BPO: 4 Big Questions to Ask
Outsourcing has been a large part of my career and as the years go by and solutions become more complex, the basic rules for evaluating an outsourced solution fortunately remain largely intact. As it relates to recruiting, there are several paths to get to your long-term goals depending upon your needs, risk assessment, business outlook and desired financial results. Outsourcing no longer needs to be the removal of your entire recruitment operation. Actually, a lot of Fortune 500 companies are employing outsourcing partners as a hedge or insurance policy - some as little as 5% to 20% of their recruitment portfolios. Still, a handful of the largest employers have gone the other way and outsourced 100% of global operations. Whatever your needs, there is a solution. Before you decide what to do, ask yourself these questions. I call them the big 4.
Costs – What are my total recruitment costs? This includes not just direct costs but any additional burden or indirect costs. Not just the direct labor, technology and tools. For example, in high volume distributed environments, hiring managers could be doing upwards of 95% of the tasks associated with recruitment. If outsourced and that number reverses, that will be a significant increase in workforce productivity and lowering of operating costs/OPEX. You’ll need to get to a true cost per hire (CPH) and include all costs - whether direct or indirect to get you to an objective assessment. If you have to make an assumption, than go conservative since it will likely be reviewed and challenged by your CFO. Hard data and conservative assumptions against the industry benchmark are good positions to take.
Quality – Can you measure the impact on quality internally against your financials? For example, take a look at your turnover and see how it stacks against the benchmark. You should be able to calculate turnover costs and should be a large part of the assessment. Turnover costs can range from a couple thousand per hire all the way up to 150% of an employee’s first year salary, especially professional and executive positions. Countless studies have been done on turnover and conservative estimates on costs are defensible.
Compliance – easy one. Compliance needs to be at 100% with a provider and there are mechanisms in place to ensure that and, if need be, financial penalties for anything lower than that standard. Even if an organization is running below 100% on compliance targets, it doesn’t mean a partner cannot maintain a 100% with proper support from the customer.
Velocity – Recruiting impacts revenue. You can use a blended average (not preferred) or a revenue by position model which is more accurate. If a bucket of positions are outsourced, say 1,000 sales representative positions, then the impact on higher quality reps hired faster can be calculated. Example, if average time to hire is 90 days and now with a partner that can be accelerated to 45 days. One can calculate the expected acceleration of revenue to an organization over the full population of positions.
In many cases, the apples-to-apples cost modeling and/or analysis on the revenue impact can be more than enough to justify and outsourced solution. In fact, it is not uncommon to see a 6-8x ROI on the investment. CFOs love that. By building a proper business case with objective data analysis, outsourcing recruitment can have a major impact on both the top and bottom lines and ultimately lead to a positive effect in earnings per share (EPS). Again, CFOs love that.