In the constant quest for value in the enterprise, outsourcing has been a key tool in driving out inefficiencies in business operations. The basic philosophy being that company’s should concentrate on what they do best – the core competencies that are key to attracting and retaining customers. Everything else – from the accounts to the cleaners – is a non core competency, and should be procured for the best value, whether that means employing someone in house, or engaging a third-party vendor who can supply the service for less.
There’s nothing particularly new in outsourcing. It’s fair to say that there are few companies who don’t use contract cleaning services for example, and management consultant and analyst firms have long and distinguished histories. But in recent years the number of business functions seems to have multiplied. From off-shoring call-centers, to business process outsourcing, it seems these days the default position is to outsource.
HR has by no means been above this outsourcing fray. Traditionally functions like payroll and benefits enrolment have been often been provided by third parties. More and more though, as HR positions itself as a value center rather than a cost center, all manner of the HR function is being looked at. In this context it is no surprise that the recruitment function has come under the microscope recently, and that recruitment process outsourcing (RPO) has become such a hot topic.
Ownership of the process
The first thing to be said in any discussion of RPO, is that it is not just a question of employing a recruitment agency or headhunter to assemble a short-list of candidates for you. RPO goes way beyond this – the key concept being the RPO provider assumes ownership of the entire process for the business.
Rosaleen Blair, CEO of RPO provider Alexander Mann, describes what this means: “RPO can include everything from resource management, putting together the whole employment value proposition, the sourcing strategy – basically every element of recruitment.” And the job doesn’t stop once the hire is made. Blair explains how the typical RPO provider will “then be responsible for on boarding the individuals into the company. This support continues right through until the point potentially they’re exiting the organization.” Typically, Blair says, the RPO provider will also manage the exit process and even outplacement or redeployment.
At first glance, handing over this level of responsibility for recruitment sounds like a big step. After all if people are a company’s number one asset, then it might follow that getting the right people is by definition a core competency. For many companies though the benefits of the RPO route mean that this is not so much of a problem.
A key area of benefit is of course cost. As in any other outsourcing deployment, the RPO provider by definition should be a specialist that is solely focused on recruitment processes. Ideally working with a number of clients, the economies of scale that can be bought to bear by the RPO partner mean that its operations should be cheaper to run than the in house equivalent. More so it should be quicker, and this shortening of the recruitment process saves money. The combination of these factors mean that by going down the RPO route, a reasonably sized business should be able to reduce its cost per hire, sometimes significantly.
The other benefit on the cost side is the potential to fundamentally change the recruitment cost structure. For example, if hiring patterns are seasonable or cyclical, the fixed cost of maintaining a recruitment function in house during the quiet times, so that it is ready to go when needed, essentially becomes a sunk cost for the business. By establishing a variable cost structure with the provider, RPO gives the opportunity to establish better value for money, as your recruitment costs are truly paying towards your recruitment outcomes.
However, that said, it seems that cost imperatives are not the driving factor behind company’s decisions to go down the RPO route. This is in part due to the fact that in house recruitment costs can be opaque at the best of times, so they’re not necessarily the obvious place to start cutting costs. More importantly though, the non-cost related benefits of RPO can be pretty attractive in themselves.
The specialism in recruitment that an RPO provider brings should mean that the recruitment process is quicker, the pool of candidates is smaller, better quality, and well suited to the company, and the recruitment process means less administrative burden on the HR department and hiring department, leaving the business free to concentrate on what’s important – deciding who to hire. And if its true that the quality of your talent can make or break your business, then employing a specialist to ensure you get the best recruits may give you an important competitive advantage over your rivals.
Chris Hilker is VP, HR and Organizational Development, at weight loss company Jenny Craig, Inc, which employs an RPO provider to identify and screen candidates at more than 350 of its centres. Hilker describes why Jenny Craig got involved in RPO, and its significant that she doesn’t mention cost at all. “The hallmark of the Jenny Craig Program is the personal, one-on-one relationship that our field employees have with our Jenny Craig clients. By using an RPO, we can rely on its technology, sourcing and screening expertise to keep our centers staffed with empathetic, qualified people. This allows our existing employees to focus on what they do best.”
This approach is also reflected at Boston Scientific, a manufacturer of medical equipment, that bought in RPO provider Veritude to help it with problems it was having recruiting, particularly in the area of IT. “Our core competency is making medical devices – not recruiting technical staff,” says Scott Duhamel, Director of Stafffing at Boston Scientific. “We needed a partner with real specialization and deep roots in the technical recruiting area.”
Having entered the arena, both companies are now fans of RPO. For Boston Scientific the effects were immediate. The speed and quality of recruitment of IT professionals was improved. The influx of better talent has in turn knocked on to an improvement in the quality of the IT department its self, which has meant better tech support across the enterprise. “When you look at the value we’ve received. . . it’s tremendous,” says Duhamel. “Now that we’re getting qualified candidates in the door and hired much faster, we’ve been able to meet our very aggressive goals.”
At Jenny Craig, Hilker describes the benefits as being “numerous”. Faster time to hire, less administrative burden, detailed reporting for sizing up candidates and markets, and a degree of flexibility and customization for unique business needs are all listed. Hilker gives an example of its RPO partner in action in its care centers: “Our RPO follows up with each new hire at specific intervals to proactively solicit feedback,” she says. “The pertinent information gleaned from these calls enables our internal HR department to make continuous improvements and identify trends to better ensure success on the job. A simple ‘how’s it going’ call during the first days or weeks on a new job can reap amazing benefits.”
Getting partnerships right
However, like in any other area of business, outsourcing the recruitment function is unlikely to be a ‘magic bullet’, and indeed there are several pitfalls that can be encountered along the way. And given the importance of recruitment to most businesses, this is not an area that you want to get wrong.
The first issue is of course the quality of your RPO partner. Since this sector started gaining traction in the late nineties, the industry has mushroomed, with more and more vendors competing in the space. But this is still a relatively new industry, and obviously not all vendors are created equal. Many observers are expecting to see the industry continue, with merger and consolidation activity among vendors, with weaker vendors falling by the way side.
This risk is compounded by the fact that RPO partnerships by their nature suit long-term relationships. Ideally you want your recruitment partner to get to know your business culture and style, in order to best match candidates to your needs. A poor organizational fit between you and your vendor is likely to produce poor results, and chopping and changing vendors is clearly not the path to enlightenment and better cost-per-hire ratios.
When entering into any relationship then, due diligence is vitally important. Describing her own experience, Chirs Hilker argues: “The time an HR department devotes to establishing the RPO relationship upfront is critical to the success of the relationship.” For Hilker accurate job descriptions, and the quality and depth of the questions used for candidate screening, are “worth the initial investment of time in order to obtain the required information for hiring decisions.”
In addition to this investment in time upfront, it is also important to understand exactly what you want to get out of an RPO relationship in the first place? If one of the key reasons to outsource anything is to improve the performance of that function, then it makes sense to understand how the function will actually be improved by the action. For example, if your existing recruitment process is performing poorly it pays to understand why that is the case – if it’s down to internal cultural reasons then handing responsibility to a third party might not get at the root cause, and might indeed compound issues.
Equally, recruitment is a function that is perhaps on the edge of the debate around what constitutes a ‘core-competency’ for the enterprise. If getting the best talent in is so important to a businesses success, then should this be something that you rely on a third party to do for you?
Some would answer no to this question. For example when Wachovia reviewed its overall HR function in 2004 it decided to outsource several of its activities. Sharon Smart, COO of HR at Wachovia, explained to us why it decided to keep its recruitment function in house. “We did consider outsourcing parts of our recruiting organization. But at the end of the day we view it as too core to who we, and too risky to consider placing that responsibility with an organization that may not put place as much of a premium on it than we do.” As Smart points out, Wachovia’s “fundamental operating model” is based on the “talent we have in the company” – outsourcing the acquisition of that talent might upset this model.
The future of RPO
Ultimately there is no correct answer as to whether RPO is the right path for a business to go down, the answer will depend on particular business circumstances, and the attitude of individual HR departments towards the value they can bring themselves to the process. It seems sure though that RPO is here to stay in the HR executive’s playbook. The key selling point for most vendors in this space is expertise. And as the oft-predicted talent shortage begins to bite, any company that doesn’t have sufficient expertise in house is likely to look to a third party for answers.
And for many who have entered this space already, the answers coming back are very pleasant. The final word goes to Chris Hilker at Jenny Craig: “Staffing decisions are critical to the success of our business, and our managers continue to make informed decisions from the qualified pool of candidates sourced and screened through our RPO. I cannot imagine life without an RPO.”
Case Study: RPO the right prescription for Regeneron
In the biotech world, hiring and retaining the best people represents a competitive advantage. And for Regeneron, a Tarrytown NY based biotech firm, the RPO route has allowed it to cost-effectively improve its recruitment operations, allowing it to devote its resources on supporting managers and employees in their quest to discover and develop new medicines.
Founded in 1988, Regeneron is a biopharmaceutical company that discovers, develops, and intends to commercialize therapeutic medicines for the treatment of serious medical conditions. The company has therapeutic candidates in clinical trials for the potential treatment of cancer, eye diseases, and inflammatory diseases as well as pre-clinical programs in several diseases and disorders.
“In biotech, we don’t just say, ‘people are our greatest asset’,” says Ross Grossman, VP of HR at Regeneron. “Product candidates come directly from the minds and the efforts of our employees. To discover and develop new drugs you need great people. The ability to recruit the most talented employees in the industry ties directly to success of the company.”
However, Regeneron found it was was facing several problems recruiting. It was relying heavily on contingency recruiting to fill positions. Processes were largely manual and labor intensive. It was having difficulty effectively tracking open positions, candidate status, cost-per-hire or time to fill for open positions. Costs were high because contingency search firms on average charge 25 percent of a new hire’s salary upon placement.
Sourcing talent was another issue. Because of the specialized nature of the industry, attracting and recruiting scientific and clinical development professionals is crucial for development of new therapeutics. With many scientists preferring to stay in biotech hotbeds such as San Diego and Boston, sourcing talent for New York’s Westchester County is challenging.
Recognizing these issues, Regeneron looked at the RPO market for a solution, and partnered with Kenexa. There have been several benefits including a reduction in costs as well as time to fill.
Having technology in place has also resulted in better data collection and the opportunity for stronger analytics. Grossman is able to have detailed information on time to fill, cost-per-hire and tracking of open requisitions, enabling the company to better manage the recruiting process.
“As a result of the partnership, we absolutely have experienced overall process improvement,” said Grossman. “We are more effective day-to-day and we now know that we have the capacity to handle growth down the road.”