Outsourcing the Recruitment Process Stacey Lowdermilk BUS630: Managerial Accounting Instructor: Stacy Hiles April 27, 2011 Executive Summary The trend toward organizational outsourcing has increased dramatically over the past decade. The drive for cost reductions and greater efficiencies has forced many organizations to specialize increasingly in fewer areas. Outsourcing can include anything from outsourcing an IBM (IBM) or HP, to recruiting talent and everything in between.
As a sales manager working to hire a new sales team in a new office through a company merger, I have opted to outsource the bulk of my recruiting to expedite the process and to ensure a lower attrition rate. The key to recruiting in this environment is to hire the right number of sales representatives, with the right mix of talent and personalities in the shortest amount of time. This paper will examine why outsourcing talent during this time and throughout the selling seasons is more efficient and cost effective than using an internal human resources department.
In a press release dated May 14, 2010, Tyco International Ltd announced, “that it has completed the acquisition of Brink’s Home Security Holdings, Inc. (“Brink’s Home Security”) (NYSE: CFL) following approval of the transaction by Brink’s Home Security shareholders on May 12, 2010. Brink’s Home Security, which operates as Broadview Security, will now be combined with Tyco’s ADT security business, the world’s largest electronic security provider. ” These are exciting times and everyone seems pleased with the transaction.
Tyco Chairman and Chief Executive Officer Ed Breen comments by saying that “[W]e are excited to complete this transaction to bring together two of the premier companies in the North American residential and commercial security industry. ” After the merger, most of the Brinks/Broadview offices were closed and absorbed under existing ADT offices. But a few of the offices remained, including my office in Largo, Florida. It made sense to keep it and several other offices open throughout the US to accommodate flourishing markets with opportunity for growth.
In deciding which offices to keep, ADT analyzed several factors and/or costs to determine if the remaining offices could earn more revenue than they would cost to maintain. Factors had to be addressed to determine which offices to keep and which offices to absorb. The process involved weighing marginal benefits against marginal costs. Thomas and Maurice (2011) note that “[T]he principal rule is to increase the level of an activity if marginal benefits exceed marginal costs and decrease the level if marginal costs exceed marginal benefits (pg. 91). ” If the math makes sense, then it makes sense to do it.
One of the most common input decisions companies make is how much labor is necessary for profit maximization. The firm’s demand for labor is a derived demand since more demand for a firm’s products are demanded, more labor is needed, hence, if demand for the firm’s output increases, the firm will demand more labor. If it falls, the firm will reduce its work force. In the home security industry, commissioned sales people are common. We rationalize hiring a new rep as a low risk investment: just a small training salary plus commission. Many of us will look at the training salary as the cost of bringing a new rep on board.
While calculating our sales projections we figure, “I can grow my revenue by X amount and it’s only going to cost me Y. ” After determining how many sales representatives I need to have a successful launch, my next question is where I will go to recruit them. I will attend job fairs, hold open houses, post ads internally with our human resources team and of course, I will set up an aggressive referral program with our existing employee base. Each of those methods is effective for the long-term solutions. And when those methods are combined, they work to ensure a steady flow of new recruits.
In my case, however, I need a jolt of qualified candidates to interview, qualify, hire and train over a very short window of opportunity. To do that successfully, I outsource. What is outsourcing? Outsourcing refers to a company that uses another company to provide services that might otherwise be performed by in-house employees. One advantage of outsourcing is that it often saves money. Companies that specialize in providing outsourcing services are often able to do the work for less since they don’t have to provide benefits to their employees. Not to mention, they have fewer overhead expenses.
It is common for midsized companies to outsource benefit and health and welfare plans. According to White, Steve & Plante, Penny (2011), “several factors are serving to shift the balance of the cost comparison between outsourcing and internal administration. At the same time, complexity and rising service expectations have increased cost pressures for internal administration. ” Once an organization transitions to outsourcing, the focus can begin to shift on making strategic decisions that have greater impact on the organization and its employees.
It allows companies to focus on primary business issues while allowing outside experts to handle the outsourced issues. Hence, more resources and attention can be used for more important, broader issues within the company. According to an article on Wisegeek. com, “The specialized company that handles the outsourced work is often streamlined, and often has world-class capabilities and access to new technology that a company couldn’t afford to buy on their own. Plus, if a company is looking to expand, outsourcing is a cost-effective way to start building foundations in other countries. Many companies today outsource their computer hardware and software needs to free them from making huge investments for information technology. International Business Machines Corp. (IBM) has been expanding its portfolio of services being offered, which includes selling sophisticated packages of services to software clients. John Hechinger (2003) notes that, “[S]ervices, including outsourcing, has become the company’s fastest-growing line of work. ” He goes on to say that IBM “agreed to take over most of the computer operations of auto-parts maker Visteon Corp. n an outsourcing deal that the companies say is likely to be valued at more than $2 billion over 10 years. ” It was a big win for IBM, since the company had identified outsourcing as a major driver of its growth. According to John Hechinger (2003), “Under the deal, IBM will take over operations including data centers and help desks. ” IBM didn’t stop there. In fact, according to Hechinger, John (2003), “IBM of Armonk, N. Y. , has won a number of multibillion-dollar outsourcing contracts, including one with J. P. Morgan Chase & Co. in November valued at $5 billion over seven years. ”
While many organizations have benefited greatly from outsourcing a wide range of business processes, many organizations still fail to capitalize on the opportunities offered by outsourcing. According to Ronan Mclvor (2011), “[M]any make outsourcing decisions on a piecemeal basis and fail to develop outsourcing strategies for their processes that allow them to compete in the global economy. In many cases, the choice of which parts of the business to outsource is based on ascertaining what will save most on overhead costs, rather than how the decision affects the long-term capabilities of the organization. Implementing a successful outsourcing strategy requires a framework which according to Ronan Mclvor (2011), “involves analyzing a number of key dimensions, including relative capability in the process, contribution of the process to competitive advantage and the potential for opportunism from outsourcing the process. Analyzing each of these dimensions provides an organization with a number of sourcing strategies, as shown in Figure l. ” From “Outsourcing done right,” by Ronan McIvor, 2011, Industrial Engineer. Vol. 43, Iss. 1; pg. 30.
One big consideration is whether or not it gives an organization a competitive advantage over another company. Ronan McIvor (2011) notes that “[P]rocesses that are critical to competitive advantage have a major impact upon the ability of an organization to achieve competitive advantage either through the ability to achieve a lower cost position and/or create higher levels of differentiation than competitors. Processes that are not critical to competitive advantage have a limited impact upon the ability of an organization to achieve competitive advantage.
Although these processes have to be performed well, any performance improvements achieved in such processes likely won’t be a source of competitive advantage because customers don’t see them as key differentiators when they decide to buy the product. ” There is a clear competitive advantage to for me to outsource: I have access to a wider data base of candidates and much of the process is streamlined, which cuts down on the time necessary to screen candidates and check backgrounds. Furthermore, I can quickly call my recruiting team and tell them how many candidates I need, describe the qualities I am looking and discuss timing.
I can also reach out to our internal human resources (HR) team and discuss the same parameters. Typically my recruiting team will respond quicker than my internal team and they work furiously to the finish line. There are several reasons they work harder: First, they are paid when the job is complete and only if the candidate remains for a minimum of six months. My internal team is paid regardless of what happens on my team. Second, the outsourced company will typically assign a representative to handle only ADT managers to ensure that there is a high level of client satisfaction, so there is higher level of dedication.
They have one function: Hire qualified sales representatives for my company. Our HR teams on the other hand, may have many agendas beyond just my needs. They may take longer to initiate contact with a candidate and they may not be as effective at selling the benefits of working for ADT Security. That’s an interesting fact, considering that they are ADT employees. Yet, when I send a candidate to my outsourced team, I find that I am much more likely to have a candidate excited about the opportunity and work very hard to find a place on my team.
Might there be other variables? Of course there might be other reasons that aren’t immediately evident. But when I find a qualified candidate, I want to ensure he or she feels catered to through the entire process. Especially since the cost of hiring a new home security sales representative is high. In fact the cost in the first year is $92,050: That includes $1,800 for the outsourced recruiting firm to find, screen, interview, background check, drug test and screen candidates (it costs only lightly less for my internal HR department to perform the very same functions), $4,500 for the first three month training wages, $18,250 for the three month training program (includes training, hotels, meals, and flights), $15,500 for insurance, payroll taxes, car allowance, health insurance, cell phone reimbursements, and workers’ compensation fees, $13,500 for networking events, software licenses, lead generation licenses and customer communication. That’s before the first penny of commissions is paid out.
So it’s important to hire and keep the right people and the right number of people. Conclusion There are many important implications for managers who develop and implement outsourcing strategies. First, can the process be improved through an internal initiative? How much resource is required to improve internal performance? When evaluating the cost of outsourcing, do the benefits outweigh the costs associated? And if outsourcing is necessary, how long will it take the supplier to achieve the goals? Hiring employees through outsourcing can take some of the sting out of the process.
And while there are no perfect formulas for making hiring decisions, outsourcing companies can specialize in providing end-to-end solutions to companies of all sizes and types. Furthermore, by optimizing the recruitment processes, outsourcing companies can help companies realize costs savings and efficiencies. References Anonymous (2010). What is Outsourcing? Retrieved April 27, 2011 from http://www. wisegeek. com/what-is-outsourcing. htm Hechinger, John (2003). IBM Gets $2 Billion Outsourcing Job — Most Computer Operations Of Visteon to Be Taken Over As It Diversifies From Ford.
Wall Street Journal (Eastern edition). New York, N. Y. : pg. B. 3. Retrieved April 25, 2011 from the ProQuest Direct database. Kowler, Kristin (March 3, 2010). I want to grow revenue in 2010. Should I hire a sales rep? Retrieved April 23, 2010 from http://bungalogroup. wordpress. com/2010/03/03/i-want-to-grow-revenue-in-2010-s hould-i-hire-a-sales-rep/? q=2010/03/03/i-want-to-grow-revenue-in-2010-should-i-hire-a-sales-rep/ McIvor, Ronan (2011). Outsourcing Done Right. Industrial Engineer. Norcross: Vol. 43, Iss. 1; pg. 30. Retrieved April 26, 2011 from the ProQuest Direct database. Thomas, C.
R. , & Maurice, S. C. (2011). Managerial economics: foundations of business analysis and strategy. (10th ed. ). New York: McGraw-Hill/Irwin. Tyco International Ltd. (May 14, 2010). Tyco International Completes Acquisition of Broadview Security. Retrieved July 24, 2010, from Http://www. adt. com/news/? wgc=press_releases/2010/05_14_2010 White, Steve & Plante, Penny (2011). A Midsized Proposition Benefits Outsourcing Is Not Just for Large Organizations. Benefits Quarterly. Brookfield: Vol. 27, Iss. 2; pg. 19. Retrieved April 25, 2011 from the ProQuest Direct database. ———————– [pic]