RPO Without Raising Your Debt Ceiling

Presented By: Doug Douglas - National Engagement Manager at Stark

HR.com RPO Virtual Conference - July 18,2011

Today, our topic is RPO Without Raising Your Debt Ceiling. During our time, we will be looking at:

• What RPO is
• Why would a company consider a RPO engagement
• What are the usual benefits of a good RPO engagement
• What should you consider when searching for a RPO provider
• What are some of the risks associated with RPO

RPO – Enlighten Me

Recruitment Process Outsourcing. This phrase burst onto the recruiting scene in the past 10 years or so, but the concept of it has been around for much longer. It was consistently used in the 1970’s during Silicon Valley’s very competitive market for high tech labor – it was very hard to find good, qualified, and available talent. RPO was still dramatically different back then from what it is today. RPO in the 1970’s was basically companies buying lists of potential candidates from a recruiting firm – like a sourcing list.

In the 1980’s and 1990’s, Human Resources Outsourcing (HRO) became popular by companies outsourcing part of their processes like benefits or payroll to a third party company. This would be companies like ADP, Paychex, Gevity, etc.

Then right around the early 2000’s is when companies seriously started considering outsourcing their recruiting efforts because it was such a significant cost for companies to run internally. The earlier movements with companies beginning to outsource various smaller parts of their business made them more comfortable with outsourcing a larger and very expensive piece of their business as well.

RPO today is when a company will outsource all, or part, of their recruitment needs to another company who specializes in locating, qualifying, and delivering candidates to the hiring company to consider. RPO packages can vary though from one engagement to another:

• One engagement could outsource just the screening of a large candidate pool. It is not uncommon right now for a company to post a job – especially one like administrative support or sales or customer service and have hundreds of candidates to apply to those positions. So, some organizations just seek help in visually screening resumes and cutting it down to a manageable amount for their internal recruiters to work with.
• Another engagement could outsource full recruiting efforts for a specific division or geographic region. Maybe there is a portion of your company where qualified candidates are scarce and you need some help generating candidate flow there. An RPO engagement could just focus on a specific skill set, division, or area of the country, or internationally.
• OR, a company might outsource the recruiting efforts of every position within the company – regardless of skill set, division, geographic region, etc. Many companies have found great success in this type of arrangement and seen significant cost savings. A third party provider would come in and take on your corporate identity and work just as an internal recruiting team would – but have contracts, performance metrics to achieve, etc. This RPO team could work at your facility, or work remotely from another part of the country. Some RPO providers have an international team that does the recruiting efforts. The company can let the provider know what they are comfortable with, and the RPO provider makes it happen.

Why has RPO taken on such a bigger name in the past few years? Why do people see the benefits of it now?

Well, the labor markets are just different today than they were in the past:

• People are more likely to make a job change now than they were in the past. My father worked for GE for 20+ years before starting his own business. My mother worked for Sears for about the same amount of time. They came up during the time when you had a job and you kept your job – even if it meant not climbing the ladder as quickly as they hoped.
• We have more contract workers and temporary workers now than in the past. Some companies only seek to hire contractors or temp-to-hire workers now as they use the “try before you buy” approach to finding good staff.
• And with unemployment currently at 9.2% (and probably more like 17-18% when you look at those who have given up on finding work, or being under-employed), you simply have more candidates now than you may have experienced in the past – which means that it takes more time, money, people, and resources to work your way through potential candidates to find the perfect fit. 5-6 years ago, you could post a job and get 50 candidates. Today you could post the same job and have 300-400 apply.

RPO solutions can help companies improve their overall recruiting quality, costs, speed, and service. It saves companies, on average, 50% when compared to contingency search fees. Even if a company is not using contingency recruiters, cost savings opportunities are still present. The RPO provider should be well established in various industries and know where to find more qualified candidates. When you combine this with their recruiting expertise, stellar processes, and technologies, RPO providers should simply perform better.

Apart from the cost of contingency recruiters, here are other significant costs associated with the search for a new employee:

• Posting jobs online (Monster, CareerBuilder, Dice, Linked In, etc.) – all of these vary by price, but they start to add up when you put those job postings on several sites.
• Internal Recruiters (salaries, benefits, equipment, office space, phones, etc.) – The actual cost of having an internal recruiting team is not insignificant.
• Lost productivity costs (production goes down when you are not fully staffed) – Having a reduced workforce just can’t supply the same production and results as one that is fully staffed – unless you are willing to incentivize your remaining workforce through overtime pay, bonuses, or other rewards.
• Training costs (reduced production again for someone to take time to train someone else) – Not only is it the reduced production of the person being trained, but the person who takes time from their normal role to train the new worker.
• Pre-Hire screening costs (background checks, drug tests, MVR, assessments, SSN, reference checks, etc.)
• Hiring Manager interview time (reduced productivity when taking time to interview) – When you consider the lost productivity from a manager who has to take time to interview a candidate – it’s important that the manager not waste his/her time interviewing people who are marginally qualified. You want them to only speak with people who are qualified and available for the position and not spend any wasted time on others.
• Trainee doing the role compared to a veteran (reduced productivity and increased mistakes)
• Increased potential of overtime (while someone else fills in)
• Potential lost sales (due to being understaffed) – By the way, you’d be surprised how many HR leaders aren’t aware that this happens. I have asked the HR team how often this is the case and told that they can’t think of any instances. But I can go ask field managers and they tell me it happens all of the time. One company that I recently spoke with had to turn down a project that would have paid them millions of dollars because there was no way they would have the staff in place by the time the project was set to begin.
• Unemployment benefits
• Lowered employee morale – How do you put a price on this? But be assured, when there is turnover happening within an office or department – others notice and it makes them begin to question their own stability or desire to be there.
• Your brand takes a hit in the marketplace – People notice. People talk. Your reputation is discussed at networking events.

One thing is for certain, it costs you FAR more than a job posting on Craig’s List or Monster for every opening your company experiences.

Seven Steps to Success

The benefits of a RPO engagement to an organization will vary based on the uniqueness of each company and its current situation, but there are seven results of successful RPO engagements that are typical regardless of the company (if you have partnered with a good RPO provider):

1) Reduced attrition levels – I worked with one oil & gas customer who experienced a reduction in their attrition rates from 47.8% to 13.4% in their first year alone. This is done by having a very precise screening process established and providing managers with only qualified candidates to consider. When the managers have solid candidates, and many of them to choose from, they can make a better hiring decision instead of sometimes settling for someone. The cost savings found here more than paid for the RPO engagement.

2) Reduced costs per hire – One example is that an RPO provider can negotiate better rates with vendors than a single company might because of the volume of work that they do. While some companies may pay $500 for a job posting, a recruiting firm might be able to negotiate that price down 80% or more.

3) Reduced time to fill - The ability to have a dedicated team that repeatedly works with the same managers and divisions gets to know the types of people that the manager is drawn to. This eliminates the need for presenting as many candidates once that trust has been built. One thing that I have found to be consistent for me is that the recruiters just get to know those individual managers and the unique or special requirements that one has compared to another. Where the recruiter might present 7-8 good candidates at the beginning of an engagement, a few months or a year down the road – they will only need to submit 3 candidates to get a hire because they just know what that manager likes. I have even gotten to the point with some managers where they trusted that I knew their profile so well that I could send over one candidate and say “Here’s your hire.” and they would immediate interview them to verify and hire them.

4) EEO Compliance standards are met – Companies can work with the RPO provider to establish a consistent, repeatable, scalable process that meets their company’s EEOC standards. It is important that all candidates go through the same screening and hiring process, and that those steps are documented to minimize any legal risks that could come their way. With the technologies that a RPO provider has in place, many/if not all of the details around compliance can be automated, time-stamped, and saved for potential future audits.

5) Increased quality of hires – With a customized solution that touches the things that matter most to your company, a RPO provider will establish screening processes that will funnel down the mass number of candidates to only the most qualified. A good RPO provider will be looking at every aspect of the recruiting process and be able to recommend solutions that will ultimately improve the quality of hires. There are some industries out there that currently feel like they just need to throw a warm body into a role thinking that “somebody is better than nobody.” That approach is just throwing money away. One thing that we have done is go in and hold Interview Training Sessions with potential managers and make sure they know what to ask, why to ask, what NOT to ask, and how to evaluate a candidate. This has helped tremendously in some cases. By the way, 90% of HR leaders surveyed say that it is critically important that they improve the quality of hires that they make – but only 40% measure it.

6) Standardized recruitment process established (ultimately improving the company brand) – As mentioned before, your RPO provider should be able to customize a solution to fit your organization. Everything should be considered from the formatting of job descriptions, the messaging involved to a candidate applying to the position, automated messages that update the candidate throughout the process, the information that is presented to the hiring manager to consider. Everything is carefully considered to maximize the most of the recruiting experience, as well as leave candidates – even those declined – with a good feeling about your company. You have to look at your recruiting activity as a form of branding because it is.

7) Accurate metrics to help measure success – You and your RPO provider can agree to certain Performance Metrics that must be met and that reports be run regularly to show where you are having great success, where things might be bottlenecking, and where things need to be improved. Measuring things like the number of days open / days from candidate presentation to hiring manager feedback / feedback to interview / days in onboarding stage / average time to fill / average cost per hire / all of these metrics can be helpful to you in running a successful RPO engagement.

RPO Improves Your Brand

We have probably all heard the phrase “unintended consequences.” This is when we have made a decision and just didn’t anticipate all of the consequences of that decision beforehand. I think HR leaders, and recruiting specifically, have an unintended consequence that some aren’t even aware of. It’s when candidate’s sees your job posting and gets excited about the possibility of joining your team, only to take the time to go through your application process, screening process, assessment process, or even interview process only to fall into a black hole and never hear anything else from you. The unintended consequences can be numerous:

• The candidate changes his/her opinion of your company based on their recruiting experience. Maybe it was the lack of feedback. Maybe it was the amount of time that it took to go through the application process. Maybe it was a conversation with a recruiter or HR representative.
• The candidate decides to start telling friends, family, and neighbors about your company.
• The friends, family, and neighbors start to tell their friends, family, and neighbors.
• The next time you have a job posting, a candidate thinks twice before applying because of their previous experience with your company, or the stories that he/she heard from others who have applied in the past.

Companies don’t always consider the fact that they are being evaluated by the candidate. It only hurts your company when a candidate applies for a position and never hears from anyone inside your organization. It only hurts when timely feedback is not provided after completing a questionnaire or having a phone interview. It hurts when they take the time to prepare for an interview, only to wait for weeks to hear if they were selected. Sometimes candidates actually do spend hours preparing for an interview – researching the company and knowing it inside and out, researching the person who is going to be leading the interview, buying a new suit or dress, getting a haircut, etc. They do this with the anticipation that the company is authentically interested in them and with the assumption that they will have the courtesy to provide them with an answer.

RPO providers should be building into their processes opportunities for the candidates to be reassured and valued. They just want to know where they stand – even if it’s bad news, it’s better than no news. When your company values them enough to keep them posted through this stressful time in their life – IT POWERS YOUR BRAND!

Nick Burkholder, founder of Staffing.org says, “The single greatest improvement opportunity area for organizations is candidate communications.”

Selecting a RPO Provider

There are many RPO options out there for you to choose from. It’s hard to know what you would be getting in them just by reading their websites. This is a very important decision and you need to consider providers carefully – not just looking at the company, but at the individuals that you will be partnering with.  Here are some things that I would suggest you look for when deciding who will serve your company:

• Do they have a track record of success? Can they easily share stories of dramatic situations where their RPO made a difference? Have they worked with similar types of projects – maybe not even within the same industry, but with similar struggles and reasonable comparisons?
• Will they customize a solution to your unique needs? Many of the larger RPO companies come in and say, “Here’s our offering.” and you have to adjust to their model. Some are more interested in telling you what they are going to do for you. I would suggest that you look for a provider who wants to hear more about you, understand your challenges, understand what is working well, know where the struggles are, and then come back with an offering that addresses everything you discussed.
• Who will you interact with? You need to feel good about your point person and the team involved in the delivery. What is their track record? How do the individual personalities mesh? Can you count on them to do what they say they will do? Will you be gaining a partner or signing up a new vendor?

RPO Risks

Transitioning to a RPO engagement will always carry some risks, but with some careful planning – you should be able to minimize these risks.

• Risk 1 - Effectiveness – In order for the engagement to be effective, there must be clear and precise communication between both parties. A poor understanding of what the company is going to provide to you, or a poor understanding of what you are asking the RPO provider to do will lead to frustration on both sides. Make sure that you thoroughly cover the scope of the project and know how each area of concern will be addressed.
• Risk 2 - Failure to Deliver – There’s a chance that your RPO provider may not give you enough quality candidates to fill your open positions, especially if you are in an industry where there are labor shortages. It will always take some time to establish all roads that will lead to good candidates, so make sure there is ample time allotted for the provider to come through for you. Referral networks, relationships with associations, career fairs, and casting a wide net in an effort to get the word out – those all take some time to establish. Be reasonable in your performance metrics that the provider needs to reach in those first few months. You should see gradual improvement from month to month. If they are consistently missing the mark though, and no improvement is shown, then it’s time to escalate the issue to your provider’s highest levels and demand changes. It might take a new engagement manager, new recruiters, or a new strategy. It might even require a new provider altogether – knowing that all providers are the same.
• Risk 3 - Pre-Existing Issues – Hiring a RPO provider to come in and do things exactly the same way you were doing them before is not a good idea. Listen to those who have expertise in these types of engagements and let them show you alternative ways or ideas. That provider should be willing to consider methods that were very beneficial for your organization, but they also need to look at trouble spots and find ways to make improvements there too. Managing your internal team may require an internal champion to work alongside your provider – clearing the path from obstacles that may cause problems.
• Risk 4 - Offsite or Offshore Delivery Team – Be clear with what you expect from your provider in the area of a delivery team. Many RPO providers will plan to use an offshore delivery team exclusively. Others will plan to recruit remotely from another part of the US. Those may not be issues for you – but if they are, make sure they understand if you want the work to be done onsite, regionally, nationally, or internationally. No matter what model you feel comfortable with, I would always suggest having a point person who can be at your offices within 24 hours to sit down and discuss anything you wish, or just to build relationships within your organization. I feel strongly about the power of shaking hands with someone, looking them in the eye, and having a real partnership. As an engagement manager I seek that, but I also want my recruiters to have those same opportunities. Your provider should be able to customize the delivery team in such a way that will satisfy all.
• Risk 5 - Executive Buy-In – When asking an organization to make a major change in process that impacts the entire organization, make sure that you have executive level support that is willing to stand firm and support this engagement. You will sometimes have decision makers internally that don’t like the idea, don’t like change, and felt like they don’t need any help. It’s so important to have someone in an executive leadership role who will support this engagement and try to win over those who may not be as confident that a RPO engagement will work.

I worked with a manager one time named Vince. He had been with the company a long time and he was being forced to use our recruiting firm by his VP. We had a conference call with him where we sat and listened to him for 20-30 minutes tell us how this wasn’t his idea, that it wasn’t going to work, and that we would never be able to find the kind of people that he would be interested in. He went on to threaten us by saying that when we didn’t find someone for this role that he would try his best to get us fired and spread the word throughout the rest of the organization of our shortcomings. We heard him out and let him get his frustration out.

I then said, “Vince, I hear what you’re saying and I understand your concerns. Maybe we won’t be able to find someone that you’ll like, but I want to give it a try anyway. Why don’t you tell me exactly what you’re looking for and let me see what I can do?” He spent the next 10 minutes describing what the perfect employee would look like. I told him I appreciated the information and that I was going to do my best to find someone that he would like – and we hung up.

3 hours after we hung up – Vince checked his email and saw the candidate I presented to him 2 hours before. Vince called me and said that he would like to interview that candidate. I had him go in the next day and Vince hired him on the spot. That candidate ended up becoming his best employee. He gave him 3 raises in his first year, and Vince even paid for his daily commute out of his own pocket because he didn’t want to risk ever losing this employee.

That came to a happy ending and Vince became one of my biggest fans through that experience. He recommended me to everyone. BUT WHAT IF I HADN’T FOUND HIM A GOOD CANDIDATE? WHAT IF HE WANTED ME TO BE FIRED FROM THAT ENGAGEMENT BECAUSE I DIDN’T PRODUCE? Would there have been an executive with that company that would have defended us and stood their ground against Vince – knowing we were having great successes in other parts of the country?