Who will survive the downturn?

Without exception, everyone I speak with in the RPO industry experienced a dramatic slowdown in their business starting in October or November of 2008. The consensus seems to be that business dropped off between 25% and 50%, with most companies experiencing a 35-40% drop. Most of these same companies are predicting an upswing starting at the end of 2009 or early 2010, with some more pessimistic companies predicting that a recovery won’t come until 3rd or 4th quarter of 2010.

Since most believe an upswing will occur in the foreseeable future, the strategy for this period has shifted from a growth or even sustaining strategy, to one of survival. I believe that those who will weather the slowdown best are the largest and the smallest providers, while the middle-sized ones will suffer the most.

Obviously the largest providers have the most financial resources and their risk is spread across a largest client base, with a larger spread both in terms of geographic spread and industry. Many of these providers (Adecco, Manpower, Kelly, Spherion) also have diversity in the types of staffing they provide and can focus on other parts of their business like temporary staffing as the RPO market cools.

At the same time, while the smallest providers don’t have the diversity or financial resources of the large ones, they have the ability to be nimble, and turn on a dime. As the market shifts, they can respond most quickly to niche opportunities in the market. Also, the smallest providers tend not to have expensive infrastructure and they can contract primarily by laying off or redeploying staff.

The middle-sized providers (100-300 employees) however, tend to have a more sophisticated (and therefore expensive) infrastructure and enough levels of management that they can no longer turn on a dime. Without the financial strength of the largest providers, they may find themselves struggling the most in this downturn.

As in any downturn, the companies that will thrive will play to their strengths and focus on the parts of their business where they have a sustainable competitive advantage.

In my next post I’ll put forth some ideas for small, medium, and large providers to implement immediately to play to their unique strengths.

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