Improve the Value Placed on Your Recruiting Function

Cost has always been central to recruiting, but demonstrating the value of recruiting is difficult. The reasons are simple enough – recruiting costs are tangible; the benefits less so. It takes time for new hires to become productive and their contributions are difficult to measure with any precision. Consequently, tying recruiting results to cost is nearly impossible. Few even try. So recruiting managers usually find themselves under pressure to “manage” costs better – which usually means do more with less.

Fixed and Variable Costs
The key to managing cost structure begins by distinguishing between fixed and variable costs. Fixed costs are infrastructure costs that are necessary to participate in a business. They include things like office rents, recruiter salaries, hardware, and software costs. They are part of the price of entry. Management and organizational theorists have an old saying – structure follows strategy, and strategy is constrained by structure. In English, this means that organizations acquire resources to support their strategy and goals. But once acquired, be it people, buildings, or equipment, it’s hard to change. Much of your recruiting organization is a fixed cost. It can’t be reduced easily.

Variable costs on the other hand, fluctuate with activity. As activity rises, so do variable costs - things like advertisements, commissions, and travel costs tend to be variable.

CFO’s hate fixed costs, and hate increases in fixed costs even more. Most of us can deal with high costs during peak production. But, when activity is low, reducing costs is a struggle. This is because so many of them are fixed, and cutting fixed costs is painful - as anyone who has laid off staff can attest. Unfortunately, layoffs are the fastest way to cut fixed costs. Variable costs, on the other hand, lower themselves during slowdowns, and are infinitely preferable on accounting reports. Not only are layoffs painful, but after laying off core talent, it can be hard to replace them when demand picks up later. Many organizations are slow to ramp up recruiting staff, having been burned earlier. It is much easier if you can keep your core expertise intact. The way to achieve this is to increase variable costs relative to fixed costs. This is done through something called Selective RPO.

Sourcing – Selective RPO
How does one convert fixed costs to variable costs? Wholesale RPO is risky but selective RPO is not. Keeping some expertise in-house (read: recruiters who understand the company) has real value. The key is to retain aspects that add higher value, and outsource the simpler, repetitive work. In other words, recognize what you do well and keep those activities in-house, then selectively outsource the other processes. This Selective RPO allows you to affix costs where you add the highest value, leaving costs for all outsourced processes variable.

As importantly, you leverage valuable recruiting expertise, supporting your talented people with outside vendors to handle repetitive and menial tasks. Last, you’re less likely to cut headcount during a downturn. This combination of managing costs, leveraging expertise, and reducing layoffs is a management trifecta. It is a direct result of carefully structuring fixed and variable costs.