A world of economic turmoil and tightening budgets sounds like a fruitful environment for recruitment outsourcing companies: they can stride into businesses, flourish their cost-cutting credentials and leave with the promise of juicy contracts to run some or all of their new clients’ hiring processes.

Hard times mean less recruitment, however, which means less work available through such contracts and, possibly, the need to cut margins to stay competitive. Alongside this, the threat of recession may affect some providers’ viability as businesses, leaving them vulnerable to being taken over by better-placed competitors. In addition, some commentators believe that the downturn may trigger a return to in-house recruitment.

First, the money. It is certainly a priority with most organisations considering recruitment outsourcing (RO) at the moment. “There are a number of businesses that need to take their internal costs down by 20% and they aren’t fussed about how they do it,” says Ian Hunter, a partner at Orion Partners, a human resources (HR) consultancy. “Recruitment outsourcing provides an obvious solution.”

Richard Pearson, managing director of ResourceBank, an RO provider, says that there is a lot more interest from business in outsourcing to reduce costs and improve the quality of recruitment. “People see it as a way of having a very transparent cost that is flexible and is perhaps a way of shifting fixed costs out of the business.”

While outsourcing can cut companies’ spending – savings of 10%-30% can be achieved when moving from a fragmented in-house system to an efficient outsourced arrangement that makes good use of technology – it will not always do so. And firms may choose to increase the amount that they spend so that they get more benefits from the new arrangement. “You can get a much better service for more money or a slightly better service for less money,” claims Graham Snuggs, director of recruitment process outsourcing at Reed Consulting, an HR consultancy and outsourcing provider.

Indeed, before the downturn, recruitment outsourcing had started to move away from first-generation contracts that prioritised upfront cost savings towards the current model, which emphasises candidate quality and the added value that outsourcing can bring to recruitment – everything from better staff retention rates to improved employer branding and reduced reliance on agencies.

Companies, however, are also realising that outsourcing is not the only way to save money and improve recruitment; streamlining processes and adopting appropriate technology can be done in-house. “If you have some sort of recruitment tools installed and operating effectively, you have probably taken out quite a lot of costs and improved efficiency,” Hunter says.

There are still strong arguments in favour of outsourcing. Phill Brown, head of RO at NorthgateArinso, an HR software and services provider, says: “In business, if you are a company that makes tyres, then what you do is make tyres, and it does not necessarily flow that you will be good at recruitment.”

It is not just potential clients that need to focus on their core business performance in the downturn. RO providers and observers expect to see consolidation in the sector, and stronger providers may see this as an opportunity to snap up competitors. “If you are thinking of making an acquisition, it’s probably 30%-40% cheaper this year than last year,” Hunter says.

Recruitment levels may already have fallen by 30% in some industry sectors. As numbers drop, RO providers will be forced to be more flexible about their arrangements. “There will be keener pricing and they will be less choosy about minimum volumes,” Hunter says. This clearly could be good news for companies that are yet to sign up, while those with outsourcing arrangements already in place should not necessarily expect to be tied to out-of-date numbers. Pearson is confident that good providers will be flexible enough to respond to changes in their clients’ businesses.

“The current financial situation tends to make good people stay in their jobs a little longer,” Brown says. RO providers argue that this makes securing talented staff harder than ever and that they are better placed than an in-house team to find them. “I also think there is going to be a move away from recruitment agencies towards more of a direct-hire approach,” Brown adds. “Companies will look at recruiting more through their websites.”

Jonathan Trevor, a lecturer at Judge Business School at Cambridge University, says that in any economic environment, organisations considering outsourcing their recruitment need to understand which employees are “foot soldiers” of low strategic value and which are those whose day-to-day performance is critical to the business’s success.

While it may well make sense to outsource recruitment of the first group, employers are beginning to realise that it is preferable to recruit the second group in-house to be sure of finding the most talented candidates and achieving the best possible fit, Trevor says. “The question is, who knows the business best? Is it an outsourced recruiter or is it people working in the business itself?”

Pearson, however, argues that good outsourcers are not vendors so much as partners, with a genuine interest in clients’ businesses: “So much effort goes into the contract negotiations . . . but what really matters is how the partnership develops.

“The key to a successful partnership is the culture of your partner’s organisation and how that matches or complements your business. Not enough businesses invest enough time in investigating the culture of the organisation that they are about to partner with.”

Outsourcing on the menu

When the TGI Friday’s bar and restaurant chain was owned by Whitbread, all its management recruitment was handled centrally by the group’s shared services team. So when the business was sold to new owners two years ago, HR director Gavin McGlyne had to start its recruitment operation from scratch.

He analysed a range of options before choosing to outsource to NorthgateArinso. ”We had to have an infrastructure in place,” he says. “There was more risk in doing it ourselves than in setting up an outsourced contract.”

McGlyne looked at different outsourcing models: “Some providers manage third-party recruitment agencies on your behalf, others have direct recruitment capability and others do both. They are very different animals and are set up to deliver very different things.”

More than 100 employees have been taken on through the RO deal. Staff who work on the restaurant floor are recruited directly by TGI Friday’s.

Sunday Times conference

The Sunday Times is organising a one-day Recruitment Outsourcing Conference, to be held on Thursday, December 11, 2008, at the Rejuvenation Centre in Commercial Street, east London.

The event, which is aimed at HR professionals in all business sectors, will examine the case for outsourcing in the current economic climate. Speakers include industry experts from UBS, Lovefilm and Barclays.

For more information or to reserve a delegate pass to the event, visit www.st-recruitmentoutsourcing.co.uk.

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