning strategic HR initiatives with corporate needs etc. If HR can only do the routine work, then it’s in serious trouble… PF

  3. Bill
    Posted June 22, 2010 at 4:18 pm | Permalink

    Phil – this data validates many things we already knew – and kudos for you for calling it out. The HR profession is a sinking ship in the corporate world, afraid to change and afraid to take on new models that threatens its existence. The crux of the matter, is that most HR staff are simply too insecure and largely incapable to take on more strategic duties for their firms. The longer HR resists change, the more it will dwindle in size and effectiveness, until (as you correctly point out), these outsourcing decisions are made for them.

    Bill

  4. Kevin O'Reilly
    Posted June 22, 2010 at 4:46 pm | Permalink

    Phil,

    The PR analogy is right on the money. Recruiting is all about finding expertise to add value to your talent function on an ongoing basis, which is why it makes sense to develop RPO partnerships, as opposed to wasting money on headhunters and staffing agencies.

    Some HR people are, understandably, theatened by having outsourcers take on some of their job responsibilities, but they need to step up and broaden their activities to areas that are much harder to outsource, and add a lot of value internally, such as training and development,

    Kevin O’ Reilly

  5. Posted June 23, 2010 at 10:35 am | Permalink

    I feel I ought to come to the defence of some of my HR colleagues. Over the course of time I’ve met some very focussed, visionary HR leaders who are capable of getting beyond the talk to real actions. Back in late 1990′s I had first hand experience of sourcing a tactical RPO service for a major network engineering program. It was simple, effective and took a huge burden of HR generalists in that business.
    Then in 2003 I worked closely with a RPO “implant” in a multi-national business. The end-to-end process and level of interaction between the Recruiters and inhouse HR was almost seamless. The main constraint being the fact they used a different technology platform and interfaces were rudimentary.
    I think the main issue now is about uncertainty over hiring volumes. In today’s economy no one wants to sign a big RPO deal if the emphasis may be on reductions.

  6. Posted June 23, 2010 at 11:10 am | Permalink

    @Shaun: thanks for your input. A couple of comments –

    1) This isn’t an attack on HR’s capabilities, it’s a stark revelation, based on very real data, that illustrates HR’s increasing need for recruting support in a scalable managed services capacity. While they admit they need the help, they resist an outsourcing model that involves having to offload the administrative work and taking on more strategic talent development activities. Like you said, the are some wonderfully energetic, creative HR leaders today. The bigger issue is whether they can incorporate outsourcing to separate strategic from tactical tasks;

    2) Isn’t RPO more appropriate in today’s uncertain economic environment? The ability to upscale / downscale staff at short notice is surely more appealing than ever. RPO doesn’t lock customers into unwanted staffing models, it simply gives them a recruiting partner which can respond to the needs of the nimble enterprise,

    PF

  7. Raj Mirchandani
    Posted June 23, 2010 at 11:14 pm | Permalink

    A hybrid RPO/Outplacement provider would make sense – Companies can use this partner to flex up or down depending on their needs.

  8. Posted June 24, 2010 at 10:05 am | Permalink

    Phil,
    1) Thank you for the feedback. I agree that the survey does point towards the “stark revelation.” I wonder if to some extent it is due to HR leaders still failing to get their head around what outsourcing means. We have a saying in the UK, “throwing the baby out with the bath water” – perhaps HR think that they are throwing out their “baby”? To my mind RPO firms can offer extremely effective search, screening, testing and shortlisting services but this in no way removes the accountability for in-house HR to make sure staffing is aligned with strategic intent. When HR gets its head around the fact that it is about buying defined services from professional specialist organisations then there is no reason it shouldn’t work. Even better if the commercial deal is associated with variable scaling and defined outcomes.
    2) Dare I suggest that RPO providers are generally not yet fully mature and need to continue to innovate how they structure and price services. If upscaling/downscaling is a feature of the market then a multi-client service architecture must be robust enough to avoid some of the lock-in attempts I’ve seen in recent years.
    Thank you for a great website!
    Shaun

  9. Jim R
    Posted June 24, 2010 at 10:38 am | Permalink

    Great article. One point that comes out of this research is how HR still has issues thinking of themselves (& acting) as a strategic partner within the executive ranks of a company. Until this mindset changes, HR will continue to not have seat at the table.

  10. Posted June 24, 2010 at 12:27 pm | Permalink

    If the corporate engages in a proper partnership with the RPO then it is a no brainer, of course cost avoidance is a driver to outsource but it the ability to deliver a high touch managed service that delivers Talent faster, better and cheaper than before.

    RPO’s help clients drive value to their business
    – Attract and recruit culturally aligned talent to take the business
    ahead of their competitors
    - Give HR the time and space to achieve strategic goals for the
    business, by delivering a great resourcing service to the internal
    stakeholders we raise the profile of HR and effectively create PR for HR
    to change the way the business feels about the value HR can add to the
    business. In summary, we help the business realize that hiring and
    retaining great people is not purely a HR responsibility it is a
    business responsibility.

    Key benefits RPO provide Flexibility, scale, expertise and continuous improvement. We ensure that the latest thinking, the latest techniques and the latest methodologies are shared with our clients and become their trusted advisors in the world of resourcing. Also, we give our clients the ability to turn the tap on and off very easily, this is a great benefit not just in times of
    slow down but. perhaps more importantly to ramp up very quickly when the need arises, the client needs never really changes, the main drivers for organisations to outsource are the ability to ‘buy-in’ the expertise in resourcing in a way that can be turned on and off. The ability to attract, recruit and retain better talent than their competitors.

    As the recession lifts there is another dimension and that is that companies have downsized
    their HR teams and do not want to hire permanent staff whilst they are still unsure which way the economy is going and therefore are looking at the viability of an RPO solution to give them the flexibility.

    If we are able to get in early and conduct a diagnostic as opposed to responding to strict one dimensional questions in a tender / RFP environment we are always able to be more
    creative and innovative in our solutions which inevitably provides a much better solution.

    Please feel free to contact me if you would like us to provide PR for your HR….
    Thanks
    Jon
    jon.holden@talent2.com

  11. Posted June 24, 2010 at 12:35 pm | Permalink

    Seems to me that RPO might be better served by using an ITO solution. Much of the shake/bake screening, combined with pre-employment could be done over the wire. Even having them do a webcam interview would serve as a bit of possible innovation. Then you can apply knowledge processes (or KPO that event).

  12. Posted June 24, 2010 at 3:06 pm | Permalink

    Recruitment shouldn’t be part of HR.

    Recruitment causes HR a lot of pain …but they fight to hold on to it because it affords them a sense of commercial relevancy. This is perfectly understandable.

    It should really be a a separate department that reports into Sales & Marketing, with a dotted line into HR. That way, their recruitment process would become more proactive, their brand more compelling and their costs dramatically lower. Candidate quality would improve too.

    RPO is only really a sensible option for rank and file/volume recruitment.

    Companies smart enough to put recruitment where it commercially and culturally belongs (in Sales) and brave enough to pay higher salaries to attract the real talent out of the agency/search sector would very soon be in a position to improve candidate quality and reduce agency costs.

    Recruitment has long been the ‘elephant in the room’ for many companies and so far, too many corporate senior executives have believed the lies told them by HR and recruitment agencies.

    If recruitment (particularly at the front end) is really a function of HR, why don’t recruitment agencies hire ex HR people, instead of commission hungry young people who are prepared to spend all day on the phone?

    Mitch Sullivan

  13. Anupreet Khanna
    Posted June 25, 2010 at 2:30 am | Permalink

    This would really be useful in high volumes scenario. In IT we have always had a project office whose main aim is to optimize existing resource strength and reduce bench (non billable) hours
    Recruitment can be a part or seperate vertical of this function. Some of the companies that have best pracises in this area incl IBM etc
    At the end of the day finding right talent, matching it to the right position & optimizing it is not as easy as it sounds. RPO will bring much needed focus on this area

  14. Posted June 25, 2010 at 7:31 am | Permalink

    Perhaps the problem lies in how RPO is perceived. The first generation RPO value proposition is now old hat; lower hiring costs and reduced time to hire. Second generation RPO solutions bridges the gap between efficiency-led outsoucing and an integrated approach to talent management. Here a strategic partner model transfers in knowledge, expertise and resources to ensure effectiveness around a broader talent agenda. Efficiencies will follow. Show me one HR leader who is not interested in this.

    Chris Herrmannsen

  15. Posted June 25, 2010 at 7:59 am | Permalink

    Hi Chris,

    I completely agree with you that there is a problem with how HR views RPO (or is willing to view RPO). It’s like the PR example I used – companies need to view RPO as a means to inflitrate the external marketplace more effectively to drive a much broader talent management agenda, rather than simply driving down costs and adding some operational efficiency. Most HR leaders will admit they do not have all the inhouse skills to achieve this,

    PF

  16. Bill Kutik
    Posted June 25, 2010 at 8:59 am | Permalink

    Great discussion, Phil. Wish you had posted it on the HR Technology Conference LinkedIn group, where you might have gotten more practitioner responses.

    A few of my own comments. Jim Madden, the Black Magician of Exult, ruined it for everybody in HR-BPO from the get-go, when he took a page out of the IT Outsourcer’s playbook and went in over the head of the top HR executives right to the CFO and CEO. Not the best way to win friends and influence people. I won’t comment on the nature of his contracts that Hewittt subsequently bought.

    Second, everyone needs to understand one vital thing about HR. It is about the people in the organization (or organisation, if you insist). As one commenter noted, if HR is not responsible for bringing in the right people for the right jobs, what the hell do we need them for?

    And I remember well the scope of all the early HR-BPO contracts; they never included recruiting (like at BoA) because that was deemed too strategic.

    I don’t know where that leaves RPO firms, other than handling the hardest to fill positions, just like headhunters are outsourced the job of finding new CEO’s or other senior officers. I guess if they show they’re better at it, than over-time HR will buy their services more and try to find something more important to do.

    Lots of suggestions out there for what that should be.

  17. manish jain
    Posted July 11, 2010 at 2:16 am | Permalink

    Dear Phil, The topic has a great relevance in the competitive and dynamic staffing world. The true issue is about HR actually willing to give away control over non-critical and non-core activities, which is leading to lot of process inefficiency and cost waste at their end. The time has come for HR to realise the quality, speed and cost advantage that a good outsourcer can add with staffing. Enterprise buyers need to find new innovative ways to expand in new geographies, new verticals of business to gain advantage over their competitors, and outsourcing needs to be considered as a partnership to help them achieve that – not simply a vendor/buyer contract.

    manish

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