RPO Market Undergoes Explosive Growth –Opportunities and Challenges Ahead

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Today’s WebinarRPO Market Undergoes Explosive Growth – Opportunities and Challenges Ahead

Synopsis: Everest Group research analysts will identify emerging trends, highlight challenges, illustrate the current service provider landscape, and identify some possible differentiation themes for providers.

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RPO Market Undergoes Explosive Growth – Opportunities and Challenges Ahead

Webinar

April 28, 2011


Introductions

Rajesh RanjanResearch DirectorEverest [email protected]

Sayan ChatterjeeSenior Research AnalystEverest [email protected]




Contents

Market definition and overview

Buyer adoption and solution characteristics

Service provider landscape

Key takeaways


There are three kinds of sourcing models used for recruitment services

Out-tasking modelComprehensive outsourcing model

Selective/componentized outsourcing model

Key characteristics

Consideration for adoption

Can include one or more recruitment processes

Short-term project-based work

Typically restricted to one type of hire at a time (e.g., executive hire, temp hire)

Restricted to external hires; does not include internal hire management

Includes components of recruitment process; can be front-office (employer branding, sourcing, etc.) or back-office components (applicant tracking, offer letter management, technology management, etc.)

Ongoing long-term (multi-year) relationship

In case of fuller scope, typically includes one or two types of hires/ job-families

Can include both external and internal hire management

End-to-end outsourcing of recruitment process to the service provider that includes both front-office and back-office components

Ongoing long-term (multi-year) relationship

Typically includes almost all types of hires

Includes both external and internal hire management

The need is specific and one time

Buyers want to keep direct control over the recruitment process

In some specific recruitment processes, buyers need expertise on an ongoing basis

The buyer wants to dip its toe in the outsourcing model

The buyer wants to transform the entire recruitment function

The buyer wants to expand the value creation beyond the “selective” model

HighDegree of outsourcingLow

Source: Everest Group (2010)Focus of our discussion


We define RPO as transfer of ownership of all or part of recruitment processes or activities on an ongoing basis

Source: Everest Group (2010)

Everest’s analysis include only those RPO deals in which: A minimum of four or more recruitment processes are included The outsourcing deal is active and is at least one year in deal length The deal scope should not be limited to temporary hires only

Recruitment Strategic consulting Sourcing Applicant tracking Screening Pre-employment testing Employment offers/

selection management Background checking On-boarding Vendor management

StrategyJudgment-intensive Transaction-intensive HR

strategy

Employee data managementPayrollBenefits

CompensationRecruitmentLearning

Employee contact centerHR information systems and reporting

Global mobilityRegulatory and compliance

Employee relations

Performance management


In the last couple of years, RPO moved from the “pioneer” to the “emerging rapid growth” stage along a market maturity curve


Evolution in the single-process HRO market

Slower adoption rates; however, growth and scale still available

Accepted model(s) and standards

Well-established specifications and service provider capabilities

Consolidated market dominated by a few playersLearning

Accelerated adoption Evolving specifications and

service provider capabilities Increased M&A and partnerships

among service providers to expand capabilities and quicken time to market

Maturity

Pioneer Emerging rapid growth Reaching maturity

CompensationRecruitment

Benefits

PayrollEmployee data

management

Mar

ket v

alue

cre

atio

n


The RPO market is growing at a rapid pace with explosive growth in new deal signings in 2010

Sample size: 406 RPO deals signed between 2007 & August 2010 Source: Everest Group (2010)

Time trend for deal activityNumber of deals

Time trend for average deal sizeAverage number of hires per deal

3952 58

12621

3348

29

1,371

1,5711,519

1,098

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010E0

200

400

600

800

1,000

1,200

1,400

1,600

Extensions New deal signings New annual hires


Traditional drivers such as cost savings and scalability continue to be important for first-generation buyers. Second-generation buyers look for more strategic value


Impact on efficiency Impact on effectiveness Impact on overall business

High

Low

Impa

ct d

eliv

ered

Cost impact

Business impact

Strategic impact

Time

Stage I

Stage II

Stage III

Key drivers in first-generation deals

Key considerations in second-generation deals

More of aspiration currently


While a high number of renewals indicates broader satisfaction, the rapid growth has put some strain on service delivery, leading to few non-renewals/terminations


Deal renewal activityNumber of deals

Deal not renewed

Deal renewed

Deal terminated before contract expiry

10%

85%

5%

100% = 154


Contents




Key takeaways


59% 60%

16% 14%

6% 11%

20% 14%

2%

2007-2009 2010

North American buyers continues to lead RPO adoption. Continental Europe saw increased adoption in 2010


228 117100% =

Buyer adoption trend by signing regionNumber of deals

North America

UK

Continental Europe

Asia Pacific South America


65%74%

19%16%

16% 10%

2007-2009 2010

Notwithstanding the high interest around global RPO, most buyers adopted a single-country approach in 2010

Buyer adoption by geographic scope of dealNumber of deals

Sample size: 345 RPO deals signed between 2007 & August 2010Source: Everest Group (2010)

100% =

Local

Regional

Global

228 117


Large buyers continue to be the major adopters of RPO

37%

63%

Mid-market3K-15K employees

Large-market>15K employees

100% = 708

Buyer adoption trend by size of organizationNumber of deals

Sample size: 708 RPO deals as of August 2010Source: Everest Group (2010)


Although usage of base fee plus a variable pricing model decreased, it still remains the most frequently used

Sample size: 335 RPO deals signed between 2007 to August 2010Source: Everest Group (2010)

Pricing structure trendNumber of deals

100% =

56%47%

30%

29%

12%19%

2% 5%

2007-2009 2010

Base fee plusvariable price

Fixed price

Variable price

Other

222 113


Most deals in 2010 were focused around the core recruitment processes leading to less inclusion of ancillary processes

Sample size: 345 RPO deals signed between 2007 to August 2010Source: Everest Group (2010)

Inclusion of recruitment processes within RPO dealsNumber of deals

Strategic consulting

Sourcing

Applicant tracking

Screening

On-boarding

Background checking

Vendor management

Employment offers/ selection management

Pre-employment testing

Core recruitment process

77

91

86

91

68

90

79

71

64

74

91

84

91

66

82

61

54

44

2007-20092010

Ancillary recruitment process


There is still limited adoption of offshoring in RPO compared to BAO and multi-process HRO. However, this is gradually changing

Sample size: 345 RPO deals signed between 2007 to August 2010, 595 BAO deals signed between 2007 and April 2010 and 219 MPHRO deals signed up to October 2009


Inclusion of offshoringNumber of deals

Time trend of offshoring in RPO Number of deals

100% = 595 219345

82%

38%52%

18%

62%48%

RPO BAO Multi-processHRO

Includes offshorecomponent

No offshorecomponent

83% 80%

17% 20%

2007-2009 2010

Includes offshorecomponent

No offshorecomponent

100% = 228 117


Contents




Key takeaways


Service providers in the stand-alone RPO market come from a variety of backgrounds and have varying competitive strengths and strategies

Multi-process HRO background

Pure-play RPO background Contracting/staffing background

Executive search background

RPO market space


RPO service providers can differentiate themselves along multiple dimensions

Areas of differentiation

Global solution

Offshore leverage

Industryspecificity

Technology strategy

Value proposition

Total talent acquisition solution

2

4

3

5

1

6


Identifying and assessing service provider selection criteria

Service provider evaluation categories and subcategories DescriptionCultural fit Partnering ability Flexibility Values

As evidenced in the service provider’s ability to convey sensitivity to client’s concerns around quality and flexibility

Solution design and quality Quality of execution Service levels Transition and operations risk

Based on the service provider’s ability to demonstrate a compelling solution and strategic vision for its offerings

Financial impact <Number of years> cost NPV Financial risk

Any defensible benchmark savings offered through case studies or service provider’s best practices or convincingly cost-effective solutions. Financial health of the service provider itself should also be given due weighting

Service provider capability Scale Scope Technology Geographic delivery capability

Assessment of service provider’s RPO capability in terms of scale of current operations, scope in terms of recruitment function capability and quality, technology capability, and geographic spread

Situation specific factors such as experience within a particular industry and type of hires/job families should also be considered


Contents




Key takeaways


Key takeaways for buyers and service providers of RPO

For buyers

Due diligence to understand service providers’ capacity situation is important in this fast growing market place

Integration of the solution more important than model (single provider model vs. partnership based model) per se for a multi-country/global RPO requirements

Global sourcing is an important lever to realize cost efficiencies

Have provisions in the contract to protect interest in case of a provider’s acquisition

For service providers

Not all business is good business

Creating differentiation to stay ahead of competitors is key

Evaluate and create partnerships on the basis of synergy accruing out of strategic, operational, technical, and cultural alignment

Strike the right balance between customization and standardization


Forthcoming and published research in RPO

Mapping onto the Workforce of Tomorrow: How RPO Can Play a Role

Recruitment Process Outsourcing (RPO) Annual Report 2010 – A Year of Rapid Growth and Intense Competition

RPO - Service Provider Landscape and Capability Assessment

Recruitment Process Outsourcing (RPO) – Service Provider Profile Compendium

Multi-country RPO – Hype versus Reality

Contingent workforce outsourcing

Recruitment Process Outsourcing (RPO) Annual Report 2011

Title Release Date

August-2010

November-2010

January-2011

April-2011

Q3-2011

Q3-2011

Q4-2011

In addition to the above reports, we publish multiple point in time view point documents based on key market developments (e.g., mergers and acquisitions, major deal, breakthrough innovation, etc.)

Published

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Upcoming Webinar

Meter-to-Cash BPO Market for UtilitiesAn Opportunity for Buyers and Service Providers

Date: Tuesday, May 10, 2011

Time: 9:00 a.m. CDT; 10:00 a.m. EDT; 2:00 p.m. GMT

Presenters: Saurabh Gupta, Vice President, Everest GroupKuldeep Lulla, Senior Analyst, Everest Group

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Attendees will receive an email with a link to download today’s webinar presentation. A recording of the webinar will be available within 24 hours on our website, www.everestgrp.com/category/webinars

For more information related to today’s topic, please contact: Rajesh Ranjan, Research Director, [email protected] Sayan Chatterjee, Senior Research Analyst, [email protected]

For background information on Everest Group, please visit: www.everestgrp.com www.everestresearchinstitute.com

Thank you for attending today’s presentation

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