Human Resources solutions for better recruits

Role Changer

The need for a larger HR function to fulfill its growing needs is apparent.

Companies, for a long time now, have been relying on the Human Resources (HR) industry for their recruitment activities.

This industry has grown significantly and the Indian HR industry in particular has shown tremendous promise.

According to a recently released study on the HR sector by Ernst & Young called, ‘Human Resources Solutions Industry - Stepping into the next decade of growth’: “The size of the present HR marketplace in India, which has some individual freelancers, start-ups, small and medium players, as well as large Indian companies and MNCs is expected to be Rs 228 billion in FY11 and has grown at a CAGR of 21 per cent between FY08 and FY11.”

The study further adds that the growth of this industry is largely attributed to the change in the mindset of large Indian companies in two ways: Firstly, companies have started increasingly engaging consultants to meet their HR requirements on account of the growing complexity of doing business and talent challenges and secondly, they are opting for a temporary staff model to have smaller bench strength to withstand the global economic crisis.

“Given this transformation in customer segments, the industry is emerging as more than just a vendor in clients’ growth plans,” the study says.

The ensuing global competitive pressures have also resulted in business becoming more complex, urging companies to realise the importance of having the right employees undertaking specific tasks and outsourcing non-core activities. Those that were earlier reluctant to engage external vendors now consider HR consultants to be their partners in their organisations’ growth strategy. This observation clarifies the rapid emergence of HR solutions as an industry in itself.

Though this industry cannot be uniformly defined, Ernst & Young, in the study, defines it as: “The rewards derived from any decision on buying services for any part of the human capital value chain,” adding that HR solutions are being increasingly viewed as a distinct industry with the role of HR consultants evolving with changing market dynamics. Besides, the present business set-up is demanding and with the market for goods and services only growing, competition among companies is rife.

There are many companies setting shop on a regular basis offering to provide for the demand and they would be at their best to only prefer appropriate candidates performing appropriate tasks. Hence, the role of HR has not only become important, but it has emerged indispensable. The development of HR as an industry in itself, is proof of its importance. HR solutions is an important means for the industry to successfully help make apt recruitments for companies.

“Large Indian companies are diversifying into new sectors and prefer candidates with relevant experience. However, since their HR function finds it difficult at times to source candidates from the large and geographically dispersed talent pool, companies are increasingly looking at external help. This change in approach and mindset has made sourcing a relatively complex activity, resulting in companies increasingly partnering with recruitment consultants with a global footprint or access to global databases to source the right candidates,” the study explains.

The service industry itself is a people-driven one and is clocking double-digit growth. Owing to its large manpower requirement, the need for a large HR function to fulfill its growing needs is only too apparent.

“Since recruitment is not a recurring activity and is a function of economy and a company’s growth plans, companies prefer to partner with consultants to source the right candidates as and when required, and have their HR function focus on the core and strategic activities of selection, planning and retention,” the study says.

The HR solutions industry can be broadly divided into two main functions namely, Permanent Recruitment - of executives and professionals, and Temporary Recruitment - specialising in professional and general staffing. The market size of permanent recruitment is between Rs 23-25 billion, while that of temporary recruitment is somewhere between Rs 167-170 billion. The other segments have a market size of Rs 33-38 billion.

Presently, we will look at permanent recruitment. Though, permanent recruitment has a 13 per cent share of the total HR solutions industry and only includes net fees from each successful referral, it still is an integral part of it and is seen as one of its growth drivers.

“Permanent recruitment has grown on the back of growth in key customer industries, with large MNCs entering the Indian market and expanding their presence, as well as the emergence of new industries,” the study says.

Permanent recruitment is a four-step process of sourcing, screening, selection and on-boarding of candidates, with sourcing being one the most critical steps, involving short listing and attracting the right candidates from the pool.

“Sourcing of the right candidates takes place through campus recruitment programmes, employment agencies, internal referrals and job portals. However, employment agencies and referrals account for more than 65 per cent of the candidate sourcing process. Sourcing of candidates through employment agencies is now gaining traction and currently has a 30 per cent share,” it adds.

“The permanent recruitment segment can be divided into ‘executive search’ and ‘recruitment’,” the study says. The search market is estimated to be between Rs 6–7 billion,with about 6,000 placements through consultants, in FY11. “Search, being a niche category, is focused on hiring of CXO-level positions in an organisation, while recruitment is for mid-level and junior-level positions,” it adds.

The growth of the executive search part of the permanent recruitment is driven by large companies diversifying into new sectors, large MNCs in automobiles, luxury goods, and agricultural and food business setting up shop in India and also, the acceptance and adoption of search companies by large family owned conglomerates, says the study.

Similarly, the country’s recruitment industry has grown with the rising prominence of industries such as IT, telecom, retail, pharma, ITES and hospitality. Alongside new emerging sectors, these industries have shown significant growth on the back of strong demand from the rising Indian consumer class and the dominance of Indian companies in the outsourcing space.

“The recruitment industry has evolved on the back of the increase in the demand for workforce on the talent acquisition and the client fronts. On the talent acquisition front, the change has been significant, from a mere match-making function and career counseling to competency-based assessment hiring,” the study says, adding that on the client side, it has moved from a requirement- based fulfillment system to turnkey project-based hiring-to-hiring for value-added services (VAS). The recruitment market is estimated at Rs 23–Rs 25 billion, with about 350 thousand placements through consultants in FY11.

So will the HR solutions industry grow? Analysis says indeed it will. Though, the HR solutions market was affected by the global economic slowdown, and slowed at a year-on-year rate of 34 per cent in FY09, slowing down to 13 per cent in FY11, forcing customer organisations to defer their hiring plans and reduce their spend on HR, the study mentions, “The area of HR solutions is a highly competitive and fragmented industry that is poised for enormous growth in the next 10 years as companies increase their investment in their HR infrastructure.”