To RPO or not to RPO?

Today's topic for discussion at Idealpeople Towers is Recruitment Process Outsourcing (RPO). To the unitiated, RPO entails a company outsourcing all of their recruitment operations to one company (sometimes called an Managed Service Provider or MSP). It is then the RPO company's responsibility to fulfill all hiring needs and lift the burden associated with sourcing new talent. RPO companies are occasionally independent (i.e. they do no sourcing themselves, but rely entirely on working with other agencies for sourcing candidates) - in which case their role is to liase with their customers, consult on job descriptions, screen candidates, arrange interviews and deal with offers. However, most RPO companies constitute an arm or sub-division of "standard" recruitment business - in which case they source candidates themselves, and manage relationships with other (often rival) recruitment companies to "top up" the candidates they source. Given that companies who rely on RPO companies usually do so to deal with large volumes of recruitment, these RPO companies have to rely heavily on competitor businesses to service their clients' requirements, as they simply can't afford the man hours required to service all open positions themselves.

RPO has grown in popularity of late, and at first glance the reasons for this are clear. RPO can cut a company's recruitment costs significantly (companies will pay less to an RPO overall than they would through paying third-party suppliers for filling jobs on an individual basis), and takes away the pain of dealing with multiple recruitment suppliers. However, it's important to consider all aspects of the wider impact of RPO before it is considered the best option.

Recruitment of staff is always going to be expensive. However, when we talk about cost of hiring, it's important to do so from the right perspective. The only proven way to reduce costs associated with recruitment is to get it right first time. Mis-hiring staff is one of the deadly sins of business - and costs in some cases as much as 24 times the candidate's basic salary (according to Brad Smart's excellent Top Grading). Think about the amount of lost time and - ultimately - lost revenue asssociated with poor hires: missed deadlines, poorer quality of output and upset or lost customers. In such a competitive market, poor hiring decisions or just lack of access to the best candidates can be far more costly than paying a little extra up front.

The vast majority of technology companies in particular now seem to accept that - given the existence of the huge skills gap currently evident in the technology world - it's vital to engage with third-party recruitment specialists to attract, hire and retain the best talent available. There are essentially two options: keep the administrative elements of recruitment in-house whilst working alongside third-party suppliers whose role is to assist with the sourcing of talent, or bring in an MSP/RPO company, who will take away the administrative costs and manage relationships with other third-parties. The primary selling point of RPO is a lowering of fees paid to recruitment suppliers without losing the supply of candidates. On the face of it, RPO a perfect solution for those with high recruitment volumes, high operational costs and a requirement to deal with high volumes of specialist suppliers.

The problem with all this lies in the quality of candidates. Whilst a key claim of RPO companies is that through working with other third-party suppliers they can deliver more candidates, more quickly, the truth is that the vast majority of top-quality recruitment suppliers refuse to work with them, which actually limits the quality and quantity of candidates they are able to supply.

Why?

- The vast majority of RPO companies are not vendor-neutral - i.e. they don't treat candidates proposed by other third-parties with the same level of respect and consideration that they do with candidates that they themselves have supplied.
- Because they have to "give away" part of any monies they make through their relationship with their client to another third-party, RPO companies inevitably are far more interested in the candidates they source themselves (often through non-innovative, low-cost and low-efficiency means) - ruling out a myriad of potentially suitable candidates proposed by others in the process. This leads to slow feedback to other suppliers, poor lines of communication and frustration from the other third parties.
- Because of the problems RPO companies have in energising their third-party suppliers, they are forced to engage with high-volumes of undermotivated agencies who are willing to dedicate only a fraction of their time to sourcing suitable candidates. Because of the poor margins and poor quality of relationships, these suppliers tend to focus purely on low-time-consuming sourcing methods (constituting mainly internet advertising and CV search). The scores of more time-intensive but higher-quality sourcing methodologies aren't undertaken because they are not worth the time. This results in market saturation of vacancies and candidates being contacted repeatedly about the same job, which can only lead to a weakening of a company's recruitment brand.

What's left is an RPO company working massive volumes of open positions without the support of the channel that they claim to have. The result: poorer quality of candidates, less market coverage and weakened recruitment brands.

So, yes - it may be cheaper in the short term but is it a sensible strategy? You decide, but think carefully.