Build or buy? The case for outsourcing recruitment in times of uncertainty.
As the economy tentatively emerges from COVID-19, business leaders face the difficult challenge of how to right size their organisations and align their cost bases for what is likely to be a bumpy couple of years.
While most companies will want to gear up for growth, investment decisions will be closely scrutinised, in particular those that add fixed costs back into the business.
A shifting landscape for investing in inhouse talent acquisition
People drive competitive advantage, so it is crucial to have the right model in place to acquire, develop and retain talent. In the decade preceding the global financial crisis, we saw a sharp increase in the number of firms investing in building internal recruitment capability. Globally, large in-house teams of well remunerated talent acquisition, employer brand and strategic sourcing experts have become the norm, with recruitment recognised as a strategic enabler of business growth and success, rather than a secondary HR task.
Supporting these teams were multi-million-dollar CAPEX projects to procure leading edge technology, develop integrated workforce management frameworks and leverage detailed talent analytics. While there is no doubt that such teams can demonstrate return on investment, they often lack the flexibility to respond to changing business and economic environments. In a more fiscally constrained period is it time to pursue a ‘buy’ rather than a ‘build’ strategy in the talent acquisition arena?
Applying a commercial lens to recruitment outsourcing
Outsourcing recruitment strategy and delivery is not a new concept. Recruitment process outsourcing (RPO) has been one of the fastest growing forms of business process outsourcing in the last 20 years, recognised for its speed of implementation and efficacy; in particular it ability to deliver value in terms of expertise, flexibility, and productivity (Collings & Wood, 2009).
In recent years, as RPO customers focus more heavily on employer branding, user experience and how talent acquisition can support broader business objectives such as diversity and inclusion, the commercial benefits of RPO have been somewhat less important.
However, with Australian economists now predicting that it could take 18-months to return to pre-coronavirus market conditions (Oliver, 2020), cost efficiency will likely be front and centre expenditure and investment decisions for talent acquisition. So how does recruitment process outsourcing stack up commercially?
How RPO drives cost savings
RPO providers apply several levers to take cost out of an organisation’s hiring activity. Firstly, almost all RPO models are designed to maximise low cost direct hiring channels, leveraging expertise built over many years to develop careers websites that convert quality applications, source hard-to-find talent, drive internal referrals and execute internal mobility and retention strategies that reduce the need to source from the external market. The average cost per hire under an RPO model tends to be between $1500 and $4000, which compares very favourably to hefty one-off placement fees charged by recruitment agencies.
In comparison to an in-house talent acquisition team, RPOs deliver savings by helping organisations avoid large non-revenue generating functions with significant overheads. The cost of building an in-house talent acquisition team is significant. An employee’s total remuneration and benefits is usually between 1.25 to 1.4 times their base salary, so an AU$60,000 annual salary could cost a firm up to $84,000 per year (Hadzima, 2005). This does not consider other costs such as time for employees to reach full productivity, facilities costs or ongoing training and development. As organisations place increased focus on revenue and gross profit per FTE, a large in-house talent acquisition team can negatively impact the balance sheet.
An RPO offers an opportunity to ensure 100% team utilisation and productivity. With headcount, technology and other resources flexed up and down to meet demand and strict KPIs and SLAs to manage deliverables, an RPO gives businesses agility, certainty, and cost efficiency that an in-house team is unable to deliver.
Consider partial outsourcing
A fully outsourced recruitment model may not work for all organisations and, in the current climate, there is certainly an argument for taking things one step at a time.
Contemporary RPO solutions offer a wide range of outsourcing options, including project RPO’s that focus on a specific business unit, location or project and modular solutions that segment talent acquisition activities into strategic and transactional tasks, outsourcing those that can deliver the most impact in terms efficiency and cost savings to the customer.
Depending on the size and complexity of the business, maintaining a lean inhouse team to manage talent acquisition strategy and govern the relationship with an outsourced provider can also be advantageous. The RPO provider can focus on the heavy lifting associated with sourcing, screening and onboarding talent, and the customer’s team or representative can ensure that talent acquisition delivery supports broader organisational strategy and goals.
Whether a full outsourced or modular solution is considered, it is important to ensure that flexibility is built into the operating model and contract.
There is no doubt that COVID-19 will continue to send shock waves across the global and domestic economies and that these will be experienced for months if not years to come. The ability to execute talent strategies that position businesses effectively for growth, while delivering the agility and flexibility to scale to rapidly changing business and economic conditions will be the hallmarks of successful talent acquisitions functions.
Collings, D. G., & Wood, G. (2009). Human Resource Management: A Critical Approach. London: Routledge.
Hadzima, J. (2005). Retrieved from Boston Business Journal : https://web.mit.edu/e-club/hadzima/how-much-does-an-employee-cost.html
Oliver, S. (2020, May 19). Insights on COVID-19. Retrieved from AMP: https://www.amp.com.au/insights/COVID-19/australian-economy-recover-after-covid-19