The State of RPO: 3 Predictions For Where It’s Going in 2013

I don’t have a crystal ball.

Nate Silver, who wrote a bestseller and predicted the outcome of presidential election better than any other pollster, said that his goal is to get 80-85 percent of his predictions right, not 100 percent. To get the right predictions, he says, test your hypothesis in the real world. I’m aiming for that here.

I’ve tested what we call RPO (recruitment process outsourcing) in a global setting since 2006. I’ve built business cases which supported or negated moving forward with RPOs and I’ve implemented them at some large Fortune 100 firms.

In addition, having worked as a talent acquisition leader for an RPO firm responsible for more than 25,000 hires in a year, I’ve seen the internal challenges faced by RPO firms and been able to stay current on challenges for the RPO industry today.

I don’t currently work for the RPO industry so I have no vested interest in sharing my views. I don’t advocate for any specific company. But below I’ll look at some trends in outsourcing and add my predictions.

First, let’s look at the big picture: The state of employment and the workforce.

The state of employment

Annually, there are about 1.4 billion applications in the U.S.
At the current pace of job creation, the economy won’t return to full employment until 2018 — this means we’ll get more applications with fewer jobs to fill in the U.S.
Average turnover is estimated at 18 percent in the U.S.
Hiring is globalizing. Big U.S. firms are shipping more hires abroad. More of the customers are oversees and the era of cheap labor is coming to an end (at least in U.S.).

The workforce

We all know the demographics of the workforce are shifting:

Hispanics accounted for 56 percent of the U.S. population growth between 2000 and 2010. We are growing into a more diverse workforce.
Almost 30 percent of U.S. workers already fall into contingent categories.
Contingent workers are expected to grow at 3-4 times the rate of the traditional workforce.

In a 2010 IBM report surveying CHRO’s globally:

When asked about labor flexibility models for the next three (3) years: 50 percent indicated they would increase using contingent labor; 53 percent would hire more part-time workers, and 56 percent would increase outsourcing.

The RPO world

Recruitment process outsourcing is the fastest growing sector of HR outsourcing. By RPO, I mean mean transfer of ownership of all or part of recruitment processes or activities on an ongoing basis. Pricing is based on the process, usually at volume rates.

The RPO standalone industry is estimated to be about $5 billion in size. It is expected to grow. The level of sophistication for RPO has evolved in the last five years.

The future for RPO

The RPO landscape will be very dynamic and changing.
- IBM acquired Kenexa.
- ADP acquired The RightThing.
- Legacy staffing firms (Kelly, AppleOne) continue to grow their RPO practices and are marketing blended solutions.
- Small & medium sized recruitment/RPO firms are partnering more to be competitive. PierPoint is a small, tech-focused sourcing company that has evolved to RPO and has formed partner networks in the high tech space.
2013 prediction: RPO is on the radar for the big money investors. I’ve had five calls in 2012 from hedge funds/private equity wanting to better understand the market. Based on one of those calls, a major player was acquired by a private equity. There will be at least one large RPO acquisition and/or merger this year with smaller acquisitions being more active. There will be more strategic partnerships, especially for global deals.

The market will continue to expand. RPO firms will have to invest in their infrastructure and marketing. They’ll need their own organizational development strategy internally to build the right core competencies for their future workforces and leaders.

Globalization is not a fad. It is the reality. RPO firms will continue to expand globally. Kenexa and The RightThing have large global deals and are well prepared for the future. Firms like Pinstripe have partnered with global firms like Ochre House. Alexander Mann Solutions, one of the largest players in Europe, opened up a U.S. office.
2013 prediction: U.S. hiring in 2013 will not be robust. Global hiring will continue to grow. Given this, we’ll see more global RPO deals in 2013. RPO firms will focus on hiring global talent. There’ll be modest growth in Argentina, India, and Eastern European countries (Poland, Estonia, etc).

U.S. RPO firms will need to partner with local companies in countries like Brazil where there is a tremendous labor shortage, especially at senior levels. Russia is a newer ground to expand companies’ footprint. China is expected to double its economic growth in next eight years but there are tremendous nuances culturally and with complex labor laws so local partners are essential. Understanding culture will become a more important core competency for RPO firms.

HR and talent acquisition leaders will demand greater sophistication and creative solutions from RPO firms. This has been happening for some time but will be even more critical. The sophistication and creative solutions will come from technology, creative sourcing and pricing.

With the Kenexa acquisition, IBM now has Brassring. ADP now has the RightThing applicant tracking system, along with Virtual Edge which it acquired prior. If technology becomes bundled into the RPO service model, at discounted prices, it becomes much more attractive to look at the holistic solution than a stand-alone ATS.

Taleo is not worried today, but as a talent acquisition, I’ve seen preferential pricing when technology gets bundled as part of ATS. Other RPOs have their technology, some proprietary and some with partnerships. RPO firms are also focusing on talent communities and social media and more creative sourcing.

2013 prediction: Greater sophistication with technology being bundled into pricing models for RPOs will grow — not quickly, but it will happen, resulting in greater opportunities for RPO firms. Taleo/Oracle is still the major player for now.

There will be ongoing improvements in metrics reporting. There’ll be more focus on talent communities and social media. Big Data, cloud, SaaS, and mobile will be all areas of opportunities for RPO and technology firms.

Also, given the hiring of fewer full-time, more contingent, employees we’re seeing more blended solutions being marketed by legacy staffing firms. Manpower, Kelly, Agile 1, and others are well positioned. We’re also seeing more deals outsource parts of the recruitment process (sourcing, recruitment administration, etc).

What’s lacking today with some RPOs is workforce planning, employment branding, and creative sourcing with talent communities/social media/mobile, and assessment, particularly on a global level. Solutions that focus on these gaps and maximize existing strengths of RPOs will be the winners.