Back in the old days of recruitment process outsourcing (circa 2002), the most likely to take the plunge and outsource their recruiting to an RPO vendor were enterprise organizations that had hundreds or thousands of hire every year. In the next decade and a half, two distinct things happened: (1) RPO matured to find its identity as a legitimate service offering, distinct from the staffing agency model, and (2) RPO came down into the SMB market (small-to-midsize companies) and began to deliver quality services that were about recruitment excellence, not just a cookie-cutter, high volume solution.
Traditionally, SMB businesses (250-5,000 employees) hire through one of three sources: internal recruiters, staffing agencies and contract recruiters. Up until recently, few of these organizations were aware that RPO might be a viable or available solution to their recruiting needs. Michael Palmer, Vice President of Business Development and Marketing with Accolo, a U.S. based RPO provider, calls it “the fourth option that you might not know about.”
Palmer says, “we started to see RPO come down-market into the smaller organizations because it started to make sense from a business delivery and efficiency perspective.”
In a recent conversation with Palmer, we sought to understand the unique value of recruitment process outsourcing for smaller business.
Here are the highlights.
Recruiting for Small Business
The biggest recruiting challenge for smaller businesses is often their employment brand’s ability to attract great candidates.
Large organizations typically have a marketing capability that develops and markets their consumer and employment brand. Smaller businesses have the challenge of not being recognized in the marketplace or “not being perceived as an employer of choice.” They may know what their brand is internally, but have trouble communicating that externally.
A recruitment process outsourcing partner can help them identify what their brand is and communicate that brand in the job marketplace. Let’s face facts. Recruiting today is a selling function. And, unlike staffing agencies, RPOs market through their customer’s brand to drive awareness, employment brand, market presence and consistency.
Small businesses also tend to have less process rigor and consistency to recruiting. “Working with an RPO partner can help them align their recruiting strategy with their business goals,” Palmer says.
A good RPO partner will bring the kinds of employment brand strategy that smaller businesses typically don’t have.
Why Recruitment Process Outsourcing?
There are many advantages to outsourcing recruiting to an RPO provider for smaller businesses.
The first reason is cost. Most small businesses don’t hire a recruiting team as they are starting to grow; they go to third-party staffing agencies, “and it’s ridiculously expensive for a small business to spend $20, $30, $40 thousand dollars to hire one person,” says Palmer. RPO brings a much more controlled cost as well as predictability, not only of cost, but also service.
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The second value of RPO is scalability. Most companies have a fluctuating number of hires throughout the year. There are usually “ebbs and flows” in hiring – “they’ll hire fifteen people one month, five people the next month, thirty people the month after and maybe go through two months where they don’t hire at all.”
RPO brings scalability to the process and variability into the cost, whereas if businesses had their own recruiting team, they’d have to pay those people whether they hire or not. Most smaller businesses that have their own recruiting departments are only staffed appropriately a small percentage of the time. Alternatively, there’s always the option to engage contract recruiters when needed, yet getting them up to speed on your brand for short term stints can prove challenging.
The third advantage of RPO is quality- the strategy around employment brand. “We align our recruiters to the function that they’re supporting,” says Palmer, “this means we wouldn’t have a recruiter working on both a software development role and a call center role... they’re too different.”
A small business with internal recruiting department is likely to ask and expect its recruiters to recruit everything, from finance to HR to technology, which they might not have the skills, experience, and/or capacity to deliver. In contrast, RPO brings the right resources to be able to fill all of those roles effectively, without the big cost of using a staffing agency.
Fourth, recruitment process outsourcing provides the three key elements of recruiting: people, process, and technology. “We use our own technology to do the job posting and tracking, the social media sharing, the assessment of candidates, and so on,” says Palmer, for customers that don’t have recruiting technology, “we can provide that capability, which is included in all of our service costs as well as advertising and job marketing.”
Finally, a key differentiator of RPO as a recruiting solution is that the provider does all the job marketing under the customer’s brand. This is critical, first, because it enforces the employment brand, and second, because it results in finding the best candidate for the job regardless of the source.
“We’re source agnostic,” says Palmer. “If the best candidate gets hired through an employee referral program, that’s great. We want the best candidate to get hired regardless of where they came from.”
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RPO implementations, when done properly, should be a two-way learning process. One of the first steps of an RPO implementation is to understand the history and the culture of the company through a discovery process. It is also important for the company to “understand in their own mind what their employment brand is all about, and for their RPO partner to help them articulate that brand,” says Palmer.
“Typically, the smaller the customer, the more work we do around articulating their employment brand.”
In addition to the discovery, the RPO provider documents the current and the proposed recruiting process(es). “We also do a lot of work around the technology... we train the hiring managers on the new recruiting process, and in many cases, we also train the hiring managers on how to conduct effective interviews,” says Palmer.
The tactical elements of an RPO implementation for SMBs can take from one to three weeks. The change management piece typically takes between one and six months. According to Palmer, that involves helping managers adapt to the new process and get used to working with the RPO provider, “sometimes ironing out some of the glitches.”
The biggest challenge during an implementation is change management. According to Palmer, this involves “understanding what change elements have to happen and working with the company’s leadership to make sure that we can implement a full solution.”
In small organizations that have less than 500 employees, change management is typically lead by the person running HR, in addition to the senior leadership team. In larger organizations, where they have a more rigorous HR department, they usually have a head of HR that is responsible for the function or the care of people and usually owns recruiting as well.
“In our experience, the key to a successful RPO engagement is definitely having executive buy-in and support,” notes Palmer.
RPO Cost Models
Unlike staffing agencies that charge based on the salary of the hires, RPO usually has a cost-plus pricing model. RPOs usually charge a combination of a monthly management fee and then a transaction fee. The monthly management fee can be anywhere from 20-80% of the total cost for recruiting. The variable fee can either be a launch fee, a success fee, an open fee or a closed fee that applies to every job based on the volume and the difficulty level of the job.
There’s no one-size-fits-all for an RPO pricing model – some customers are more transactional because their hiring volumes are less predictable and they want more of a transactional element, so they pay when the jobs are launched or the positions are filled. Other customers want to be able to calculate the cost into their monthly budget, so they want a very high percentage of their total fees to be consistent.
Recruitment process outsourcing has evolved to be a cost-efficient and practical option for smaller businesses. Early adopters tell us that RPO delivers significant value in flexibility, quality, cost reduction, and people/process/technology improvement. However, RPO requires an appetite to improve efficiency and build some rigor into the process as well as commitment to change management and leadership buy-in.
As more small businesses start to know about the fourth option for recruiting (besides the better-known options, internal recruiters, staffing agencies and contract recruits) RPO is likely to experience growth in the small-midsize market (SMB) in the next few years.