Recruitment Process Outsourcing (RPO) Improves Long-Range ... · recruitment process outsourcing...

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May 2019 Zachary Chertok Research Analyst Human Capital Management RR RECRUITMENT PROCESS OUTSOURCING (RPO) IMPROVES LONG-RANGE TALENT PLACEMENT

Transcript of Recruitment Process Outsourcing (RPO) Improves Long-Range ... · recruitment process outsourcing...

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May 2019 Zachary Chertok Research Analyst Human Capital Management

RR

RECRUITMENT PROCESS OUTSOURCING (RPO) IMPROVES LONG-RANGE TALENT PLACEMENT

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As organizations struggle to place the right talent in the right role at the right time, recruitment process outsourcing (RPO) improves the odds of hiring and retaining top talent. From improving strategic hiring to aligning individual career goals with the organization’s mission, RPO sets a new standard for long-term workforce value.

Setting the Scene

There is little doubt left regarding the value of partnering with a recruitment process outsourcing (RPO) provider beyond engaging in traditional recruiting and staffing. For example, in a recent survey, Aberdeen found that for every 1% increase in likely RPO spend, the organization is 47% more likely to reduce employee turnover. By comparison, for every 1% that a company is more likely to increase spending on traditional recruiting and staffing, they are only 28% more likely to reduce employee turnover. A key reason for this difference is that RPO goes beyond the value proposition of expanded talent pools to providing best practices guidance for recruitment, retention, and the strategies that facilitate hiring.

In today’s environment, talent acquisition professionals — from HR directors to hiring managers — look to achieve more than merely filling open positions with the best talent available. Today’s specialists need personnel who suit the corporate culture, have growth potential, are more likely to remain with the firm long-term, and can reach defined performance goals more quickly.

In other words, hiring specialists need to attract top performers while strategizing retention over the long-term, inclusive of continuous and discontinuous employment.

As organizations face these challenges head on, the Best-in-Class are turning up the heat on top-talent acquisition in ways not previously seen in the market. In Aberdeen’s dataset, more than 60% of companies have scaled up talent acquisition investment — over long-term performance management and engagement — by as much as a 2:1 ratio. An emerging trend sees the Best-in-Class diversifying talent acquisition resources to collect a broader set of information about incoming candidates, sustain

The Aberdeen maturity class framework is comprised of three groups of survey respondents. This data is used to determine overall company performance. Classified by their self-reported performance across several key metrics, each respondent falls into one of three categories:

Best-in-Class: Top 20%of respondents basedon performance

Industry Average: Middle50% of respondents basedon performance

Laggard: Bottom 30%of respondents basedon performance

Sometimes we refer to a fourth category, All Others, which is Industry Average and Laggard combined.

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stronger talent pipelines, and boost candidate engagement by interacting with the candidates earlier in the recruitment cycle.

The strategy of frontloading talent placement focuses on short-term hiring to build better candidate engagement, but it does not encourage career capital within the organization for long-term employees. For each percent companies invest in frontloading talent acquisition, they only reduce the likelihood of high employee turnover by 34%, which is 13% lower than for companies that invest in RPO and long-term strategy development.

Aberdeen’s survey reveals that frontloading talent placement causes 29% of the Best-in-Class to lose track of what defines their talent market, while 26% find that they are unable to construct and sustain talent pipelines, including internal and external talent qualified for redeployment.

Another 59% of the Best-in-Class find that they are unable to recruit top-quality talent but do not know why. For the last five years, Best-in-Class companies have claimed there has been a decline in the general aptitude of the talent market. But considering the number of people looking for work, good talent should not be difficult to source. The reality is that from a recruitment perspective, more than 60% of employers do not try hard enough to meet the most important expectations of viable candidates.

Figure 1: Top Reasons Employees Join and Stay with Firms

80% 78%

62%69% 67%65% 65%

34%

51%

67%

Competitive opportunitiesto pursue career growth

Employees can easilypursue career path and

individual growth

Well-defined job descriptions and skill

needs

Employees see relevance to the organization

Company supportsemployee initiative todevelop new ideas

% of respondents, n=273, Source: Aberdeen, October 2018

Best-in-Class All Others

For each percent companies invest in frontloading talent acquisition, they only reduce the likelihood of employee turnover by 34%, which is 13% lower than for companies that invest in RPO and long-term strategy development.

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As Figure 1 indicates, a proper analysis of the external labor market shows that employees focus on their career advancement first, then on how their goals fit into the broader culture and mission of the organization. When choosing where to work, employees rank financial stress as the most significant factor. Clearly defined growth-opportunities — spread out over careers — offset this stress. Meanwhile, 68% of employers prioritize managing internal goals; 62% recognize they are losing ground on critical engagement indicators, which increases the likelihood that over 50% of the organization’s workforce will become flight risks in less than two years from their date of hire.

Recruitment: Not a Short-Term Objective

Employers have more resources and data than ever before; why do they routinely fail to recognize that building a career leading to tenure is paramount for most employees? It’s apparent that today’s internal recruitment strategies focus on hiring to resolve organizational problems rather than developing retention and career-based engagement strategies from the moment a candidate lands in the talent pipeline.

Candidate data management and interaction strategies have a track record of failure, but the number of firms using multiple systems to analyze recruitment metrics — while focusing on candidate engagement — is growing. Even with data collection and metric analysis centralized within an applicant tracking system (ATS), the average firm uses as many as four recruitment, sourcing, and candidate processing solutions.

The ATS serves as the data hub for hiring. Based on historical data (internal interviews and hiring success) and external application habits (sourced through job-board partners), the ATS touts the ability to predict candidate potential. However, over-reliance on internal metrics coupled with HR and management’s inability to think outside the box is wreaking havoc on identifying strong candidates.

The average business deploys its human capital management (HCM) solution configured to meet the company’s specifications, with recruitment continuing to focus on the goals of the organization ahead of the goals of the would-be candidate. Frontloading talent placement via digital recruitment and an internal sourcing strategy increases the cost of hiring new talent, while the average tenure of that talent continues to shrink — baby boomers maintained an average tenure of five to seven years, while the average tenure for a millennial falls between one to four years. If the recruitment strategy continues to fail to put candidate interests first and

68% of employers prioritize managing internal goals; despite that, 62% recognize that they are losing ground on critical engagement indicators, which increases the likelihood that over 50% of the workforce will become flight risks in less than two years from their date of hire.

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doesn’t adapt to changes in the market, the system will continue to maintain these shortcomings.

Enter RPO

RPO is not a replacement for an overall recruitment strategy. Instead, RPO is a strategic partner helping to align the internal needs of the organization to the candidate market’s external demands. RPO functions like a sourcing and recruiting subject matter expert (SME).

RPOs go beyond recruiting, strategically changing how the company’s needs interact with the talent market. Organizations often fail to adapt, then blame the resulting shortcomings on external changes. In terms of Aberdeen’s performance indicators, this is Industry Laggard behavior.

But Best-in-Class organizations recognize that their short-term needs do not align with their long-term talent retention goals. The Best-in-Class are 3x more likely than All Others (75% vs. 25%) to implement strategies linking candidate hiring profiles to broader organizational performance management. For 51% of the Best-in-Class, the retention strategy now starts at candidate sourcing; RPO utilization has guided, influenced, and facilitated this evolution directly.

Table 1: Using an RPO-Guided Talent Strategy for Metric Gains

RPO Staffing / Recruiting

Improved employee engagement 1.9x 1.9x Increased likelihood of hiring a top choice candidate more than 50% of the time

1.8x 0.9x

Increased employee tenure 1.6x 0.9x

Reduced employee turnover 0.5x 0.3x % of respondents, n = 274, source: Aberdeen, October 2018

Table 1 shows how the attrition metrics change when an RPO is employed rather than traditional staffing or recruiting practices. While investment equally boosts the likelihood of engaging top-choice

The Best-in-Class are 3x more likely than All Others to implement hiring strategies that link candidate profiles with broader performance management.

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candidates more than 50%, RPOs pull ahead in the other key areas that lead to more robust employee pools. For example, organizations that choose to invest in RPO ahead of (or in addition to) traditional staffing and recruiting are 78% more likely to hire a top-choice candidate more than 50% of the time as compared to companies that rely on traditional staffing and recruiting alone (1.6x vs. 0.9x). These same Best-in-Class organizations are 67% more likely to reduce high levels of turnover than All Others that only rely on traditional staffing and recruiting (0.5x vs. 0.3x)

Of the Best-in-Class, 68% invest in an RPO partnership. Facilitated by a continuous talent pipeline reflecting an acute understanding of the talent market, the RPO value proposition is long-term talent placement improvement. Best-in-Class companies have become increasingly aware of their limited understanding as to why employees join and stay with organizations and remedy this by seeking out talent SMEs to reconnect with employee goals and vet candidate matches more thoroughly. Without an SME partner — such as an RPO — top-talent predictions happen too late in the hiring process, leading the organization to suffer from lower productivity and decreased revenue potential. It then takes new hires longer to work at full capacity, and engagement with long-term training declines alongside average employee tenure.

RPO Benefits for Long-Term Hiring

Today, organizations face mounting pressures to hire top-quality talent as the market grows increasingly competitive in new ways. There is a deep divide between skilled and unskilled talent: Industries that never competed previously now vie for the same candidates. The generational divide inflicts further hardships on organizations that have no defined plans for how to translate baby boomer tenure into soft-skills training for Generations Y and Z.

Many organizations (85%) admit that they recognized the inevitability of the generational skills divide, but more than 90% continued to plan reactively to changes in candidate or employee behavior. Consequently, recruiting outside the firm is now a must for these organizations to remain competitive with top candidates.

A solid play toward winning the talent war, RPOs are essential for identifying top candidates more likely to remain with the organization throughout their careers. For management, as these solid, qualified employees grow into new roles — or return to the organization after brief

Best-in-Class companies have become increasingly aware of their limited understanding as to why employees join and stay with organizations.

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departures — they require less training to work at full capacity, which saves time, money, and resources.

RPOs help increase tenure by requiring the company to focus on employee expectations from the start of candidate sourcing. As baby boomers retire and leave the workforce, increased tenure will help firms to be in better position to identify internal mentors for new hires. For organizations trying to shore up employee engagement, improving internal relationships and the corporate culture, longer tenures and decreased turnover are essential to build positive workplaces that attract incoming talent.

RPOs also sharpen the focus on improving retention, reducing costs and boosting innovation and growth. Best-in-Class companies are 17% more likely than All Others (68% vs. 58%) to engage an RPO partner to rectify their talent placement strategy shortcomings and take corrective action toward low-grade recruitment practices. Organizations that use RPOs achieve higher average tenure among incoming employees (50% vs. 30%). Where the high-end average retention for non-RPO users falls between three and five years, the low-end average is four to eight years for RPO users.

As a Best-in-Class characteristic, this impact on long-term hiring and talent placement helps organizations improve revenue-generating activities. Over the last 12 months, the Best-in-Class have been 4.1x more likely than All Others (98% vs. 24%) to realize increased revenue per FTE due to increased productivity driven by longer tenure and increased employee engagement.

Organizations need all the help they can get to stay ahead of a talent market more than 65% of Best-in-Class companies admit they no longer understand. Old strategies and internal recruitment methodologies don’t connect with the changing labor market. The value of recruitment process outsourcing (RPO) will continue to increase while employers figure out how to improve the odds of engaging and retaining top talent.

Organizations that use RPOs achieve higher average tenure among incoming employees (50% vs. 30%).

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Related Research

Agile Analytics Improve Talent Placement; April 2019

How the Best-in-Class Eliminate Barriers to Promoting and Retaining Top-Quality Talent; December 2018

RPO is Officially a Best-in-Class Talent Acquisition Resource; May 2018

Hiring Tomorrow’s Workforce Today: The Talent Pipeline; December 2017

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About Aberdeen Group

Since 1988, Aberdeen Group has published research that helps businesses worldwide to improve their performance. Our analysts derive fact-based, vendor-neutral insights from a proprietary analytical framework, which identifies Best-in-Class organizations from primary research conducted with industry practitioners. The resulting research content is used by hundreds of thousands of business professionals to drive smarter decision-making and improve business strategies. Aberdeen Group is headquartered in Waltham, Massachusetts, USA.

This document is the result of primary research performed by Aberdeen Group and represents the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group.

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