Driven by a Tight Labor Market, RPO Takes Center Stage in Europe

By Andy Teng

Remember the days when recruiting talent involved posting ads in newspapers, collecting paper resumes, and tracking candidates with a Rolodex? For some HR professionals, itís not a stretch because they still manage talent this way, but for adopters of recruitment process outsourcing (RPO), the manual way of doing things is just a bad memory.
In fact, RPO appears very much to be a tool for the futureóa future in which recruitment costs are lower, candidates are managed on a lifecycle basis, and benchmarking is a regular way of life in the HR department. This promising scenario is the very driver behind a broad adoption of RPO in the U.S. and in Europe, as employers realize that traditional ways of procuring talent has become obsolete. A more effective solution, RPO is a blend of robust technology and automation paired with realigned recruitment processes aided by thorough measurements of a variety of outputs. All of these efforts converge to increase the effectiveness of employersí human capital management programs, which ultimately aids these organizationsí competitiveness.

With RPO continuing to gain strong momentumóespecially in the U.S. where the practice is unencumbered by employment regulations or union restrictionsómany European employers are beginning to see the benefits of outsourcing. Although its market penetration remains small (staffing and temp agencies still dominate the human capital landscape in the EU), RPO is nevertheless being viewed as an effective alternative to traditional recruitment methods. Prized for not only cost savings, RPO is also being sought after for its comprehensive management of candidates, helping employers to move workers from beyond the sourcing and screening stages through the hiring and onboarding process to retention and performance review. Covering the whole lifecycle has become the ultimate goal of RPO.

RPO, however, is not a panacea for all recruitment woes, and there is much confusion and debate in the marketplace right now over what actually constitutes RPO. Providers are not helping because many are hoping to capitalize on a hot segment of the HRO industry and have relabeled their staffing business as RPO. While some have true outosurced models and oversee the entire continuum of the recruitment and hiring process, others claiming to be full-service providers are simply wannabes hoping to snag clients in their entry into the market.

ìThereís a huge amount of confusion,î said Rosaleen Blair, the CEO of RPO provider Alexander Mann Solutions. She pointed out that not only are buyers confused about who really are RPO providers but also what RPO can do for them. ìWe see it as the whole recruitment lifecycleófrom sourcing to onboarding, outplacement, and redeployment. Itís the whose journey of the recruitment lifecycle,î she added.

RPO BROADLY DEFINED
Much of the debate today is over defining RPO. Because the industry is still nascent, a widely acceptable definition remains elusive. Some suggest that any provider offering services in a number of functional areas should be considered an RPO. For instance, if a providers conducts candidate searches, performs pre-interviewing screening, sets up interviews, and helps to onboard the employee may be viewed as an RPO firms. Others contend that the provider should go beyond this to cover the entire candidate lifecycle, including, in some cases, making hiring decisions.

Still others point out that these services are very similar to those provided by traditional executive search or even contingency placement firms; what elevates them to RPO status is if they help realign the recruitment process, introduce new technology to automate the process, and can measure outputs against carefully considered benchmarks. Blair argued that providers should perform at least 80 percent of the services in the RPO gamut; otherwise, they shouldnít be considered a true RPO vendor.

However, some industry observers points out that RPO, like candy, comes in different flavors. Last year, Jason Berkowitz, the head of the U.S.-based RPO Alliance, wrote in HRO Today, this magazineís sister publication, that providers should be rated numerically to reflect the level of service they offer. He offered a four-point system in which companies are rated based on size, scope, reach, and duration (see the December 2005 issue). Berkowitz said the Alliance, which represents leading RPO providers in the U.S., would continue to discuss the adoption of such a scale, but the market appears to have largely rejected the notion.

Until a standard is establishedóand it appears unlikely the industry will come to one soonóitís Caveat Emptor for buyers.

Blair added that adding to the confusion is the fact that many companies who are looking to outsource recruitment services are themselves not ready because they arenít sure what to outsource. As a result, prospective providers arenít sure what services they need to deliver. For these providers, their role is to unearth the clientís true needs.

ìOur role is to guide, advise, and shape it (service engagement). Typically these relationships are 3 to 5 to 7 years, so you need clarity from the beginning.

LABOR DEMANDS DRIVE MARKET
Despite confusion in the RPO marketplace, buyers are increasingly looking to providers to help them reduce costs, shorten time to hire, and transform their recruitment efforts. Throughout Europe, interest in outsourcing has been raised by a tight labor market, according to Pam Berklich, group leader and vice president of Kelly Servicesí Outsourcing and Consulting Services Group.

ìItís driven by the tightening labor market, which is rampant in Europe,î she said. ìBuyers are saying, ëWe need the talent, weíre having a real tough time, and we donít want to build the infrastructure. What are the solutions out there?íî

Berklich, who has a global view through her RPO experience in the U.S. as well as in Europe, pointed out some fundamental differences in outsourcing approaches between the two continents. For instance, the volume of placements outsourced tends to be higher. While a typical U.S. client may place one thousand employees in a year, a typical European deal may be only a few hundred workers.

Furthermore, meeting a clientís needs in the U.S. may be a significantly less complex task than meeting the same clientís needs in the EU. Thatís because while American hires fall under the same labor laws and the same hiring policies, EU employees are subject to a variety of laws and practices, depending on the country where hiring takes place. So even though RPO providers may place fewer hires under a typical European contract, they may also face just as much complexity as a larger U.S. contract.

ìYou have the entire uniqueness of countries that are geographically so close, but from an HR practice and labor law perspective, they are so different,î Berklich added.

Recognizing that recruitment services need to be customized from one country to another is one of the ways in which European RPO practices differ from the those of U.S. counterparts. Another obvious distinction is where talent is sourced and the language problems that may occur. For instance, Western Europe companies are increasingly seeking workers from Eastern European markets because of talent shortages in their own backyards. However, finding skilled workers capable of speaking the languages can be challenging, some providers point out. In the U.S., on the other hand, this problem rarely occurs because English is the common denominator among workers and employers.

ìSince the economy is growing at a very fast pace, getting the right people in is the big challenge,î added Andy Verstelle, director of operations at Randstad Netherlands. Randstad, a traditional staffing specialist that recently began offering RPO services, has seen revenues from this segment of the market rise to several million U.S. dollars during the past year, and it expects demand for its offering to continue to double over the next year.

He said that EU companies clearly want to move away from using traditional recruiters, which tends to be more costly than an RPO service. While many organizations still have not yet reached the same comfort level with RPO as their U.S. counterparts, a few pioneering companies have become such believers of outsourced services that they trust the provider to make key decisions.

ìEven in the Netherlands, which used to be much more conservative, we are seeing people in a state of mind saying that if Randstad wants to do the hiring, thatís fine, too,î Verstelle noted.

These cases are rare, however, with most service providers still held at an armís length. But just as the U.S. market has grown and evolved to shift more control of the hiring process to vendors, the European market is likely to move in the same direction but at a slower pace.

THE ROLE OF TECHNOLOGY
One of the key components of an RPO offering is the technological capabilities of the provider. Their ability to offer either their own applicant tracking systems (ATS) or to work with a clientís existing software is key to any engagement. And clients are mindful of this fact.

Some RPO providers have developed their own platforms and actively moved clients onto these systems, while others develop wrappers around the clientís ERP or ATS installations so data from their systems can be easily moved back and forth. Whatever the approach, itís clear that buyers want technology thatís powerful.

ìThe platform has to be flexible and scalable and implemented quickly. Integration is also key. There is little point automating half of the process if there is still manual intervention required. By integrating with ERPs and other applications, the passing of structured data never been so important and now easy to achieveî said Jon Holden of MrTed, a developer of talent management software used by RPO service providers and employers.

Holden said he believes that for RPO to be embraced by European employers, technology must be global, complemented by comprehensive and customized services. Most importantly, all the parties involved in the hiring process needs to be mindful of the candidate experience, making sure that the right talent is attracted to the employers.

Holden added that he sees many RPO deals being executed in former Soviet Bloc nations, including Russia and Hungary, where more manufacturing sites are being set up, creating the demand for skilled workers. Employers venturing into recruitment outsourcing, he said, are doing so based on the experience of other buyers.

ìI think a lot of European organizations are starting to sit up and notice whatís happening in the U.S.,î he added.

Indeed the strong response of U.S. employers to RPO has acted as a beacon for outsourcing. Just as the development of the overall HRO market in the U.S. has led to greater engagement in Europe, this trend is also taking hold in sub-segments such as RPO. But will the European market experience the same red-hot growth that the U.S. market has posted in the past several years? Alexander Mannís Blair thinks so.

ìWeíve got more opportunities than we can take on,î she said. ìIn the last 10 years, Iíve never seen the market this buoyant.î