What Is Recruitment Process Outsourcing?
Recruitment process outsourcing is a category of business process outsourcing (BPO), a $24 billion global industry in 2016. BPO is the procurement of particular front-office and back-office services that involves the complete transfer of different business processes to an external service provider, or the partial ownership of processes by an outside provider. Therefore, RPO is the procurement of external service providers to manage the entire recruitment process or a particular function of that process. For more on the recruitment process, see "The Essential Guide to Recruitment Processes."
Recruitment process outsourcing is an important strategic management decision for organizations of all sizes. Moving internal recruitment processes to external service providers requires oversight and investment. Here are some of the essential recruitment services an RPO provider offers:
- Candidate sourcing
- Project compliance management
- HR reporting and auditing
- Recruitment process training
- Recruitment planning
- Technology consulting
- Vendor management
RPO providers deliver talent on demand or handle the recruitment process, all the way from identifying candidates to onboarding. Partnering with an RPO service provider offers varying levels of project deliverables that benefit the client. Depending on what functions the service provider manages, these deliverables can include the following:
- Rapid talent deployment
- Project-specific staffing
- Short-term contract staffing
- Project tracking and compliance
- Technology-specific skill acquisition
- Proprietary RPO software
Keep your employees connected, informed, and engaged with Smartsheet
Smartsheet is a cloud-based platform that enables HR teams to manage everything from job applicant tracking to new hire onboarding and employee performance reviews. See Smartsheet in action.
What Recruitment Process Outsourcing Is Not
RPO arrangements differ from traditional recruitment process partnerships. These two types of relationships differ in their assumption of risk, financial reporting of resources, and planning and design of the recruitment process. Partnering with an RPO service provider is a sustained outsourcing arrangement that clearly defines terms, expectations, and performance according to your recruitment process needs. Not to be confused with traditional human resources outsourcing (HRO) functions, such as data entry, onboarding administration, or performance management, RPO relates more to the recruitment functions involving candidates for employment, not existing employees. An RPO provider manages the entire recruitment process or takes ownership of a particular function of the recruitment process (for example, sourcing candidates) within the cost and quality controls of an agreement.
The primary market for outsourcing “non-core” business processes used to be large enterprise businesses. In the case of managing ongoing recruitment processes, RPO was part of a structured, annual workforce planning strategy across large enterprise functions, such as accounting, IT, manufacturing, etc. The trend was to gain a competitive advantage by enlisting a service provider to recruit employees for specific skillsets — most prominently in finance, accounting, and IT — at a higher standard of recruitment (and perhaps lower cost) than in-house operations could achieve.
Today, companies of all sizes and across various industries use RPO as a hiring strategy for short-term, Agile project management initiatives. The use of RPO services worldwide has grown more than 30 percent since 2011. This strategy is prominent in technology companies, where products rooted in software development depend on continuous release schedules and agile IT departments. Tech companies of all sizes outsource various tasks to keep pace with the demands of rapid product releases. They use these external service providers while simultaneously controlling the costs associated with highly skilled, in-demand talent. Software development, testing, and administration are among the most sought-after skills in this space.
Recruitment Process Outsourcing Models
As the demand and overall market for the BPO management strategy has evolved, a variety of options have arisen regarding the structure of BPO partnerships. RPO partnerships have undergone the same growth in terms of structuring options. Managed service arrangements add value with specialized business functions and place emphasis on flexibility and the risk/reward element of the business partnership (the latter being the key component for both client and providers). Shared service models, made popular by the major business consultant conglomerates in IT outsourcing, feature locations set up by the provider to house the business process (such as recruiting) in order to maximize the economies of scale. These shared services, however, refer to those that an RPO provider offers from under the same roof to all clients. A joint venture recruitment process outsourcing model is an arrangement in which client and RPO provider join forces to achieve a competitive advantage (perhaps in a shared location), leverage their strengths, and even sell these services to other clients.
These assorted RPO models vary in contract length, with some enterprise-level agreements extending to multi-year contracts. Limited, on-demand contract arrangements between client and RPO provider expand to cover full-cycle recruitment process services. However, it is most common for RPO service agreements to be structured as annual, project-based budgets or, depending on the transition time required, six-month contracts.
In addition to the variations on the structure and length of RPO outsourcing arrangements, RPO services possess different cost models:
- Fee Model (Monthly): The RPO provider charges a monthly fee based on an agreed-upon listing of positions to recruit. This is an example of a value-added process that requires flexibility if the number of job positions required changes.
- Per Hire: Common in full-cycle recruitment of permanent, full-time candidates, the per hire cost model allocates a fee to the RPO provider for each candidate successfully hired. (This model often requires a flexible arrangement. For example, if a new employee leaves, the RPO must prorate and refund the costs associated with that employee’s recruitment.)
- Fee Model plus Cost per Hire: This cost model is a combination of the fee and per-hire models above.
- Cost per Schedule: The RPO provider charges fees for a specific schedule of the recruitment process, in which the RPO identifies, screens, and submits to the client a designated number of candidates per position for the remainder of the internal recruitment process (i.e., for interviews, offers, onboarding, etc.).
- Cost per Transaction: The RPO provider charges a fee based on the specific recruitment process they perform (for example, candidate screening or reference checking).
A Note on Recruitment Process Outsourcing Software
Software is an integral part of the recruitment process. The client and RPO service provider use applicant tracking system (ATS) software throughout the recruitment process. RPO providers advertise proprietary software and integrated recruiting platforms that leverage social media marketing, advanced analytics and candidate data, and artificial intelligence (machine learning) capabilities to enhance their services. It is important to understand how the RPO software a provider uses impacts your service model. At the outset of negotiations, determine if RPO software is a significant differentiator of the service provider. If part of your RPO strategy is enhancing your own technology to gain a recruitment advantage, how does the RPO software currently in use factor into the arrangement? How does software training impact the transition deadline and overall RPO project?
What Do You Gain from Recruitment Process Outsourcing?
The reasons for outsourcing recruitment processes vary by organization and international location. However, research published by Dr. Andrew Kakabadse in Smart Sourcing, as well as other BPO research, demonstrates that in the U.S., organizations use outsourcing to gain a competitive advantage. Here are the top three reasons to partner with a recruitment process outsourcing provider:
- Achieve Best Practices: The recruitment leaders in the LinkedIn survey realize that both the skills gap and the competitive hiring climate require the use of emerging tools and new strategies to gain a hiring edge. Specialized RPO providers improve or develop new competencies in sourcing techniques, data management, social media communication, and technology, like predictive analytics and soft-skill assessments, to make the recruitment process more efficient and effective.
- Enhance Cost Discipline and Control: A strategy to acquire top talent requires embracing the reality of increased budgets and payroll expenses. LinkedIn’s 2017 Global Recruiting Trends report surveyed 4,000 “talent acquisition leaders,” and more than 30 percent said a “limited budget” was a top challenge. The market for in-demand skills and top candidates in competitive industries, like technology and finance, requires extended recruitment cycles, including months of candidate engagement (sometimes passively with ads and job platform subscription licensing), which adds more budget line items. Partnering with an RPO provider that scales advanced software and specialized recruitment functions provides an opportunity to reduce hiring overhead and offset the expense of outsourcing to a third party.
- Improve Service Quality: Organizations that garner recognition as the best places to work understand that managing their employer brand benefits the recruitment process. LinkedIn’s 2017 global survey reports that more than 80 percent of HR leaders recognize the link between employer brand and recruitment trends. Traditional HR operations that are understaffed, poorly managed, or void of a separate recruiting function face increasing complexity in day-to-day operations, including training and performance management responsibilities. The process of recruitment is a full-time job, and practitioners that do it well add a valuable service — brand management — by improving the recruiting experience of top talent. Partnering with an RPO provider with a history of helping top workplace brands recruit talented people is a service to candidates. Moreover, it provides organizations that are light in HR and staffing functions with a full-time recruitment service that is designed and managed specifically to deal with such deficits.
According to Kakabadse, “top management levels” make the decision to leverage outsourcing methods like RPO. He defines this management as executive and non-executive board members and C-suite leadership. In addition to the three aforementioned reasons that RPO creates competitive advantages, these recruitment leaders reported using outsourcing methods to do the following:
- Expand recruitment process expertise and effectiveness
- Focus on core competencies
- Gain access to new technology and skills
- Reduce headcount
- Enhance research and development of new products and services
- Align recruitment strategy with business strategy
- Reduce capital costs
- Upgrade change management capability
How to Choose a Recruitment Process Outsourcing Solution
Recruitment process outsourcing service providers manage permanent recruiting efforts, a specific department, or a particular short-term project (such as user experience research for a new mobile application launch). RPO providers or agencies move beyond offering a service and sending the bill to full ownership of the planning, design, and implementation of the recruitment process. That’s not to say that clients are not involved in the process. Frequently, there are ongoing negotiations and adjustments to the original contract agreement or, in some cases, explicit language that sets forth the desire for “flexibility” to adapt as the business relationship or contracted project unfolds.
J. Brian Heywood provides insight into the relationship between RPO service providers and clients and explains how to choose a solution, what to be aware of, and how to apply the different models of RPO to your business. In his book, The Outsourcing Dilemma: The Search for Competitiveness, Heywood indicates that it is possible for “client organizations” of all sizes to benefit from outsourcing at least some of their non-core functions. In order to reap this benefit, Heywood recommends that organizations work hard at understanding, finding, and negotiating with service providers to find an ideal solution.
Using Heywood’s factors for creating a shortlist of potential outsourcing providers, we’ve adapted the following list of topics and questions to consider before you select an RPO service provider:
- Credibility: How many clients in the same industry does the provider serve? What level of experience does the provider have recruiting for the specific business function or skillset you are considering outsourcing?
- Reliability: Is there a record of satisfaction, as evidenced by reviews and industry reputation, that the RPO provider will satisfy your particular needs? Will they provide direct references for you to contact?
- Flexibility: Heywood pays special attention to this qualification. Determining how flexible a provider is, especially in the short term, is a large part of the initial negotiation and relationship building. For instance, at the time of purchase, you may not be sure if it’s better to do the recruitment process on premises or off site. Do you want to be able to negotiate the percentage of existing recruiting staff that will stay employed or transition to the provider’s payroll for a minimum amount of time? Will you retain the existing recruitment process and systems, transfer them over to the provider, or permit the provider to implement or create their own recruitment process?
- Expertise: Does the RPO provider already recruit for the skillset and people necessary for your business? How do they structure the management team responsible for the recruitment process?
- Cost Savings: How does their proposal stack up against the competition? Have they (not) identified unique pathways to savings? Are there steep penalties to the agreement for any adjustments as the project and relationship unfold?
- Service Level: How do their offerings compare with the current performance and service level of in-house recruitment?
- Management: Does the provider maintain a single point of contact for your account, or do they differentiate their operations with a dedicated operations team to handle billing, customer service inquiries, and other issues that arise?
- Personnel: How does the provider handle human resources-related personnel policies? How does their method differ from your existing policy and the recruitment process?
- Transition Team: What is the RPO provider’s reputation for transitioning the recruitment process? Will they provide an accurate estimate of the agreed-upon service transition time? If they miss a transition deadline, what is their policy?
- Contract Negotiation: Is a standard request for proposal (RFP) process sufficient to receive a bid and, if not, how many meetings and how much time will management spend on the negotiation with the RPO provider? Are there options for a flexible partnership arrangement? Will there be a sufficient get-out clause in the agreement or language that supports additional service adjustments?
- Knowledge Transfer: What is the policy for maintaining the knowledge transfer of employees who are involved in the recruitment process? When employees leave or get reassigned by the RPO provider, are there controls in place to protect projects and timelines that have transition plans?
Be Aware of Recruitment Outsourcing Risks and Rewards
Heywood makes the point that in order for your outsourced recruitment function to improve, the RPO service provider must be an established specialist in the recruitment process, capable of recruiting top talent, and motivated to work with you and treat you like an important customer. If the provider does not possess these qualities, then beware. Outsourcing the recruitment process does not always work, and, for some companies, outsourcing non-core business functions has a higher failure rate than keeping projects in house.
Watch out for Recruitment Process Outsourcing Providers Who Overpromise and Underdeliver
It is preferable, and more profitable, for service providers to underpromise and overdeliver. The reality, according to Heywood’s experience as a consultant, is that outsourcing providers often work hard to earn a client’s business, agreeing to all terms and functions regardless of their capacity or intent. Of course, this tendency is not always deceitful or intentional, but it is important for the client to be aware of an RPO provider’s work in unrelated outsourcing functions. What is the source of their core business revenue and performance? Will the RPO provider’s unrelated growth initiatives and potentially divided attention hinder your ability to gain a competitive advantage and improve your recruitment process? Do they have the current technology and the human capital to improve your recruitment, or do they require an extended transition plan to get up to speed?
Subcontracting the Subcontracting in Recruitment Process Outsourcing
Heywood makes clear that since the early days of IT outsourcing, transferring the agreed-upon work to subcontractors is, at some stage in the agreement, a part of most service providing arrangements. Make sure your RPO provider does not have a different view of non-critical work, and be aware of the role that subcontractors play in the RPO provider’s workforce. You are outsourcing your recruitment process under the assumption that the provider understands how to best structure their own workforce. Make sure you tackle the issues most pertinent to subcontracting: Who is responsible for the work of the subcontractors, and how does said party manage the work? Do you have the ability to prevent subcontractors from performing specific functions of the recruitment process? Can you secure the right to replace subcontractors for performance-related issues? How will the provider measure and report these replacements based on the hiring and retention data you value and track? You should address the subject of subcontracting at the outset of RPO negotiations.
Affinity for Your Business
The question of size and scope is important when deciding on an RPO partnership. Avoid relying on a “bigger is better” mentality when selecting your RPO partnership. Targeting a service provider only because of their operational scope and size is problematic. Measure how important you are to the provider by gauging their attention to and performance in winning you a competitive advantage. Consistency is key. Focus on whether the partnership ensures the continuation and possible improvement of your recruitment process. A small RPO provider with a smaller number of clients might be as (or more) advantageous than a large player with a large number of partners.
Different Approaches to Recruitment Outsourcing
As Heywood points out, the nature of commerce, including RPO partnerships, is that businesses cannot satisfy everyone. He uses an example highlighting the world’s leading provider of IT and BPO services. He focuses on their failure to develop and build a Social Security system for a government contract, something they had experience performing successfully on a number of other projects for the public sector. The blame game started immediately: The client and the provider both claimed that failure was due to the other’s changing approach to aspects of the project (e.g., changes to procedure).
Heywood recommends that from the outset of negotiations regarding the outsourcing of a function, such as recruiting, the client pay close attention to the project leaders that the provider assigns to run the project. Determine the RPO provider’s project experience, and ask about the successes. Throughout the partnership, study the relationship between your RPO’s management and its leaders, as well as the atmosphere created by your interactions with the service provider’s stakeholders. Does your direct point of contact have a history in the role? How much account management turnover does the provider experience?
RPO partnerships, like all business arrangements, present problems to overcome. Be aware of the risks to take advantage of the rewards. External specialists have the potential to improve your recruitment process, reduce the cost of hiring, and successfully introduce new technology or process. According to Heywood’s conclusions on outsourcing, the principal reward for leveraging RPO is realizing achievements your team could not execute without external help.
Recruiting Trends That Impact Recruitment Outsourcing Strategy
RPO is a strategic management tool to help businesses keep pace with the emerging trends in the recruitment process. Recruitment process outsourcing companies provide advanced sourcing techniques, a pipeline of skilled, ready-to-deploy professionals, employer brand management strategies, and innovative technology to clients looking for a way to turn the recruitment process into a competitive advantage.
For companies with limited resources, the time and overall expense associated with college recruitment and live networking events, like career fairs, are a strain on the recruitment process. Innovative video technology, broadband internet, and artificial intelligence combine to make virtual recruitment a real possibility.
Companies like HireVue provide video interview and assessment technology that empowers recruiting processes and eliminates unnecessary travel budgets and the burden of scheduling face-to-face, on-site interviews. HireVue partnered with Unilever to create an innovative candidate sourcing and screening process. Unilever replaced traditional, often flawed, resume screening with LinkedIn profile assessments and combined HireVue’s technology to optimize their virtual recruitment methods. Companies that lack the resources and knowledge to capitalize on innovative virtual recruitment methods look to third-party providers to optimize their recruitment process with high tech methods.
The Employee Era
In the U.S., we are currently in the golden age of the employee and employment opportunities. Unemployment remains at the lowest rate since 2007, and technology enables participation in global industry while remaining local and remote. Highly skilled, in-demand professionals have unprecedented career flexibility in their work as consultants and contractors. With more power and freedom than ever before in the history of the modern U.S. economy, top candidates consider multiple job offers from competing employers before deciding on a job. Millennials, soon to be the largest workforce in the U.S., demonstrate more career mobility than previous generations have by exploring multiple jobs, career fields, and employers.
A strong employer brand is key to survival in the employee era. Even top-rated companies cannot expect top talent to seek them out. Companies that fail to optimize the recruitment process by strengthening the employer brand, connecting with passive candidates, and attracting top candidates with engagement tactics and strategy will find it harder to compete for talent. If a company lacks the capacity, resources, or knowledge to find talent, RPO providers that leverage social media engagement strategy and actively network on job boards and talent-specific communities (for example, tech Meetups) offer an edge in the employee era.
Improve Recruitment Process Outsourcing with Smartsheet for Human Resources
Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change.
The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed.
When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time. Try Smartsheet for free, today.