Vol. 4, No. 2
Companies looking to outsource recruitment have a choice between end–to-end and stand-alone solutions.
When outsourcing the recruitment process, is it better to order a la carte or prix fixe? That's the dilemma facing companies debating between stand-alone recruitment process outsourcing (RPO) and bundled, end-to-end human resource outsourcing (HRO) providers.
"Stand-alone RPO represents a much greater share of the market than does RPO provided as part of a multi-process HRO offering; it is also experiencing the highest growth rates," according to NelsonHall, a business process outsourcing analyst firm. NelsonHall estimates that the global RPO market is growing at an average annual rate of 37 percent and will be worth $7 billion by 2010.
Houston-based consultancy TPI also sees a trend toward stand-alone providers, sometimes known as point-solution or pure-play providers. It reports that last year 67 percent of RPO contracts were awarded to point-solution providers, while the rest went to large, end-to-end HRO vendors.
Michael Caruso isn't surprised to hear such reports. He is chief operating officer for ExcellerateHRO, an HRO business owned jointly by EDS and Towers Perrin and based in Plano, Texas. "We're not the choice for everyone," he says. "There aren't that many firms that want to do this full-scale integration. They're not prepared for it."
But the option exists, and that means companies looking to outsource recruitment have decisions to make. Experts offer the following insights on how to choose a provider based on your organization's needs—and on where the industry may be heading.
Size Often Dictates
For companies weighing a bundled, end-to-end vs. a point-solution provider, "it's a pretty simple decision-making process," according to Caruso. "If a client has a discrete set of issues around recruiting, if a company is just looking to solve one problem, point solution is the choice for them. Buying much more than you need is not the way to go."
A point-solution provider is also the best choice "if a company has a very decentralized style," he says. But if the company decides "to harmonize across business units, then it makes more sense for a full-service model."
The bundled approach offers a much more integrated solution, Caruso says. It provides "literally everything. [The end-to-end vendor] can follow the event through, look at the skills needed, at how a person would fit into the organization, at the compensation structure. When the employee is brought on board, it handles the onboarding, the compensation, the training. It's better at handling all those needs from an integrated point of view."
This hire-to-retire approach is better from the manager's perspective, he adds, because it uses much less of a supervisor's time. "It allows the manager to focus on the quality of hire and fit," he says. "When you have an integrated approach, the manager doesn't have to worry about hundreds of mechanical steps. You don't want your managers to spend time on 'administrivia.' "
Caruso says "high-end mid-size to large companies" are the most likely to choose an integrated approach. "With a much smaller shop, integration is probably not cost-effective. There's a certain scale needed," he notes.
Patrick Beharelle, head of the RPO division at Spherion, a recruiting and staffing solutions provider with headquarters in Fort Lauderdale, Fla., also finds that it is the "larger, more sophisticated Fortune 100 companies" that are choosing bundled, end-to-end solutions.
Up for Debate
The biggest reason to choose stand-alone recruiting, Beharelle believes, is that recruiting is so different from most HRO services.
Other services, such as benefits administration and payroll, "are very transactional. Recruiting to some degree is a judgment-based activity. It's a different type of model. It requires a different type of provider," he says. Beharelle calls it "well-documented" that companies that have struggled with recruitment outsourcing "often engaged [a provider] who had a transactional instead of a recruiting heritage."
Jamie Minier, COO of point-solution provider The RightThing Inc., in Findlay, Ohio, concedes only a few areas where "bundled has a little bit of a leg up." For example, Minier sees HRO as still having "a hold on technology" because a single platform is "easier" for clients.
And, "bundled might be better globally. There's no RPO provider that has a global footprint," she says, although point-solution providers are starting to enter the global market.
However, Minier claims that the bundled, end-to-end approach also "has a lot of hidden fees and upfront charges. If you want to customize something, there are a lot of additional fees."
In addition, she believes that an end-to-end provider does not have the expertise or the scale in the recruitment area that a point-solution provider can offer. "They're not market-leading, not leading-edge, not focused on the candidate," Minier says.
"You can't be an expert in seven things at once," she continues. With point-solution providers, on the other hand, "it's the only thing they do. That allows for more-strategic advice. They have a consultative, strategic vision of [the recruitment] industry," she says.
Minier argues that there is an advantage to partnering with four or five outsourcing vendors that specialize in different HR functions, as opposed to striking a deal with "one that does [everything] ho-hum." Providers that offer a wide array of services "don't spend a lot of time developing" any one part, she says. "They don't have the depth and breadth. [Those using the bundled approach] say, 'Let's just add that on.' "
To back up her point, Minier notes that, last year, The RightThing won nine "second-generation deals," contracts from companies that previously outsourced recruitment as part of a bundled solution.
Caruso disagrees with the assessment that point-solution providers have an edge. "We are quite good at finding and recruiting talent," he says. "We recruit everyone from warehouse workers to nuclear pharmacists."
TWC, a COMSYS company headquartered in Audubon, Pa., offers both project-based solutions and end-to-end HRO, says Chris Doherty, vice president, business development. He describes the company as "an RPO with complementary divisions that focus on HRO and executive search."
TWC separates recruiting from other human resource functions because "they take different skill sets. Recruiting is usually considered a sales function."
According to Doherty, TWC offers project-based recruitment outsourcing in which "the deliverables are very defined. [The project is] driven by some event," such as bringing a new product to market or a large software installation that requires a company to hire many employees at once. "The common thread is that it's an endgame."
This type of project is a good way for a company to develop a relationship with an outsourcing vendor, Doherty says, because "the exposure is limited." Then, if the company decides to embrace an end-to-end outsourcing service, "it's familiar with that provider."
Doherty foresees a different direction for second-generation RPO than most analysts are predicting. "Companies are looking to combine [RPO] with other complementary services offerings, to extend relationships with those companies like ours that offer a wider array of services," he says.
"Companies are starting to get smarter about what they want to outsource. I think anybody in stand-alone services without a wider array of services will be left behind."
Stephenie Overman is editor of STAFFING MANAGEMENT magazine.