Podcast: To Outsource or Not?

Transcript:

Elliot Clark: Good morning, good afternoon or good evening and welcome to another HRO Today educational podcast. I'm Elliot Clark, the CEO of HRO Today. We publish HRO Today Magazine, HRO Today EMEA and HRO Today APAC. We’re the managers of the HRO Today forums and educational events held around the world, and we manage the HRO Today Association.

Today we're going to talk about Santa Claus, the Easter Bunny and the soft landing. These are all myths, things that don't exist. But there's another myth in the world of HR services, and that is that outsourcing is always more expensive. For the upcoming issue of HRO Today, I wrote a column about the insourcing versus outsourcing debate that always happens when there's an economic down cycle. For CHROs and TA leaders listening to your staff right now, they are telling you that the RPO sector or any form of outsourcing for that matter, including MSP and total talent, is more expensive than internal resources. This sort of general kind of statement of fact without evidence annoys me. The argument's easy. When attrition is at historic lows and the volume of hiring that can be managed by a retained organization is dropping, this argument emerges.

But is it true? They take it as fact. The problem I have with the argument is companies rarely, if ever, analyze the cost of the internal resources, including items such as internal turnover or knowledge transfer costs, let alone the effectiveness of filling requisitions at what speed. That internal is always cheaper is repeated so often that we have believed it, even though the data supporting it is rarely available.

I thought I would welcome an industry expert today on this topic who understands analytics and solution design that he makes the argument for outsourcing for his living. Tom Leeper is the VP of client solutions for Sevenstep. He's been both a provider and a practitioner, so he understands HR operations from the inside. He's been an executive leading solution design for top outsourcing firms such as Kelly and Accenture. He's been with Sevenstep for about 8 years. Sevenstep is one of the top providers of RPO, MSP, technology and workforce services and has been recognized as the top provider for RPO and MSP on the HRO Today Baker's Dozen for many years. Tom, welcome to the podcast and would you like to add anything about Sevenstep for our audience?

Tom Leeper: First off, thanks for having me. I always love being on the podcast. If for those of you who have not heard of Sevenstep, we would consider ourselves a total talent solutions company. So we offer RPO services, both enterprise and project, MSP, executive search, contract staffing and a lot of different talent consulting services that I think are often overlooked, but I would say are more and more important every day.

As Elliot said, we've been on the Baker's Dozen list for HRO Today for about 12 years and a few years for MSP services as well. That is Sevenstep and again, happy to be here.

Elliot Clark: Thank you for taking part in the podcast. And Tom, you know I'm putting you on the spot. This is a tough conversation, right? We've known each other a long time and this discussion is nothing new. And it seems to, as I said earlier, arise when volumes are low, but they will not be low forever.

Let's look at infrastructure first. When volumes are low and can be handled by the remaining internal resources, companies tend to eliminate outsourcing. They eliminate their RPO providers or MSP providers. But what are the numbers the CHRO or the TA leadership need to know to build a model to really analyze this build or buy decision? Total cost of comp is obvious, I mentioned that earlier. But what about all the tech costs, integration costs and operating models? Are there any good templates out there for analyzing the real cost of internal recruitment?

Tom Leeper: It's funny. There have been templates developed over the years. I remember SHRM put one out there years ago. I've seen some on some providers pages where it's like air plug in these numbers. I've developed, say dozens of myself over the years for different clients. To me, the best way to kind of really do that analysis is to have a conversation with someone who does it every day. That could be an outside third-party consulting firm. It could be us, it could be another RPO provider. Because I feel like it's really got to be a conversation to understand what all those costs are. Often what I'm asking someone about their internal TA, I'll say, what is your planning cost per hire? And often they start talking about head-hunting costs, and they start talking about job board costs and they'll throw in technology. I'd probably say 50% of the time they leave out the cost of their own team, like their salaries and then the overhead. And I'm kind of like, what? No, that's definitely part of the cost. And we need to talk about that. But then we start talking about hidden costs, like you've got hiring managers who are reviewing their own resumes or they're doing 10 phone screens and that's inefficient. They should only have to do 2, 3 or 4 for that role. So there's a lot of those kind of hidden costs.

And, and then there's a big part of what I would say opportunity costs. The classic one is revenue opportunity. So we'll talk about time to fill, like what's your time to fill right now? And if we can reduce it even a small percentage, it can make a huge difference. My example that I always walk people through is if you do 500 sales hires a year and you reduce time to fill on those salespeople by 5 days, that's 2,500 more days that your salespeople are actually selling for your organization. So I've done models where we've actually walked through those numbers, like what are your salespeople’s hiring annual goals? And we can show just that small reduction time to fill is generating you an extra $1,000,000 a year. So yes, you're going to pay some outsourcing costs, but they're really, really small and compared to those kind of costs.

Same thing with quality you mentioned earlier. If I can improve quality as a provider who does recruiting every day and has a huge collection of people who do that, if we can reduce turnover even a little bit, those are significant numbers. If you look at turnover analysis, another kind of mystery question, you can see that turnover costs you $5,000 and I've seen up to $30,000 per person that leaves. So all of those are kind of part of the factors and that's why I think having a deeper dive conversation around those numbers is more meaningful than “here just fill out this template” because often they're just kind of forgetting about stuff that's important to them. And then every organization is slightly different as well.

Elliot Clark: To your point, I mean, let's talk about turnover for a moment because there's an aspect to this that the providers offer and I'm, you know, like Mark Anthony and Shakespeare's Julius Caesar. I'm here not to bury outsourcing or to praise it. To paraphrase, I just want it to be justified or unjustified, OK? You know, the data drives the decision. That's the way it should always be in HR and in business.

So let's talk about the word that everyone bandies about right now. Everyone wants to be agile. Now, you know, I said on an earlier podcast that if you use the word “agility” in a sentence and a corporation, it means you don't have it. You have to use the word agility. You're admitting you don't have it. But what about this issue of being able to flex, and the cost of letting people go and bringing them back or not getting them back and having to refill jobs? Is there a good model for figuring out how that works? Because it's painful for HR leaders and TA leaders to start to lay off recruiters in a down cycle and then they may not get them back, right? So is there a way to calculate that? Have you ever had a case study where you've done that?

Tom Leeper: We've done that with clients where they're trying to figure out whether outsourcing makes sense for some kind of short-term spike. We'll help them with that math, what's going to cost you to hire contract recruiters? What's the quality? I think there’s often kind of a hidden cost, like you just don't know what you're getting first and you don't usually have guarantees in those. Most traditional RPO models have some pay for success versus if you go and hire 10 contract recruiters. You may save 5%, but if they're horrible and you don't fill those positions or you don't fill 5% or 10% of the positions, then that doesn't pay off.

There are ways to do that kind of calculation, but usually you're talking about the volume, you talk about the time frame, and then you're kind of backing into calculating what those number of resources are.

I will say that as a whole is often a challenge too. We live in numbers, we live in metrics in RPO, MSP. We live and die by data, and we have to make a margin. There's the importance of data is tenfold for us because if we don't analyze all those pieces, then we don't make money. And you know, no one wants to hear that. We can often help with what that analysis is because it's way more meaningful than us versus that company. Maybe like, I think I need 2 recruiters. What's your data analysis to say you need two recruiters? We can help with that.

And I also say we definitely have conversations with clients sometimes where we're like, “oh, this isn't the right solution.” We're not afraid to tell a client, “no, you have a good model and you should keep it in-house or for the surge yeah, you should use two recruiters,” but I feel like it's a good exercise to have with someone who actually does this all the time and is living and dying by data.

Elliot Clark: And also the technology integration right? A lot of companies don't think about that and arrive with the tech stack, right? And you'll use their ATS, but you have your own tech stack or source, you know, for CRM, etc. I often think that these hidden costs are monumental and if they were modeled, they would make a difference.

But let's talk about efficiency. You talked about that the sales example, if you just could move your time to start up 5 days, what it would mean for an organization's field sales force engagement with their clients. So the cost of managing an internal team we just talked about, but this question of efficiency is big. If an external resource, let's say one of your team and you guys are known for a very good recruiter training program, can fill 4, let's say hard to fill jobs per month and an internal recruiter can only fill 3, do companies know that? And are they comparing these efficiency analytics if they know they're only getting 3 and you arrive with a service level agreement or SLA that says we'll commit to 4 hires per week for this, you know, 4 hires per month. Do they do this kind of cost and efficiency analysis side by side? And what advice do you or Sevenstep have for a company making this kind of analysis to ensure that they take all these factors into consideration?

Tom Leeper: Some companies do. There's big, mature companies that feel like they have good TA leadership and good processes and process workbooks in place. But then there's a lot that don't. Some it's the maturity of their organization. Sometimes it's, you know, turnover leadership. etc. I would say when we get RFPs from clients, we often see like a list of here are the SLAs we'd like you to meet. And I will often say, “OK, are you meeting these today?” Sometimes, it’s yes; often times it's no, we're not making these. That's why we'd like you to hit them. All right, that's fair. We can have some conversation around that. Even if they say yes, I'm often asked the question, “how much do you trust your data?” And often that's where things start to fall apart, where they just say, “we don't trust that data.” And I get it. I feel like for a lot of internal TA organizations, you are living and dying by kind of what the newest emergency is. You've got a hire manager walking down the hall and yelling at you, “where's this position and where we at?” I'm quickly clicking this candidate through the cycle and skipping 4 steps, in which case my time to fill or my time and step doesn't matter anymore, just irrelevant. And we have to deal with those pressures as well. But again, it goes back to we have additional pressures. For us to really be a successful organization, we have to deal with that hiring manager pressure, but we also have to have data that backs what we do every day.

Time to fill is one of those great ones too. We often will talk about time to fill and we'll say, we're going to happily meet that goal or achieve that goal. But we also want to measure time in step because we want to see, time to fill is 60 days, 50 days, but look, the time and step is half because we're waiting for the hiring manager to get back with a response on a resume with something.

So again, we kind of dive so much deeper into that data because we kind of have to. We have to justify where we're being successful or talk about where we're being successful, but also be able to dive into detail and analyze where there are failures and that can be on our side or on their side. And again, I think most organizations just don't have to live by those two pressures all the time. And so the successful RPOs are the ones who get in there and can handle both of those pressures and still achieve profitability and make that client just way more successful because we're raising the bar and beating those SLAs day over day.

Elliot Clark: There's also a lot bundled into your product. That’s the last question I've got. When you're dealing with a client, you're giving them all kinds of free consulting and employment branding advice as examples. Do you think that they look at that and realize that if they do it internally, they're still going to have to go outside to buy that kind of advice and consultation? And there's a cost to that, that they might be getting in as part of the benefit of having an external provider.

Tom Leeper: That's so funny you asked that. We get so many RFPs or we're just in conversation with the client, first or second conversation, and they will ask the question, “what additional services do you offer? You know, we're looking for RPO services. And what else do you offer? We're looking for MSP. What else do you offer?” And it's often a throwaway question where they're really not thinking about it, but they know they have to ask it.

And I think sometimes because they're worried about it being when you go to get your car done and they try and add, you know, 10 more things for you to buy and you should also get this replaced and get this fixed. So I think they're often fearful of having that conversation because they just look at it as a cost.

And to me, it is so, so important to talk about the add-on services. You might not need them at any time, but when you do, they can be hugely beneficial. Their ROI can be very significant. I'll give you like one of my favorite examples is we had a client who was expanding, they were opening a new warehouse, and they were looking at 3 locations in different cities, all within like 30 miles of each other. And they, they were talking about it and not including us in the conversation. It was really an exercise of trying to find what building they could get for the best price, existing buildings. And so we heard them talking, and asked “do you want us to do a labor analysis on this?” And they're like, “maybe what's that going to cost?” And it really, it was not much in the grand scheme of things. And we could quickly look at supply demand data, do compensation analysis, and we could show that by choosing the most expensive building, they would save so much money in the first year because of the labor savings. And they weren't even thinking about that. And so yes there's a small cost of that and a little bit of time, but the savings are amazing. I think there's a lot of different services that clients just don't think about what the ROI is on those services.

Same thing with the employer branding, if you're looking at your employer branding and your Glassdoor and your Indeed reviews are horrible and you're not reacting to those, those are things that a good partner can help with and realize those are really impacting. And, and by the way, there's a way to measure changes you make are actually having an impact, like your applicants for hire go up and things like that.

So yeah, I think those services are overlooked. And I've seen some articles that show that clients are starting to recognize the value a little bit, but I think there's a long way to go in that space.

Elliot Clark: All good, good points. And we're out of time, but this has been a good conversation. I want to thank Tom Leeper, who's the VP of Client Solutions for Sevenstep. Tom’s giving some great examples about how you need to think about these things and some sort of case study perspectives. Thanks, Tom. Thanks for taking part in the podcast.

Tom Leeper: My pleasure, Love this.

Elliot Clark: And for those of you in our audience, the reality is that whether insourcing or outsourcing is cheaper or more expensive, it is an opinion until you actually have data. And part of what you need to do as a discipline is look at this on a holistic basis. Because when you do, and I've seen this and I'm sure Tom has seen it, sometimes internal is less expensive and sometimes it's not. Do you really know? And you should. So next time you're thinking about how you set up your infrastructure, your technology, and what services are bundled that you may be utilizing, take those all into consideration. Thank you for your time and attention to this podcast. It'll be on hrotoday.com under our podcast section, and we'll look forward to you joining us on our next HRO Today educational podcast.