Business services is the fastest growing sector in the UK, and a star performer in the wider global economy. One of the key drivers of growth in this sector is the trend towards business process outsourcing – the contracting out of a business task, or set of business tasks, to a third-party provider, which then takes prime responsibility for fulfilling the task. It should be distinguished from business partnering and service providers, where the prime responsibility and business risk remains with the company.
Recruitment is one of the latest business functions to undergo a transformation via business process outsourcing. Recruitment process outsourcing involves the delegation of responsibility for the entire recruitment process to a third party.
The overall strategic direction of recruitment policy will generally remain in-house, but the responsibility for implementing the policy resides with the recruitment process provider. Thus, recruitment process outsourcing should be distinguished from headhunting, search-and-selection consultancy, and a host of other services that the HR function might buy from service providers to help with recruitment.
The trend towards business process outsourcing began in the 1970s, when overblown corporate behemoths realised that they were no longer efficient and fit for purpose because they had grown too big to manage effectively.
There had been a spate of mergers and acquisitions that rarely delivered on their promises of enhanced efficiency and profits. Then, a new breed of manager appeared in the 1990s, more focused on delivering shareholder value than building corporate empires and, therefore, more open to new business models in which outsourcing could play a major role.
Globalisation and new technology have been the key drivers of the growth in outsourcing. They have both driven down cost by moving business processes to areas where labour costs are substantially lower, and widened the talent pool to the entire globe.
Douglas Ready and Jay Conger (Harvard Business Review, June 2007) identify a growing trend: “Like [banking giant] HSBC, multinational product manufacturer Proctor & Gamble has tied its talent management processes to its strategy for growth, which means a focus on winning in the emerging markets of China, India, Latin America, the Middle East, and Eastern Europe,” they say. “The company is building what amounts to a global talent supply chain management process [that is] co-ordinated worldwide, but executed locally. Hiring and promotions are the responsibility of local managers, but high-potential prospects and key stretch targets are identified globally.”
Ins and outs
The decision of what to outsource and what to keep in-house goes to the essence of an organisation. In modern business, management defines what it does best, and what lies at the heart of the enterprise, and outsources the rest if it is cost efficient to do so.
In HR, outsourcing has traditionally been of single processes, such as payroll and employee benefits. This is partly because a key driver of outsourcing is the cost reductions available from scale across multiple services, and this has been difficult to deliver in HR.
It therefore came as no surprise that the first major business processes to be fully outsourced were IT and accounting.
In most organisations, IT and accountancy are not core functions, so outside suppliers can offer expertise that is not necessarily available in-house. Both functions are also scaleable and therefore offer obvious scope for cost cutting. There were, and are, concerns over data and security, but for the most part these problems have proved to be solvable, and IT and accountancy are both now established as key segments of the outsourcing market.
Sam Palmisano, chairman and chief executive of computing pioneer IBM, recently told Foreign Affairs magazine that a new type of enterprise, more attuned to a global marketplace, would emerge.
“The globally integrated enterprise will require fundamentally different approaches to production, distribution, and workforce deployment,” he says. “This is already happening. Because new technology and business models are allowing companies to treat their different functions and operations as component pieces, firms can pull those pieces apart and put them back together again in new combinations, based on strategic judgements about which operations the company wants to excel at, and which it thinks are best suited to its partners.”
So is recruitment a key business process that helps to define the nature of a business, or is it ripe for outsourcing?
The principle is simple enough. Core workers are those that are primarily defined by the organisation they work for, rather than the job that they do. They are the staff in whom the company has invested significant resources in training and development to fashion the worker to the company, rather than in more generic skills that may help the worker do their job better, but are not company specific.
Crucially, core workers have skills and knowledge that are unique to the organisation they work for, and are not fully marketable to other companies.
So one obvious test of whether the recruitment process should be outsourced or not is: if we were to pay top market rates, how easily could we fill key posts within our organisation? If this would be virtually impossible and would cripple the business for months if not years, then recruitment process outsourcing, in its purest sense, is best avoided. It would simply be too big a risk to delegate recruitment and the subsequent training, development and most importantly, succession planning, to a third party provider.
If, however, it might be difficult but you could manage, then outsourcing may well be a viable option.
So what are the prospects for recruitment process outsourcing as we look to the future? The trend towards globalisation will reinforce the polarisation of the workforce into a small group of core workers and a much larger group of non-core workers. Enterprises will become increasingly keen to look for value in their processes, and a greater transparency over costs should encourage organisations to outsource recruitment of their non-core workforce, if the scale of operations and the price are right.
Whether organisations will be just as keen to outsource the core element of their workforce will depend to a large extent on culture and trust. Success will depend on relationships rather than price. Recruitment process outsourcers will have to demonstrate not only greater recruitment expertise than internal recruiters, but also show evidence of sustainability, good governance and leadership for companies to entrust the recruitment of their core workers in its entirety to a third party.
But the potential market is huge. It was Adam Smith in his Wealth of Nations (1776) who said: “The division of labour is limited only by the extent of the market”. In a world where the market is truly global, the prospects for recruitment are almost limitless.
Recruitment process outsourcing – key drivers for growth
Globalisation is driving down recruitment costs and increasing the opportunities for outsourcing.
Communications technology links the world and drives efficiency gains.
New business models are focusing on shareholder and stakeholder value leading to more transparent recruitment costs.
Risk management techniques mean management is better prepared to evaluate alternative strategies.
Mobility of labour, including migration within the EU and globally, makes recruitment more dynamic.
Diversity of the workforce results in more flexible work patterns.