The Use of HROs and RPOs Grows

The use of human resource outsourcing (HRO) has become widespread in the United States in recent years. Non-core, transactional activities such as payroll and benefits administration are outsourced now more often than they are conducted in-house.

Today approximately 85 percent of all US businesses outsource at least a portion of their HR functions. A study by the Yankee Group shows that the HR business process outsourcing market in the US alone will grow to $80 billion by 2008, at a compounded annual growth rate of 12 percent.

High quality, cost-saving HRO services have paved the way for businesses to increase their use of recruitment process outsourcing (RPO), a rapidly emerging and high-demand subset of HRO.

RPO can cover the entire recruitment lifecycle - from needs assessment to sourcing, screening and interviewing candidates, hiring, and onboarding. According to Pam Berklich, Vice President of Kelly Services’ Staffing Alternatives business units in the US, “RPO can provide companies with cost savings, increased candidate quality, effective screening processes/tools, metrics, and new technology without major capital investments. By transitioning the hiring program to an experienced service partner, our clients can focus their internal HR resources on the strategic core business of the company.”

To date, HRO and RPO have gained greater acceptance and use in the US than in any other global market. However, future market trends suggest that many growth opportunities for both services exist in the US and other countries. Emerging markets come cloaked in unique challenges—challenges that, if met, can reveal significant opportunities for global organisations as well as astute HRO and RPO service providers.

The Bureau of Labour Statistics projects that between now and 2012, more job openings are expected to result from replacement needs (35 million) than from employment growth in the economy (21.3 million). Yet, if the current population trend continues, the total number of workers will increase by only 23 million. With the population leveling out and the economy continuing to expand, there is no end to the talent shortfalls in sight.

In addition, the face of America’s labour pool is changing rapidly. As America ages, the up-and-coming ranks of potentially employable workers are thin and not always well-equipped with the skills required to succeed in a rapidly changing work environment. This problem poses a “knowledge gap” that employers are scrambling to meet, and is not just occurring in the US but throughout the world.

Many of today’s HR departments are ill equipped to keep up with these changes in labour supply and demand. They need to keep costs down while maintaining a full talent pipeline. Companies can’t undermine strategic work that is integral to their business. To survive and thrive, they must embrace innovative ways to search, source, screen, hire, train, and retain employees. They must be able to respond to sudden surges in company growth and control fluctuations in long-term staffing requirements. All of these factors are prompting US companies to engage in more outsourcing to address this need for an expert that can help meet these challenges.

In Europe, virtually all recruiting is done either in-house or by “traditional” recruiting firms that are paid on retainer or with contingency fees. The labour market is highly regulated in mainland Europe. Such legal issues complicate the introduction of HRO or RPO in those countries.

“The most successful RPO providers in the developing European market will create strong identities as industry experts,” Berklich notes. “Then they can demonstrate to European firms how their core commitment and value-added services can boost revenues, realise significant savings, and deliver more complete services than traditional consultants.”

If the European market is budding, the markets in other countries are still seeds that have not yet sprouted. Many Asian firms are almost totally unaware of the HRO concept or its providers. The most frequently outsourced HR functions today are “low-end” transactional duties like payroll, benefits administration, and education. This market is growing, albeit very slowly.

The most successful RPO providers in immature foreign markets will meet diverse and complex challenges with cultural sensitivity and forethought in their approach. A successful approach requires that an RPO provider first assess its existing services and then spend time developing a community of trust. Once trust is established, then dialogue can commence about the unique value an RPO provider can bring to help foreign markets adapt to ongoing changes.

Despite differences in the global marketplace, one theme emerges: the need to provide customised solutions to differing needs. As more companies look to RPO services to meet their challenges for high performing talent, a true strategic business partnership can develop.