Recruitment Process Outsourcing (RPO) – Definition, Benefits and Risks

Definition of Recruitment Process Outsourcing (RPO)

Recruitment Process Outsourcing (RPO) is the process where an employer outsources or transfers all or part of its recruitment activities to expert services of a third party (generally professional consultants).

The Recruitment Process Outsourcing Association defines RPO as follows: “when a provider acts as a company’s internal recruitment function for a portion or all of its jobs, RPO providers manage the entire recruitment/hiring process from job profiling through the on-boarding of the new hire, including staff, technology, method and reporting.”

RPO and other types of occasional recruitment support, contingency and executive search services differ majorly in the “Process”. The service provider assumes ownership of the process in RPO, while in other types of staffing services the service provider is only a part of the process controlled by the organization buying their services.

Recruitment Process Outsourcing (RPO)

History of Recruitment Process Outsourcing (RPO)

Temporary, contingency and executive search firms have provided staffing services for many decades, but the concept of an employer outsourcing the management and ownership of part or whole of the recruitment process was first realized during the 1970s in the highly competitive high tech labor market of Silicon Valley. Being hard-pressed to find and hire technical specialists these companies had to pay large fees to specialized external recruiters for staffing their projects. In order to reduce the growing expenses of recruitment fees these companies began examining the various stages in the recruitment process that could be outsourced. The initial Recruitment Process Outsourcing (RPO) programs typically consisted of purchasing lists of potential candidates from RPO vendors.

Over the years, the concept of outsourcing was accepted by businesses more and more. Recruitment Process Outsourcing (RPO) too gained favor among Human Resource management. RPO reduced overhead costs from their budgets and also helped improve the company’s competitive advantage in the labor market. With labor markets becoming more and more competitive, RPO became more of an acceptable option. In the early 2000’s more companies began considering the outsourcing of recruitment for major portions of their recruiting need.

The fundamental changes in the World labor market have reinforced the use of Recruitment Process Outsourcing (RPO). The labor market today is highly dynamic: workers are changing employers more often than in the previous generations. De-regulation of labor markets has created a shift towards contract and part-time labor and shorter work tenures. These trends have increased the recruitment activity and encouraged the use of RPO. Even in slower economic times or higher unemployment, RPO is considered by companies to assist in an increasing need to screen through a larger pool of candidates

Benefits of Recruitment Process Outsourcing (RPO)

Recruitment is seen as a cost incurring process in an organization. Recruitment Process Outsourcing (RPO) has helped the HR professionals of an organisation to concentrate on the strategic functions and processes of human resource management instead of wasting their efforts, time and money on the routine work. Outsourcing of the recruitment process helps cut the recruitment costs to around 20 % and provides economies of scale to a large sized organization.

Outsourcing has become beneficial for both the corporate organisations that use outsourcing services as well as the consultancies that provide the service. Apart from increasing their revenues, outsourcing process also provides business opportunities to the service providers, enhances the skill set of the service providers and exposure to different corporate experiences thereby increasing their expertise.

  1. Time/Speed: Hiring of a recruitment company to do the recruitment process for a new project saves precious time. The recruitment agency already has the database of prospects classified according to their skills, knowledge and experience. Once the requirements are provided by the organisation and the service provider provides the organisation with a list of candidates that would be ready to be interviewed.
  2. Money/Costs: In traditional recruitment process the HR professionals have to stop their current work and concentrate on the recruitment process. This is a problem for the small and middle sized companies, the big corporations have their own recruitment departments. By outsourcing the whole of the recruitment process these companies save costs incurred in the recruitment process. The HR professionals can focus on their current work without worrying about recruitment process. These days even the big companies are outsourcing their recruitment processes to reduce costs.
  3. Quality: It is considered that the recruitment needs of a company are better realized by the owner or someone working for it. But while recruiting new personnel for a specific job or project this can be very challenging. Specialized recruitment agencies have an extensive database of resumes and the networking to source the right type of candidate.

Risks of Recruitment Process Outsourcing (RPO)

Though Recruitment Process Outsourcing (RPO) has benefits, it has its own sets of limitations/risks. RPO will be successful in the context of a well-defined corporate and staffing strategy. A company must manage its RPO activities, providing initial direction and continued monitoring to get the desired results.

  1. Loose Definition of RPO: As RPO is a commercial concept rather than a specific definition, there is little regulation to RPO providers. As such, a recruitment agency can brand their services as RPO without actually structuring them in a way that will provide the most benefit to their clients.
  2. Cost: Though RPO engagement is considered as cost saving method, the cost of engaging an RPO provider can be more than the cost of the internal recruitment department, as an RPO provider is likely to have higher business overheads.
  3. Effectiveness: If an RPO provider does not understand or seek to understand the recruitment solution that they will be providing, it will lead to an improperly implemented RPO. This would reduce the effectiveness of recruitment.
  4. Failure to Deliver: When finding candidates in industry sectors where there are staff shortages, RPO service providers may fail to provide the quality or volume of staff required by their clients.
  5. Pre-Existing Issues: If the company’s existing recruitment processes are not effective or if the service provider lacks appropriate recruitment processes/procedures to work with the client the RPO solution may not work. In such a situation, it is better for the company to undergo a recruitment optimization programme.
  6. Engagement: Many RPO organisations perform their staffing functions and service offsite or offshore. This disconnects the provider from the client company’s growth and recruiting strategy. Though this effect can be mitigated by strong relationship management, some of the momentum and energy associated with the rapid up scaling of a workforce through recruitment may dissipate.