Outsourcing Recruitment Is Not Evil

Transcription

1 RPO Builds Its Business Case on Flexibility, Scalability, and Outcomes November 2010 Jayson Saba

2 Page 2 Executive Summary Outsourcing is not for every organization, but this report builds a solid business case to consider Recruitment Process Outsourcing (RPO). One of the key recommendations in this report is to benchmark recruitment performance before outsourcing all or select elements of the recruitment process so as to compare pre and post-rpo results. Aberdeen begins this study by benchmarking nearly 200 organizations across four key metrics to determine Best-in-Class performance in recruitment. Aberdeen then compares that data to a subset of 80 organizations in the aggregate sample that indicated they fully or partially outsource recruitment processes. The comparison reveals that those engaged in RPO have achieved slightly better outcomes than those that don't. This report serves as a roadmap to evaluate if outsourcing all or parts of the recruitment process can address your challenges, and whether your company has what it takes to achieve and sustain leading results from RPO. Best-in-Class Performance Aberdeen used four performance criteria to define Best-in-Class in overall recruitment (among 200 organizations in the aggregate survey): 92% new hire retention rate (12 months from start date) 28% year-over-year increase in customer satisfaction 26% year-over-year improvement in hiring manager satisfaction 26% year-over-year reduction in time to fill Aberdeen then applied the same four performance criteria to the 80 organizations within that aggregate sample that indicated they currently outsource all or parts of the recruitment process. By doing so, Aberdeen found organizations enjoying Leader class performance (the top 30 performing companies engaged in RPO) shared several common characteristics: 74% formally assess performance of partnership at least every six months, versus 54% among non-leaders 73% solicit feedback from key stakeholders (i.e. hiring managers) on the process, versus 59% among non-leaders 66% solicit feedback from new hires on the recruitment process versus only 37% among non-leaders Research Benchmark Aberdeen s Research Benchmarks provide an indepth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve top performance in the use of RPO, companies must: Ensure their RPO provider understands the culture of the organization and matches external messaging to your brand Allow RPO providers to collaborate with your hiring managers to understand their needs Define metrics to assess RPO performance

3 Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 The State of Talent Acquisition...4 Is Outsourcing Recruitment the Best Option?...5 Defining "Leaders" in the Use of RPO...9 The PACE Model...10 Chapter Two: Benchmarking Requirements for Success...12 Competitive Assessment...13 Capabilities and Enablers...15 Chapter Three: Required Actions...19 Organizations Considering Outsourcing...19 Organizations Currently Outsourcing (Not Leaders)...20 Leaders Currently Outsourcing...20 Appendix A: Research Methodology...22 Appendix B: Related Aberdeen Research...24 Figures Figure 1: Top Pressures Driving Talent Acquisition...4 Figure 2: RPO Impacts Key Performance Outcomes...6 Figure 3: Drivers behind RPO...7 Figure 4: Earning Leader Status...9 Figure 5: Vendor Selection Criteria...11 Figure 6: Top Three Elements in RPO SLAs...16 Tables Table 1: Top Performers Earn Best-in-Class Status...5 Table 2: The Leader PACE Framework - Specific to Recruitment Process Outsourcing...10 Table 3: The Competitive Framework...14 Table 4: The PACE Framework Key...23 Table 5: The Competitive Framework Key...23 Table 6: The Relationship Between PACE and the Competitive Framework...23

4 Page 4 Chapter One: Benchmarking the Best-in-Class The State of Talent Acquisition Aberdeen's August 2010 study on Talent Acquisition Strategies, revealed that 72% of organizations anticipated increasing their recruitment efforts and budgets for the coming year, compared to 44% that indicated as such in Aberdeen's 2009 research on the same topic. These findings are consistent with data collected by Aberdeen Group from thousands of executives in cross-functional business disciplines for Aberdeen's Quarterly Business Review. When asked for their organization's anticipated year-over-year change in headcount for fiscal 2010, companies on average projected a 4% increase as of August As for the top pressures driving recruitment in 2010, two things are quickly distinguished when comparing the data to the 2009 findings. First, even with high unemployment rates, nearly half of the organizations in the survey indicated that the shortage of required skills in the labor pool was driving their talent acquisition efforts. This means that sourcing has become more challenging and, at the same time, much more critical. The good news, however, is that fewer organizations are challenged by budget cutbacks as most have already scaled back, and many have recognized the need to shore up recruitment efforts to ensure the talent is in place to meet customer needs and achieve growth objectives (Figure 1). Fast Facts Organizations that outsource elements of the recruitment process are 12% more likely to achieve Best-in-Class 77% of organizations in RPO engagements recommend it to peers compared to just 9% that do not Figure 1: Top Pressures Driving Talent Acquisition Percent of Organizations, n = % 40% 30% 20% 10% 0% 47% 34% Shortages of required skills in the labor pool 35% 35% Increasingly competitive environment for top talent % 34% 30% 27% 24% 23% Need to scale to meet current grow th opportunities Changing customer requirements or demands Budget cutbacks Respondents were asked to select top two in both surveys "A great RPO partner must be willing to service per the terms of the business, work seamless throughout the entire process, and be quick about handling pre-employment and employment issues." ~ Wayne Bradshaw, Vice President, IST, Inc. Source: Aberdeen Group, Talent Acquisition Strategies, August 2010

5 Page 5 Is Outsourcing Recruitment the Best Option? To determine the viability of Recruitment Process Outsourcing (RPO), Aberdeen surveyed nearly 200 organizations in October and November of 2010 to establish whether outsourcing all or select elements of the recruitment process is a practical option to help companies execute on key strategies and address the pressures listed above. Using four key performance indicators, Aberdeen cut the sample into three maturity classes (Table 1). This Best-in-Class framework is applied to the general sample to determine the performance levels for all organizations. Figure 4 later in this chapter applies this framework to the 80 organizations that currently fully or partially outsource recruitment to identify the top 30 leading organizations in RPO performance. Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Mean Class Performance 92% new hire retention rate (12 months from start date) 28% year-over-year increase in customer satisfaction 26% year-over-year improvement in hiring manager satisfaction 26% year-over-year reduction in time to fill 88% new hire retention rate (12 months from start date) 6% year-over-year increase in customer satisfaction 9% year-over-year improvement in hiring manager satisfaction 6% year-over-year reduction in time to fill 78% new hire retention rate (12 months from start date) 2% year-over-year decrease in customer satisfaction No change in hiring manager satisfaction No change in time to fill About the Survey For the purposes of this study, RPO means that an organization outsources one or more elements of the recruiting process. These elements can include, but are not limited to: sourcing and job advertising, screening, testing/assessments, interviewing and selection, background verification, drug testing, offer extension, onboarding and orientation. However, this study does not include the use of online job boards as RPO. Aberdeen collected data from nearly 200 organizations, 80 of which indicated they outsourced either all or select elements of the recruitment process. Source: Aberdeen Group, November 2010 The four metrics used to determine the Best-in-Class reflect the strategic importance of recruiting in attaining business outcomes (i.e. customer satisfaction). In addition, they take into consideration hiring manager satisfaction a measure of process efficiency and candidate quality, time to fill a measure of process efficiency and effectiveness, and new hire retention (measured as percent of new employees who stay on board 12 months from the start date). Whether voluntary (often as a result of poor fit) or involuntary (usually as a result of subpar performance), the latter is a good indicator of quality of hire. Fast Facts 64% of survey respondents define RPO as outsourcing of select aspects of the recruitment process

6 Page 6 RPO: A Viable Option Closer examination of the maturity class framework revealed that organizations that currently outsource some or all elements of the recruitment process are 12% more likely to achieve Best-in-Class results highlighted in Table 1. While the figure is not drastic, it is significant enough to deduce that RPO is a valid option for organizations seeking to improve recruitment outcomes. Figure 2 reveals, via a general comparison between organizations that currently outsource and those that don t, that RPO doesn t sacrifice performance. These findings, along with data from last year s study, RPO in 2009, which revealed that 62% of organizations that fully or partially outsourced recruitment were able to reduce cost per hire, help build a business case for considering RPO as a practical solution. Figure 2: RPO Impacts Key Performance Outcomes Average Year-over-Year Change, n = % 10% 0% -10% -20% 13% Currently Outsourcing 10% Change in customer satisfaction 14% 12% Change in hiring manager satisfaction Not Outsourcing -9% -12% Change in time to fill Source: Aberdeen Group, November 2010 Why Do Organizations Outsource Recruitment? No researcher or data point can prove that outsourcing recruitment is the right strategy for every organization. In fact, Aberdeen found 12 organizations (6% of the sample) that used to outsource the recruitment function but brought these processes back in-house. The top two reasons cited were the provider s inability to represent the brand or culture of organization and the lack of evidence of cost-savings. However, 77% of the 80 organizations that do currently outsource have recommended peers consider it. As we highlighted earlier in this chapter, organizations are emerging from the economic conditions of the past two years and cautiously looking to grow. However, Aberdeen's Q Quarterly Business Review found that the most common prediction - identified by 43% of respondents - was that the recovery would be "painfully slow and take a few years." As a result, there is still a strong focus on efficiency and alignment. Minimizing the "In an RPO relationship, we look for a good quantity of candidates in a timely fashion, as well as good quality of hire." ~ Bruce Baker, Manager of Human Resources, OEM Remanufacturing

7 Page 7 tactical burden of the recruitment function facilitates this alignment by allowing more focus on core business competencies. But as the candidate pool expands, the expectations of the hiring managers are raised. And at the same time, top talent becomes more elusive and harder to find - evidenced by the fact that the top pressure identified in Figure 1 is a shortage of required skills in the labor pool. Organizations must evolve their methods to reach more candidates and improve their chances of hiring top talent. Working with an RPO provider can foster the innovation needed in legacy sourcing and hiring processes to fill requisitions with top quality hires. Lastly, Figure 3 shows a substantial need for agility in recruiting. As recruitment functions are consolidated, organizations must remain prepared to adapt to changing market conditions by hiring quickly. In periods of growth, an RPO partner can help them scale up quickly. And when hiring needs decrease, they can share the risk and have the provider absorb part of the cost since the organization wouldn t have to carry a large number of staff in the recruiting function. Figure 3: Drivers behind RPO 50% Currently Outsourcing Percent of Organizations, n = 80 40% 30% 20% 10% 39% 34% 34% 26% 23% 0% Need to focus on core business competencies Need to innovate how w e go about recruiting Consolidated internal recruiting function Need to hire quicker Spike / Anticipated spike in talent needs Respondents were asked to select top two in both surveys Source: Aberdeen Group, November 2010 The following Case in Point is a great example of how an RPO partnership can provide the flexibility needed to keep an organization competitive and agile with its recruiting efforts. Case in Point Hydro One Wholly owned by the Government of Ontario, Hydro One is a utility company that distributes and transmits electricity to 1.3 million customers from large industrial users to rural homeowners - in the continued

8 Page 8 Case in Point Hydro One Canadian province. Hydro One has approximately 5,500 employees, but this rises to over 8,000 during the fair-weather months, when major maintenance and construction projects take place. With respect to recruitment, one of the key challenges that Hydro One faces is the cyclical nature of the business. From the economic cycle to the seasonal cycle, scalability and flexibility are essential to ensure staffing targets are met. Furthermore, in the current economy, Hydro One, like organizations in any other industry, is constantly seeking to increase the efficiency of its business operations. When hiring needs decline, it is not desirable to carry a large number of recruiters on staff, but at the same time, Hydro One needs to have the flexibility to scale up its recruiting efforts quickly again when hiring needs rise again. In late 2007, the company examined its recruitment strategy and identified that outsourcing some elements of the process could be a practical solution. In the areas of professional hiring engineering, IT, accounting, finance, etc., the ability to scale and share some of the risk of variability with an RPO provider to control costs was considered especially attractive, as was the increased ability to find good candidates quickly for hard-to-fill positions in a competitive talent market. Initially, Hydro One entered into a short-term engagement with an RPO provider, but given the positive outcomes, a competitive tender process led to a longer-term contract being put in place. Cedric Stevenson, Manager, Leadership Development & Recruiting at Hydro One added, We feel we have developed an excellent working relationship with our RPO partner. We re very happy with the results to date. A vital element in the success of the relationship is the ability of the RPO provider to work well with hiring managers. When the provider introduces new processes, technologies or recruiters, it is essential to ensure the hiring managers are fully informed and onside with the changes. Secondly, having a dedicated resource to manage the relationship is also essential to monitor effectiveness, communicate changes, and work with the provider to continuously improve the outcomes. Stevenson said, I manage the relationship with our provider. Defining key metrics from day one and having real-time access to them is crucial for my role to ensure both sides meet their commitments to each other. Some of the metrics that Hydro One currently tracks include cost per hire, time to fill, candidate pools, and managers usage. In 2010, Hydro One expects to fill 200 to 250 positions via this relationship, though as always this could change. Stevenson concluded, In any organization constrained by limited resources I believe outsourcing the recruiting process should be considered as a vehicle to provide the flexibility to adjust to market conditions. Having a partner that can absorb some of the shock of shifts in talent demand is extremely valuable for us.

9 Page 9 Defining "Leaders" in the Use of RPO To identify a Leader class among companies using RPO, Aberdeen applied the same four Key Performance Indicators (KPIs) used in Table 1 to the 80 companies that indicated they currently outsource some or all of the elements of their recruitment process. Aberdeen then compared this Leader class defined as the top 30 companies that excelled in those four KPI against the other 50 in order to determine how an effective RPO engagement is managed so as to yield the most positive outcomes. The performance differences between the Leader class and its comparison group (others) are illustrated in Figure 4. Figure 4: Earning Leader Status Average Reported Performance, n = % 75% 50% 25% 0% 87% 82% 22% 21% -1% Leaders 3% Others -3% -25% -21% New hire retention (12 months from start date) Change in customer satisfaction Change in hiring manager satisfaction Change in time to fill Source: Aberdeen Group, November 2010 In addition to the metrics used to define Aberdeen's Leader class in RPO utilization, Aberdeen found that top performers enjoy other benefits that are afforded via RPO engagements. From a process perspective, Leaders indicated, on average, 90% new hire satisfaction with the recruitment process compared to 84% for their counterparts. Not only is this an indication of efficiency, but it also shows that the company s brand in the talent market is being communicated effectively. From a turnover perspective, Leaders reduced voluntary turnover by 7% and involuntary turnover by 6%, compared to 3% and 1% respectively for others. This speaks to the quality of hires in terms of fit and competence that successful RPO partnerships yield for the client organization. It is noteworthy to state that even non-leaders saw improvements in hiring manager satisfaction and time to fill via RPO.

10 Page 10 The PACE Model Based on the Leader class analysis, the next chapter will show that the most successful RPO relationships require a combination of processes, performance management and organizational capabilities that can be summarized as follows: Before outsourcing, an organization must indentify the problematic elements of the process, assign corresponding metrics, and establish target benchmarks Ensure true partnership with the RPO provider through collaboration and discussions with key stakeholders, especially hiring managers Formally track the performance of the partnership against key indicators on frequent basis Table 2: The Leader PACE Framework - Specific to Recruitment Process Outsourcing Pressures Actions Capabilities Enablers Shortages of required skills in the labor pool Focus key internal resources on core organizational competencies Supplement internal recruiters to ensure flexibility Automate to streamline existing processes Formally assess performance of partnership at least every 6 months RPO provider understands the culture of the organization and matches external messaging to our brand Solicit feedback from hiring managers and/or other stakeholders in the process Before outsourcing, define recruitment process pain points that need to be addressed Allow RPO provider to meet with hiring managers to understand needs Detailed Service Level Agreement (SLA) is defined and in place that details the organization and provider responsibilities Applicant tracking platform Recruitment process consulting Job role definition / requisition building services Analytics / Intelligence tools to monitor the outcomes of the partnership Employer branding services Assessments Salary / compensation / reward planning In the next chapter, we will explore in more detail how Leaders are effectively executing RPO partnerships by identifying key differentiating process, organizational, and knowledge management capabilities. Source: Aberdeen Group, November 2010 Aberdeen Insights Evaluating RPO Providers The performance metrics previously highlighted in this chapter help build a case for RPO. As an organization conducts its due diligence, one of the key questions asked is, what do we look for when evaluating vendors? continued

11 Page 11 Aberdeen Insights Evaluating RPO Providers While cost is the top criterion considered among non-leaders (others), Leader companies cite flexibility (defined as the provider s willingness and ability to service and support select elements of the recruiting process) as their top criterion (60%), followed by cost and the ability to provide a level of service that supports or enhances the (user's) employment brand. "Flexibility" as a top decision criterion comes as no surprise. In fact, two thirds of the Leaders define RPO as the outsourcing of select aspects of the recruitment process rather than an end-to-end relationship. Moreover, of the 80 companies that are currently in RPO partnerships, 55 have a selective engagement in place where the provider is supporting elements of the process deemed challenging. Only 10 companies have an end-to-end engagement in place and another 15 are currently engaged with the provider to fill needs in a defined period of time (project-based / on-demand). Therefore, it is critical that providers and prospective organizations truly partner together to accurately assess needs, inefficient process, and other problem areas to determine which of the three models is most fitting given these constraints. Figure 5: Vendor Selection Criteria Flexibility: Willingness and ability to service and support select elements of the recruiting process Cost 53% 60% 59% 69% Managing company's employment brand 22% 37% Demonstrated success implementing similar projects 33% 33% Specialized expertise sourcing specific talent Ability to scale dow n at no extra cost to the client 12% 30% 29% 27% Leaders All Others Robustness of technology platform 20% 10% 0% 20% 40% 60% 80% Percent of Organizations, n = 80 Respondents were asked to select top three Source: Aberdeen Group, November 2010

12 Page 12 Chapter Two: Benchmarking Requirements for Success As an organization implements its RPO program, it is essential that hiring managers are bought in and trained to take advantage of efficient processes, streamlined workflows and enabling technologies. Regularly monitoring KPIs helps continuously improve the program, and fosters buy-in from hiring managers. The following case study serves as a great example that highlights key change management elements, and provides guidance for the types of metrics used to track and report on performance. Case Study VWR International Headquartered in Radnor, Pennsylvania, VWR International, LLC (VWR), is a global laboratory supply and distribution company with worldwide sales in excess of $3.5 billion in With no manufacturing units, VWR is the world s largest distributor of laboratory supplies. It employees 7,500 employees globally including 2,800 in North America. In 2008, with a change in HR leadership, it became evident that the recruitment function needed to be transformed. At the time, the recruitment function centered on the use of contingency staffing companies, which posed several challenges. First, there was a significant cost associated with the use of these firms, which charged VWR nearly 25% of a new hire s starting salary. Secondly, these firms did not represent VWR s employment brand or reinforce a consistent message in the job market. In addition, this fragmented process did not provide a mechanism and/or any metrics to track the quality and effectiveness of VWR s recruitment efforts. Lastly, hiring managers had too much responsibility for administrative and logistical tasks, which limited the time they had available for reviewing and interviewing qualified candidates. The process was very fragmented with hiring managers working individually with search firms to fill their openings, Said Patrick Crane, Director, HR Services. In 2008, the VWR team determined that the company s recruitment function needed overhauling in order to address these challenges. To gain a competitive advantage in the talent market, outsourcing the process to a single RPO provider was proposed as a viable alternative. Working with their new RPO provider, VWR determined that the following areas were critical to success: People. VWR and their RPO partner worked as a team throughout the implementation process to ensure success. They collaborated with stakeholders to set the goals of the program, determine how they will be reached, and define the expected timeframe for achieving them. continued Fast Facts 74% of Leaders formally assess performance of partnership at least every six months 73% of Leaders ensure the provider understands the culture of the organization and matches external messaging to the brand

13 Page 13 Case Study VWR International The partnership spent the first several months training hiring managers on the new recruitment processes, the value that it provided them and how to achieve success. This effort continues today for new managers who join the organization or are promoted into the manager role for the first time. Technology. VWR worked with their RPO provider to build a technology platform that integrated recruiting, onboarding and offboarding. This was coupled with an easy to use front end for hiring managers as well as a career portal that reflected the company s brand and message for candidates. Lastly, the solution incorporated reporting and analytics tools that were vital to tracking process effectiveness and outcomes. Process. From background screening and qualifying candidates, to interviewing and drug testing, the RPO provider leveraged best practices to streamline the process for candidates and hiring managers while keeping costs down. These process improvements were communicated to all stakeholders. Since partnering with the RPO provider, VWR has been tracking several key performance metrics to ensure the program s effectiveness. Baseline values were defined at the end of 2008 and have been tracked through 2009 and ending October 2010: Cost to hire was reduced from $4,270US to $2,488US Time to fill was slashed by 57% from 88 days to 37.7 New hire retention - employees staying with the organization for more than 90 days from start date - increased from an already very respectable 95% to an exceptional 97% Hiring manager satisfaction increased from 50% to 81% while new hire satisfaction improved from 76% to 96% As the program matures, VWR and their RPO provider continue to take advantage of leading-edge talent acquisition tools such as video-enabled recruitment, web-optimization, and social media. Crane concluded, This engagement has proven to be a huge success for our company. The data we collected on these metrics truly speaks for itself. We are now exploring the possibility of implementing this program globally to further unify our message and expand upon the positive results that we have experienced over the last two years. This engagement has proven to be a huge success for our company. The data we collected on these metrics truly speaks for itself. We are now exploring the possibility of implementing this program globally to further unify our message and expand upon the positive results that we have experienced over the last two years. ~ Patrick Crane, Director, HR Services, VWR International Competitive Assessment Aberdeen Group analyzed the aggregated metrics of the 80 companies in the survey that currently outsource some or all elements of the recruitment process to determine whether their performance ranked as Leaders. In addition to having common performance levels, Leaders and Others also

14 Page 14 shared characteristics in five key categories: (1) process (the approaches they take to execute daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of the appropriate tools and the effective deployment of those tools); and (5) performance management (the ability of the organization to measure its results to improve its business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Leader class performance across the key metrics. Table 3: The Competitive Framework Process Organization Knowledge Enablers Leaders Others Before outsourcing, identify if / how RPO can make HR processes leaner 66% 53% RPO provider understands the culture of the organization and matches external messaging to the brand 73% 56% SLA has built-in commitments from the organization (such as minimum financial commitment, clarity on nature and location of role, executive level engagement, etc.) 57% 38% SLA has built-in penalties in the event the RPO provider does not meet expectations 47% 27% Solicit feedback from hiring managers and/or other stakeholders in the process 73% 59% Solicit feedback from new hires on the recruiting process 66% 37% Allow RPO provider to meet with hiring managers to understand needs 67% 57% Elements of the process being outsourced: 63% Pre-hire assessments 63% Employment verification 52% Phone screens 34% Interviewing 33% Building talent communities 29% Social media networking 27% Offer negotiation 58% Pre-hire assessments 60% Employment verification 48% Phone screens 26% Interviewing 17% Building talent communities 26% Social media networking 20% Offer negotiation

15 Page 15 Performance Leaders Others Technologies / services currently provided by the RPO provider: 53% Applicant tracking platform 37% Recruitment process consulting 37% Job role definition / requisition building services 27% Analytics / Intelligence tools to monitor the outcomes of the partnership 40% Applicant tracking platform 26% Recruitment process consulting 4% Job role definition / requisition building services 22% Analytics / Intelligence tools to monitor the outcomes of the partnership Formally assess performance of partnership at least every 6 months 74% 54% Source: Aberdeen Group, November 2010 Capabilities and Enablers Based on the findings of the Competitive Framework and interviews with end users, Aberdeen s analysis of the Leader class has revealed that involving hiring managers and partnering with the provider to innovate the recruitment process are critical elements for success. Furthermore, monitoring performance and outcomes on a regular basis also serves as a differentiator. Process Management As the competitive landscape for talent changes, an organization's recruitment process must evolve to adapt. And as talent pools expand and competition for talent takes a global turn, legacy methods to attract and reach top talent may not be adequate. At the same time, organizations remain cautious about growth and, as a result, continue to focus on efficiency. RPO Leaders are 25% more likely than others to work with the provider to identify what processes can be streamlined and how an RPO relationship can make the department leaner. This is especially critical as the top strategic action, cited by one half of respondents, is to focus key internal resources on core organizational competencies. The two entities must work together to eliminate ineffective processes and automate certain workflows to minimize the tactical burden of recruitment posed on all stakeholders, including hiring managers. In fact, organizations that partner with the provider to define how the engagement can lean out the process are 27% more likely to report having buy-in for the RPO program from all stakeholders.

16 Page 16 Organization A true RPO partnership must have defined commitments in the Service Level Agreement (SLA) from both the provider and the client. From a provider perspective, Leaders are 74% more likely than others to include penalties in case a provider doesn't meet certain criteria. At the same time, they are 50% more likely than others to give the provider minimum financial commitments (i.e. in case volume is low, this allows the provider to retain recruiters, enabling it to scale up on the client's notice), executive level engagement (i.e. allow RPO provider to meet with senior leadership to understand talent challenges and how they impact overall company strategy), and clarity on the nature of the role and its location. Not all roles are the same. Filling an entry level software development position on Tobacco Road in North Carolina is relatively less challenging than hiring a Chief Technology Officer (CTO) in the Dakotas. Universities (such as Duke, North Carolina, and Wake Forest) provide a richer candidate pool in the Raleigh-Durham area, especially since experience is not a factor. Another consideration is clarity of the role. Unless job requisitions are clearly articulated from a skill, requirement, and location perspectives, the provider may not be able to set the right expectations for the client. When the organization understands the talent pool for the role, the chances of the provider meeting expectations become more realistic. In short, a client shouldn't expect a provider to produce three qualified candidates for a CTO role in Fargo, South Dakota or Shanghai in the same timeframe as it should for an entry level software developer in New Delhi or Durham, North Carolina. Figure 6: Top Three Elements in RPO SLAs Percent of Organizations, n = 80 60% 40% 20% 0% 50% 39% Position guarantees: Provider guarantees position w ill be filled for a certain period of time, and w ill replace in case of attrition Leaders 48% 32% Time to fill: Provider guarantees position w ill be filled in a certain number of days from the day a requisition is opened All Others 46% 38% Candidate guarantees: Provider guarantees a certain number of interview ed/qualified candidates for each vacancy "I have seen the best results when the RPO provider is able to communicate to candidates the value and benefit of the open position with as much excitement as if the provider were actually part of my company. They also must have a deep understanding of the culture of the company." ~ Carolina Figoli Padron, Human Resources, Merrimack Pharmaceuticals Source: Aberdeen Group, November 2010

17 Page 17 Lastly, an organization must ensure the provider has a clear understanding of the work culture and the brand. Seventy-three percent (73%) of Leaders indicate that the RPO provider understands the culture of the organization and matches external messaging to the brand. In fact, this is a key criterion for evaluating vendors. As Figure 5 in Chapter One shows, Leaders are 68% more likely than others to consider the vendor's ability to manage and communicate the brand when selecting RPO providers. For more research on Employer Branding, refer to Aberdeen's 2009 benchmark study for best practices on how to improve the company's reputation in the talent market and align internal culture with external messaging. Knowledge Management This section can be summarized in two words: involvement and feedback. As was highlighted in the case studies, involving hiring managers from the start is instrumental for change management. Leaders understand the potential shock of shifting workflows, implementing new technologies and introducing new recruiters to the process. Not surprisingly, they are 18% more likely than others to allow the RPO provider to meet with hiring managers to discuss their needs and challenges. Even within one company, distinct divisions have different challenges. Voluntary turnover might be an issue in one group, but time to fill may be more problematic in another. Additionally, hiring manager feedback is important since this group is a major stakeholder in the overall recruitment process. Leaders are 24% more likely than others to solicit feedback from hiring managers and/or other internal stakeholders on the outsourced recruitment process(es). Not only does this increase buy-in, but it also allows the two entities to better work together to continuously improve the outcomes. Lastly, two thirds of Leaders solicit feedback from new hires on their experience with the recruitment process - compared to just 37% of others. Especially as an organization seeks to enhance its reputation in the recruitment market, it is critical to gain that insight from its new hires to ensure that the RPO provider is accurately and effectively representing its brand externally - and that the brand is consistent with their actual experience once onboard. Enablers As shown in Table 3, Leaders are more likely to outsource more elements of the recruitment process. In fact, while the percentage of companies that outsource the entire recruitment process in this data is small (13%), Aberdeen's research not only shows that Leaders are more likely to outsource more elements of recruitment, but also that 78% have plans to expand their use of RPO. In terms of the elements currently being outsourced, pre-hire assessments and employment verifications top the list. Although sourcing for quantity and volume might be easier in a down economy with higher unemployment rates, the emphasis on screening and qualifying candidates becomes a point of focus. Therefore, most consumers of RPO (63% of Leaders and 58% of others) are taking advantage of these

18 Page 18 tools when they are offered by the provider. Ensuring that the best candidates enter the pipeline is vital to improving quality of hire and increasing hiring manager satisfaction. This finding is consistent with previous Aberdeen 2010 research on Talent Assessment Strategies, which found organizations using assessments have improved hiring manager satisfaction by 21% compared to 12% for those that do not. As for outsourcing employment verifications, this year's research is consistent with Aberdeen's 2009 research on that same topic, in which organizations were more likely to outsource this tactical element of the process to free up resources to focus on core business competency. In terms of specific services and technologies Leaders are more likely to utilize, applicant tracking and analytics tools top the list. In the case of outsourcing, the applicant tracking or recruitment technology solution acts as the common platform that provides visibility - specifically into candidates and progress for each open requisition - to the stakeholders. Coupling this enabler with analytics tools takes that visibility from tracking candidates and requisitions to include monitoring the outcomes. In fact, organizations that add analytics tools to their applicant tracking platform are 54% more likely to achieve Leader status than those that don't take advantage of them. Lastly, from a services perspective, Leaders are more likely than others to take advantage of a provider's experience to improve the process and optimize job requisitions. This reaffirms the need to innovate the recruitment strategy, which is a top-two driver behind RPO efforts - cited by more than a third of those that currently outsource. Performance Management Leader organizations are 37% more likely than their counterparts to assess the performance of the RPO program at least twice a year. Regular reviews enable the organization to work with their RPO provider to continuously improve the program and determine which areas need focus. Leaders are also 21% more likely (40% vs. 33%) to have defined the baseline performance pre-rpo for key success indicators. The Case in Point on VWR International at the beginning of this chapter is a perfect example of how an organization set these baselines before carrying out the RPO program. These metrics not only help set benchmark targets, but also allow the organization to expand the relationship when these targets are met or exceeded. After all, one of the top barriers to adopt an RPO relationship is the inability to build a business case - cited by 22% of those that do not outsource.

19 Page 19 Chapter Three: Required Actions Whether a company is currently considering RPO, engaged in it, or achieving Leader results, the following steps will help drive positive performance outcomes. Organizations Considering Outsourcing Identify current challenges. Chapter One highlighted the key challenges that drive organizations to consider RPO. If your organization is not currently outsourcing, but is faced with limited resources in the recruitment function, antiquated legacy processes, uncertainty in terms of demand for talent, or high search fees (as revealed in the VWR case study), RPO must be considered as a viable option. As shown in aggregate in Figure 2, organizations that outsource do experience slightly better outcomes. However, if implemented effectively, RPO can yield tremendous positive gains (Figure 4). Set a baseline. Before outsourcing, identify key metrics that correspond to the specific challenges that hinder recruitment efforts. Whether its cost per hire, time to fill, or new hire turnover, establishing a baseline now is necessary for comparing future performance of the RPO engagement. It also enables your organization to better build its service level agreement when it begins its RPO journey. Shop with savvy. After determining that RPO is a possible solution to address your organization's recruitment challenges, evaluating a provider is the next step. There are three primary points to keep in mind when evaluating RPO providers. First, ensure that the provider can offer a solution that is flexible and scalable enough to address your challenges. This is especially critical during uncertain economic times, where anticipated needs are harder to predict. From a scalability standpoint, if your organization has needs in certain geographies, ensure that the provider can either fill them directly or via a local partner. At the end of the day, recruitment is local. Second, don't overlook cost. While cost is not the top criterion considered by Leaders when evaluating providers, it still comes as a close second. Especially when budgets are scrutinized, it is essential to know that you consider price when building an RPO business case for your company. Lastly, examine your technology infrastructure. If your organization recently invested in an applicant tracking solution that has yet to reap its full benefit, work with the provider to determine if a partnership can be built around the existing framework. Even if you decide to go with a new recruitment technology from the RPO provider, ensure that it can integrate with existing systems and is easy to use for the stakeholders. Fast Facts 73% of Leaders solicit feedback from hiring managers and/or other stakeholders in the process 66% of Leaders solicit feedback from new hires on the recruiting process

20 Page 20 Organizations Currently Outsourcing (Not Leaders) Formally measure effectiveness. Only 54% of organizations outside our Leaders framework formally track the effectiveness of their RPO engagements every six months. When the top pressure driving recruitment in 2010 is a shortage of required skills in the labor pool, knowing where you stand in the war for scarce talent is essential. In addition, frequent performance assessments enable your organization to hold its RPO provider accountable when SLA targets are not met. Solicit hiring manager feedback. Leaders in RPO are 24% more likely than their counterparts to have this capability in place. Hiring managers' feedback is critical for two reasons. First, it is an indicator of how efficient the process is and effective in producing quality outcomes - i.e. better candidates and better hires. Secondly, it improves their buy-in, especially in the early stages of the RPO partnership where change management is critical. Not surprisingly, organizations that do solicit feedback from hiring managers reported an improvement in hiring manger satisfaction of 14% compared to 11% for those that don't. Solicit new hire feedback. Leaders in RPO are 78% more likely than others to solicit feedback from new hires on the recruiting process. This is another way for the organization to ensure that the RPO partnership is serving its needs. New hire feedback is essential as it gains - firsthand - the perspectives of high quality candidates on whether the organization's brand is communicated effectively and whether the process meets their expectations. Organizations that have this capability in place reported an average of 89% new hire satisfaction rate compared to 86% for those that don't. The impact of this capability, however, goes beyond new hires. Ensuring that the experience is positive for the candidates keeps them active in the pipeline and engaged even if an employment offer wasn't made. "We look for a partner that understands the business and the strategic importance of talent acquisition to our organization." ~ Nury Plumley, Americas & EMEA Staffing Manager, Agilent Technologies Leaders Currently Outsourcing Enable collaboration between provider and hiring managers. Currently only 60% of Leader organizations allow representatives from the RPO provider to meet with hiring managers to discuss or define the qualities or competencies that all candidates must meet. These discussions help set expectations and ensure that the criteria used by the recruiters to source candidates are aligned with the manager's business strategy. Organizations that have this capability are 23% more likely to achieve the Leader class results highlighted in Chapter One. Take advantage of provider's experience. Although one of the top drivers behind outsourcing recruitment is process innovation, only 37% of Leader class organizations utilize process consulting and job requisition design services. From a process perspective, RPO

21 Page 21 providers can lend their experiences to improve existing recruitment strategy, formulate plans to implement leaner processes, and ensure that cutting-edge methods are utilized to reach top candidates. From social media and candidate assessments to new interview tools and onboarding solutions, RPO providers understand the tools available in the market and can help Leader class companies exploit them to their advantage. VWR is an example of how the provider is exploring video-enabled talent acquisition as a means of keeping costs down and achieving better outcomes in terms of candidate and new hire quality. Moreover, optimizing job requisitions is vital to ensuring the most qualified candidates (those that possess the competencies to drive business performance) enter the hiring process. Job requisitions must accurately represent the needs of the business and clearly detail the skills, behaviors and abilities required to perform well in the role. Organizations that currently utilize these services from RPO providers are nearly three times as likely to achieve Leader class results as those that don't. Aberdeen Insights Summary Outsourcing is not evil. While it may not be for everyone, the data and analysis presented in this benchmark report clearly build a business case for RPO. If an organization is challenged by uncertainty, legacy processes, and resource constraints, RPO can provide the flexibility it needs to compete for key talent by innovating its processes and allowing resources to focus on core business competencies. This doesn't have to be an endto-end partnership. Rather, organizations must identify the major holes and work with the provider to plug them. As shown by the Leaders class, when implemented successfully, RPO can yield great gains in business outcomes and other metrics. Not surprisingly, 77% of organizations in RPO engagements recommend it to peers compared to just 9% that do not. They key to unlocking effective RPO programs lies in gaining hiring manager buy-in and clearly defining, measuring, and reporting on metrics to track RPO performance.

22 Page 22 Appendix A: Research Methodology Between October and November of 2010, Aberdeen examined the recruitment processes, experiences, and future plans of nearly 200 organizations worldwide - approximately half of which are currently outsourcing elements of the recruitment process. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on strategies, experiences, and results. Responding enterprises included the following: Job title / function: The research sample included respondents with the following job titles: senior management (C-level, president, chairman) (18%); general manager / vice president (VP, SVP, EVP) (19%); director (21%); manager (26%); others (16%). In terms of functions in their respective organization, the majority of respondents (47%) were in human resources (including recruiting, talent management, training and organizational development). Other functional areas represented include sales and marketing (15%), corporate management (12%), and procurement (9%). Industry: The research sample included respondents from a variety of industries. Telecom / hi-tech / IT (including software, hardware, and services) represented 26% of the sample, followed by financial services / insurance (14%), public sector - including government, non-profit, and education (10%), and healthcare (7%). Geography: The majority of respondents (67%) were from North America. Remaining respondents were from Europe (19%), Asia- Pacific (11%), Middle East / Africa (2%), and South America (1%). Company size: Thirty-two percent (32%) of respondents were from large enterprises (annual revenues above US$1 billion); 35% were from mid-sized enterprises (annual revenues between $50 million and $1 billion); 33% were from small businesses (annual revenues less than $50 million. Headcount: Thirty-three percent (33%) of respondents had over 5,000 employees; 17% had between 1,000 and 5,000 employees; 15% had between 250 and 1,000 employees; 35% of respondents came from companies with less than 250 employees. Study Focus Responding HCM executives and business unit managers completed an online survey that included questions designed to determine the following: What is driving organizations to outsource? What are best practices to implement and manage these partnerships? What performance gains have been derived from these initiatives? The study aimed to provide a framework by which readers could assess their own recruiting initiatives and help decide if outsourcing is a viable solution for enhancing their organization's recruitment strategy.