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January 27, 2021

The Lurking Threat to the Staffing Industry and What to Do about It

No industry is static these days. For modern organizations, short-term stability might signal long-term instability, and comfort should feel distinctly uncomfortable. If you’re not striving to be better, to do better, and to evolve, you probably won’t be in it for the long haul.

This is certainly a truth of modern staffing. A fact that Andre Mileti, VP of Enterprise solutions at Able, has become increasingly cognizant of.

“As we have looked at different areas that might find use in our technology, we’ve been exposed to a number of industries that extend beyond our immediate focus of staffing. And in broadening our view, we’ve picked up on an interesting – and to the staffing industry a slightly concerning – trend,” he explains.

In HR you have concepts of professional employment outsourcing (PEO) and recruitment process outsourcing (RPO). PEO is similar to what staffing firms do, in that it’s essentially the back and middle office of the hiring process, but without the front end. RPO, on the other hand, has always focused solely on that front end. Rarely the PEO/RPO forces would meet.

But in recent years, things have started to change.

 

The lurking threat to the staffing industry

A savvy corporation will constantly be on the lookout for functions that they can outsource; the likes of marketing, IT management, accounting, and relevant to this article, HR and recruiting. Oftentimes a large corporation would get an RPO to manage the process within their systems. It’s a way for them to avoid handing full control over to a staffing firm, keeping hiring functions on-site, only getting someone else to take care of them.

In recent years, RPOs have begun to overstep their traditional boundaries. They are getting into what you might call ‘pure play recruiting’, offering services previously restricted to traditional staffing firms.

Where RPOs would previously say ‘I’ll handle your recruiting then pass the process back to you for HR and onboarding’, they’re increasingly offering a more end-to-end service – one that transforms them from RPO to proxy staffing agency.

“There has always been a line clearly marked in the sand,” says Mileti, “but RPOs are beginning to cross it.”

And the fact that RPOs are expanding downstream into the onboarding space is understandably a real threat to the staffing industry.

 

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The whats, whys, and hows of RPO overreach

The questions are many.

First of all, why are RPOs doing this? The truth is that a lot of customers are asking for it. Large enterprise organizations see this as an opportunity to both get rid of the headaches of things like onboarding, and to improve their margins by cutting operational costs.

The next question is how are RPOs doing this? The answer is simple: technology is enabling it. Traditional ‘manpower’ recruiting, the labor-intensive type that demands a team of recruiters making calls and sending emails, is on the way out. With inbound marketing increasingly taking care of the top of funnel work, RPOs can instead get by with no more than a few good closers.

Technology is a double-edged sword for RPOs – it is squeezing them out of their traditional space, but also granting them the ability to expand in another. They are increasingly choosing to expend their energies on deepening their offerings, which modern tech also allows them to do more easily than ever before. Thus they are creeping into areas that have traditionally been occupied by staffing firms.

In some instances RPOs are getting quite aggressive with this strategy, marketing ‘enhanced services’ and spinning up PEO divisions. And as we pointed out, if you combine RPO with PEO, you’ve got a staffing firm in everything but the name.

Another change is happening. Traditionally an RPO would work within their clients’ tech systems, telling organizations ‘we’ll be nothing more than an extension of your FTEs’. Now RPOs are saying ‘I’m not using your rickety old legacy systems – I’ve got a far better tech stack, so if you want my help, you adopt my technology.’

While this is obviously self-serving, as offering these enhanced services demands that an RPO use its own tech stack, it can also be interpreted as a win for the client, who gets to modernize their systems minus the traditional cost and inconvenience.

 

RPO overreach in action

What does this overreach look like in real terms? Mileti offers up a (fictional) example:

Let’s say Company XYZ hires 100,000 people per year nationwide, and let’s say 20% of that is made the responsibility of an RPO, while the other 80% is managed internally. One day the RPO says ‘I actually offer enhanced services that will take care of onboarding, and unify the candidate experience for the 20,000 roles we fill.’ Company XYZ likes this idea – not only does it relieve them of headaches and operational costs, it also ensures brand consistency.

With brand consistency now front of mind, this leaves the RPO just one step, one partnership, one stakeholder decision away from taking on the management of all 100,000 annual hires. They can prove their worth through their handling of the 20,000 hires currently on their books, using that to push their case for a larger share of the work. If and when they win that work, they can then hand a percentage of it to a PEO and white label it.

This fictional example is, in a nutshell, the threat faced by staffing firms. Many RPOs already have a foot in the door, particularly with large organizations, and thus face far fewer roadblocks than a staffing firm might in getting more business.

They are in a position of power, and they’re only just beginning to realize it.

 

What should a staffing firm do?

To take a leaf out of AA’s book, recognizing the problem is the first step to solving it. By understanding this potential threat to business, staffing firms put themselves in a position of power. Like a well-studied defensive end, they know what’s coming, and can take steps to negate it.

How? The best way is to know what you’re good at, and build your firm’s proposition around it. Where an RPO might sell their enhanced services as add ons, you can sell them as headline acts – areas that you are industry leaders in, and that will make a real difference to a client’s employer brand.

RPO overreach isn’t the meteor that is set to wipe out the staffing industry, just as job aggregators and the gig economy didn’t spell its demise. But it is a challenge worth recognizing and taking seriously, as it is one that demands a deeper than average strategy to solve. The key will be to be able to demonstrate how your staffing firm is better than an RPO that offers enhanced services. Refining this sales pitch will demand introspection, and if it reveals that you don’t offer a compelling advantage over a modern RPO, it might even demand internal upheaval.

You need to be comfortable with discomfort, and must always look to evolve. Staffing firms will continue to offer a unique and valuable service, so if you bring the right mindset to the table, no RPO will be able to compete. To learn more about this topic, check out Episode 20 of the You Own the Experience Podcast.