Everest Group just concluded one of the industry’s most comprehensive, fact-based studies on the fast evolving global recruitment process outsourcing (RPO) market, RPO Annual Report 2010 – A Year of Rapid Growth and Intense Competition, and the results were loud and clear – the RPO market is booming with new deal signings doubling in 2010 compared to 2009. Clearly, the value proposition of a cost effective, scalable option that helps organizations manage unpredictable hiring requirements is resonating well with buyers. And the future holds more promise as  replacement hiring – the current trend – is augmented by net new hiring in an improving economic environment. No wonder that, beyond the existing RPO service provider base, this market continues to attract traditional multi-process HR outsourcing (HRO) service providers, technology vendors, and investors.

However, we also learned from the study that the rapid growth has strained service delivery, in some cases leading to non-renewals or terminations. To ensure that this relatively new market continues to expand and fulfill its value proposition, service providers must incorporate key past learnings and avoid the pitfalls experienced in the high profile, multi-process HRO marketplace.

  • Not all business is good business. Different buyers seek RPO support for different reasons. Some have a transactional focus, while others are looking for higher value-add in terms of improved process effectiveness and talent quality. Some focus on a specific country, while others require a multi-country solution. These differing requirements clearly call for different sets of capabilities, solutions, and investments. Thus, although it’s tempting to grab any new business opportunity that comes their way, service providers must have a very clear understanding of what they are good at and, more importantly, what they are not. Defining the appropriate target market upfront, based on a clear assessment of their own delivery strategy and capabilities –even at the cost of letting some business go – should be RPO providers’ first step to ensuring satisfied clients and profitable growth.
  • Creation of a scalable model is vital. The ability to drive economies of scale in operations is a key component of generating value in Business Process Outsourcing. RPO is no exception. This calls for creating a level of standardization across multiple clients leveraging a combination of processes and technologies. While the recruitment process is clearly different from transaction-intensive HR processes such as payroll and benefits administration, the art lies in identifying areas within RPO that should be standardized, versus those that should be differentiated per buyer desires and requirements.
  • Never underestimate the importance of change management and governance. Effective change management and holistic governance is a prerequisite for successful RPO implementation and subsequent delivery, especially in large and complex enterprise-wide RPO initiatives. Improper and ineffective change management often leads to friction, dissatisfaction, increased time for recruitment, and greater costs for the buyer organization. Service providers must educate and work with their clients to proactively plan for change management, and create a governance structure to ensure its effective implementation. Clearly set expectations, well thought out communications, and required training are some of the mechanisms companies should use to adapt to changes when working with an RPO provider.
  • Global sourcing is an important value lever. Recruitment has been historically viewed as a high-touch function that requires significant orientation to local cultures, behaviors, business environment, etc. However, there is now greater understanding that the recruitment function consists of two separate components – high-touch front-office processes (e.g., employer branding, sourcing) that require onshore presence, and low-touch back-office processes (e.g., recruitment administration) that can be delivered from offshore locations. A delivery model that encompasses  “intelligent shoring” will further enhance service providers’ value proposition.

Yes, it’s a good time to be in the RPO business. And with a dose of pragmatism, RPO providers and buyers will both be well served.

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2 Responses to “To Thrive in Today’s Hot RPO Market, Harness Momentum but Remain Pragmatic | Sherpas in Blue Shirts”

  1. Smriti says:

    One key thing that providers need to be clear on is the space they want to operate in. Most RPOs also offer temporary statffing solutions and both these businesses have quite different business models, pricing models and hence margins. So for a new entrant it is all the more important to carefully define the right strategy

  2. Rajesh Ranjan says:

    @Smriti. You are correct. For a new entrant it becomes all the more important to define the target segment clearly to channelize their efforts and resources effectively and challenge the incumbents. For existing RPO service providers that also offer temporary staffing solutions, the next step in their evolution is to find a way to offer a total workforce solution that encompasses both permanent and temporary workforce requirements. Organizations indeed have started looking at talent acqusition in a more wholistic fashion to create an optimal mix of perm and temp hires. However,in the current outsourcing market this is yet to take off given the lack of an integrated solution across the process, technology, and commerical dimensions.

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